Managing Retirement Income And IRA Assets For Baby Boomers
One of the most popular advanced marketing topics is financial planning for baby boomers. Many commentators write about this topic and justifiably so. The baby boomers will begin reaching age 65 in 2011. A substantial market opportunity exists in helping baby boomer clients manage retirement income, and plan for retirement distribution and ultimate wealth transfer.
When it comes to retirement planning, many employers, financial planners, insurance agents and stockbrokers place an emphasis on the first half of the retirement income process: accumulation. That is, the process of saving enough to meet retirement needs. They focus on how much one needs to put away, and in what types of investment vehicles, in order to accomplish retirement income objectives. This approach, by itself, is shortsighted and hazardous for clients.
The key for financial advisors and insurance professionals today is to provide guidance that will synergistically combine both the accumulation and distribution phases of retirement income.
In helping clients make decisions about retirement income and distribution planning, the financial professional must, as always, identify the needs of the client and offer solutions for client problems.
Baby boomers have two major issues that impact planning for them: income planning and qualified plan asset management.
Income Planning. First, baby boomers will rely more on personal savings to establish streams of income for retirement purposes. The most fundamental first step in what we now call retirement income and distribution planning is determining whether the client has enough money to sustain his or her lifestyle.
With the decline in defined benefit and pension plans, contributions in personal investments and defined contribution plans have increased significantly. This trend is expected to continue into the future. These investments will become sources of retirement income for the majority of clients, and they also will be looking for assistance in determining ways to maximize their income and minimize the associated taxes.
One of the most valuable tools that can help accomplish this is the annuity, especially the immediate annuity. Clients need to know that there are two types of immediate annuities that may help them manage their incomethe fixed immediate annuity and the variable immediate annuity.
A fixed immediate annuity provides payments that remain the same regardless of market conditions, interest rates or the condition of the national economy. Therefore, immediate fixed annuities do not provide a hedge against inflation.
An immediate variable annuity, or IVA, produces a stream of lifetime income, or income for a designated period of years, from a single purchase payment. Depending on the income option chosen by your client, income payments may last as long as the client lives, no matter how long that might be. Since the single purchase payment may be invested in variable investment options, your clients income has the potential to outpace inflation.
For many years, annuitization was shunned by financial professionals because of the perceived loss of control over the assets. Some modern immediate annuity products, recognizing the needs of the baby boomers, are structured to allow some access and, therefore, allow for control over part of the principal. Such annuities may provide a key building block in managing retirement income.