Retirement Insecurity

Financing The New Income Timeline

How client savings might live a long life

by Rod Mims

Mr. Mims serves as senior vice president, distribution at Athene, a leading retirement services company that specializes in helping its customers retire with confidence and is a solutions provider to institutions. Visit www.athene.com.

Increasing life expectancy has driven a seismic shift in the retirement planning landscape. With American men expected to live 75.1 years and women 80.5 years, according to the National Center for Health Statistics, the gift of an extended retirement now comes with the challenge of ensuring financial stability during these golden years. Couples can expect to live together in retirement for another 19 years on average, if not longer, adding a layer of complexity to the financial preparation needed.

We are approaching the point where 40 years must replace 30 years as a conservative planning horizon for healthy individuals in their 60s, reports Wade Pfau, Ph.D, ACFA, RICP. With these new timelines in mind, financial professionals must equip themselves with strategies and products to set their clients on a successful retirement trajectory.

Longevity in retirement planning is not a one-size-fits-all concept; it’s a highly personal and individualized matter. As such, it’s imperative to guide clients in crafting a longevity strategy that resonates with their personal circumstances. Beyond statistical reports, the focus should shift to factors such as your client’s health, accumulated assets and personal aspirations for retirement. A retirement savings plan should not only focus on investment decisions, but also on providing peace of mind – especially in a world where a client’s health span and lifespan don’t quite align.

Here are three actionable tips financial professionals can implement to help fortify their clients’ financial foundations.

Manage Longevity Risk and Inflation In A Volatile Market

Retirement income planning not only involves the anticipation of a long life; it entails preparing for potential surges in inflation and the risk of market downturns. A client heavily invested in equity-like instruments and commencing retirement in a downturn faces the potential impact of withdrawing from a shrinking nest egg. This is known as sequence of returns risk.

Given the significant impact a volatile market and inflation can have on one’s retirement savings, clients may be on the lookout for strategies to shield their assets. Research by Athene reveals that more than two-thirds (69%) of Americans have reconsidered their retirement savings strategy due to concerns about changing economic conditions.

Inflation’s impact on retirement planning extends beyond the economic phenomenon itself; it is entangled with investors’ fears surrounding its impact on their finances. You can play a crucial role in explaining to your clients how specific retirement saving products can serve as effective tools against both inflation and the fear of uncertainty.

Annuities, especially fixed indexed annuities (FIAs), can be a valuable tool for financial professionals as they address this dynamic. FIAs offer the potential for interest earnings based on the positive performance of underlying stock market indices while helping to shield retirement assets from market risk.

Personalize Retirement Longevity Planning

Having a forward-looking view while thinking through retirement planning helps clients to see the importance and emotional impact of financial security during those years, which an annuity can help provide...

FIAs are insurance products that combine guaranteed protection from loss due to market downturns with the opportunity to earn interest based in part on any upward movement in one or more reference stock market indices. They can be a valuable addition to retirement plans, providing financial and emotional support for those worried about outliving their money. And FIAs can provide a guaranteed stream of income that can help cover fixed retirement costs, allowing clients to worry less about covering essential bills.

Educating clients on the potential value of annuities is crucial, considering that nearly a quarter (21%) of Americans are unfamiliar with them, according to Athene. There are specific ways you can emphasize the benefits without calling attention to the uncertainty clients may feel about their mortality. Best practices include shifting the narrative to focus on life rather than death, emphasizing the role of annuities in maintaining financial independence over the long run. Having a forward-looking view while thinking through retirement planning helps clients to see the importance and emotional impact of financial security during those years, which an annuity can help provide.

Underscore The Value Of Guaranteed Income

In a world marked by unpredictability, it is crucial to explore financial tools that can help provide stability and certainty. Market volatility makes guaranteed income more attractive than ever, emphasizing the increasing importance of financial solutions that provide stability to your client’s portfolio. Fixed indexed annuities, with their ability to provide guaranteed lifetime income, can be part of a solution that helps alleviate uncertainties around outliving retirement savings.

FIAs can provide a reliable “retirement paycheck” that can last as long as your client’s retirement, allowing clients to rely less on non-guaranteed income sources to cover any income gap. However, despite their potential, only 3% of Americans rely on annuities as their primary retirement savings vehicle. Educating your clients about the benefits of FIAs becomes a crucial step toward establishing sources of guaranteed income.

Empowering your clients with solutions that offer guaranteed income and their accompanying benefits allows them to envision their best life in retirement. Armed with this knowledge, clients can retire with the comfort that comes from securing lifelong income.

Bottom Line

Setting up your clients for a happy and secure retirement requires a personalized and strategic approach to long-term savings and income planning. Ensuring your clients understand the risks posed by longevity enables collaboration on a diversified plan. By providing a strong hedge against all major retirement risks, including longevity, fixed indexed annuities can be valuable additions to retirement income strategies, not only strengthening financial portfolios but also providing clients with the peace of mind that their hard-earned savings will support their dream retirement.