NAVA And InFRE Rolling Out

Retirement Income Management Course

BY

Phoenix, Ariz.

“The annuity industry will lose if it doesnt get behind this” new educational retirement income management course, said a women attending a meeting here.

She was referring to the new Retirement Income Certificate Course jointly developed by National Association for Variable Annuities, Reston, Va., and International Foundation for Retirement Planning, Lubbock, Texas. Both organizations are nonprofit.

The comment came at the close of a panel discussion debuting the course at NAVAs annual marketing conference.

The course aims to educate advisors on how to identify and explain the trade-offs a client has to make when converting retirement assets into lifetime income streams, said panelist Richard M. Reilly of Worcester, Mass.

NAVA wanted to develop a retirement income course because it had become aware that the industry needs to take a “planning approach, not a product approach,” to retirement income management, indicated Reilly, former president and CEO of Allmerica Financial Life Insurance & Annuity Company.

NAVA sought out InFRE as a partner, due to the Texas organizations expertise in offering retirement management courses for counselors and administrators in government pension programs, he said.

Initial distribution will be through NAVA member companies, who will, in turn, offer the course to their respective distribution arms, said Reilly.

The nation is facing enormous change in the retirement market, said A. Scott Logan, a former NAVA chair and an industry veteran who stays active in the business. He is now a registered representative at Cornerstone Financial Advisory Inc., Fort Myers, Fla.

Current retirees under age 70 control $3.3 trillion in wealth, excluding homes, he noted, citing statistics from SRI Consulting Business Intelligence, 2003. Of that amount, about $1.6 trillion is in defined benefit plans and about $1.7 trillion is in defined contribution plans, Logan said. Assets in IRAs add even more to those numbers.

The challenge, he continued, is that most of todays financial advisors and planners lack the knowledge and expertise to provide the guidance people need to convert retirement assets into retirement income.

As a result, retirees face a “significant risk of a dramatic decline in their standard of living,” he said.

To help advisors provide guidance in this area, the certificate course suggests a 6-step income management process (see chart). “This is a process that goes on continuously,” said Logan, adding that a clients plan is “defined and redefined” as time goes on and circumstances change.

A key part of the process is identifying the post-retirement risks facing retirees, said Richard P. Austin, an industry veteran based in St. Petersburg, Fla., who is a financial services consultant on retirement income planning.

These risks include longevity, family issues (divorce, second families, etc.), health and long term care, business and public policy, and investments.

“There are a lot of myths associated with longevity,” Austin pointed out. For example, people may assume they will live to their life expectancy. But, in reality, he said, “only 4% of deaths occur at that point. That means the myth is wrong about 96% of the time.”

Also, as people live longer, there is a growing probability that LTC needs and issues will occur, Austin said.

As for financial modeling, he said there are pros and cons. Monte Carlo models do spur people to think in terms of probabilities, Austin allowed, and they do make it easy to see the result of changes in variables entered into the model.

But, he asked, “Can a client grasp the difference between a 60% chance and a 70% chance of achieving a goal?” Additionally, he said, the models are “not very likely to predict a [stock market] crash like the one in 87.”

Other retirement income points to cover with clients include tax issues, required minimum distribution issues, Social Security, portfolio allocation and systematic liquidation of assets, he said.

The new course runs for 12 hours and includes testing at certain points. Students receive a certificate upon successful completion.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.