These days, it seems there is a holiday for every event and every little occasion. At times, I think because everything is a higher priority moment, then nothing is important in this world any more. The financial service industry is no different, with several months highlighting products throughout the year.
That said, June is Annuity Awareness Month. While I’m biased as an income planning specialist, I think it’s important to highlight why annuities are so important to consider with clients.
A recent ThinkAdvisor article1 highlighted the growing number of people aging to 100 …
We have more Americans living longer than ever before but our savings and wealth has not changed significantly to keep pace with the longer life expectancies. We must add guaranteed income to our plans to protect against living longer than expected.
Except for high inflationary times or around the financial crisis, the American savings rate has been in a steady decline over the past 40 years. The result is a median account balance of $130,100 for trailing baby boomers (age 50-59).2 This puts our industry in a position where we need to create more income from fewer assets than ever before. Mortality credits associated with annuities can boost yields and incomes to help close the gap.
Due to means testing in health care premiums, longevity concerns become more critical in client discussions. Tax efficiency in Modified Adjusted Gross Income and Combined Income levels can reduce premiums by 20-30 percent at different tax brackets. Managing the tax burden on income with tax preference items like annuities can be beneficial to clients paying health care premiums to the government.
In addition to general health care, long-term care can’t be ignored as a longevity risk. Asset-based long term care provides the opportunity to take existing tax-deferred annuities and create tax-free distributions when the client needs them most. As planners, we must do a better job of matching the asset with the potential need in the future – not just the funding, but the taxation of the benefits.
Too often, we get stuck in the same sales process and product mix. Use Annuity Awareness Month to look at ways to better leverage annuities with your clients. Take the time to find out how annuities can work in the best interests of a client or prospect. Our economy and demographics are changing, and we need a fresh look at solutions that will make a difference for Americans.
In June, look for ways to use annuities in your financial planning practice. Whether you’re looking to close an income gap, create more tax efficiency, fund long-term care, or just provide more stability, give annuities a chance to prove their value.
1ThinkAdvisor, “Life Expectancy Holds Steady, but Not for 95-Year-Olds,” http://www.thinkadvisor.com/2017/04/12/life-expectancy-holds-steady-but-not-for-95-year-o
2LIMRA, “Fact Book on Retirement Income 2016,” https://www.limra.com/bookstore/item_details.aspx?sku=23518-001
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.”
© 2018 Ash Brokerage LLC.