SURVEY SAYS: Taking a Guaranteed Return

Last week, I asked NewsDash readers, “How likely would you be to pick a 2.5% guaranteed rate of return over the returns you would potentially receive in your plan over the years?”

Seventy percent of responding readers work in a plan sponsor role, 16.7% are advisers/consultants and 13.3% are TPAs/recordkeepers/investment managers.

Nearly half (48.4%) of respondents said they are not at all likely to switch to a 2.5% guaranteed rate of return for their retirement plan investments over the returns they would potentially receive in their plan over the years. One-quarter (25.8%) said they are somewhat unlikely, and 12.9% indicated they are somewhat likely. “Very likely” was chosen by 9.7% of responding readers, while 3.2% reported they didn’t know.

In verbatim comments, several respondents don’t give much weight to the investment manager estimates, and several say there is still a way to get much more than 2.5% by managing a portfolio correctly. Still there were some who like the idea of a guarantee, at least for part of their assets. Editor’s Choice goes to the reader who said: “I have wide ties, narrow ties, wild ties, dull ties and ties for any occasion. Several fashion managers are reporting an expectation, going forward, that one of them will be in style. In other news, scientists predict there will be four seasons within the foreseeable future. Sheesh!”

A big thank you to all who participated in the survey!

Verbatim

The words "inflation adjusted" are the only reason I wouldn't immediately sign up. Unexpected inflation has the potential to destroy the guaranteed fixed 2.5%, relative to a well-diversified portfolio that would have exposure to inflation.

I would be willing to put some into but not all. It wouldn't be enough to overcome inflation.

We are at all-time highs, so naturally, there will be those with Bear tendencies. But why guarantee yourself a low return, when if the market does do well, you cannot capture that upside. You need a well-diversified portfolio, and with that and monitoring you should be able to do better than 2.5%.

If everyone buys into this thought process, more returns for those of us willing to take on risk.

To me, the biggest concern with respect to adequacy of retirement funds is market volatility and, in particular, a market crash. I've already lived through two of those (dot com bubble and financial crisis), and it takes a long time to dig out of that hole.

The slow-down is okay as long as it doesn't crash.

I think equities are overpriced and Trump's promises of growth will not materialize. Retirement is at most 8 years away. A 2.5% guaranteed return might sound reasonable down the road.

I take all these predictions with a grain of salt. No one was predicting the meltdown in 2008, what the weather will be next week or if an asteroid will crash into our planet.

Verbatim (cont.)

The return needs to justify the risk. Why would anyone chase a 4% equity return when they could earn a 2.5% guaranteed return?

I invest a portion of my retirement account in a guaranteed rate of return fund, as part of my bond/fixed income allocation. Hard to pass on the word "guaranteed"!

A diversified portfolio is still the best plan for making money in any market. I don't like the extreme highs & lows, but if your portfolio has the right mix, you just have to stick with your investment strategy.

I have wide ties, narrow ties, wild ties, dull ties and ties for any occasion. Several fashion managers are reporting an expectation, going forward, that one of them will be in style. In other news, scientists predict there will be four seasons within the foreseeable future. Sheesh!

I would be likely to put some money in the guaranteed but not all. Diversification is still needed to meet our retirement needs. Also, the guaranteed is not always safe from creditors so you can lose your principle.

A guarantee only has value as long as the guarantor can provide it, so it redefines the risk. Investing differs from gambling. Investing does not have a "house" that takes a cut and unlike gambling, investors don't always know when the game will end.

H*ll no I wouldn't take 2.5%, that's ridiculous! I've averaged over 10% on my investments over the last 5 years while everyone was "suggesting" a 5% return model as being the max. Do the math, invest right, and you can easily kick Mr. 2.5% out the door.

The future is a long time.

I would offer it as an option. I think people would like to lock in a "guaranteed" rate of return for at least part of their money.