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Let’s Talk about Your Client's M.U.G.

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Only 17% of workers (and 32% of current retirees) are very confident they will have enough money to live comfortably throughout their retirement, according to the Employee Benefit Research Institute’s (EBRI) 2018 Retirement Confidence Survey. What’s worse is that only 38% of retirees are very confident they will have enough money to take care of basic expenses during retirement.

(Related: Don’t Leave Your Children Any Money)

If your client’s retirement plan doesn’t include guaranteed lifetime income to cover basic expenses, your client is basically rolling the dice. Only about 12% of workers are very confident that they know how much income they will need each month in retirement, or how to even withdraw that income. So, how do Americans plan for their retirements if they don’t even know how to determine the amount of money they’ll need to pay for those basic everyday expenses?

Financial advisors, however, play a key role in helping Americans prepare for just that. By helping their clients determine how much income they’ll need in retirement, and looking at guaranteed lifetime income to cover that amount, people like you can help make the retirement income planning process much less daunting for their clients.

To put this need for protected income into context, we can look back at Japan in the 1980s: Honda and Toyota were the top Japanese stocks and the Japanese Stock market was hitting new highs, almost daily, for a decade. Then, the stock market plunged, and it stayed down for over 30 years. It’s likely that many Japanese soon-to-be or current retirees were facing much less liquidity than they had anticipated after that market drop. With protected lifetime income, they would’ve been able to protect themselves and their necessary expenses from unexpected changes in the market.

So, how do you use this story to start a conversation with clients about planning for their retirement? It’s simple: ask them to add up their essential monthly expenses.

Ask your clients to think about their “M.U.G.” It’s an acronym created by the Alliance for Lifetime Income that represents the essential monthly expenses people need to cover in retirement, like your mortgage, utilities and groceries. It’s an easy way for retirees to look at what they’ll have to pay for, and then create a plan to help pay for those essential expenses with protected lifetime income from an annuity.

Explain it like this: M.U.G. is about taking the first step in planning for retirement by estimating your essential monthly expenses, which could include things like monthly medical costs, transportation, insurance premiums – or whatever you decide are normal costs you must pay for. After you’re done with that, take the next step by making sure that you have guaranteed lifetime income (the money you must have) to help cover some of those essential expenses.

Today, pensions and Social Security benefits barely cover all of retirees’ income needs, but an annuity can make up that gap. Academics around the world stress the importance of having a source of protected lifetime income in retirement portfolios – something that stocks, bonds and real estate just cannot provide. Adding an annuity to a portfolio has even proven to lower the risk and increase the returns of that portfolio. Furthermore, research has also shown that people with annuities in their portfolio tend to be happier and even live longer.

Financial advisors should start thinking of themselves as retirement income planners, not just investment advisors. Working together, financial advisors and their clients can discuss the simple strategy of looking at your M.U.G. to create a reliable retirement income plan.

Look at each of your clients’ unique situations from the lens of a retirement income planner. Consider how adding an annuity to a client’s retirement portfolio will ensure their ability to pay for essential expenses in retirement, regardless of how the market is doing, and talk to them about how covering their M.U.G. with protected lifetime income could help them achieve the retirement of their dreams.

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TTom Hegnaom Hegna is a senior education advisor for the Alliance for Lifetime Income. He’s the author of Retirement Alpha: How Mortality Credits Improve Retirement Incomes, and he was the host of the public television series “Don’t Worry, Retire Happy.”