Recently, Mount Everest claimed 12 lives while Sherpas guided people toward the summit. It marked the deadliest day in the mountain's history, and 2014 is one of its deadliest years even though the climbing season has just started. Historically, most people lose their lives on Everest during their descent – not in their climb.
There are several risks associated with the descent. Fatigue is one of the biggest issues following the long climb to the summit. Falling behind the guides during the initial descent can lead to poor decisions or quick movements at high elevations. Descending too quickly creates a condition where fluid builds in the lungs. Ironically, most deaths have occurred within 8,000 feet of the summit during descents.
Financial professionals can use the descent of Everest as analogy for working with clients. They need to pay careful attention to several aspects of the process – they need to be attentive Sherpas, or guides. First, the initial parts of the de-accumulation of assets are most critical. Mistakes in the early years of changing to the income phase can produce serious ripples throughout retirement. Sequencing of returns plays a major role during these initial retirement years.
Second, clients tend to make quick decisions … usually because they haven't planned in the five to 10 years leading up to retirement. We must work with clients to reposition their assets to preserve and protect them in the descent from working years to retirement. One of the largest fears for most Americans is the transition from accumulating assets to depleting them.
Finally, we have to pay attention to our clients throughout retirement. The landscape fluctuates with rapid changes in market performance. We must keep our clients' best interests in mind and recognize that they prefer a steady income.
Annuities provide an income stream that creates steady, consistent income. They allow for the consistent disbursement of assets over a client's lifetime while averting one of their biggest fears – outliving their income. Taking away the risks of income early in retirement allows a planner to focus on longer-term asset growth to sustain inflation-protected income. Call Ash Brokerage for more details about helping your clients on the dangerous descent of retirement income planning.
Most clients think retirement is a complicated process. Follow these easy steps to make retirement simple:
Step 1: Identify your desired retirement income and years until your retirement date.
Step 2: Calculate your Social Security income based on your retirement date.
Step 3: Subtract your desired income from your Social Security benefit. This number is the number we need to concentrate on.
Step 4: Use a guaranteed income product to provide the needed income at retirement.
With a diverse lineup of fixed indexed annuities with lifetime withdrawal benefits, single-premium immediate annuities and delayed income annuities, Ash Brokerage is here to help you guide your clients towards sustainable income during retirement. Call the Ash Brokerage Annuity Team today.
Recently, I spent the weekend in Houston, Texas. Most people would not think anything of it. However, after spending the last 16-20 weeks in northern Indiana with sub-freezing temperatures, the warmth of 80-degree days and sunshine made it feel like I was in a different world. I felt recharged, re-energized and refreshed with just a small change.
It made me think about our industry. How often do we as financial advisors get in a rut and need a fresh perspective? It seems we get in the habit of making successful sales presentations based upon one product filling a general solution. Too often, I hear advisors telling my firm they do not talk about longevity planning and insurance. Can we be so selfish and concerned about our own business as to not think it is our clients’ business that we must focus on for success? Yes, I speak and write about efficiency and effectiveness in financial services offices. But it's time to make sure our clients' retirements and legacies remain effective and efficient, first and foremost.
For example, all of us have a responsibility to have a meaningful discussion with our clients about the impact of Congress' potential decision to accelerate the taxation on retirement accounts to the next generation. This might be the most destructive piece of legislation introduced, and I would guess that 90 percent of our clients are unaware of what Congress wants to do.
Clients expect leadership from their advisors. We must continue to earn their trust by having the difficult conversation that we don't want to have with them – the one about death and taxes. Positioning a client’s assets for flexibility, income and estate planning should be our focus. That means that we need a fresh perspective with every client we meet, just like the change in temperature. We must be up to date on our tax legislation, product offerings, and solutions available for unique strategies. Focusing on those aspects important to the client will ultimately define our success as an industry.
Fee drag is an under-discussed cost to many financial plans. While I do not condone the many media reports about annuities being bad for clients, I do believe advisors need to fully understand the impact of the fee structure on many of the annuities they sell. Educating clients on how fees work creates understanding and appreciation for the value they are receiving.
When comparing income riders, it is no longer enough to just compare them by cost. For example, if two riders have the same 100bps cost to provide lifetime income, those actual fees may be dramatically different. Some riders charge their fee off the income base, while others charge the fee off the actual account value. So, when the income base has grown from the $100,000 premium to the $200,000 income base, the charge for the rider has grown from $1,000 to $2,000. If you compare riders apples-to-apples, using a zero-growth period, the rider charge has become 2 percent of the premium when calculated off the income base versus staying at 1 percent when calculated off the account value.
More importantly, once that income base grows to its maximum level, the cost of the rider continues at that level. In effect, the rider has doubled the fee drag associated with the income. This adds pressure for the account to yield an additional 100bps of return to provide the same level of benefits to the beneficiaries.
Clients generally appreciate the value that annuities bring to their financial future. However, we must do a better job showing how annuities work for them, today and in the future. By looking deeper into the fee structure, we can all make better decisions for our clients. Annuities remain a long-term funding vehicle for many; therefore, we must look at the long-term impact of fees during income phases. Call Ash Brokerage to look at solutions that make sense for your clients.
By now I think it’s safe to say we’re all aware CD rates continue to sit at all-time lows. According to bankrate.com, the average five-year CD has an interest rate of 0.79 percent.
For retirees who are using the interest from a CD as income, this is very unfortunate. Through no fault of their own, their income is being reduced by as much as 75 percent as these CDs mature.
Due to this low-rate environment, many CD buyers are looking for options and are now willing to consider an annuity when they may not have in the past.
Example: Seven-year indexed annuity with an investment of $100,000
Fixed-rate strategy: 2 percent (locked in for seven years on monies initially deposited)
Performance Trigger: 4.15 percent
Clients who are considering renewing their five-year CD at 1 percent would generate $1,000 of interest annually. However, with this same $100,000, they could place $50,000 into a fixed-rate strategy to generate the same $1,000 of interest, then position the remaining $50,000 into the performance-trigger account at 4.15 percent. If the S&P 500 ends negative, the client will still earn the same $1,000 from the fixed strategy. However, if the S&P is flat or positive, they earn an extra $2,075 for the year.
An indexed annuity could be a great way to generate a significantly better return for these investors while guaranteeing protection of their principal investment.
© 2018 Ash Brokerage LLC.