Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Annuities

Why You Should Talk to Clients Now

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Quiet clients may be nervous clients.
  • Nervous clients may be more open to hearing advice about retirement income planning.
  • Everything hinges on knowing what's coming in and what's going out.

As we pass the one-year anniversary of the World Health Organization officially declaring COVID-19 a pandemic, it’s a logical time for many Americans to assess the state of their finances and prospects for a successful retirement.

Although markets have performed relatively well, after some initial volatility, between high unemployment, limited ability to make retirement savings contributions, and the potential need to tap into emergency funds, 2020 was a turbulent year that left many questioning the state of their financial future.

Unfortunately, your clients may be experiencing some of this uncertainty and looking for guidance on how they can better manage against risks of future economic events that can have a negative effect on their retirement savings.

But why is this so important to address with clients right now?

Because clients may be feeling more stressed about the economy and health of their finances than you realize.

COVID-19 Fears

According to the 2021 Retirement Risk Readiness Study from Allianz Life Insurance Company of North America, nearly seven in 10 (69%) Americans (ages 21 and older in 2007) said they believe the COVID-19 pandemic will have a greater overall economic impact than the Great Recession.

Furthermore, over half of all respondents (56%) said the pandemic will also have a greater impact than the Great Recession on their personal finances.

The survey also found a majority of Americans reporting far greater anxiety today than after the Great Recession about many financial issues, including day-to-day finances, retirement savings, and the stability of their professional career — and rightfully so.

Things like an earlier-than-planned retirement or general lack of financial preparedness are realities that put savings and retirement income plans at risk.

Rays of Hope

There is some good news. There are signals it may be an optimal time for a retirement planning conversation.

Despite, or possibly due to, the obvious financial strain caused by the pandemic, nearly two-thirds (65%) of survey respondents said that they are paying more attention to what they are saving and spending, and near-retirees (those within 10 years of retirement) are more active in pursuing a variety of strategies including:

  • Saving enough in a retirement account
  • Diversifying their retirement savings
  • Researching expenses and risks associated with retirement
  • Making a formal plan with a financial professional
  • Purchasing a product that provides a guaranteed source of income

How to Help

One way to help your clients address these issues and feel more confident is through retirement income planning. This can identify any potential income gaps and develop solutions to help attain lifestyle goals in retirement.

1. Understand your client’s retirement risks

In the income phase, the amount your clients have saved for retirement is subject to a variety of risk factors as they begin to withdraw funds. By working together in identifying these risks, you can begin the process of developing strategies to help minimize the effects these risks may have on their retirement savings.

2. Track expenses

More to the point, not only will your clients need to track their expenses, those expenses will need to be prioritized into three distinct categories; Essential (needs), Discretionary (wants) and Legacy (desires).

As a rule, essential expenses take funding priority and require guaranteed income, hopefully with cost-of-living adjustments. After all, the income must cover essential expenses for 25 to 30 or more years regardless of market conditions, inflation, or other factors.

3. Identify income sources

While retirement income can come from a variety of sources, Americans who are eligible consider Social Security to be the foundation for any retirement income plan. For decades, America’s retirees have counted on Social Security for dependable, reliable supplemental income, often with a cost-of- living adjustment.

However, studies indicate that Social Security provides, on average, 40% of retirement income. That’s why it is important for your clients to know their options when filing for Social Security benefits — so they can enhance their benefit as much as possible to help cover essential expenses.

4. Uncover potential income gaps

This income planning process is designed to help your client determine whether their guaranteed sources of retirement income — like Social Security or a pension — will cover their essential expenses in retirement.

If you discover clients do not have sufficient guaranteed income to cover their essential expenses, you will have identified a retirement income gap.

You play the critical role in determining how your clients can best fill that gap with other sources of guaranteed income, like annuities with income benefits, with guarantees being backed by the issuing company. Making this discovery is the first step toward developing and implementing a tailored solution toward the retirement lifestyle your clients have been dreaming about.

The global pandemic has people recognizing, and taking a more proactive approach to managing, risks that may come in retirement. During this time, financial professionals can help clients with strategies to add more risk management measures into their retirement planning, such as products that offer guaranteed retirement income.

Ultimately, your guidance in formalizing a retirement income plan that helps mitigate potential risks can go a long way in alleviating the burden of any financial concerns brought about by the pandemic.

— Connect with ThinkAdvisor Life/Health on FacebookLinkedIn and Twitter.

Kelly LaVigne (Photo: Allianz Life) Kelly LaVigne is vice president of consumer insights at Allianz Life Insurance Company of North America.

(Image: Shutterstock)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.