Are you helping your clients complete their bucket list?

When you meet a prospect for the first time, you no doubt have a list of questions to ask. These might include:

• When you retire, how do you intend to do it?
• Do you have a bucket list of items that you still need to check off before you check out?
• What do you want your money to do for you while you are still living?
• What are you doing now to maximize income and growth?

Isn’t everyone looking for a solution that will provide enough income in order to experience the items on their bucket list?

The reason we purchase anything hasn’t changed much over the years; our purchases address our needs and desires. Behavior economics, the study of why people buy, has gained a lot of attention lately. I won’t attempt to address that subject in this article, but I will address another one – How do you optimize your clients’ savings while addressing their income needs?

 

Three Phases

When helping clients decide on the actions to take with their money, it’s always good to consider three separate phases to ensure we are looking at the next move appropriately. The first phase is accumulation. This was the focal point of the media during the Go-Go 90’s when the stock market was climbing and everyone was enjoying growth in their portfolios. The second phase is conservation; the time before retirement where clients are still increasing their savings while being careful to avoid any losses along the way. Unfortunately, too many consumers have faced the staggering reality that the market doesn’t always go up. Too many people who were getting ready or had just retired, during the early 2000’s or the more recent market decline, are now dealing with the real risk of running out of money. The final phase, distribution, has taken center stage. When you realize that a large generation is nearing or at retirement, it’s not a stretch to understand why the media and insurance carriers are now discussing the subject of distribution.

Distribution may be the most crucial phase of the money life cycle. Should a client experience losses during the accumulation phase? They are still working and have time to make up those losses and continue to save. Once they step into the distribution phase, time is no longer working with them. It’s now most likely working against them especially if they experience losses early in retirement, the most detrimental time to experience a loss.

 

Three Methods

Let’s review three popular methods used for helping clients build their retirement paychecks.

The first we’ll call the “Wall Street” method. This method splits assets between stocks and bonds, a popular method that works well provided the market performs without unexpected corrections. But, this approach may cost your clients more to receive the income they need. Let’s say they have $1 million and withdraw 4 percent. That means they’ll receive $40,000 a year of income, but there is no guarantee it will last for the rest of their life. This will not be a popular choice among risk adverse clients.

Another approach to distribution utilizes popular income riders or GMWB’s that have become instrumental in achieving the goal of lifetime income. This approach appeals to clients because of its simplicity. Purchasing a deferred annuity and adding an optional income rider allows clients to experience growth during deferral and gives them an option to generate income without losing control of their money. With most income riders, the client receives a competitive growth rate on the income account ranging from 5 percent to 8 percent on the income account. They are able to determine at what age they wish to start income and control, and for how long they wish to receive it. Plus, they can stop the income stream should they no longer need it. Running a quick proposal, with one of the larger fixed annuity carriers offering income riders, demonstrates that it would take a little over $800,000 to generate $40,000 annually. Other questions to consider with this option would be how diversified their money is and are they receiving it on a tax favored basis, thus maximizing their portfolio.
Perhaps the most common approach to income planning is the Single Premium Immediate Annuity. The SPIA approach doesn’t come with many bells and whistles, but it certainly provides a guaranteed income payment for the rest of your client’s life.

 

Another Choice

But what if there was another method that allowed them to take advantage of tax favored income, optimize portfolio growth while protecting their nest egg from potential market losses, and guarantee income on a tax favored basis with the ability to keep up with inflation? Can they find control to start and stop income, maximize diversification and upside growth, and keep more of their social security income?

An approach that delivers all this and captures all the benefits your clients are looking for is a Laddered Annuity Payout Solution - LAPS

LAPS is a program to help financial professionals provide their clients a paycheck for life while giving them mortality credits and allowing them to spend more time focusing on their bucket list.

LAPS combines and accentuates the advantages of SPIAs and deferred annuity products. Typically speaking, we utilize an immediate annuity early on in the program to generate income for the first phase, but this isn’t always the case. We customize the program to your client’s objectives. In the next phase of the program, we might suggest purchasing three deferred contracts, all with different lump sum deposits designed to deliver the requested monthly income amount at the appropriate time. One attractive benefit LAPS provides is the ability to design the income needed in such a way to insure the client, after receiving 20 years of income, will regain their initial deposit. In our example, you would only need $775,481 up front, almost $250,000 less than Wall Street’s method.

One more benefit LAPS offers is the ability to revisit the assets along the way to insure you are delivering the highest income payout while maximizing growth.

Every LAPS solution is unique and helps your clients AND your business. If you have clients who want to secure their retirement paychecks while optimizing their assets, call your Annuity Sales Consultant to put a LAPS solution together for them.

 

Brian Holland
Vice President, Annuity Sales

With over 15 years of solid industry experience, Brian is a valuable resource for you and your business team. Brian joined the staff of Creative Marketing in 1997, as an Annuity Sales Consultant. His hard work and increasing sales numbers earned him a promotion to Vice President of Annuity Sales in 2004. Brian regularly presents at Creative Marketing’s Agent Academy, including the Incentives presentation and LAPS program for the CIA Academy. He has a Bachelor’s degree in Business with an emphasis in Finance from Kansas State University.

 

 

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC 11121-2010/7/07 | 16552 1892410

Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Neither the Company nor its agents or representatives may give tax, legal, accounting or investment advice. Individuals should consult with a professional specializing in these areas regarding the applicability of this information to his/her situation.