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The Key to Successful Income Preservation in Retirement

American Equity understands your clients look to you to help them find retirement solutions in their best interest. While every retirement is unique, we also believe many of today's pre-retirees and retirees face similar concerns: preserving money, maintaining a lifestyle they enjoy and securing a lifelong income.

American Equity has created a six-part series, comprised of articles and infographics that we will roll out through 2018, addressing common retirement concerns.

Our first entry in the series focuses on the importance of preservation.

Preservation and Pitfalls

Phil Mickelson entered the 2006 U.S. Open on a hot streak—three career major titles in a row. On the final day of tournament play, he was poised to take home his fourth. By the time he walked up to the 18th tee, all he had to do was preserve a one stroke lead. The next drive missed the fairway, hit the roof of a hospitality tent and came to rest amongst the gallery. The following strokes were plagued by bad lies, tree branches and bunkers. In the end, he lost the match.

If you are a golfer, or simply a sports fan, you can appreciate the frustrations of such a loss.  As a financial professional, you might understand— all too well—the frustrations of seeing someone make mistakes at the worst possible time.

The preservation phase of retirement can be one of the most crucial. For clients nearing retirement, the decisions they make and the risks they take can dramatically affect their long-term plans. To help your clients reach their goals, it may benefit them to understand the importance of the preservation as well as the retirement vehicles that can help them.

Past and Present

In 2008, Americans lost more than $3 trillion in retirement savings alone.1 On average, these individuals lost 14 percent—or about $10,000—of their retirement savings. The recession hit employees approaching retirement age the hardest. According to U.S. News & World Report, changes in balances ranged from a 1 percent gain for people with just a few years on the job, to a 25 percent loss for those with 20 years or more. Meanwhile, many mid-career employees (between five and nine years on the job) experienced sharp 401(k) declines, resulting in an average loss of 18 percent.2

The instability of the great recession changed the way Americans think about their approach to retirement income. Consumers in search of stability became more familiar with the benefits unique to fixed index annuities, and this propelled the industry to record sales. The crisis underlines the importance of the preservation phase in retirement, and offers a case study in the performance of fixed index annuity products.

The LIMRA Secure retirement Institute's Annuity Buyer Metrics 2016 report focused on data from annuity companies and surveys charting changes in buyer's investment objectives from 2014 to 2016. The study found consumers across the country turning to annuities mainly for principal preservation. This market sector grew from $49.4 billion in 2014 to $65.0 in 2016.3

We are now in year nine of this bull market and at a critical juncture for millions of Americans planning their financial future. Although more and more Americans are turning to annuities, many remain unclear of the role these products can play in a comprehensive, long-term plan and their vital preservation strength.

5 P's of Planning

We prepared a five-point guide to help the discussion on how and when products like a fixed index annuity can work for clients.

Preparation – Help clients assess their current financial condition, future financial goals and establish a timeline; these are fundamental for preparing a sound retirement strategy. 

Principal – Determine their individual objectives, and what is driving these long-term decisions such as, principal protection and guaranteed income. 

Possibilities – Consider extenuating circumstances that can wreak havoc such as, the global economy, market volatility, and costs of living.

Products – Work with your client's timeline and objectives to help them see how products like a fixed index annuity can work within a comprehensive, overall plan.

Provider – Understanding what products suit clients' best will help them decide what provider aligns with their service expectations and their personal values.

Ace in the Hole

Retirement is fraught with hazards. That's why a comprehensive strategy takes a comprehensive approach. As clients navigate their golden years, products like a fixed index annuity just may be an ace in the hole when it comes to preserving their hard-earned dollars. Our helpful retirement calculators can help assess goals and establish a timeline as clients evaluate their retirement planning options.

Next Month

Look for our next installment featuring an infographic that highlights the fundamentals of retirement planning covered in this article.

Works cited:

  1. "The Financial Crisis Response in Charts," U.S. Department of Treasury, April 2012
  2. Brandon, Emily and Marquardt, Katy. "How Did Your 401(k) Really Stack in 2008?" U.S. News & World Report, Feb. 12, 2009
  3. The LIMRA Secure retirement Institute's Annuity Buyer Metrics 2016

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