Knowledge is power

Knowledge is power

In previous posts, I have mentioned the need to understand our clients’ behaviors, desires and objectives in order to be a valuable ally in their planning process. It seems advisors aren’t always on the same page with consumers, however.

A recent LIMRA study asked consumers and advisors what the top three concerns were in retirement planning. Of course, advisors and consumers agree that running out of money and creating a retirement income plan were very important. Unfortunately, advisors underestimated other components that their clients highly prioritized. Clients placed a high value on protecting portfolio principal – they actually valued this 50 percent more than the advisors surveyed. I found this gap alarming as it indicates we might not be addressing our customers' true wishes.

Recently, the Federal Reserve began talking about the "complacency bubble" where clients have become comfortable with risk. In reality, maybe advisors have become comfortable with the recent run in the equity markets, but our clients remain fearful of a major correction. It's worth a conversation with our clients to make sure they remain at the same risk tolerance they are willing to take.

Taking gains off the table may be an appropriate tactic in today's market environment. Fixed indexed annuities provide a tool to sweep gains in qualified accounts while remaining attached to an equity index.

The other large gap that the study revealed centered on minimizing taxes. Again, consumers valued this 50 percent more than advisors. With increased tax brackets, higher federal entitlement taxes and alternative minimum tax for high wage earners, the impact of tax deferral has never been more important.

Carriers seem to be focused more on accumulation-driven product design as they try to remove risk from their product portfolios. But for consumers worried about taxes, annuities remain a valuable tool in the planning process. Non-qualified assets gain tax-deferred status during the accumulation phase, while guaranteeing a lifetime income during the payout phase. More importantly, annuities provide tax-efficient distribution during retirement.

Annuities can provide lift and calm consumer concerns in many retirement planning strategies. Shielding growth from current taxation allows for quicker accumulation. Leveraging the many distribution options creates a better take-home income stream in many cases. And, the guarantees and safety of annuities can help clients feel secure. Look at how an annuity might fit into your clients’ retirement plans.