A newly released study by global asset manager Schroders shows almost half of Americans over the age of 45 are concerned about the possibility of outliving their assets. Their concern creates an ideal opportunity for advisors to demonstrate their value. Moreover, as clients track fast-moving market plunges related to the coronavirus pandemic, helping them devise solid income streams is vitally important.
The right approach to creating income streams will depend on your client’s appetite for risk, their tolerance for uncertainty and their expectations for market returns. Start the conversation by discussing two basic approaches.
1. Safety First Seeks Guaranteed Income
Recently popularized by retirement planning expert Wade D. Pfau, the safety first approach seeks financial security in retirement through guaranteed income streams aimed at meeting your client’s spending needs for the remainder of their life. With this approach, your client shifts his or her risk to one or more insurance companies by purchasing immediate and deferred-income annuities or variable annuities with guaranteed withdrawal benefits.
What Your Peers Are Reading
There are, of course, risks associated with even “risk-free” strategies. With most plain-vanilla immediate and deferred-income annuities, if the client were to pass away suddenly, his or her heirs would get nothing (unless the policy has a death benefit). Additionally, if inflation rises faster than anticipated, the value of the future income streams will erode.
2. Probability-based Planning Seeks to Maximize Lifestyle