Annuities

Distribution and Disappearance


Annuities

Annuity sales are shifting, and the direction is concerning.

 

At a recent industry event, where annuity sales executives came together to learn and share with each other, we went over a lot of statistics. One chart in particular was alarming.1

 

Annuity-Sales.jpg

 

Between 2015 and 2017, the annuity industry shrank by $29.3 billion in overall sales. The shocking part is that income annuity sales lost more than $34 billion. Some of that loss may have been due to many variable annuity carriers not issuing living income benefit riders, as rich as those riders were earlier in the decade. However, we’re still in the baby boom retirement era – the same 10,000 people per day transitioned from the workforce to retirement during that time.2

 

I have to ask …

  •         Have we forgotten the value of guaranteed income?
  •         Is the accumulation sale just easier for us to move assets?
  •         Why do we not sell the benefits of mortality credits on a regular basis?

 

The troubling part is that a corresponding influx of other income-producing assets does not exist. When I spoke with the research firm, they had no explanation where these assets have gone.

 

When looking at opportunities, I look to where the pendulum is likely to swing next. We have the largest transition from the workplace happening while life expectancies continue to grow. There has never been a greater need for guaranteed income that can’t be stopped until the retiree passes away. There has never been a better time to get ahead of the pendulum – talk to clients about the benefits of income riders and income annuities.

 

Winning Strategy

Fill a gap for your clients. Talk to them about the overall benefits of using guaranteed income products in their retirement portfolio. Statistics tell us that the competition isn’t talking about them.

Winning Strategies

Craving More?

In this episode, Mike McGlothlin shares not one, but five Winning Strategies to create a tax-efficient retirement portfolio. These strategies will set you apart from the competition by adding value to your clients.

Watch Now

 

1Source: LIIMRA Secure Retirement Institute, U.S. Individual Annuities survey, VA GLB Election tracking survey and Indexed GLWB Election Tracking survey; analysis is of retail individual annuity market and excludes employer plan and structured settlements.

2Pew Research Center, “Baby Boomers Approach 65 – Glumly,” December 2010: http://pewrsr.ch/T4o2Hs

 

About the Author

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.

Retirement Annuities Guaranteed Income

The Value of Tax Planning for Retirement


Annuities

When I look at our industry today, I see a lot of commoditization. Our clients are driving transparency and asking for lower fees with more service. This combination makes it difficult to sustain a healthy business model, whether you’re commission-based or advisory-based.

 

Asset allocation and rebalancing can be done online, which has driven down value in the eyes of the consumer. Now, you may provide exceptional service and other planning around asset allocation to add value, but the value of asset allocation has been driven downward.

 

What is the key to driving value and making sure that you can earn a sustainable revenue stream? Generally, you need to lead the pack for those services and products that consumers find the most valuable. Keep in mind that price is a dollar amount. Value is how the client perceives it in their own eyes.

 

Prioritize Your Focus

Understanding today’s retirees and developing strategies to deliver value in a few critical areas allows you to build a long-term, sustainable business model. A 2017 poll uncovered some of Americans’ greatest fears about retirement: 1

 

  • 71 percent worry about health care costs. Government health plans are means tested and based on Modified Adjusted Gross Income levels. It’s important to have a strategy for keeping costs at a minimum through proper taxable income planning.
  • 52 percent worry about future tax rates. Even with the Tax Cuts and Jobs Act, marginal tax brackets did not drop significantly. With Social Security and Medicare struggling financially past 2035, it’s easy to see a potential increase in taxes – payroll, FICA and income tax rates.
  • 81 percent worry about running out of money and having to go back into the workforce. Guaranteed income could help alleviate that pressure.

 

These three areas of service – health care, tax planning and guaranteed income – can provide significant lift for your business over the next few years. They are highly valued in the consumer’s eyes.

 

According to a report from Capital Sigma, comprehensive financial planning, which would include retirement income planning and health care planning, is valued at more than 50 additional basis points. Tax management is perceived to be 100 basis points in value to the consumer. Those two services are valued at 150 basis points, whereas asset allocation is perceived to have a value of just 28 basis points.2

 

To increase the value of your business and drive revenue through your firm, you need to meet the changing demands of the American population. People will always pay for value.

 

Winning Strategy

Think about what your clients want more and design your firm and practice around those ideas.

Winning Strategies

Craving More?

In this episode, Mike McGlothlin shares not one, but five Winning Strategies to create a tax-efficient retirement portfolio. These strategies will set you apart from the competition by adding value to your clients.

Watch Now

 

1American Institute of CPAs (AICPA) / Harris Poll, March 2017

2Capital Sigma: The Sources of Advisor-Created Value, 2016: https://www.envestnet.com/sites/default/files/documents/ENV-WP-CS-0516-FullVersion.pdf

 

 

About the Author

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.

Retirement Tax Planning Health Care Guaranteed Income

Guaranteed Income and Success


Annuities

Over the past four and a half years, my firm has been working on a software tool to help Americans think and act differently in preparation for retirement. JourneyGuide  helps identify how a client will meet their spending needs on an after-tax, after-inflation basis. It’s fast, accurate, and it allows you to work with your client not just for your client. 

 

Important findings have been coming out of the software for some time. I find the most important aspect revolves around guaranteed income and the positive effects it has on the portfolio. 

 

Earlier this year, we released a study on Qualified Longevity Annuity Contracts (QLACs) which proves they improve the probability of success in retirement portfolios.1 After a QLAC was added, many of the scenarios we tested increased to more than 90 percent probability of having $1 in the portfolio at age 95. What surprised me the most was that the largest improvements were for younger ages (ages 55-60) and more conservative clients. We often think of the traditional income annuity buyer as being 65-plus. This study clearly shows that placing an annuity with younger ages is beneficial. 

 

Any Guaranteed Income is Good

However, it’s not just deferred (QLAC) or immediate income annuities that improve outcomes. The power of guaranteed income is demonstrated case after case. The ability to provide income that the client will always receive is a powerful story. Purchasing the income and allowing the rest of the portfolio to generate less accomplishes two things:

  • It takes pressure of the portfolio to sustain a high withdrawal strategy 
  • It allows the portfolio to be invested with a long-term focus instead of short-term gains for income

 

These findings work regardless of income now or income later. The ability to take pressure off the portfolio allows the client to invest longer term, which might provide additional tax relief in the form of long-term capital gains versus ordinary income. Guaranteed income can be found in Social Security, defined benefit income payments or commercially purchased annuities. Those are the only vehicles that support mortality credits and provide income for as long as the client lives. 

 

Winning Strategy

Go to www.journeyguideplanning.com and request your free demonstration of JourneyGuide. I think you will find the tool can change how your clients think and act in retirement. 

 

About the Author

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.

 

1Ash Brokerage, “QLACS Improve Probability of Retirement Success,” 2018: https://goo.gl/Vw9Htz

QLAC Qualified Longevity Annuity Contracts Guaranteed Income Retirement Planning Annuities

How Guaranteed Income Drastically Changes Retirement Distribution


Annuities

As I’m writing this (January 2018), it’s hard to think about safety in a portfolio. The equity markets continue to rage with double-digit growth for the past several years. There seems to be a new stock market high just about every week, if not every day. 

 

But accumulation and income are two different animals. So they require two unique approaches to solve the client’s problem. 

 

Accumulation

Take a look at systematic contributions to a qualified plan like a 401(k) plan or a nonqualified systematic investment plan. As you’re making ongoing contributions, you buy more shares of the investment when the market (or, specifically, the investment) is down. As the value of the investment increases, you have purchased more shares and gain exponential value. The math phenomenon is called dollar cost averaging (DCA). By being disciplined and consistent, your average cost per share is less than the average paid per share, due to your ability to buy more when the investment is down.

 

Distribution

If you are relying on systematic withdrawals during retirement, the opposite math phenomenon works against you. As you withdraw funds for income, you are liquidating more shares when the market corrects. Therefore, you lose more shares for when the market recovers. It multiplies your losses in a way. After the correction and recovery, you will have less units or shares than you would have with a steady market. 

 

Guaranteed Income

Guaranteed income options provide stability in retirement income planning. Having a protected baseline of income reduces the pressure the portfolio might otherwise take on during the distribution phase. With guaranteed income, there is no need to reduce your unit holdings in order to generate the same level of income; thus, you have a better chance of protecting your assets for the long haul. The less you have to take out in a down market keeps more of the shares, or units, in assets under management for growth, inflation protection and capital gains treatment. There is nothing worse than paying tax on a liquidation that has corrected but still has embedded gains. 

 

Take a look at using a guaranteed income tool to provide a floor for distribution planning. You client benefits not only from the peace of mind, but also the ability to make their assets last longer during retirement. 

 

Winning Strategy

Give guaranteed income options a look. By shifting the downside distribution risk to a guaranteed stream of income, the client can likely maintain their asset base longer in retirement. 

 

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.”

Accumulation Distribution Guaranteed Income Retirement Planning

How You Can Find Safety in Guaranteed Income


Annuities

Our headquarters is at the heart of Fort Wayne, Indiana, a city that was severely hurt by the downturn of the automobile and manufacturing sectors. But today, it’s seeing a resurgence, especially downtown. Our building, the Ash Skyline Plaza, is about 18 months old, and 15-story complex, Skyline Tower, is being built adjacent to us – just across the rooftop park. 

 

I can see all the construction activity from my office – many times, I have to turn and look away so I can concentrate. There’s nothing like a portable toilet flying up on a crane to make you lose your train of thought. 

 

But, I admire those workers. They’re on site before I arrive and still there long after I leave, even on the weekends. It’s tough work, for sure. And, it’s dangerous, plain and simple. But the crew members all wear safety harnesses, hard hats and boots to protect themselves. It’s part of their everyday habits. 

 

That makes me think … 

 

What safety habits are you instilling in your clients?

 

As they build their portfolios and retirement income, your clients are taking risks. Many of those risks are associated with longevity or outliving their income: 

  • Market returns
  • Sequence of returns
  • Inflation
  • Long-term care events
  • Legacy planning constraints 
  • Taxes

 

Regardless of what happens with all those risks, the safety harness is income. As long as a client has income, they will likely feel more comfortable, regardless of what risks arise. Now, those risks still have to be addressed. But, if your client can feel confident that their income is secure from market drops and inflation, you have a good chance at addressing the other risks. 

 

We have to instill safe habits when it comes to retirement income planning. Nearly everyone can benefit from having guaranteed income as part of their retirement plan. Whether it’s from defined benefit plans, Social Security or insurance company annuities, guaranteed income shifts the risks of longevity. However, only one of those sources has embedded inflation protection, so you must address inflation with your client. Income serves as a great safety harness for those taking investment risks. 

 

Winning Strategy

Focus on the risks that longevity creates for your clients. If you address their fears and concerns, you are likely to win a client for life, as well as many quality referrals. 

 

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 Guaranteed Income Longevity