The greatest fears that people have concerning retirement income are 1. saving enough money for retirement and 2. then running out of money before running out of life. Beginning with the present generation of senior citizens, there is the very real expectation of living 20,30,40 and more years beyond what used to be the normal retirement ages of say, 62 to 65. Everyone at younger ages worries about this, all the while doing little about it. Therein reside the key concerns. There are two distinct phases of retirement planning and execution: 1. The accumulation phase. 2. The distribution phase. Let us review them. We will discuss determination of amounts to be accumulated, distributed, explore retirement plan vehicles, as well as some ideas as to what kind of funds to utilize.
The first step is locating qualified prospects, no easy task. Then it is necessary to become the trusted/respected advisor. Only in this way will anyone open up and be willing to discuss concerns, issues, fears, objectives, goals, means, income, assets, debts, in short, disclosing everything to compile an accurate and complete fact finder. The practitioner needs this full disclosure just as a physician does in correctly diagnosing health matters. Go first to your client book of business. The next step is analyse the data and come up with sets of recommendations and scenarios to present and discuss. It is imperative to develop models and projections with numbers that have meaning to the prospective client. This dramatizes needs and shortfalls and gives the prospective client figures to hang a hat on, so to speak. In the accumulation phase, there are sufficient calculation methods available at insuror and IMO websites, software programs installed on agents' computers, and even manual computations with the aide of financial calculators. The same is true of the income stream distribution phase.
Assistance is generally available from personnel at advanced underwriting departments at these same places to work up cases for review. Any advisor operating in this arena needs to be expert in these methods. In all cases, after selecting some desired retirement age, a budget is arrived by computation and projection for the accumulation phase. This can then be reduced to savings rates to arrive at the the budget. As for the distribution phase, the budget amount determines the income streams required and the sums of money required to produce them. We won't be going into the mechanics of all this as most of you know how to go about this or can find out. It is really not much different than programming, through multiple needs analysis, the amounts of life insurance, for example, that a family or business requires for cash and income needs.
The key arithmatic takes into account the present and future time values of sums of money, rates of return(interest) on capital, inflation and tax factors, time horizons of savings and distribution periods, systematic inputs and withdrawals, and kinds of financial retirement vehicles as well as fundings to put in them. The advisor must, of course, take into account the client's risk tolerances, funding preferences, suitability of recommendations, available capital, social income programs, pensions, tax-qualified and non-tax qualified monies, as well as work income resources in pre-retirement and post-retirement, and above all compliance in everything. Special note for the post-retirement phase is to explore the reverse mortgage as to feasibility. The key points are identifying financial shortfalls and working up ways and means of meeting them. Not to be left out is the advisability of recommending long term care insurance. In nearly all conversations with clients, this subject is critical. It is that coverage which protects the assets and income that have taken a lifetime to build. It offers the best chance for the clients to remain in their own world as well, in their own surroundings.
Whether one is in the accumulation or distribution phase, the problems are similar. It's one thing to show clients how much they need to save; it is quite another to determine whether or not the amounts neccessary can even be met, much less sustained over the long term. Most people nowadays have great difficulty saving money and keeping it saved. Plenty of discussion needs to be devoted to this. Usually, it ends up as a compromise between the defined objective and the capacity to meet it. As to the distribution phase, after taking account of all the financial factors, clients very often have great difficulties meeting the needed budget immediately and especially over the long term. Again, it ends up as a compromise between what they would like to have and what their available resources will, in fact, allow. Systematic withdrawals have to be based upon anticipated longevity. And therein lies the major problem. How does one make the money last? How, indeed? There are, fortunately, solutions, and this is where some unique ones come into play.
For many years, I maintained a registered representative license and various broker/dealer appointments. This was in addition to my life, annuity, and health insurance licenses and insuror appointments. After 24 years, I canceled the former and have relied on the latter. How has this worked out? Quite well, actually. With the advent of fixed index annuity and life insurance policies, we now have the capabilities to actually assist clients in attaining their retirement issues with very little risk and much to gain. Recent studies from some 20 insurors on these annuities, for example, from 1995 to 2007, as published in trade magazines, show annual average compounded interest returns of approximately 7% in deferral(linked to the S & P 500 market index for the most part). This is quite attractive and appropriate for the great majority of people in this country who are quite conservative and desire safety of their money. Traditional fixed annuities are always available as well. These all fit into IRAs, SEPs, Rollovers, 403(b)s, not to mention non-tax qualified accounts. Universal life insurance of the fixed index variety, overfunded, work well for those who have a demonstrated life insurance need and want to save for retirement. This presents a new twist on a very old idea of buying permanent life insurance to protect one's business and/or family and living long enough to be able to utilize the cash values for retirement purposes.
For those seniors needing income, the annuities(annuitized or employing systematic withdrawal features), as well as the purchase of single premium immediate annuities(SPIAs) from available funds(for example, a 401(k)), provide income which one cannot outlive and with, say, installment-refund option selection, upon early demise, the family receives all the rest of the premium money originally deposited. At least some of a client's funds in many situations is well placed in this manner. This is a very real fear-reduction factor.
There is a lesser known type of non-registered product entitled the group variable annuity(fixed versions are, of course, available). There are any number of major insurors offering these. With them, the enterprizing advisor can offer 401(k) complete with safe harbor features, as well as profit-sharing plans, again complete with new comparability rule features, when appropriate. 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. Those are their responsibilities, not ours. To operate in this arena requires expertise, respect for compliance, care in prospecting and presentation, and formal training as a requisite.
The point of all of this is evident. With the products available to those of us who don't want broker/dealer haircuts, dual regulation, fights over control of ownership of commissions, and audits, to mention just a few things, who do not want the uncertainties and vagaries of market risks, but are more concerned in the preservation of our clients' capital, who serve the more conservative customer, agents and financial advisors can do quite well in the retirement market and field. A final point: for the clients we find whose profiles fit the more aggressive and risky methods of accumulation and distribution, we can easily outsource them to registered representatives and co-venture in full compliance as well. Good selling to all.
