Financial advisors have a tremendous and growing need for information on how to guide older clients on how to turn their investments into income, contends Bill Boscow.
“The subject comes up at every advisor conference I attend,” says Boscow, who is chief marketing officer at Lincoln Retirement, the Ft. Wayne, Ind., annuities operation of Lincoln National Life Insurance Company.
His remarks came during an interview on Lincolns newly enhanced income rider for variable annuities–the i4LIFE rider, discussed below.
Increasingly, advisors are requesting education on income planning strategies, says Boscow, and that is one of the key reasons his company enhanced its income product and why company executives are now traveling around the country to talk about it.
Often, when clients enter retirement, they have assets tucked away in several places, says Lorry J. Stensrud, CEO of Lincoln Retirement. These places may include qualified plans (401(k), IRA, etc.), annuities, life insurance, securities accounts, savings accounts, real estate holdings, etc.
The quandary, Stensrud says, is “which source, or sources, should the client first use for retirement income purposes?”
This is a tax efficiency discussion, not just a longevity discussion, he says. “People are asking, what is the most tax-efficient way to spend down” the assets?
Many advisors recommend leaving the qualified assets and annuity assets alone for a while, to get maximum benefit from the products tax deferral, observes Boscow. But that often means the money goes into the estate and gets passed on in asset transfer at death, he says.
That may not be the best outcome for the client, say Lincoln executives. “In general, its inefficient to use these sources for asset transfer,” Boscow explains. Qualified plans and annuities were designed to provide retirement income, not wealth transfer, notes company literature.
So, then, what to do?
Lincolns suggestion is: “why not use the qualified plan assets and annuity assets first?” This way, says Boscow, the client keeps the other assets growing for later use or wealth transfer.
Where annuities are concerned, he contends that taking income payments from them is tax efficient. The client only pays taxes on the portion of each payment that is considered to be earnings, he explains. Depending on the clients circumstances, this can be advantageous, he says.
When he talks about VA income strategies with advisors, Boscow says, the discussions frequently trigger an “aha” response. Its an “ah, now I see” kind of thing, he says.
He speculates that what advisors may be seeing is not only the advantage of income payouts to clients, but also the possibility that income planning can be a way to grow the advisors own business.
“Its a way advisors can strengthen their leverage with customers,” Boscow explains.