While most Americans are seeking guaranteed retirement income, a new white paper says that unguaranteed investment-only variable annuities can sometimes top guaranteed VAs in wealth accumulation for either retirement or legacy potential.

The white paper, “A New Approach to Retirement Income: Next Gen vs. Traditional VAs,” from Jefferson Financial and Wade Pfau, Ph.D., retirement income professor at the American College of Financial Services, pointed out that compounding fees can drag down the money accumulated in a guaranteed VA over time, leaving less available than one with lower costs.

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Citing the primary advantage to the variable annuity structure as the power of tax deferral, the white paper said that studies have shown its effects — boosting performance potential by 100–200 basis points — without increasing risk. But to get the most benefit out of tax deferral, a VA must have two other things: low cost and fund choices that allow an effective management strategy.

The white paper said that the latest generation of IOVAs can provide those, and included additional findings based on more than 80 years of market data and the running of 5,000 Monte Carlo simulations to test a number of scenarios.

In a majority of scenarios, the paper said, the IOVA is likely to generate income comparable to the guaranteed VA. Also in a majority of cases, the lower cost of the IOVA lessened the risk of wealth depletion and increased the potential for additional wealth accumulation.

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However, while the guaranteed VA would provide guaranteed income even if the balance fell to zero, its higher asset-based fees were more likely to erode the returns on the underlying assets, causing the balance to reach zero more quickly.

“Generating reliable retirement income has become more challenging for advisors as each client’s situation is unique, market dynamics have become more complex, and the landscape for variable annuities has changed,” said Mitchell Caplan, CEO of Jefferson National, in a statement.

Caplan added, “Our new whitepaper lays out the factors associated with guaranteed variable annuities and investment-only VAs, two dramatically different products, to help advisors and their clients identify the best approach to accumulate more wealth and live a fuller life in retirement.”