People have two main concerns about retirement income: 1. saving enough money to retire and 2. running out before they run out of life. The expectation that seniors will live 20,30,40, and more years than the average retirement age of 62 to 65 is very real. Even though everyone is concerned about it, those younger than us are doing very little to change their lives. These are the main concerns. The two phases of retirement planning are 1. The accumulation phase. 2. The distribution phase. Let’s review them. We’ll discuss how to determine the amount to accumulate, distribute, and what retirement plan vehicles to use.
Finding qualified prospects is the first step. This is not an easy task. It is then necessary to be trusted/respected as an advisor. Only then can anyone be open and willing to talk about their concerns, fears, goals, income, assets, and debts. This is how you will create a complete and accurate fact-finding tool. This full disclosure is essential for the practitioner to accurately diagnose health issues. First, go to your client list. Next, analyse the data to come up with scenarios and recommendations that you can present and discuss. It is crucial to create models and projections that are meaningful to the client. This helps to highlight the client’s needs and provides them with figures that they can use to make decisions. There are many calculation methods for the accumulation phase. These include software programs that can be installed on agents’ computers and manual calculations with the aid of financial calculators. The income stream distribution phase is the same.
Personnel at the advanced underwriting department at these places can generally offer assistance to assist with cases that are being reviewed. These methods are essential for advisors working in this area. After deciding on a retirement age, a budget can be calculated and projected for the accumulation phase. The budget can then be reduced by adjusting the savings rate to get to the desired budget. The budget amount is used to determine the income streams and amounts of money needed to make them. As most people are familiar with the process, we won’t go into detail. This is not very different from programming. Multiple needs analysis can determine the amount of life insurance that a family or company requires to meet their cash and income needs.
The key arithmatic considers the future and present time values of money, rates or interest on capital, inflation, tax factors, distribution periods and time horizons for savings, withdrawals and systematic inputs, as well as funding options. The advisor should consider the client’s risk tolerances and funding preferences. They must also consider suitability of recommendations, capital available, social income programs and pensions. The reverse mortgage is a good option for post-retirement. The most important points are to identify financial shortfalls, and then work out ways and means to meet them. Long term care insurance is a must-have. This topic is a key issue in almost all conversations with clients. This coverage protects assets and income that have been built over a lifetime. Clients can also remain in their home world, and in their surroundings.
The problems are the same regardless of whether one is in the accumulation phase or the distribution phase. It is one thing to tell clients how much to save, but it is quite another to figure out if the amount they need can be sustained over the long-term. Many people today have difficulty saving money and maintaining their savings. This topic requires a lot of discussion. It often ends up being a compromise between the stated objective and the ability to achieve it. After taking into account all financial factors, clients often have difficulty meeting their budgets, especially in the short-term. It ends up being a compromise between what clients want and what their resources can afford. The expected longevity of systematic withdrawals must be considered. This is the main problem. How can one make sure the money stays put? How, indeed? There are solutions. Some of them are unique.
Over many years, I held a registered representative license as well as various broker/dealer appointments. These were in addition to my life, annuity and health insurance licenses. After 24 years, the former was cancelled and I have been relying on the latter. How did this work out? It actually worked quite well. Fixed index annuities and life insurance policies have made it possible to assist clients with their retirement goals. There is very little risk involved and a lot to gain. According to recent studies by 20 insurance companies, these annuities have yielded approximately 7% compounded interest returns per year from 1995 to 2007. These returns were linked to the S & P 500 index for the majority of the time. This is a very attractive option for those who want to be conservative and have the ability to protect their money. There are also traditional fixed annuities that are available. All of these can be used in IRAs and SEPs. The fixed index universal life insurance is well-suited for people who have a life insurance need and wish to save for retirement. This is a new way to look at an old idea: buying permanent life insurance to protect your family and business, and to live long enough to have the cash value available for retirement.
Seniors who need income can annuitize or use systematic withdrawal features. They also have the option to purchase single premium instant annuities (SPIAs), from funds available. With an example of installment-refund option selection, the family gets all of the premium money deposited upon their death. This method allows clients to keep at least some of their funds. This is a powerful fear-reduction tool.
A lesser-known type of non-registered product is the group variable annuity. Fixed versions are also available. These are offered by a variety of major insurers. The advisor can also offer 401(k), which includes safe harbor features. Profit-sharing plans are also available, along with profit-sharing plans. These plans come with new comparability rules features. Here, we who are insurance agents, place the burdens of suitability, risk tolerance, asset selection/allocation of securities funds, and rebalancing issues of individual plan participants on registered representatives who are insuror or third-party-administrator employees. These are their responsibilities and not ours. This requires professional expertise, respect for compliance and care in prospecting, presentation and formal training.
All of this makes sense. There are many products that can be used by those who don’t want to deal with broker/dealer haircuts or dual regulation. They also don’t want fights over ownership of commissions and audits. If they do not want to see the market volatility and want to preserve their clients’ capital, but want to avoid the uncertainty and vagaries, financial advisors and agents can make a good living in retirement. Last but not least, for clients who are more risky and aggressive in their accumulation and distribution methods, we can easily have them outsourced to registered representatives. We also co-venture in full compliance. All can benefit from good selling.