At NAVA Conference, Producers Air Income Planning Strategies
Hilton Head, S.C.
Increasingly, the question for older consumers is, how can I live on my accumulated assets once I am retired?
Two panels of producers tackled that question in various ways during a meeting here. The first panel positioned income annuities as one part of the planning solution. These panelists embedded the income annuity in the context of overall income planning discussions and approaches.
The second offered other strategies, based on panelist assessments of two sample cases. The strategies they vetted included: drawing down savings, systematic withdrawal, tax planning, asset allocation, home equity line of credit, buying life and long term care insurance, and more–but not income annuities.
Yet all panelists seemed to agree on one point–that people do need help with making income decisions.
The meeting was a retirement income conference sponsored by the National Association for Variable Annuities, Reston, Va.
Todays marketplace is much different than it was in the 1990s, observed Michael G. Maggio Jr. of Cornelius, N.C.: “I see fear on the faces (of my clients), not greed.”
A vice president and financial advisor in the Wachovia Securities Inc. bank channel program, Maggio said some of his clients start crying during the financial planning interview.
Some are upset because they dont have enough money, he explained. Others “didnt plan, or they didnt understand what they bought or why.”
The combination of depressed investment account values and nominal interest rates is hitting older people hard, agreed other panelists.
Hence, the rising interest in finding ways to live on the assets people still do have. The panelists had plenty of suggestions.
“I focus on longevity, not life expectancy, because, if you focus on life expectancy, youll be wrong 50% of the time,” said Russ Garner, the national sales manager for Fidelity Investments in Boston. He resides in Ft. Lauderdale, Fla., and sees many people there in their 90s and in good health.
Before ever discussing income annuities or other products with clients, Garner said he spends a lot of time educating customers about longevity trends. He shows a chart illustrating that the “longevity risk” is significant for modern Americans.
For instance, the chart shows the probability that someone age 65 and in good health will live to age 80. This probability is 71% for males and 81% for females. As for living to age 95, the chart shows the probability at 16% for males and 23% for females.
What about couples at age 65 and in good health? The chart shows a 36% probability that at least one spouse will live to age 95.
This information becomes the basis for educating clients on the long-term need for retirement income, Garner said.
He uses another chart to show the withdrawal rate risk, if the client plans simply to take systematic withdrawals from existing assets.
Still another chart shows how maintaining some equities in the investment allocation reduces the probability of failure for a portfolio subject to annual withdrawals. (Failure means becoming exhausted before reaching a certain age.) Garner said he shows this chart to help clients see that “being too conservative in the asset allocation is a big, big mistake.”