C2P Advisory Group

4 Ways to Rethink Annuities in Your Clients’ Retirement Plan

Published September 21st, 2021 in Blog |

Stacking Blocks

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 President of One Strategic Capital, Inc., Walter Young, the three discuss new and important ways to rethink annuities as a critical piece of a holistic retirement plan.

Don’t Get Excited About Annuities

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

As Dave says, “Annuities aren’t supposed to be the exciting part of the portfolio. It’s the foundational piece that we can then add the exciting components to.”

Annuities 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 also 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 we could return to a much higher interest rate environment.

“Maybe in 20 years, we’ll be having a completely different conversation about annuities, but I think we have to just do a really good job of understanding that every financial vehicle has a job it can do, and that it can be valuable if it’s done in the right combination 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

A lot of times the choice to use annuities just 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 his or her best interest. Even if annuities are not to our own benefit, we owe it to our clients to understand all the options that exist for them and to share with them everything they have to choose from.

Kalem points out, “I know there’s some advisors out there that maybe 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.”

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.