Annuities

3 Reasons You Need to Talk About Guaranteed Retirement Income


Annuities

This blog is meant to educate, motivate and inspire advisors to look at retirement income planning in a different way. Retirement can’t be discussed with a client without involving some type of guaranteed income – Social Security, defined benefit plans or commercially purchased annuities. All have the same basic components, but it’s critically important to have an income discussion with clients as early as possible. Here are three reasons why: 

 

1. Social Security planning and integration is rapidly becoming an important topic for many Americans. Recent surveys indicate that the majority of clients will seek out another financial planner if their current planner is not talking about Social Security integration.1 In and of itself, Social Security is nothing more than a public annuity. You place funds into the system for a guaranteed income that you can’t outlive. So, no one should be uninformed about annuities because many people’s main source of retirement income is an annuity called Social Security. 

 

2. At the close of 2017, the S&P 1500 Pension Index stood at 84 percent.2 That means the average pension plan is only 84 percent funded. Pension risk transfers continue to grow. (See my March 2018 posts on pension risk transfers for more information.) Transferring the liabilities of a defined benefit plan typically requires the use of a group annuity – a promise to pay the plan participants for the rest of their lives according to the plan document. Today, insurers are in a much better position than pension administrators to manage longevity risks. We are moving into a more volatile market situation while longevity for 70-year-olds grows. Those are two risks where plans can ill afford to miss the mark. 

 

3. Finally, our research through our JourneyGuide™ planning team finds that guaranteed income sources increase the probability of success by large margins. By placing 15-25 percent of a retirement portfolio in guaranteed income sources, a large segment of the population will have a better chance of having at least $1 remaining in the portfolio at age 95 (or whenever they select). Please go to www.journeyguideplanning.com for your free 14-day trial of the software tool and schedule a one-hour training session to learn how your clients can benefit from the proper placement of annuities. 

 

Annuity Awareness Month gives you a chance to talk about annuities with your clients. Think about how comfortable your clients are with the annuities they already have – even if they may not realize it. I think it will provide a great comfort level. 

 

Winning Strategy

Take a step back and talk to your clients about the annuities they likely own now – Social Security and pension plans. Knowing they already have guaranteed income sources might make them feel better about placing annuities in their portfolio.

Retirement Webinar

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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. 

 

1Nationwide Retirement Institute, Social Security 4th Annual Consumer Survey, September 2017: https://nationwidefinancial.com/media/pdf/NFM-16735AO.pdf

 

2Mercer, “S&P 1500 Pension Funded Status Increased by Two Percent in 2017”: https://www.mercer.com/newsroom/january-2018-pension-funded-status-increased-by-two-percent-in-2017.html

Retirement Social Security Pension Risk Transfer JourneyGuide

Crossing the Bridge, Together


Annuities

All month long, we’ve been talking about Social Security and the many ways it could impact your clients. But have you thought about how it could impact their families?

 

By now, you’ve hopefully read our Crossing the Bridge white paper, which explains how you can use an annuity to delay Social Security benefits and maximize your clients’ retirement income.* Maybe you’ve also taken a look at our JourneyGuide™ planning software, which literally shows the impact of delaying benefits to age 70. 

 

Aside from increased income and improved portfolio performance, there are collateral benefits to optimizing Social Security income. Typically, your client is trying to get as much income as possible and as early as possible. Help them consider all their options – and the impact on those they care about –before they make a potentially irreversible decision.  

 

  • First of all, taking Social Security income at age 62 means that the benefit will be reduced by 25 percent for someone eligible for full retirement at age 66. If they were to wait until age 70, their benefit would be 32 percent above their full retirement age. That equates to a 76 percent increase over the income received at age 62. That’s significant! 

 

  • Your client’s Social Security decisions will also impact their spousal benefits. So, at the death of the primary insured, the beginning income for the spouse would be 76 percent higher in many situations. Also, the impact of cost of living increases on both benefits should not be overlooked. This is a key consideration as you look to leverage some of the many options available in Social Security for couples. 

 

  • Another consideration is when there are young children involved. With more adults having children later in life, you must consider the impact on their family at retirement and at the death of the primary insured. A delay can add significant dollars to those households with younger children still at home. Children with disabilities need consideration, too. 

 

There are numerous strategies to maximize Social Security for your clients, especially married couples. Take time to sit down and listen to their concerns and legacy plans. It’s highly likely that the proper choice of Social Security options can make a big difference for them and their families. 

 

Winning Strategy

Learn all the options with Social Security and look to maximize the primary insured’s benefits. For their own needs, and the needs of their loved ones.  

Retirement Webinar

Craving More?

We sat down with Jim Blair to talk about unique situations around Social Security your clients may be facing.

Watch Now

 

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. 

 

*Ash Brokerage, “Crossing the Bridge: How to Fill the Income Gap Between Early Retirement and Maximum Social Security,” Updated April 2018: http://go.ashbrokerage.com/WC2017-07-RET-Bridge_LP-Content.html

The 5 Scariest Facts about Social Security


Annuities

I read a lot about the retirement gap in America. There are some scary scenarios ahead for many people who have not committed to saving, investing or planning for income they can not outlive. But some of the scariest statistics that continue to bother me are those around Social Security. 

 

No, it’s not the fact that 78 percent of people believe Social Security will run out of money in their lifetime.1 Instead, it’s the complete lack of education that the financial services industry is providing to clients. That’s something we can control and change. 

 

Here are five stats you should pay attention to: 

 

As advisors, we must learn the complexities of Social Security and convey that knowledge to our clients. The planners who do so put themselves in a much better position for long-term success. Their client retention will likely be higher due to the information they provide while preserving their assets under management. 

 

Winning Strategy

Learn as much as you can about Social Security in the income planning process. Clients want advice on this complex benefit, and they clearly need to know more in order to make better decisions about their future income. 

Retirement Webinar

Craving More?

We talked with Jim Blair to tackle unique situations around Social Security your clients may be facing.

Watch the Replay Here

 

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. 

  

1Nationwide Retirement Institute, Social Security 4th Annual Consumer Survey, September 2017: https://nationwidefinancial.com/media/pdf/NFM-16735AO.pdf

2Center for Retirement Research at Boston College, “Trends in Social Security Claiming,” May 2015: http://crr.bc.edu/wp-content/uploads/2015/05/IB_15-8.pdf

Social Security Retirement Income Planning

The Hidden Impact of QLACs


Annuities

Soon after Qualified Longevity Annuity Contracts (QLACs) were created in 2014, we put them to the test in a vigorous study. And, we’ve repeated that study every year since. 

 

Here’s what we’ve learned: While QLACs continue to offer an incentive for pushing required minimum distributions (RMDs) out to age 85 and one month, there are other benefits to consider. In every year that we’ve done the study, a few key takeaways have remained consistent. 

 

  • QLACs improve retirement outcomes. In our 2018 study, we applied QLACs to four different traditional asset allocation strategies in four different age groups, using market projections from 35 investment advisors. Amazingly, a QLAC improved the probability of success in 100 percent of the scenarios we tested.1 In our earlier studies, when we used past performance of the S&P 500 and Barclay’s Aggregate Bond Index, QLACs improved the probability of success in 95 percent of scenarios. Regardless of projected or past performance, the placement of a QLAC has proven to be a great enhancement in nearly every asset allocation plan. 

 

  • Younger, more conservative clients benefit the most. In our analysis, the largest improvements have been in younger and more conservative client scenarios. We see significant improvements when a QLAC is placed at age 55 or 60 with an asset allocation of conservative and moderate-conservative. Too often, we look at QLACs as a tool to simply push RMDs down the road. But guaranteed income, i.e., not running out of money in retirement, is the bigger story. We often overlook the benefits of guaranteed income in portfolios and this study proves the positive impact.

 

  • Guaranteed income changes the conversation. If you’re not already looking at the value of QLACs – or other guaranteed income products – then you’re doing yourself a disservice. With our JourneyGuide™  software, we’ve discovered that guaranteed income not only changes the mathematical outcome of retirement, but it also changes your client relationships. With a tool like JourneyGuide, you can have meaningful, interactive planning sessions to show clients the positive impacts that small changes can have on their portfolios. In many instances, the implementation of guaranteed income allows the client to be more aggressive with their other assets. This adds advisor gamma to the relationship that would otherwise be lost. 

 

Winning Strategy

The hidden value of QLACs is guaranteed income. We’ve proven that regardless of allocation, the impact of guaranteed income is significant – even more so with younger investors. I encourage everyone to look at your younger clients and begin placing guaranteed future income in their portfolios. That will, in turn, allow you to have a conversation around their remaining assets or capture more assets and invest them more aggressively to maximize long-term growth potential. 

Retirement Webinar

Craving More?

We're talking with Jim Blair on May 17 to tackle unique situations around Social Security your clients may be facing.

Register Here

 

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, “2018 Study: QLACS Improve Probability of Retirement Success,” March 2018: http://bit.ly/2jN5a2K

QLAC Qualified Longevity Annuity Contract Retirement JourneyGuide

Shift the Risk, Not the Return


Annuities

Lately, I’ve spent a lot of time talking about pension risk transfers. I think it’s market that can explode over the next 12-18 months for any financial professional who is committed to talking to CEOs and human resources leaders. 

 

But, saving on premiums and taking a less valuable employee benefit off the table is only part of the benefit. The real benefit is the shifting of risk. Plan sponsors bear several risks that can be reduced or eliminated.

 

The Real Risks

Pension plan sponsors take on the investment risk of plan assets. Regardless of economic projections, managing risk will likely be more difficult within a plan for the immediate future. Rising interest rates will result in lower bond valuations. A choppy market will make it difficult to have steady returns necessary to hit funding targets. 

 

Life expectancies continue to increase in the United States. There is a requirement to pay the monthly income stated in the pension plan document. Regardless of how long the plan participant lives, the plan must meet that obligation. The problem is that the current funding status for many plans is below 100 percent, so the plan might not have enough assets to meet those obligations. 

 

The same problems exist for most retirees. They ask, “Do I have enough assets to generate the income that I need? And, will I live too long and exhaust those assets?” Unfortunately, business owners and leaders must answer that question for themselves, as well as for all their employees. The fact that business owners have an added responsibility for their employees’ retirement creates more stress and anxiety. 

 

Worth the Shift

These risks can be shifted through pension risk transfer. The process can be cost effective. It’s long, but it can be easy and seamless for business owners. There is little reason to keep risk on your balance sheet when there are alternatives. Unfortunately, most business owners don’t know about the options available to them. It makes a great conversation for you to have with business owners: Shift this risk, and you will gain the trust of the entire company. 

 

Winning Strategy

Shift the longevity risks for corporations in a similar fashion to individual retirement plans. Take away investment risks and the potential of living too long, and you’ll gain a corporate client plus all the employees.

Policy Review - 10 Ideas For Existing Life Insurance

Craving More?

Watch the replay of our webinar where we talk how pension risk transfers can be an effective tool for defined benefit plan sponsors seeking solutions for rising costs and longevity risk.

Watch Now

 

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.”

Pension Risk Transfers Retirement Practice Management