Annuities

Income is Temporary


Annuities


One of the most unique products for income planning is Temporary Life. This single-premium annuity provides an increased income stream when the client is willing to assume some of the longevity risks. If placed correctly, Temporary Life can increase your payout and enhance the overall return associated with income planning. 

If you wanted to generate $9,000 a month for a male, age 70, based upon a life and 15-year certain payout; the client would need to purchase a $134,902.09 SPIA*. If the client utilized Temporary Life for 15 years, the premium needed is reduced to $100,861.92. Let's assume the difference ($34,040) is invested, and it earns a net 6 percent for the 15 years. That investment would grow to $81,579.24 by the end of the 15th year. 

If you had deposited the full $134,902, taken $9,000 annually and ended with $81,579 as an account balance, the gross return is 4.81 percent. More importantly, you would have to find an income rider generating a 6.67 percent payout to match the annual income. 

In this case, Temporary Life has taken the client to near life expectancy with a substantially higher annual income. The unused premium creates a side fund to use for emergencies or for additional income at age 85. It's easy to look at variable annuities with income riders for solutions, but there are alternatives that can provide clients more options, flexibility and better benefits. Call Ash Brokerage for alternatives in your next income planning case. 

*Rates as of March 24, 2014, from A+ carrier with a 96 Comdex

Experience matters


Annuities

The NCAA Final Four is an exciting place to be. It is often referred to as "The Pinnacle of College Basketball,” and this year, Florida, Connecticut, Wisconsin and Kentucky climbed to the top. It takes talent, skill – and in some cases a little luck – to make it to the Final Four. The other component that shows up during post-season tournaments is experience.

Clearly, teams with pure talent can make it to the finals. For example, Kentucky has nine freshmen on its squad. But to really build a program, you need experience. Florida and Connecticut have senior point guards who are true leaders for their teams. Florida reached the Elite Eight the previous three years before reaching the Final Four this year, which is an unbelievable achievement. Connecticut has won previous national championships with quality senior guard play like they are getting this year. And Wisconsin has two seniors and a host of experienced juniors on its team. 

In order to build a financial services business that stands the test of time, you need experience behind you. Your firm may specialize in investments, wealth management or other facets of financial planning. To round out your offerings, you want experience to help drive the other arms of your clients’ plans. An experienced partner can help boost your firm's risk mitigation and overall insurance offerings. Ash Brokerage provides more than 225 years of annuity experience, and more than 240 years of life insurance wholesaling experience. Call us to determine how our experience can help you reach the pinnacle of the financial services industry.

Concentration kills creativity


Annuities

I am constantly surprised when I meet advisors around the country and discuss their concentration into one product or one carrier. Realizing that our presentations get better with repetition, we tend to stick with our comfort level and what worked most recently. Those factors lead to a routine, which leads to a high concentration in products or services. This concentration kills the creativity used in client solutions, which ultimately hurts our industry's end users.

If you were to audit your product preferences and carriers, would you find too much concentration into one offering? We spend a considerable amount of time examining our clients' portfolios for concentration risk. Are you doing the same thing for your business? In the current interest rate environment, carriers have been forced to make changes to benefits, payout structures, and income rider values. Today, there are more solutions available to meet the increasing demands of longevity protection. We have a responsibility to search for customized solutions for unique consumer goals and objectives.

It's time that we lose the comfort level for a specific product or carrier. Instead, we need to get comfortable with research, seeking knowledge, and pursuing what best meets our clients’ objectives. I challenge all advisors to rethink their value to their clients. Our value should not be dependent on a product; our value needs to be our intellectual value of searching for the right solutions. Our concentration with one story might erode our value and creativity.

The cruelest tax of all


Annuities

“Fundamentals eliminate ways to fail, ways to lose. The greatest fundamentalists — in coaching, warfare, in theology, in business — were and always have been more concerned about losing than winning.

— Bob Knight
“The Power of Negative Thinking”


When you talk to some of the most successful coaches in any sport, they focus on eliminating mistakes. At Indiana University, we felt that if we eliminated mistakes (turnovers, giving up offensive rebounds to the other team, giving up easy baskets, or committing too many personal fouls), we gave ourselves a better chance to win any game. In retirement planning, we tend to focus on rates of return and how to maximize the return. In reality, the successful retirement plan eliminates the potential risks.

Too few times I hear advisors talking to clients about the impact of inflation, for example. Inflation may be the cruelest tax of them all. It is hidden, largely undisclosed until after the fact, and grows exponentially. When clients are concerned about living a long time, inflation is a risk that gets larger every year, and it must be addressed. Our typical solution is to earn a higher return. In order to do that, you must take greater risks. Unfortunately, you cannot afford to take greater risks with your nest egg as you get closer to distribution or during distribution.

The inflation risk on your income can be transferred to an insurance carrier. Annuity distributions can be tied to a number of consumer indices or set to grow at 3-5 percent annually. While you may start at a lower payment initially, it is easier to gain more return early in your retirement years when your life expectancy is longer and your time horizon is longer. Over time, these inflation-adjusted income checks increase to well beyond the initial payout structure. Health care costs, food, gas and consumer goods will continue to cost more. Your retirement income needs to produce more in later years. Look at annuities to shift the risk of longevity and inflation away from your clients' portfolios.

Shopping vs. saving


Annuities

While reading some research data, I read an amazing, nearly unbelievable, quote from a KRC Research project sponsored by TIAA-CREF. It read, "Americans prefer choosing a restaurant or buying a TV over IRA planning." What's more disturbing is that 55 percent of respondents take less than an hour or less per year planning for retirement.

We have roughly 201,480 hours (or an average of 23 years) of retirement. So, with less than an hour each year during our working years, we spend less than 44 hours planning for the next 201,480 hours of our lives. That 2/10,000ths of the time. Add health, inflation and taxes to the mix, and that time invested seems unreasonably short. How can we feel comfortable in our retirement years without the proper planning? The trends grow worse. Only 17 percent of Americans are contributing to IRAs now, compared to 22 percent two years ago. Of the people not contributing to IRAs, only 47 percent of respondents would consider making contributions now.

As an industry, we can't blame our clients. We have a done a poor job of motivating people to save. We have become complacent with our assets under management and lost focus on our true responsibility — making sure our clients have confidence and can maintain a successful retirement. There are too many risks to be discussed: long-term care funding, longevity planning and inflation protection. These three topics require at least one to two hours of discussion. It's time we refocus on the client, educating Americans on the risks in front of them, and providing solutions they may not be aware are available to them. Let's get back to the basics and talk about how our industry can eliminate risk to maximize our clients' chances for success.