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Retirement Planning > Retirement Investing > Annuity Investing

How you can help clients support elderly and retired parents

By Doug Dubitsky

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Financial professionals often must navigate delicate personal issues and family matters when advising clients on retirement strategies and none can be trickier than the dynamic that is created when retired or elderly parents need financial help from their grown children.

The relationship between family members in this situation is fraught with potential awkwardness, feelings of guilt and mounting frustration, which inhibits open communication and sound decision making. The good news is that financial professionals are in an excellent position to offer a simple solution to help alleviate much of this tension with an immediate annuity. 

A financial solution that provides dignity

Often, parents have a hard time accepting money from their children to help pay bills and other living expenses. Money squabbles can lead to more serious conflicts or exacerbate long-standing problems in the relationship. The immediate annuity provides a child with a way to guarantee payments to their parents for the rest of their lives. Also, because payments are made directly to the payee (the parents, in this case) and not the owner of the annuity (the grown children or child), it also fosters a level of dignity for parents who are experiencing the potentially disquieting role-reversal of accepting financial support from the children whom they’ve supported for so long. The direct annuity payments eliminate the need for parents to repeatedly ask for assistance and frees grown children from having to write checks every month.

Many clients don’t recognize the potential benefits of annuities generally. People new to these solutions often don’t fully understand their function and experienced investors sometimes believe they are somehow too mundane. The reality is, however, that annuities are an excellent tool by which to ensure predictable and safe income over time. In this way, immediate annuities are a great option for people who need to provide regular financial support to elderly parents.

The delicate first step

The first step in the process is to sit down with your clients and review their income, assets and expenses so they will have a clear understanding of the financial resources available to them. This can be accomplished during the clients’ annual or semi-annual review process or can be scheduled as a separate evaluation. The goal is to identify the clients’ level of comfort and purchasing power for the annuity.

Next, ask your client to provide a detailed budget of their parents’ monthly expenses and any existing income, be it from part-time work, retirement savings, 401(k)s, pensions, investments or Social Security. This will give you the data necessary to match your clients’ finances with the needs of their immediate family while also uncovering any gaps in their parents’ monthly or annual budget.

While seemingly straight forward, these financial reviews can be tricky for clients. They and their parents may not share much personal financial information with each other. If this is the case, it may be necessary for the financial professional to assume the role of a third-party intermediary in order to foster an environment of trust and open communication, free of judgment. This is where your interpersonal skills should shine. Keep everyone focused on the ultimate goal: providing a stress-free source of regular income for the elderly parents while easing the stress of the financial arrangement for all parties involved.

Many times clients will already be supporting their parents in some form or another and will at least have an idea of how much they have been providing in the way of assistance, even if the amount varies widely from month to month. The important part is to identify a consistent amount that the client can afford and is willing to accept, because this will help determine the amount of assets that will go into the immediate annuity. This amount, along with some additional factors, will determine how much money will be paid out to their parents in the form of systematic payments, guaranteed for the rest of their lives.

These guarantees are backed by the strength and claims-paying ability of the issuing insurance company, so it is vital that financial professionals present their clients with strong provider options. There should be no doubt in your clients’ minds that their investment will continue to provide support for the rest of their parents’ lives. Also, the annuity payments are not affected by market performance, so the annuity owner and the payee are free to focus on more important things. Additionally, it can be structured as a gift that the parent cannot outlive, which will greatly reduce financial concerns during retirement.

Customizing the solution

Structuring the annuity will require some input from clients, which is usually determined by the payee’s needs, budget and expenses. Monthly or quarterly payments are generally the best option for retired parents, because they can maintain some level of independence and make financial decisions similarly to when they were receiving regular paychecks. If you and your clients determine that there is a specific expense that needs to be covered, and prefer that the payment go directly to the institution, then you could designate the institution as the payee.

Inflation protection

Many providers offer the option of automatically increasing the annuity payments each contract year. This is a good way to ensure that as parents’ living expenses increase over time (with inflation or other costs associated with aging), the monthly or quarterly payments increase as well.

A secure future

If the owner (or owners) of the annuity passes away, the payments will continue to their parents. Also, if the last surviving parent passes away and the annuity has a guaranteed period, a refund certain guaranteed period, or a period certain still in effect, the annuity payments will continue until the end of the applicable period to the owner. This further cements the notion that the immediate annuity is a stable investment solution.

The guaranteed lifetime immediate annuity allows your clients and their parents to plan for life’s unexpected events, while reducing the family stress that money matters can create. While we can’t predict how long people will live, it’s still possible to plan for a lifetime of income to help meet expenses. Also, because the investment isn’t tied to market performance, the annuity will pay out predictable, regular amounts that are easily incorporated into budgets. And as living expenses rise, so too can the amount paid out every month or every quarter.

This solution brings dignity back to retirement for elderly parents who need financial assistance and eases the burden on grown children. It allows all parties involved to focus on all of the other things that need attention during those Golden Years without stopping every month or so to re-budget and negotiate what might seem like a hand-out. The immediate annuity keeps the financial arrangements simple and predictable, which alleviates tension and could help strengthen relationships. 

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