Annuities

Avoiding Derailment


Annuities

Let me ask you something …

 

What’s the one thing that can completely derail a near-retiree’s plan?

 

Many answers might come to mind. But, I’m willing to bet most of them revolve around the reliability of market returns. Think of your clients’ journey like a train on a long-distance trip – if you’re not careful, you could derail them just before their destination. 

 

Starting Up

As your clients travel through their working years, they sit in the conductor’s seat. Most don’t have a lot of disposable income in the early years – anything they make goes to pay the bills, and not much is left for long-term savings. As they work through their careers, they begin earning more money and committing more to their retirement. The locomotive starts to build steam and momentum. 

 

Slowing Down

Market corrections are inevitable. Your clients’ trains will have to slow down every now and then. But, that’s OK – most plans account for slow-downs, and there’s usually plenty of time to pick up speed. Once assured that the difficulties are behind, you can increase speed and head back on track. Sometimes, you even need to switch to a more aggressive line to make up lost time. 

 

Picking Up Speed

When we continue along a journey with little to no problems, it’s easy to forget about the fundamentals of steering a train. You can easily go too fast around a corner. If you’re not careful, the momentum that you built can work against you. After years of picking up speed, your locomotive and the cars behind it can derail and spin out of control, completely stopping you in your tracks.  

 

Avoiding Derailment

That’s what happens when we have a late-accumulation market correction. All the cars – retirement income, emergency funds, health care payments, long-term care plans – they all go off track of what we planned. The momentum your client has built for 30-plus years is ruined. But, it could all be avoided if we steer them the right way. 

 

You have a lot of clients with their eyes firmly focused on their final destination – retirement. Unfortunately, that means they sometimes take their eyes off the track they’re headed down. You can really make a difference for those clients now and during the distribution phase. You can help conduct the train and get it safely down the tracks. 

 

Winning Strategies

Ash Brokerage answers the complex questions you and your clients have in preparation for retirement. Begin by talking to your clients about the need to be more conservative and avoid the risks that can derail retirement at the end of their journey.  

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Retirement Financial Planning Market Risk

Making the Comeback Count


Annuities

Everyone loves a comeback. How many time have you watched a sporting event where the losing team suddenly comes from behind? It doesn’t matter the sport – at that point, nearly everyone cheers for the underdogs. 

 

As thrilling as it is, many comebacks end in disappointment. The losing team expends so much energy and effort, they don’t have enough in their tanks to win.

 

 Seems familiar, doesn’t it? 

 

Are you preparing your clients for a retirement comeback but a shortfall in the end?

 

Sometimes, we have to help clients make a comeback – they didn’t save enough during their working years to get the income they were hoping for. You have to come to their rescue so they can “catch up.” Even if they did save enough, we too often focus on just getting them to the goal line. Great – now, it’s time to finish the game.

 

Unfortunately, many people get seven to 10 years into retirement and realize that they have fallen short in their plan. Inflation begins to take a toll on their spending. Most notably, the cost of health care increases at a rate much faster than other goods and services, and puts pressure on them to make adjustments. By planning ahead – looking beyond just “catching up” or making it to retirement – you can help position both guaranteed income and inflation protection. 

 

Winning the Game

One of the easiest ways mitigate inflation is to push Social Security to age 70. Social Security typically has an inflation component that increases the income annually, even if at a slower rate than other inflation indices. Other income sources provide guaranteed options to increase the monthly income by 1-5 percent annually. And, other riders allow the income to increase by changes in the underlying crediting method. Either way, by increasing the client’s income, you have have helped push them closer to the top of winning their income game – longevity and inflation. 

 

Winning Strategy

Don’t be like the teams that get behind early and spend too much energy coming back, only to lose in the end. Make sure your clients complete the comeback with inflation protection in addition to guaranteed income. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Annuities Retirement Longevity Inflation

Safety in Numbers: 3 Reasons to Stop Running with the Crowd


Annuities

When we have a market correction – and we will have one sooner or later – many investors will run to banks and place their assets in money market accounts or certificates of deposit. While those are traditional safe havens for many people, they tend to only be temporary. Once the markets start rising again, investors leave their safe havens to take on more risk. 

 

We need to rethink why we do those transactions and if it’s worth the effort to complete the run to safety. Instead, why not think about proper allocation for a risk tolerance that probably can’t stomach the full amount risk that’s being taken. 

 

As the old saying goes …

 

You never know how much risk to take until you take too much.

 

Rethinking Risk Strategies

A temporary shift in risk management does very little for clients in the long run. There are several reasons, but here are three. 

 

  • Money markets and CDs earn historically low interest rates compared to instruments like annuities. Today, the average annuity is earning 200 to 250 bps more for A-rated carriers on a five-year product. Now, liquidity is not equal as bank accounts are generally liquid while CDs have some type of penalty if not held to maturity. Annuities provide liquidity in emergencies and limited free withdrawals. Remember, we are talking about rethinking allocations to avoid the temporary run toward safety. In a new allocation strategy, liquidity would likely come from other assets first. 

 

  • Taxation favors annuities. Even during the high tax rates and high inflation/return periods of the late ’70s and early ’80s, tax-deferred assets outperformed their taxable counterparts. Not only in return, but mainly in real return – after tax, inflation and fees. 

 

  • There is a common misconception that money market accounts can’t lose money. In fact, they do fluctuate in value and can go below their targeted one dollar valuation. With many annuities, the client receives a guarantee of principal plus a minimum interest rate return. 

 

So, safety can come in many forms. The most popular are bank instruments, which serve a great purpose. However, the numbers point toward a better solution: better nominal and real rates of return, lower tax rates, and more stable values. Add in the fact that charges are not paid upfront and only when you do not hold the asset to maturity. This makes the purchase efficient from a cost perspective, an effective way to increase yields on conservative vehicles, and provide confidence to the client by showing them a more stable valuation of their conservative asset selection.  

 

Winning Strategies

Don’t follow the leader or the crowd when the market corrects. Rethink your current allocation strategies and look at the real returns to help clients protect their wealth the most efficient way possible. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Annuities Market Risk Market Correction

Getting Better Every Day


Annuities

I’m not sure about you, but the Garmin advertising campaign excites me every time I see it.  It works around the idea of beating yesterday’s performance.  As I train for a half marathon, I’m constantly reminding myself that it’s about getting better after several years away from running.  Regardless of where your financial services practice is today, you should adopt the same philosophy when it comes to preparing for the new fiduciary and conflict of interest rule.

 

With more than 1,000 pages of text, the new rule can be overwhelming.  At times, I find myself wondering how our firm will be able to adapt to all our interpretations of the rule.  But, growth and change happens gradually.  I say “by baby steps” on many occasions.  You have to beat the previous day.  So, what can you do today in order to move the needle forward, if ever so slightly, from yesterday?

 

First, I encourage you to look at your books of business and review your exposure to the rule.  You should be working with your marketing organization or broker-dealer to see how their interpretation of the rule will impact your client files.  Segmenting the clients with qualified accounts would be a great start. 

 

Next, I think it is important to look at where you want your practice to be in the next three to five years.  There are two main questions I think you have to answer when preparing for the DOL rule:

 

Are you going to move up market?

Or

Are you going to become more efficient in your current market?

 

Both are viable options, but how you want your practice to look in the future should dictate how you approach your clients today.  If you are moving up market, you will need to begin addressing protection and longevity needs.  Or, if other producers are vacating your market, you need to think about how you can capture market share.  But you need to think about how you plan to grow your existing business. 

 

Neither one of those strategies happens overnight.  You must begin to take the baby steps necessary to gain control of your future business.  Think about what you have to do today that will make your life easier after the rule takes effect in April, 2017.  You will be glad you prepared. 

 

Winning Strategy:

Adapting to the new fiduciary standards takes time.  You can’t jump off the couch and run a marathon.  You need to improve little by little.  The same goes for preparing for the new rules.  Think about how you can improve today in a way that will positively impact your practice after April 2017.

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Annuities DOL Practice Enhancement

Connecting to Our Clients


Annuities

Living in Fort Wayne means I can usually find very few direct flights. On a recent connection at a national “hub” airport, my plane was running a few minutes late. So I had a chance to sit down, eat my dinner of M&Ms I’d bought at a kiosk, and relax for about 20 minutes.

I chose a bench facing the middle of the concourse and began watching people pass me one-by-one. Some were running to their next connection; others dragging their children through the concourse.

A few were simply strolling through the airport, while most were walking briskly. One poor soul was just leaning against the handrail on the moving sidewalk after an exhausting day of travel.

 

Where were they all going?

Why were they going there?

What could they all be doing that had to be done at that particular location? Why was it so important?

 

For a tired annuity wholesaler, these were monumental questions. But I think these are the same questions our clients deserve. The only difference is to add  “in retirement” to the end of the question.

 

Where are you going in retirement?

Why are you going there in retirement?

What has to be done at that particular location in retirement? Why is it so important in retirement?

 

If we ask those questions, I bet we find out a lot about the lifestyles our clients want in their retirement. Where? Why? What would they be doing? Having those issues out on the table can guide us to solutions that will be most meaningful to those we serve. And, by the way, stop and say hello the next time you see a middle-aged man in a suit and tie sitting in a concourse eating M&Ms.

 

Winning Strategy:

Ask the right questions and get the correct answers to our clients’ most heartfelt goals for a successful retirement.

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Annuities Client Relationships Retirement