Q&A with Retirement Income Expert Nimish Shukla, CFA
Nimish is a co-founder and the Head of Retirement Income at Blueprint Income. In his role with Blueprint Income, Nimish has worked directly with thousands of customers providing unbiased and quantitative-driven advice and solutions. Prior to starting Blueprint Income, Nimish was an investment banker helping small and medium businesses raise public and private capital. Nimish believes that the most common mistake among retirees and pre-retirees is focusing on assets rather than income.
Why should pre-retirees and retirees focus on income rather than assets?
Two of the most important priorities that retirees have to face are whether their money will last for as long as they live and if they have enough to sustain the lifestyle they want. A focus on assets makes balancing these two priorities near impossible. Withdrawing from a fixed asset base, particularly one invested in the market, over an uncertain lifespan means you have one of two options. You can either spend as you like and take the risk that you may run out of money or you can under spend and not live the lifestyle that you want. That is why focusing on income is important. With sources of guaranteed lifetime income, you can ensure that no matter what happens with the market that you have an income stream to sustain your lifestyle.
How do you determine whether an annuity is the right fit for a potential customer?
Traditional insurance and annuity salesmen have long relied on a sales pitch or promise of product features. We think the approach should start with unbiased information and quantitative analysis. When I have a conversation with a customer that is considering an annuity, I always start with a review of their retirement goals. Starting with an individual’s goals allows us to offer advice and analysis in a way that helps find a solution, whether or not that includes an annuity.
People don’t like losing access to their money. How do you address that with customers?
Losing access to your money can be a serious mental hurdle, but I believe in portfolio diversification. A well-balanced retirement portfolio includes products that serve a specific purpose. The three characteristics of a well balanced retirement portfolio are liquidity, income and growth. Growth is best achieved through your market-based investments. Income is best achieved through Social Security and income annuities. Lastly, liquidity is best provided through cash and savings accounts. For each of these products to offer you either growth, liquidity or income, there are limitations. For income annuities in return for a guaranteed lifetime income stream the insurance companies require you to forego any liquidity. However, if your portfolio is well balance and includes liquid products and you are only allocating a portion of it to an income annuity then you can get an income stream while also maintaining flexibility through your liquid assets.
What is an example of a customer recommendation and interaction that you found most interesting?
We’ve worked with so many wonderful customers but one that I really enjoyed involved a couple in Texas that’s about 15 years away from retirement. When I first spoke to Sylvia, she had read about annuities but was struggling to determine whether an annuity should be a part of her and her husband’s retirement strategy. As Sylvia and I spoke, I realized a detailed annuity analysis would be useful for her as she evaluated different ways to prepare for retirement. We reviewed her existing assets, spending desires, retirement age and other sources of income.
Our team has built a proprietary model that allows us to use that information to help our clients determine whether their retirement would be better off with an income annuity under several scenarios. With Sylvia, we showed that adding guaranteed income not only made financial sense but gave her an assurance about retirement, which she greatly valued. Once we determined an income annuity would be beneficial, we started to explore the best purchasing options.
Sylvia and her husband were particularly concerned about committing all of their premium in one year given interest rates at the time. Additionally they were concerned about credit ratings and risk with any of the insurance companies. To address these two, we helped Sylvia and her husband set up an annual purchasing plan where we’re able to spread their risk across carriers.
For me, it was amazing working with Sylvia to help her identify first and foremost whether more guaranteed income would have been helpful. We were able to help Sylvia and her husband get guaranteed income for retirement and do it in a way that met their budget and risk tolerance.
Are annuities the only way to generate stable retirement income?
Retirement income can be generated from many sources. However, the guaranteed and stable nature of those income streams can differ. Today guaranteed lifetime income streams are available through Social Security, employer pensions and income annuities. All of these options offer a set income stream (sometimes adjusted with inflation) that begins in retirement and ends only when you pass away. Other sources of income including dividend-yielding stocks and bonds can offer monthly income streams but those have far less certainty than income annuities.
Why did you choose to work on Blueprint Income?
I met co-founders Matt Carey and Adam Colombo while I was in my first year of business school. After spending five years working in finance, I knew I wanted to continue in the industry but chose to go back to business school to shift my focus from businesses to consumers. Matt and I had discussed the inefficiencies of financial markets while in school together, and he talked in-depth about his views and ideas about the annuity market. As my parents were preparing for retirement, I saw first hand how a solution for the annuity market was desperately needed. I decided to work with Matt and Adam as a result to help fix the annuity market and to build Blueprint Income so we could provide Americans with transparent and unbiased access to guaranteed lifetime income.