Annuities

4 Strategies for Rising Interest Rates (That You Might Have Forgotten)


Annuities

Fortunately or unfortunately, depending on your point of view, we haven’t had to worry about rising interest rates for nearly a decade. Monetary policy, including quantitative easing, forced interest rates to near zero for a period of time. Clients benefited from the falling rates through capital gains growth that historically has not been a large part of bond returns.

With today’s rising interest rates, financial professionals need to offer strategies that many clients haven’t thought of for several years. Some will seem foreign to clients, as well as financial professionals, due to the time lag since they have been last deployed.

  1. We can’t chase yield. In my opinion, this has always been a staple of good, quality advice. However, we tend to chase the highest rates in any vehicle. Pressure on adhering to best interest standards makes us think that the highest interest rate is only the right thing to do. I think we should make sure there is balance with long-term stability of returns, rather than simply chasing high returns. Look to build a more consistent portfolio instead of just finding yield for a portion of the portfolio.
  1. Laddering continues to make sense. Like all good professionals, we tend to tweak what worked for us until it no longer looks like the thing that was successful. Over the past decade, we have forgotten how to take advantage of rising interest rates. We’ve changed how we position interest-driven products as rates fell quickly after the financial crisis. By laddering your interest-driven vehicles, your clients eventually have all their funds at longer term duration, which should bear a better interest rate in normal yield curve scenarios, but with liquidity staggered throughout the portfolio. We find this is a good strategy for all rate environments, but we tend to get away from it at interest rate peaks. 
  1. The purpose of the asset must be defined. Many clients tell their financial advisor they want growth with the appropriate level of risk. And, we tend to oblige them with “custom designed” portfolios from a third-party money manager. Instead, let’s change the conversation to “What do you want this money to do for you?” This question has the potential to lead to a more open discussion around long-term planning. If the assets are for retirement, let’s position them accordingly, using strategies that make sense for protecting the longevity of the portfolio. Income is the new outcome which requires more complex analysis as opposed to the highest current interest rate.
  1. Adopt to new product development made for this environment. New designs tie returns to a variable interest rate benchmark. As that benchmark interest rate increases, the client’s rate increases the following year. Many will find a three or five-year duration long; however, using laddering strategies can be beneficial in mitigating this risk.

We face a lot of challenges as the baby boomer generation continues to leave the workforce toward retirement. If not handled correctly, a rapidly rising interest rate environment makes for a potential portfolio burden that many clients are not seeing clearly. Take time to review the client’s intentions and plan for a rising rate environment over the next several years. 

Winning Strategy

Evaluate your bond holdings and plan for a rising rate environment. Your clients are unlikely to see the risks ahead due to recent monetary policy. Put your clients in a position to win.

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

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Income, Income, Income


Annuities

As I write this, I’m traveling back from an industry meeting that my company sponsors. Being a numbers guy, I always enjoy hearing how the year unfolded, best practices in technology, and where sales increased and to what degree.

However, one of the disturbing trends that I noticed is our industry’s lack of focus on the best benefit of annuities: income.

In 2017, the industry lost $30 billion in sales that involved income, according to LIMRA. That trend continued in 2018. Economic conditions are the most likely reason for the continued shift. After all, clients have looked for safer places to place their retirement savings with the recent volatility in the fourth quarter of 2018. Basically, it’s been easy to sell annuities without the complexity of an income rider or loss of control due to the use of SPIAs or DIAs.

We tend to sell what clients want, not what they need. Ultimately, we have to work in conjunction with our clients’ goals but, too often, it feels like we may not be hitting the true need when we complete a transaction that doesn’t involve an income discussion.

Asset protection is an important function in today’s market conditions. Don’t get me wrong … annuities provide value to many portfolios with interest rates increasing, market fluctuations, and tax-deferred growth on nonqualified assets.

However, the biggest lift that annuities provide is the opportunity for lifetime income. Longevity affects so many other risks during retirement. The ability to shift this single risk to an insurer greatly enhances the probability of success in retirement.

Sequence-of-return risk remains a variable that no one can predict. The timing of a correction – in a modest or full bear market – can make as much as a 13-year difference in how long a client’s assets last. Without guaranteed income in place, an ill-timed downturn may affect the lifestyles of Americans who are depending on systematic withdrawals. Strategies that maximize Social Security and guaranteed income options can provide stress relief on the portfolio.

At the end of the day, failure of a portfolio with guaranteed income is not catastrophic. Portfolios without guaranteed income will be force into a different lifestyle.

Winning Strategy

With guaranteed income, failure is not catastrophic. Change your focus and talk to your clients about holistic income planning.

Winning Strategies Podcast

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Catch the latest insights from Mike McGlothlin and his guests on his podcast, Winning Strategies.

Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Retirement Income Income Planning Winning Strategies

Stop Saying, “I Don’t Have Time”


Annuities

I’ve traveled over 40 weeks this year, visiting our advisors and speaking at conferences. As I sit in the Atlanta airport on a layover, I see people playing video games and watching videos. By their reactions of smiling and laughing, what they’re watching isn’t likely educational or business-related.

But, these same people will likely complain to their co-workers about not having enough time to get things done. If you want to boost your productivity, you have to evaluate your time management skills.

No Time Wasted

When I was a student manager, in a typical two to three-hour basketball practice, there were no wasted minutes. Coach Knight mapped out the entire practice, drill after drill. He set the tone for each session by addressing the team in the locker room and telling them what they’d be focused on. He might be paying attention to the angle of the cuts or the position of screens. Each day was unique based on the current state of the team’s development.

Think about mapping your day in a similar fashion. Time blocking can be an effective tool to create an environment of focus. I color code my calendar to make sure I’m paying attention to all the things I need to do in order to run a business. Time is devoted to sales skill development, advisor and key account interaction and internal meetings, among other required activities.

To build a successful business, you must focus your energy. Every part of your business needs your undivided attention … but not all at once.

Additionally, you need time to relax and be with family. Unfortunately, for busy professionals, that time gets lost and ultimately needs to be scheduled – just like a client appointment. Sometimes that feels like a stigma, but the fact you are devoting time for yourself and family is just as important as working in your business. And, I’m as guilty of that as anyone.

Plan Ahead

At the end of the day, you have the same amount of time as everyone else. Some people simply use their time more wisely, effectively and efficiently than others. Here’s what you can do to make the most of each minute:

  1. Plan your business goals for the year
  2. Break those down into monthly goals and activities
  3. Map out the weekly and daily behaviors you must do in order to execute your plan
  4. Once you identify those activities, schedule them

Winning Strategy

Focus your attention on revenue-generating activities. Schedule those things that are most impactful to reach your goals.

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Time Management Retirement Winning Strategies

Why Your Clients Can’t Live With 2 Percent


Annuities

Many people say they can’t take a 2 percent return on their money. This was especially true after the financial crisis and the aggressive monetary policy in the United States. However, many Americans have felt that 2 percent was a good return on vehicles like certificates of deposit or money market accounts. Regardless of your perspective, you can never take 2 percent as a probability of success in your retirement plan.

Well, that’s exactly what you might find for many Americans. With just one, three-year long-term care event during retirement, an otherwise successful plan could be wiped out. In fact, we have several case studies that show the impact of a long-term care event on a retirement portfolio. All are devastating to the probability of success, regardless of market performance.

We find that many people who use Social Security properly and have saved a comfortable nest egg can generally retire at or close to their spending levels. That’s not to say that annuities can increase the probability of success to higher levels, but most Americans aren’t too far off their goals with a few solutions, not sacrifices.

However, if we factor in a long-term care event, that dramatically changes the client’s chances of success. In many cases, the probability of success drops from 85-95 percent down to just 2 percent for a healthy spouse. A client can feel comfortable with 85 percent, but not 2 percent.

The solution is properly planning for long-term care through by shifting the risk to an insurance carrier. The additional capital or cash flow rarely replenishes the probability of success to the full 95 percent; however, it typically moves the number back to 70-80 percent. We commonly hear, “I can live with 70 percent, but I can’t live with 2 percent.”

Many people have been comfortable living with 2 percent for a rate of return. Unfortunately, when you show them 2 percent probability of success, they lose nearly all comfort and confidence. Make sure you provide an appropriate probability of success to your clients’ retirement plans by addressing the risk of long-term care.

 

Winning Strategy

Talk about long-term care. Ask questions. It could mean the difference between a success rate of 95 percent or 2 percent.

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One of the largest risks in retirement is a long-term care event.Mike shares two winning strategies you can implement as an advisor to help clients make it through retirement with confidence.

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

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