What really determines happiness for your clients in retirement? A client’s savings may be a great indicator of security. But is their portfolio diversified enough to account for the income they’ll need as well?

In the latest Bucket Plan OnDemand podcast episode, Dave Alison discusses the importance of lifetime income for your clients’ long-term retirement happiness.

Along with Vice President of Clarity Insurance Marketing, Kalem Mackey, and Walter Young of the 5th Option, the three discuss new and important ways to rethink annuities in retirement as a critical piece of a holistic plan.

Don’t Get Excited About Annuities

It’s okay if you’re not excited about annuities. Annuities are not exciting.

Annuities aren’t the exciting part of the portfolio. It’s the foundational piece that we can then add the exciting components to.

Annuities in retirement help to take the sequence of returns risk, the cash flow risk, and the longevity risk off the table so that you can get more comfortable exploring the exciting stuff. It’s not the vehicle itself but what you do with the vehicle. With a lifetime income annuity, there is no worry if interest rates are good or if they’re bad. You’re essentially purchasing a pension for as long as that client’s alive.

Consider the Economic Environment

When considering which products to use in a holistic plan, it’s important to think about the economic environment we’re in.

Walter points out, “The current economic environment is way different than it was 10 years ago, and in 10 years will be different again. And so, we have all these tools at our disposal, and we should not be afraid to use them in the right economic environments.”

Right now, we’re in a low-interest-rate environment, and no one knows if or when that will change.

“Maybe in 20 years, we’ll be having a completely different conversation about annuities, but I think we have to understand that every financial vehicle has a job it can do and that it can be valuable if it’s within a holistic plan.”

Look at Annuities as a Bond Replacement

Especially with where bonds are at right now, lifetime income annuities can be a great replacement for clients looking for more liquidity.

A lifetime income annuity gives you a place to be able to take additional withdrawals without penalty-free or surrender charges, or anything like that. It also gives you value to a rebalancing process if markets get volatile.

“To be able to substitute out a portion of those bonds to put in a lifetime income annuity, I think it just it just works, it’s diversification. It’s not just sticking with this three-asset class portfolio of cash bonds and equities. It’s now looking at offloading some of that bond risk to the insurance company,” says Dave.

Don’t Forget Your Client’s Best Interest

Often, the choice to use annuities in retirement comes down to the way advisors are licensed or how they practice. But Walter points out that it can also be a matter of how advisors get paid.

“A person who’s AUM focused may not want to give dollars up to an annuity because they don’t get paid the same way. And, of course, if you’re insurance-focused, then you think everyone should have annuities.”

This is an opportunity to really put your client first and ask yourself what’s in their best interest. Even if annuities are not to our own benefit, it’s our job to understand all the existing options. So, our clients know all of the relevant information before making a choice. 

“I know there are some advisors out there that may have been burned by certain products or companies in the past. But there’s just so much innovation in the annuity space. The products that are available today are so much more client-centric than they were 10, 15, 20 years ago.”

-Kalem Mackey

To learn more about some of the specific innovations and products, as well as trends and carriers of lifetime income annuities, listen to the full podcast episode here and schedule a call with us today.

Financial Professional Use Only

The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time of the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.