ANNUITY
As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.
Donald Rumsfeld Would Have Made A Great Annuity Advisor How advisors can prepare clients for the “known unknowns” in retirement income planning. By John Rafferty
F
ormer Secretary of Defense Donald Rumsfeld was nothing if not provocative in his press conferences. Twenty years ago, during the buildup to the Iraq war and the premise of Saddam Hussein’s regime harboring weapons of mass destruction, he addressed the news media in a 2002 press conference. “As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.” When it comes to retirement income planning, it is good to be aware of each of these conditions and to plan accordingly.
30
Known Knowns
» We should know how much Social Security income our clients likely will receive, and whether they have any other sources of lifetime income such as pensions. This information should be the foundation of a plan, with few to no surprises in store for clients.
Known Unknowns
» Two of the biggest unknowns that we know of are mortality and market performance — specifically the timing of mortality and the timing and scale of market performance.
Unknown Unknowns
» This one is a bit different. BusinessDictionary.com defines “unknown unknowns” as follows: “Future circumstances, events or outcomes that are impossible to predict, plan for or even know where or when to look for.” From a current events standpoint, its fair to say that the COVID-19 pandemic
InsuranceNewsNet Magazine » January 2022
that began in 2020 falls into this category. Nobody was anticipating anything like the virus ripping around the globe and shutting down economic activity for extended periods. Nor was anybody anticipating that the market would recover and reach new highs while the pandemic still raged. It’s the middle category — the known unknowns — that would seem to be the area where planners can provide the most value to their clients. This is particularly true for planners with clients who are within about five years of retirement and have healthy retirement savings but no pensions waiting for them. These clients are both lucky and unlucky at the same time — lucky to have had great careers, earned a good living and saved substantial sums, into the seven figures in many cases. But they are also unlucky in that without a pension, the bulk of their retirement cash flow must be generated from their own assets, with no guarantees.
