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Numbers Don't Lie: SPIAs Can Bring Comfort In Retirement

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Most people spend their entire working lives with the expectation of income on a regular basis. We work, we get paid. Whether on salary or commission, we’re conditioned to having a regular source of income.

Many baby boomers responsibly have saved a significant amount of money during their working lives in anticipation of the moment they can walk away from their jobs and live their lives on their own terms. But have they prepared themselves to walk away from a paycheck?

If not, the single premium immediate annuity should be a consideration.

When soon-to-be retirees stop working, most will stop receiving a paycheck. They have their savings, but how can they ensure that they won’t outlive it? They are being thrust into a new chapter of life without the comfort and security they have had for over 30 years–a regular income.

As advisors, many of us are partially responsible for the circumstance. That’s because we have not had the proper conversations with clients, and they now are unprepared to deal with the shift in how to manage their finances in retirement.

In 2005, a total of $216.4 billion of annuities were sold in the United States, according to figures from LIMRA, Windsor, Conn. SPIA sales represented $5.3 billion, or less than 3% of the total.

As a former sales manager of mine once said, “The numbers never lie.”

These numbers reveal that advisors are doing a grave injustice to clients by plucking clients from their current comfort zone of having a reliable income and confronting them with the risk that they could actually outlive their retirement savings.

There are a number of factors eroding the safety net of the senior population. People are living longer and the costs of doing so are increasing substantially. People also are retiring earlier than ever.

With increasing health care costs and decreasing retirement benefits for an aging population, baby boomers must be smarter about retirement planning.

The numbers never lie. People are working less and collecting more. Even the most inexperienced mathematician can see this path is unsustainable. Advisors owe it to clients to help them understand what they can do to ensure they won’t outlive their savings.

SPIAs are the one financial product that can turn a lump sum of money into a series of guaranteed payments over a specified period of time–in other words, into guaranteed income.

And, SPIAs are the only product that can guarantee an income a person can’t outlive.

This is not to say that SPIAs are the end-all and be-all or that they can solve all the financial woes of the country. However, there’s no question that the products can play a role in providing clients with a more fulfilling financial life as they enter their retirement years.

This is especially so since SPIAs have evolved over the past few years. They have more options now than ever before, options that clients should know about.

Some SPIAs offer return of principal, inflation protection, the ability to name a beneficiary in the event of early death and age rating (which can produce increased payouts for clients who have certain health conditions).

We advisors should put ourselves in the clients’ shoes. Given a choice, wouldn’t we rather have the option of making at least a portion of our retirement income guaranteed, regardless of the ups and downs in the stock market or interest rates? Wouldn’t we rather have the option of an income we could never outlive and that could provide for a spouse who may be left behind?

If the answer is yes, it’s fair to say that clients would feel the same way, too.

So, have that conversation. Take the time to get educated on the available SPIA options, and then educate clients about the possibilities. Give clients what they deserve–the best advice and opportunities available to live the life about which they have dreamed.

Failure to have this conversation will not only deprive clients of the chance to learn about options; it will also mean the advisor is overlooking a potentially lucrative business opportunity.

The numbers don’t lie here either. If only 3% of annuities being sold are SPIAs, there is a tremendous opportunity for the advisor to provide needed value to clients–an opportunity that few other advisors are yet pursuing.

The percentage that $5.3 billion of single premium immediate annuities sales represented in 2005 out of a total of $216.4 billion of annuities sold in the United States, according to LIMRA.


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