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How to Help Clients Maximize Income During Retirement Years with an Annuity

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Registered investment advisors are facing many challenges because of low interest rates and other marketplace uncertainties. And, given current conditions, consumers are risk-averse and seeking stable, competitive returns on investments, plus strong relationships with advisors to help plan for the future. Success now requires dealing with issues quickly and understanding potential solutions. 

Financial uncertainties present advisors with opportunities to strengthen relationships by providing valuable guidance on maximizing income during retirement years and transferring assets to next generations. 

With more than 19,000 investment choices, advisors must have access to trusted partnerships to provide valuable advice about issues and solutions.  RIAs can then help clients take a holistic approach to financial planning—from accumulation and distribution of income to generational planning and wealth transfer.

Many advisors include generational planning to help high-net worth clients develop and implement plans that may span generations. Success in this area can significantly impact an advisor’s practice by solidifying the advisor’s relationship with clients’ family members, including children and grandchildren.  Having the right tools to implement these strategies is a competitive advantage.

Though traditional asset classes—from bonds and equities to alternative investments—have proven successful in accumulating long-term growth, they may not be optimal for income certainty and longevity risk.  And, they may be whip-sawed by market volatility.  The income plan result is largely dependent on the sequence of returns. As a result, clients are eager for advisors who can lay out a menu of customized solutions.

Mid-size RIAs should consider developing relationships with organizations able to provide resources and solutions for planning options, and help keep advisors current in the changing scene. Those resources help advisors meet clients’ needs, while enabling advisors to build practices.

One potential client solution often overlooked because of perceptions of outdated products is annuities

RIAs may have viewed annuities as too expensive, complicated, tax-inefficient and lacking liquidity.  In fact, annuities have evolved to include options able to maximize income during retirement years, while providing liquidity and tax efficiency.

According to a study of the Dow Jones Industrial Average by American Funds Distributors, a leading mutual fund company, bear markets resulting in a decline of 20% or more occur about every 3.5 years.  That’s a good reason to ensure clients are prepared for that risk by insuring a portion of their money. The effort can address longevity issues and protect retirement lifestyles while also ensuring that the financial plan can continue for the spouse and children after a client’s death.

Understanding What Makes an Effective Annuity

Moreover, because annuities are flexible vehicles, they can be structured to meet specific needs and provide tax advantages, as well as robust estate planning. For example, annuitization provides some significant tax advantages and allows for advanced planning techniques. 

But few advisors use it because, historically, there was a significant barrier: the account value was no longer accessible.  However, some companies offer a way for clients to get the benefits of annuitization while maintaining control of their money.

This allows several key advantages, such as a lifetime income stream that can also be tax efficient on non-qualified money, not just tax-deferred (i.e., receive cost basis as part of each income payment)—while still providing complete access to account value for potentially multiple generations.

This annuity payout option provides liquidity, guaranteed lifetime income and the ability to invest in the market. They may provide increasing income over the client’s lifetime, helping to protect against erosion of lifestyle.

There are five issues advisors should consider when exploring the right variable annuity:   (1) available investment options, (2) rising income with protected downside, (3) liquidity, (4) tax efficiency (beyond tax-deferral), and, (5) cost. Lincoln incorporates these components to ensure a comprehensive and effective solution.

Keeping Up With The Environment

Advisors have an opportunity to underscore the importance of examining financial situations, goals and options for the short-term and longer-term. Ensuring that they have the right tools and partners can enhance their practices considerably.    

To successfully help clients weigh potential consequences of marketplace uncertainties, and consider customized solutions, advisers should ask these questions:

How do my current offerings match my audience and “what if” scenarios?

 Where can I find assistance and illustrations reinforcing recommendations for the situations I am likely to encounter as well as those less routinely arising? 

Advisors offering a thoughtful walk-through of the possibilities as they now exist, coupled with customized solutions, and a strong partnership with a reliable source of information, can become the single voice of reason.

John Kennedy is Head of Retirement Solutions Distribution sales for Lincoln Financial Distributors, Inc. (LFD), the wholesaling distribution organization for Lincoln Financial Group, Radnor, Pa.. He oversees growth strategies for the distribution of Lincoln’s annuities and intermediary 401(k) businesses.

Del Campbell is Vice President of Investment Research for Lincoln Life and is also responsible for providing investment solutions within Products offered by Lincoln in the Registered Investment Advisor Marketplace.


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