Annuities

National Annuity Awareness Month


Annuities

National Annuity Awareness Month spotlights the need to for a financial vehicle that provides abundant client value and creates predictable income, but comes at the highest level of scrutiny. In June, we need to focus on the real benefits of annuities and maximizing those benefits for our clients.

Tax-deferred growth: With increased tax rates as high as 39.6 percent, it has never been more important to protect the growth of non-qualified savings. At a 3 percent growth factor, a $100,000 account would grow to $134,391 over 10 years. In a taxable account, taxes would account for $14,719. That’s $1,400 per year, which will make a significant difference for many Americans. 

Alternative income: The average IRA balance at the end of 2012 surged to $81,100, according to a Fidelity Investments analysis of nearly 7 million IRA accounts. For today’s near retiree, the reality is that they do not have enough assets to live a comfortable retirement on interest only. We must look at vehicles that provide guaranteed income for basic living expenses. Annuities are the only vehicle that can provide lifetime income and longevity credits to increase payouts. 

Peace of mind: More people are afraid of running out of money than they are of public speaking or dying in a plane crash. The year a person runs out of money is not their worst fear, however. It’s the months and years leading up to a zero balance that they fear the most. Retirees and their families experience a lot of anxiety knowing their income will diminish and their lifestyle will dramatically change. With a guaranteed stream of income, annuities can provide peace of mind like no other vehicle. 

Safety: Annuities continue to be backed by an industry that has not defaulted on its clients. Even through the Great Depression, clients remained whole with the protections of our industry and its state insurance protection. In turbulent times, and uncertainty with interest rates, annuities continue to provide more value to clients than comparable no-risk investments. 

Many public pundits continue to question the value of annuities, focusing on cost. Instead, our industry needs to turn the conversation to value. We need to focus on delivering solutions to clients needing guaranteed income, safe investments and tax-efficient distributions. Annuities are a great solution for many Americans.

Take client gains off the table


Annuities

How many of your clients have asked if you think this market is due for a correction? Who is more concerned about it – your clients or you? I’m not saying that the party is over on Wall Street, but I do know the bears haven’t eaten in a long time.


My point is this: Every day that we let go by without taking some part of our clients’ gains off the table, the greater we are multiplying their risk. Yes, multiplying! Adding risk occurs when we change their asset allocation to a more aggressive mix. Multiplying risk occurs when we stack or compound risk factors, such as a market that hasn’t retraced gains in nearly five years with P/E’s nearing the range of the 1987 crash, coupled to an economy with the lowest employment rate in 39 years and a bond market that mirrors Japan’s 20 years ago. 

I’m sure some of you will accuse me of fear mongering. That’s what those FIA guys do, right? Except I also wholesale three VA’s and a mutual fund family, and I have a Series 24.  

So how do I suggest we proceed? I thought you’d never ask! To help take your clients’ gains off the table, Ash Brokerage has four distinctly different alternatives, one of which looks and feels a lot like a balanced fund with no downside risk. Please call us for ideas to help your clients avoid being bitten by the hungry bears.

Fear and Greed and Annuities


Annuities

Way back in the dark ages (pre-Internet), nearly 30 years ago, I earned my bachelor’s degree in psychology. Throughout my sales career, it has been enlightening and affirming to observe just how much of what we feel, believe and perceive is governed by our emotions. The investor experience is wrought with visceral emotion, much to the chagrin of those who do not seek any professional guidance. Human nature compels us to buy high and sell low.


When I studied for my licenses, I took batteries of tests, studying many terms and investment scenarios. Nowhere was there any mention of controlling investor emotions and expectations. As an advisor, you have to control two powerful client emotions: fear and greed. The overall strong 2013 stock market is a recent example, as some clients are now expecting higher returns and overall portfolio performance. 

Now more than ever, it is important that you manage your clients’ expectations, along with their fear and greed. Fixed Index Annuities (also known as Equity Index Annuities) may be a great part of your clients’ portfolios, and they may address all three of these challenges. 

Fixed Index Annuities remove fear from the equation with their downside protection. Zero is your hero when an index is way down on the anniversary date. The annual re-set creates a new starting point and upside opportunity for your client for the following year. When an index is up, you have satisfied their greed as long as you have set the proper expectations regarding the upside potential. Don’t make it complicated or confuse your client; remember that a fixed index annuity is simply a fixed annuity with a different way to credit interest.

Today’s fixed index annuity solutions have evolved tremendously from just a few years ago. Whether your clients’ require income, seek accumulation or are looking for bond alternatives and safe money vehicles, Ash Brokerage is ready to help you navigate the right course.

Bankrupt Millionaires


Annuities

Everyone dreams of living a lifestyle with millions of dollars of income, having people standing ready for your every move, and performing in front of thousands of people live – not to mention in front of millions via television. What’s important, however, is how those millions of dollars are leveraged and positioned for the future. The worst seems to happen to the people with most. 

Recently, many young men became instant millionaires due to their athletic abilities on the football field. Highly drafted NFL players can receive millions in bonuses and guaranteed salaries. Clearly, this seems like a lot for playing a game. Unfortunately, these young men do very little to protect themselves and their investments. A staggering 78 percent of NFL players file for bankruptcy within five years of retirement. The numbers are equally high for other professional athletes. The bankruptcy rate remains at 60 percent for NBA players. 

Professional athletes represent a microcosm of the American public. A lack of understanding about finances creates the opportunity for poor decisions while we are employed. A discussion on the future and the need to protect what you have continues to be absent in most financial planning conversations. And finally, we fail to protect our clients against their own irrational behavior. 

It’s time to rethink how we educate individuals, advisors, and the general public. We have to prevent even our wealthiest clients from failure with protection from the unthinkable, guaranteed income for the future, and advice for how to use the blessings of today.

The Swinging Pendulum


Annuities

Understanding client behavior has always been an interesting – if not challenging – aspect of the financial planning process for me. Sometimes it seems that clients move in opposite directions from what logic would dictate. Client trends remain one of the most important pieces of knowledge we can possess when we meet with our clients and prospects. 

A Towers Watson research paper released in May 2014 showed that consumer behavior has moved opposite of where we would typically think. Today, 62 percent of Americans would be willing to give up some current pay or salary for a guaranteed income stream in the future. While most companies are looking to take pensions off the books because they don’t help the recruiting process, the majority of Americans are looking for pension-like income. It appears we are not aligned with our clients. 

The need for guaranteed income is a major shift from just five years ago. In the same survey in 2009, only 46 percent of Americans said they would give up some portion of their earnings to have guaranteed retirement income. Think about the time in which that survey was conducted – 2009. The financial crisis was fresh in everyone’s mind, defined contribution account balances had fallen as much as 40 percent, and prospects were bleak for economic growth. Yet, as most account balances have nearly rebounded, more Americans want guaranteed income. 

Clients can no longer expect guarantees from their employers. With the PPA and proposed changes to PBGC premiums, it is unlikely that most employers will reinstate pension contributions. As planners, we must provide guaranteed solutions to our clients. We need to set aside our egos relative to money management and realize that our clients want some level of base, guaranteed income. Call Ash Brokerage for details on how to secure this kind of tax-efficient income for your clients.