Those who need to catch up have a number of options
by Kelly LaVigneMr. LaVigne is vice president of Advanced Markets for Allianz Life Insurance Company of North America. Visdit www.allianz.com
As financial professionals, helping clients reach their financial goals – including a comfortable retirement – is our primary motivation. Along with that responsibility comes client expectations that having a proper retirement strategy will help boost their chances for a successful financial future. But what about those clients who, despite having a well-thought-out retirement strategy and are in good financial shape, just don’t have that optimism? Despite the effort, investments, and sacrifices they have made, they feel behind on retirement savings, and still worry that if they don’t catch up, they won’t be able to have the comfortable retirement they have dreamed of?
According to a recent study by my company, almost half (49 percent) of active retirement savers age 45-65 with a mean retirement portfolio of more than $400,000 also feel behind on savings, and worry that if they don’t catch up, they won’t be able to have the comfortable retirement they have dreamed of. Having that significant amount of money socked away is no small feat, yet these people – identified in the study as “Chasers” – worry that if they don’t increase retirement savings soon, it will be too late to have a comfortable retirement.
How can you help calm clients’ nerves and help them feel even more prepared for retirement – particularly when they already have a significant amount saved?
Help them define and focus on important financial goals
Putting away additional money for retirement can be challenging. The Allianz Life study found that Chasers are distracted by other savings goals, with 54 percent citing that they have too many other expenses right now, and 20 percent saying they are saving for other financial goals.
It can certainly be challenging for clients to prioritize saving for a retirement that seems eons away, particularly while there are bills, car payments, mortgages, vacations funds, college tuition and other expenses stacking up. Helping clients build out a detailed, formal budget can help them get a better grasp on finances, and identify additional opportunities for saving for their retirement.
Provide education on additional financial products
Another potential reason that Chasers might feel so far behind is that they tend to own a smaller range of financial products. Only 53 percent have an individual retirement account (IRA), and even fewer own individual stocks (35 percent), mutual funds (35 percent), have a pension (37 percent) or own an annuity (14 percent).
Compared to the other group identified in the study – those that do feel confident in their savings – a full 70 percent own an IRA, and they also own individual stocks (56 percent), mutual funds (51 percent), have a pension (53 percent) or own an annuity (28 percent). Diversifying and spreading out their retirement strategy might be a factor as to why they feel more secure with their savings.
Offer to help clients, either couple by couple or in a seminar, learn about the range of financial products available that may help them catch up. Of particular importance to Chasers are products that offer growth with added protection from loss. According to the study, 63 percent say they can’t take the risk of investing in high risk/high reward financial products.
In fact, 71 percent are willing to trade off some upside growth potential to have some protection from loss. Building in a layer of additional income protection is important for these Chasers who feel behind, and a product like an annuity can provide that potential for growth along with opportunities for a level of protection against stock market risk (may be available as a rider at an additional cost) while providing an income stream in retirement. Additional fixed-income solutions that can provide this sort of protection for clients can include bond funds, exchange-traded funds, certificates of deposits and money-market funds.
When you review your client’s retirement portfolio with them to determine their specific risk tolerance, and whether or not more diversification makes sense you likely focus on what solutions can best provide the opportunity for the portfolio to grow, within their risk tolerance. For the Chaser, it may also be the best time to introduce how to add a level of protection.
Clients Playing Catch Up
Feeling behind on retirement savings may compel clients who need to catch up, amend any detrimental spending habits, and create a retirement strategy for their future. What we have found however, is oftentimes that feeling may be misplaced for those clients with an appropriate, balanced portfolio, which might cause unnecessary stress. Financial professionals play an important role in helping their clients recognize where they stand on the spectrum of retirement savings. Clear communication can go hand in hand with developing, and may help to boost, clients’ confidence that they can achieve the comfortable retirement they dreamed of.
Annuities can help you meet your long-term retirement goals by offering tax-deferred growth potential, a death benefit during the accumulation phase, and a guaranteed stream of income at retirement.
As always, your clients should carefully consider the features, benefits, limitations, risks, and fees that may be associated with an annuity, as well as the expenses, investment risks, and objectives of the underlying investment options in a variable annuity. ◊
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney.
Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.