Innovative solutions for retirement income management challenges
by Ray CaucciMr. Caucci is Senior Vice President, Product Management, Underwriting, and Advanced Markets for Penn Mutual. Visit www.pennmutual.com.
Today, it can be harder than ever to guide families toward a successful retirement. With men and women struggling to build the nest egg and cash flow they want, the classic advice and financial options typically offered to them don’t always give them the protection or security they need. In this ever-evolving retirement landscape, advisers need to not only address challenges with clients, but also provide innovative solutions to fuel income planning and long-term security.
Diversifying cash flow
Retirement comes with many benefits, but it also comes with a level of uncertainty. Defined benefit pension plans aren’t as common as they used to be, and while clients may have saved via their Roth IRA or 401(k), advisers may want to recommend supplementing a client’s income by further diversifying cash flow.
From this need came the innovative idea of using the cash value attached to a life insurance policy as a source of supplemental retirement income. While the idea may seem more pedestrian today than it did when it first debuted, the idea still maintains its usefulness when it comes to diversifying cash flow sources in retirement. Today, a product such as participating whole life insurance not only provides policyholders with death benefit protection is also offers guaranteed cash value accumulation — another source of cash flow that can be tapped for income needs in retirement. Additionally, although not guaranteed, participating whole life policies offer the potential to earn dividends to build even more cash value.
Some clients may seek other types of permanent life insurance to fit their needs during retirement. Not everyone is built the same way, particularly when it comes to tolerance for the risk of market fluctuations. Because of this, new products have continued to evolve that build the cash value portion of a life insurance policy in different ways, such as indexed universal life insurance policies (IUL). a. Policyholders can grow cash value with guaranteed minimum interest rates and the lock-in of gains after each interest rate crediting period, which keeps the policy from losing value even if the market underperforms.
These products offer a diversified source of cash flow that comes with a cash value, but with more protection from market risk on the downside.
Whole life and IUL not only address the need for retirees to have a diversified source of cash flow, but also offer separate potential cash value growth patterns that fit the unique needs of different sets of clients. By offering more than one solution to address an issue, advisers can be nimble in their offerings and create better value by more closely aligning a solution to the needs of clients. Both policies help to supplement already-existing sources of retirement income, but based on their level of risk tolerance, clients may choose to opt for one over the other– what matters most is that the choice exists. Continued innovation in this space could allow for even more choices for clients, giving them the power to take control of their financial future.
Planning for two
Family structure is another factor that advisers should consider when it comes to creating long-term strategies. Everything from income to estate planning gets more complicated as more people become involved, with more paperwork to manage, more payments to be made, and more potential wealth transfer to oversee.
Couples planning together may want life insurance protection for each person, but rather than paying two premiums, there is a simpler route: the Survivorship policy.
Survivorship policies can be more effective than two separate life insurance policies, as the death benefit is only paid at the death of the second policyholder. It can also ease estate planning, as the death benefit passes to beneficiaries income-tax-free and, with proper planning, estate tax free.
Transforming the life insurance purchase experience
Historically, the process to obtain life insurance has been invasive and time-consuming. Typically, it can take weeks for the person who applied to actually get coverage, which is a stark contrast to other financial vehicles that can be more easily purchased in a digital environment. Clients may be reluctant to have fluids drawn, be examined, and take the time to go through the lengthy process. Advisers would prefer to spend more of their time in front of clients offering solutions rather than shepherding applications through approval.
To combat these problems, advisers should look for solutions that eliminate the most painful and time-consuming pieces of the process and use new technology to streamline the entire event. For situations where the policy owner is a person (insured or not), advisers and clients have the opportunity to complete an electronic application, experience fluidless, non-invasive underwriting if the insured qualifies, electronic payment, electronic policy delivery, and support for on-line post-issue service capabilities. The online application is akin to taxpayers filing their income taxes electronically. A policy can be processed in 3-5 days, and the adviser is there to help every step of the way. This bypasses many of the pain points for advisers and clients, allowing both sides to focus on more intricate aspects of their income management and retirement, while also providing them with an important product that offers them peace of mind and protection for their family.
Continued innovation for incoming planning and life insurance
As an industry, we need to transform and modernize alongside changing client needs. No one today is handling their finances like they did 100 years ago, and no one in 100 years will be handling their finances exactly the way we do today. Retirement needs, insurance expectations and savings patterns change with each generation. If advisers continue to offer the same old products, clients will slowly begin to trickle away, as their needs are no longer being met.
When it comes to choosing an adviser, clients are going to look for one that can alleviate specific pain points, from diversifying cash flow sources in retirement, to estate planning, to obtaining a life insurance policy that fits easily into their lives. Adviser success comes from the success of their clients, and having an arsenal of options that can address an equally wide range of lifestyles can help them get there. ◊
Life insurance policies are subject to eligibility requirements and restrictions and may not be right for everyone. Accessing Cash Value will reduce the death benefit and policy values, and may be taxable.