An advisor’s playbook for guiding their clients safely through
by Mark E. Caner, AEP, ChFC, CLU, CFPMr. Caner is president of W&S Financial Group Distributors, Inc., an operating unit of IFS Financial Services, Inc., and wholesale division of Western & Southern Financial Group (Western & Southern), based in Cincinnati. Caner joined the company in 2006 and is responsible for leading the financial institution, broker-dealer and independent agent sales channels. Visit www.westernsouthern.com
Every month, more than a quarter-million Americans turn 65.1 As they kick off retirement, are they ready to tackle financial demands that may last decades? Are you?
Taking the Field for Retirement
Many Americans don’t like what’s on the scoreboard. Almost two-thirds of workers (64 percent) say they feel they are behind schedule when it comes to planning and saving for retirement.2 Educating them to related risks and corresponding countermeasures is job one for financial professionals.
If retirement lasted only a few years, readiness might be less concerning. The reality however is that increasing lifespans may be accompanied by decades of post-employment exposure to wealth-depleting forces – ones such as market volatility, health care spending and inflation. All are critical considerations. They may reduce retiree resources and increase the chance of exhausting retirement income.
Obstacles for retirees may represent opportunities for financial professionals. Clients desire confidence that their income stream during retirement will satisfy their spending needs. Quantifying cash flow requirements and identifying sources of protected retirement income are among the elements crucial to crafting a strategy and putting it into action.
Know the Opponent
Faced with America’s growing retirement income challenge, it’s essential that financial professionals and their clients better understand the array of risk factors that can impact retirement security. Those risks include:
- Health Care Costs
- Rates and Returns
Discussing key planning considerations serves a dual purpose.
One, it helps capture the range of influences that affect financial security in retirement.
Two, it helps examine how realistic clients are toward assessing and addressing risks.
As clients weigh these factors, educate them to the needs and lay the groundwork for considering strategies to manage the risks. Annuities, for one, may play a powerful role in such strategies.
What’s the “Down and Distance?”
A client-centric approach begins with discerning where a client stands in terms of timing, needs and resources. Take a systematic, comprehensive look at monthly income needs and guaranteed sources (e.g., government benefits, employer pensions). Comparing the two may identify the amount of primary expenses to be covered by guaranteed income. A shortfall represents the need to be addressed.
Using an annuity to cover expenses with guaranteed income may help remove unwanted volatility from a retirement plan. Also, as protected income helps cover monthly costs, it reduces the need for drawdowns from other resources to levels that may be more readily sustained.
Take advantage of resources designed to help clarify the situation. For example, a client-use planner (which my company created) seeks to facilitate an integrated process of:
- Identifying and quantifying the monthly income shortfall.
- Determining what sum a client is comfortable allocating to an annuity for guaranteed income.
- Reducing exposure to volatility and increasing confidence that primary expenses may be addressed for longer durations.
Install the Income Playbook
Drawing up a retirement income plan is just one step. The next, putting it in to action, may be daunting. Clients may be overwhelmed by the complexity of attacking the challenge. In working to identify and install strategies, help clients focus on timing considerations and risk attitudes, such as:
- How soon before the income is needed?
- How long must the income last?
- What is their view toward volatility and preference for stability versus opportunity?
Again, take advantage of resources designed to enhance understanding and decision making. A tool from W&S Financial Group Distributors, for example, outlines a simple, step-by-step approach to helping clients set a retirement income strategy in motion. It diagrams strategies that consider various annuity income options based on a client’s identified time and risk parameters.
Set Up in a Strong Side Formation
Now may be a timely opportunity to focus on contractual certainty. Annuities may help boost confidence by providing a range of guaranteed elements.3
A strategy that may extend over decades demands that quality be a key consideration. One important perspective centers on an issuer’s financial security as rated by independent insurance rating analysts. High ratings bolster client confidence that the retirement income stream can last their lifetime.
In these uncertain financial times, clients naturally value guarantees backed by insurance companies with records of strong ratings for financial strength, stability and operating performance. Many sources exist to provide such information. *
Game Time for Income Planning
Coach clients on their retirement income prospects by enhancing their appreciation for the associated risk factors and corresponding planning strategies that seek to address them. An astute financial professional can begin by reaching out and asking:
- Do you want to maintain your current standard of living in retirement?
- Are you confident in your ability to self-insure your retirement or would you like to contractually shift that responsibility to an insurer?
- Do you want a steady retirement income you cannot outlive?
- Do you want to lessen the impact of market volatility?
Faced with longer life expectancies and ongoing economic uncertainty, income planning is ever more important. By educating clients to the realities, a financial professional can serve as a resource that connects clients with the building blocks to a winning strategy for retirement income. ◊
Materials cited in this article are available at WSFinancialPartners.com.
* Ratings and other measures of financial position relative to industry peers for companies distributed by W&S Financial Group Distributors, for example, are at WSFinancialPartners.com/Ratings.
1 FiveThirtyEight Economics, “What Baby Boomers’ Retirement Means for the U.S. Economy,” May 7, 2014.
2 Employee Benefit Research Institute, “The 2015 Retirement Confidence Survey, April 21, 2015.
3 Guarantees vary by product. Restrictions, limitations and additional costs may apply. See information on specific products for details. Guarantees are based on the claims-paying ability of the issuer.