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Retirement Planning > Retirement Investing

Treating Retirement As Part Of Lifetime Planning

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Las Vegas

Retirement is a market, not a product. It involves not just a product but multiple products. And it is more than income planning–and more than retirement planning.

That is the position of Bruce Parker, president and chief executive officer of Old Mutual Financial Network, Baltimore, Md.

What lies ahead is treating retirement as part of “lifetime planning,” he told National Underwriter separately.

Equity index annuities will be part of that world, he said in his speech, explaining that they are among many products that older consumers will use to meet their needs and address their risks. In fact, EIAs are coming on the retirement community “like a wave,” and people are going to them “in droves.”

The keynoter here for the annual Producers’ Forum & Expo sponsored by National Association for Fixed Annuities, Milwaukee, Wis., Parker noted that the age 65 and up population is growing so fast that by year 2030, 20% of the population is projected to be in this age group.

“You get to be pioneers,” he said to the audience of fixed annuity professionals. “That group needs your product.”

But problems exist. Many people may have a false sense of security regarding money built up in their qualified savings plans, Parker noted. “They have not yet paid taxes on that money,” he explained.

Also, people may be relying on selling their big homes and getting into smaller houses. “That may be hard to do, considering the price of housing today.”

The “old tried and true ways” of financing retirement need to change, he maintained. For instance, if one relies on taking periodic withdrawal from investments for income purposes, the “withdrawal rate might be too high or the market performance too low.”

The agents themselves need to change, Parker said. They need to move from transactional selling to consultant selling. In the pre-retirement years, they should focus on protection and accumulation, he continued, and in the retirement and post-retirement years, on payout and care.

Speaking to the care solutions, Parker predicted that the industry will need to come up with designs that “take the fear out of care.”

He stressed that he does not just mean selling long term care insurance but, rather, “positioning assets to help with the care phase of life.”

Selling a laddered set of split annuities, spread over the retirement years is one example. It is “saleable” and “keeps the agent in front of the client” throughout the retirement years, he maintained. The plan assumes that equity index annuities will be used for the single premium deferred annuity side of the equation.

Concerning EIAs, Parker predicted that their sales will continue to explode over the next 18 months, due to continuing market nervousness and the possibility that interest rates may go down in the wake of Hurricane Katrina.

Also, EIAs appeal to buyers looking for safety of assets and ability to participate in the market indices via the policy crediting rate, he said.

Another EIA advantage of emerging importance is the product’s ability to enable owners to control when they take their money out, Parker said.

One can take away liquidity risk by using products of differing durations, he suggested. For instance, use a 6-year EIA, an 8-year EIA, a 10-year EIA, and a 12-year EIA, all with partial liquidity (for unemployment, nursing home confinement, terminal illness and annual 10% penalty-free withdrawals).

Layered that way, after the first 6 years, the advisor and client “can go back to the plan and see what to do with 25% of the risk,” Parker said.

The client gets tax deferral and tax efficiency, he said, as well as “great liquidity,” with one-fourth of the assets fully available after 6 years.

When setting up plans like this, advisors and clients should be sure to discuss what type of contingencies are in place, should the advisor later leave the practice or die, he told NU. The contingencies would address how the client will receive the planned regular reviews if the advisor is no longer there.

The EIA is a “basically boring” product, he said in his closing remarks. “You give us your money and we guarantee we’ll return it at a fair return.” But that story becomes “compelling,” he said, “once people get into the payout and care years” and start looking for security.

The industry will need to come up with designs that ‘take the fear out of care’


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