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Retirement Planning > Saving for Retirement

A 7-step guide for advising the mass affluent

By Chuck VanDevander

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I’m convinced the mass-affluent market holds colossal potential for advisors and agents to match needs to solutions; particularly, to help clients conquer the fear of outliving assets. Definitions of the mass affluent vary in our industry, but the Fact Book on Retirement Income 2014, from the LIMRA Secure Retirement Institute, refers to this segment as being comprised of households with $250,000 to $499,000 in total “non zero value” assets — and reveals that collectively, they have more than $2.3 trillion in assets. Let’s review the opportunity to help these consumers navigate a path to retirement readiness and consider some pointers that may help guide them on their journeys.

Are the mass affluent prepared at all for what lies ahead? Maritz Research documented in its March 2013 report entitled “The Changing Face of Retirement Income” that 54 percent of near-retirees surveyed who had investment savings of less than $500,000 agreed or strongly agreed that they are concerned about having enough money to last through retirement. You’ve probably seen similar research results.

The Fear

I believe the crux of the issue may be that many people in this market segment have no idea how much money they will need for retirement – they may have never enlisted a financial services professional to help them do the appropriate planning to determine what their expenses might be, how much income will be called for, and for what period of time.

I’m deeply troubled by procrastination among this group of consumers, because time seems certain to catch up with them. Perhaps they are afraid of what they will learn, and how far they may be from what they might need. After all, if having $250,000 to $499,000 in financial assets reflects annual income in the neighborhood of $70,000 to $100,000, I think most advisors would agree: those assets will not get people far, even if only 50 percent of their income is needed in retirement.

The Opportunity

This is where agents and advisors have the potential to seize a key opportunity: to help the mass affluent get a clearer picture of their retirement needs and available solutions. Ideally, that professional will take a holistic view and have access to all the products that people need, because it’s my contention that no single product can meet every need – not life insurance, not annuities, not long-term care insurance, not mutual funds.

I think that is reflected in the recent emergence of new distribution channels in our industry. Clients deserve advisors who can give them access to multiple solutions. As you may have observed, advisors or producers who offer only individual products may find it challenging to thrive, but those who offer a diverse array of products for different needs may have an edge.

It’s common sense. If I enlist an advisor who can help with life insurance as well as financial planning and address all of my concerns instead of only one, I am more likely to let him or her help me with multiple needs.

The Approach

The advisor should provide me with a personalized approach, however. I believe agents and advisors can deliver the most meaningful service when they walk step by step with clients through the planning process to help them realize what they need and want. Yet, I’m probably not the only person in our industry who has heard of an agent coming to the table with pre-packaged solutions ready to dole out, before taking the time to truly know and understand the client.

The range of solutions should address a variety of needs: from products that generate a stream of retirement income to those that continue to grow assets, and other products that help balance the client’s taxation during retirement. An income annuity may be an ideal product to help provide the income needed for known fixed expenses in retirement, such as an auto loan payment, a mortgage, food, clothing, shelter, etc. – and that’s the first order of business: determining whether there will be enough money to pay for necessities.

The Basics and Beyond

Beyond basic needs, what are the aspirations? What else does the client need and want, and for how long? A discussion about life insurance might be appropriate at this stage, because despite our industry’s initiatives to educate consumers on the value of coverage, not everyone (and certainly not everyone in the mass-affluent segment) has life insurance. It seems that for several years, people have worried about having enough money for other priorities that they don’t understand the value of life insurance as a financial tool.  

Others may have refrained from buying life insurance because they have started to realize how far they are from what they will need in retirement, and are putting dollars into other products, such as annuities, savings accounts, their 401(k) plans, etc. – perhaps to a greater degree since the recession.

Don’t get me wrong; I think it’s wise to consider allocating assets among multiple types of financial products that are taxed at different times and rates, when the goals include minimizing tax exposure each year. Help the client distinguish among fully taxed assets such as those in a 401(k); products that are taxed less, such as stocks and mutual funds; and across the spectrum to life insurance, where cash values may be accessed tax-free. Of course, be sure to tell clients at the outset of the planning process that they should seek independent tax or legal advice when considering their own circumstances. 

The Contingencies

Given that every circumstance can’t be foreseen – a reality that may compound the fear of mass-affluent consumers who are unsure their assets will be sufficient – build in flexibility for the unknown, such as how long clients will live. Flexible options have the potential to help people experience retirement with less stress.

When I talk to people about retirement, the topic of health care often comes up; it seems to be a huge concern. Clients say, “I know I have enough money for retirement – except if I have a really big medical expense.”

How might you begin to subtract the fear from the equation? Consider adding some sort of contingency: for example, disability insurance, long-term care insurance (LTCI), or a life insurance policy with cash value that can be accessed, such as through a chronic illness accelerated benefit rider or a lifetime income rider.

Given that stand-alone LTCI may be prohibitively expensive and that the policies typically only reimburse certain expenses (and after the client submits receipts), other solutions available today may be more appropriate for certain mass-affluent consumers. With a chronic illness accelerated benefit rider that is an indemnification product, the client need not submit receipts as long as he or she meets the rider’s health impairment criteria. And let’s get real, who wants to worry about submitting receipts when battling a serious illness? 

The New Index Products

Newer index products also have potential to help alleviate fear among the mass affluent.

People in this segment, particularly those in their 50s and 60s, don’t necessarily have ample time to recover from devastating financial losses. If they lose everything and must start saving all over again, they may not invest as aggressively as before and “catching up” may take several years.

Where would they turn with what they have? Unfortunately, some might consider a CD that earns a half percent interest or a bank account that credits virtually nothing. Other options have the potential to protect hard-earned savings from risk and might be a better choice for some clients.

For example, take the time to review newer index product offerings whose minimum guarantee ensures that no matter what the stock market does, the client will not lose his or her principal, and furthermore, that the client will have the potential to participate in any upside movement of the market.

Again, no one product can meet every need, but index products may merit consideration as part of the solution for some mass-affluent clients. Begin your retirement income conversation with them without a pre-set solution in mind; listen and then go from there. Just don’t go at it the same way with everyone. I’ve seen marketing materials that suggest a cookie-cutter approach, but the formula should be tailored for every individual and should allow for evolving needs.

The Bottom Line

As you work with mass-affluent clients, keep in mind also that the needs you’ll see today may not be the same ones you’ve seen in the past. Emphasize facing the needs and fears right now, because for consumers in this market segment, every month and year counts. The longer people wait, the less likely they are to be able to meet their basic and aspirational needs, and the more they may have to give up in retirement.

There needs to be a sense of urgency. There are millions more mass-affluent consumers than there are advisors and agents, so go talk to them! It can be easy for them to get into a conundrum when they don’t know where to start, but once you help them take the first step, they may really be able to make some progress on their journey to retirement readiness.

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