This blog is meant to educate, motivate and inspire advisors to look at retirement income planning in a different way. Retirement can’t be discussed with a client without involving some type of guaranteed income – Social Security, defined benefit plans or commercially purchased annuities. All have the same basic components, but it’s critically important to have an income discussion with clients as early as possible. Here are three reasons why:
1. Social Security planning and integration is rapidly becoming an important topic for many Americans. Recent surveys indicate that the majority of clients will seek out another financial planner if their current planner is not talking about Social Security integration.1 In and of itself, Social Security is nothing more than a public annuity. You place funds into the system for a guaranteed income that you can’t outlive. So, no one should be uninformed about annuities because many people’s main source of retirement income is an annuity called Social Security.
2. At the close of 2017, the S&P 1500 Pension Index stood at 84 percent.2 That means the average pension plan is only 84 percent funded. Pension risk transfers continue to grow. (See my March 2018 posts on pension risk transfers for more information.) Transferring the liabilities of a defined benefit plan typically requires the use of a group annuity – a promise to pay the plan participants for the rest of their lives according to the plan document. Today, insurers are in a much better position than pension administrators to manage longevity risks. We are moving into a more volatile market situation while longevity for 70-year-olds grows. Those are two risks where plans can ill afford to miss the mark.
3. Finally, our research through our JourneyGuide™ planning team finds that guaranteed income sources increase the probability of success by large margins. By placing 15-25 percent of a retirement portfolio in guaranteed income sources, a large segment of the population will have a better chance of having at least $1 remaining in the portfolio at age 95 (or whenever they select). Please go to www.journeyguideplanning.com for your free 14-day trial of the software tool and schedule a one-hour training session to learn how your clients can benefit from the proper placement of annuities.
Annuity Awareness Month gives you a chance to talk about annuities with your clients. Think about how comfortable your clients are with the annuities they already have – even if they may not realize it. I think it will provide a great comfort level.
Take a step back and talk to your clients about the annuities they likely own now – Social Security and pension plans. Knowing they already have guaranteed income sources might make them feel better about placing annuities in their portfolio.
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Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon.
1Nationwide Retirement Institute, Social Security 4th Annual Consumer Survey, September 2017: https://nationwidefinancial.com/media/pdf/NFM-16735AO.pdf
2Mercer, “S&P 1500 Pension Funded Status Increased by Two Percent in 2017”: https://www.mercer.com/newsroom/january-2018-pension-funded-status-increased-by-two-percent-in-2017.html
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