The retirement income landscape is shifting. While annuity sales have increased with higher interest rates, a closer look reveals persistent challenges for both advisors and their clients. Despite this surge in insurance product adoption, over $30 trillion in retirement assets require transition to income.
The traditional playbook tells us that predictable retirement income generation requires surrendering control to insurance companies. But what if that’s no longer true? What if advisors could deliver pension-level predictability while keeping assets under management and clients in control?
Exploring the Self-Insured Portfolio
Self-insurance represents a departure from the binary choice between market risk and insurance products. Rather than outsourcing predictable income generation to insurance carriers, the self-insured approach builds protection directly into the portfolio structure through immunization, credit modeling, and surplus optimization.
The concept centers on creating a safety margin in addition to immunizing the portfolio against interest rate risk and accounting for expected credit risk. Think of it as building an insurance-like structure within the portfolio to create a surplus that acts as a shock absorber against poor performance. When markets cooperate, the surplus can grow. When they don't, the surplus provides the cushion needed to maintain scheduled distributions without offsetting scheduled payouts.
This approach transforms the advisor's role from product selector to portfolio architect. Instead of sacrificing control of savings, advisors can focus on transparent, intuitive portfolio mechanics that clients actually understand.
Institutional DNA: The Foundation of Modern Income Planning
NISA Connect's approach to decumulation draws directly from its affiliate, NISA Investment Advisors, which has been managing pension fund assets and corporate bond portfolios for decades using risk-controlled methods as a pioneer of Liability Driven Investing.
Liability-driven investing starts with liability, not the asset. Traditional portfolio construction asks, "How can we maximize returns?" LDI-inspired approaches ask, "How can we ensure specific cash flows occur when needed?" This subtle shift in perspective changes how portfolios are built and managed.
The mathematics of immunization theory provides the framework. Matching the duration and cash flow characteristics of assets to liabilities enables portfolios to be constructed to deliver specific outcomes regardless of interest rate movements.
Building Blocks for Income Certainty
Modern defined maturity ETFs have facilitated duration-matched investing through efficient credit diversification while maintaining maturity characteristics consistent with individual bonds. Unlike traditional bond funds that maintain constant duration profiles, defined maturity ETFs are designed to mature in a specific year. This combines duration and cash flow matching capabilities with diversified exposure to hundreds of investment-grade corporate bonds. The surplus calculation becomes a critical engineering component, adding a buffer to absorb unexpected market risk that is returned to the client when the spending period concludes.
Portfolio construction follows a systematic process: identify required cash flows, select desired maturity vehicles, calculate necessary surplus, and implement with ongoing monitoring. The result is a transparent, liquid portfolio designed for a specific income objective.
Advisor-Centric Design: Keeping Control Where It Belongs
One of the most compelling aspects of self-insured portfolio construction is how it preserves the advisor-client relationship while addressing fiduciary responsibilities. Rather than handing assets over to insurance companies, advisors retain management control and ongoing client interaction.
This approach aligns with the growing trend toward fee-based advice; instead of commission-based product sales, advisors can provide ongoing portfolio management services with transparent fee structures. Clients understand exactly what they're paying for and can monitor their portfolio's progress toward income objectives in real time.
Technology makes this accessible to advisors without requiring extensive fixed income expertise. Guided workflows can walk advisors through the process of building customized income-driven portfolios, while sophisticated back-end analytics build confidence. This democratizes institutional-quality portfolio construction for main street advisory practices.
Perhaps most importantly, this approach allows for mid-course corrections. Unlike annuities with surrender charges and limited flexibility, self-insured portfolios can be adjusted as client circumstances change. Need more income? Adjust the portfolio. Want to extend the time horizon? Reoptimize the portfolio with new parameters. No longer need predictable income generation? Liquidate the portfolio.
The Future of Income Planning: Transparent, Advisor-Driven, Tech-Enabled
The convergence of institutional investment techniques, modern ETF innovation, and portfolio management technology is creating new possibilities for retirement income planning. Advisors no longer need to choose between traditional investment-based portfolios with income volatility and insurer-based annuities when serving clients' income needs.
Self-insured portfolio construction represents a new approach: institutional-grade precision with retail accessibility, predictable outcomes with maintained control, and transparent fees with ongoing advisor value-add. This approach acknowledges that Americans want both security and flexibility in retirement, and that these goals need not be mutually exclusive.
For advisors willing to embrace this approach, the opportunity is substantial: differentiated service offerings, retained assets under management, and clients who trust and value their advisor to manage their decumulation strategy. Sometimes the most powerful solutions come from applying time-tested institutional wisdom in new ways.