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How COVID-19 Volatility and Near-Zero Rates Benefit Annuities

In the current market environment, safe assets simply do not pay what they once did, but that doesn’t mean annuities have become less attractive. In fact, on a relative basis, annuities currently make a lot of economic sense.

DPL Financial Partners hosted a digital roundtable discussion Thursday focused on the related and evolving topics of annuities, record-low interest rates and the COVID-19 pandemic.

Speakers participating in the event included David Blanchett, head of retirement research at Morningstar Investment Management; David Lau, founder and CEO of DPL Financial Partners; Dan Rohlfing, senior financial adviser at Lantz Financial LLC; Shannon Stone, financial planner, adviser and manager at DHR Investment Counsel; and Jason Branning, financial planner at Branning Wealth Management LLC.

The quintet covered a lot of ground during the 90-minute presentation, starting by describing the current fixed-income marketplace and the way that safe assets are no longer holding up their end of the bargain in a traditional balanced portfolio.

“We’ve all see the depressing stats showing that the 10-year U.S. Treasury note is now yielding less than 80 basis points [bps],” Lau said. “This has caused a rift in the traditional approach to retirement planning, which simply saw people transition away from equities and into bonds as the primary means of de-risking their portfolio over time. It is remarkable to recall that, in 1989, you could be invested 25% in cash and 75% in U.S. Treasuries and still generate a 7.5% annual return. To even approach that kind of return today, one has to be basically completely invested in highly risky assets.”

On that point, Blanchett said he is uncertain that even a “fully risked” equity portfolio could be expected to generate a 7.5 % return.

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