As a freshman at Indiana University, I seemed to be in a fog during my first week of basketball practice.
The whole experience of Assembly Hall, Coach Knight and some of the best players in the country was a lot to take in as a student manager. Every year, Coach made a point of saying something to each of the new managers. Unannounced, he came up to me, made a somewhat indirect introduction and said something I’ll never forget:
“Son, after you graduate, you are going to hear from a lot of people who think they can coach. I would encourage you not to pay attention to the uneducated opinions and pay attention to how we play basketball at Indiana.”
Sure enough, there were plenty of people who would offer their thoughts once they found out I was a student manager ― how they would have used Steve Alford more effectively, or how they’d have gotten Keith Smart the ball more often.
What surprises me is how often this conversation occurs in business as well.
In April, I read an article from Ken Fisher in USA Today titled “Avoid Complicated Annuities.” I have several concerns about the article ― not only because of the misinformation it contains but because USA Today’s distribution means a wide audience is receiving poor advice. At the end of the day, Mr. Fisher’s article is nothing more than an opinion piece on annuities, and it appears to lack the proper factual perspective on what annuities can do for many retirees.
First, the article quotes Mr. Fisher as saying, “Whatever you need, annuities are probably wrong.” That simply isn’t accurate. The evidence behind study after study continues to show the benefits of annuities. Ash has a study that shows how the benefits of guaranteed income ― using a QLAC for deferred income ― improves the probability of success in 48 of 48 scenarios. If your goal is to mitigate the risks of longevity and running out of money, annuities are probably right in most situations.
Second, Mr. Fisher indicates low-cost stock and bond funds held directly are better in the long term. I don’t completely disagree. I’m an equity believer and find that equities put clients in a great position to outpace inflation. Unfortunately, Mr. Fisher’s statement lacks the backdrop of the changing demographics in America.
The typical trailing baby boomer (ages 50–59) has far less in savings than the generation before. I am deeply concerned that this will plague our industry for the next two decades or more. Today’s planners are expected to create more income, for longer periods of time, with the least amount of assets. Using annuities can reduce, or in many cases eliminate, the impacts of longevity on a portfolio. Therefore, understanding the proper placement of annuities within a portfolio helps alleviate some of the pressures felt by retirees. Annuities offer an alternative to a systematic withdrawal strategy using stock and bond funds. We have to help retirees think and act differently than they originally thought they would in retirement.
Finally, it’s difficult to know when our last days will be. You shouldn’t be confidently willing to bet on longevity. Think about insuring risk versus betting on it. You do it for a home fire or auto accident. Why not use that same philosophy in your retirement income portfolio? Look for smaller chances to create big impacts. There is a wide gap between a journalist and a columnist. The difference is fact and opinion. Everyone is entitled to their opinion ― but we can use research to show the value of deferred annuities and tax-efficient income from annuities. So don’t always believe what you hear from someone online or posing as a journalist. To get the facts on annuities and other retirement solutions, speak to one of our Retirement Income Consultants.
Winning Strategy: Use facts to make educated recommendations to your clients on retirement income planning.
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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.
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