The Retirement Income Challenge: Get Smart and Get Moving!

SPECIAL ANNUITY SUPPLEMENT - Summer 2011 | By John Gies

John Gies

Additionally, according to EBRI, 29 percent of workers say they have less than $1,000 in retirement savings. And 56 percent of those surveyed said the total value of their household savings and investments, excluding their home and defined benefit plans, was less than $25,000.

An Insured Retirement Institute (IRI) study further highlights the problem. It found that one-third of pre-retirees do not know the age at which they will retire. And three out of 10 baby boomers say concern about having enough assets is a top retirement planning issue.

It’s no surprise your clients have big retirement challenges. They don’t know what they don’t know, but they desperately need answers. Are you prepared to help them? If so, now is the time to expand your knowledge base and begin moving your business into the retirement income arena.

Where should your education start?

First, get smart about the differences between retirement income planning and investment-product sales. According to a recent industry study, retirement income planning:

• Is more comprehensive vs. modular
• Is risk and cash flow based vs. investment based
• Is process focused vs. product focused
• Focuses on achieving lifestyle goals vs. investment return goals
• Has multiple planning time horizons vs. a single, long-term horizon

The most important difference: Retirement income planning requires a consultative versus a transactional sales approach. If you can prove to your clients that you have the knowledge to help them, you will likely survive the process of advisor consolidation (on average from three advisors to one) that typically occurs as clients move into retirement.

Secondly, educate yourself on the issues keeping your clients up at night: Social Security, healthcare expenses, and market uncertainty.

Your clients may be confused about things as basic as applying for Social Security. And they’re often uncertain about strategies for maximizing their Social Security payout. Encourage them to share their questions. Then answer them. This will be an excellent way to kick off the retirement planning process and to build a strong advisory relationship.

You’ll want to cover points such as:

• How to request and read a Social Security statement
• The three scenarios for commencing benefits (reduced benefits at age 62, full benefits at age 65-67, delay benefits until age 70)
• How to determine the best time to start receiving benefits
• How the earnings test works
• What benefits are available to spouses
• How Social Security benefits are taxed
• The nature of Provisional Income

After explaining these items, you may want to discuss lesser known Social Security strategies, such as “do-overs,” file and suspend, and restricted applications. If you’re not familiar with these, contact a variable-annuity company such as Prudential Annuities for additional details.

As you well know, retirement healthcare is another common worry. We encourage you to use relevant statistics to engage your clients on this issue. For example, ask them if they know how much healthcare expenses rose between 2000 and 2009? Answer: 149 percent, a rate of increase four times greater than the average worker’s income (37 percent). Even with healthcare reform, experts believe cost inflation will continue. For instance, a healthy 65-year-old couple will need $260,000 on average to pay for healthcare and nursing home costs for the remainder of their lives.

If retirement healthcare doesn’t keep clients up nights, market volatility likely will. Explain the following to them: If they retired shortly after the market downturn of 2008/2009, they would have seen much less retirement income produced from those assets than they might have anticipated.

What’s more, fear or overconfidence might have led them to move in and out of markets in an undisciplined manner (behavioral risk), generating further losses and missed opportunities.

Helping your clients to develop a retirement income plan based on goals, time horizon, and risk comfort will put them on the path to retirement security. And making use of variable annuity lifetime income guarantees available for an additional fee may help to harness upside potential and mitigate downside risk, making it easier for them to stay invested long term.

So far, we’ve been talking about clients bringing you their retirement challenges. You need to educate them about relevant issues and encourage them to take action by increasing their savings, developing an asset allocation plan for growth, and determining an income allocation strategy that matches fixed expenses (“need to haves”) with guaranteed income streams during retirement.

But how will you address your own challenges in becoming a retirement income advisor?

According to the Prudential study mentioned earlier, 85 percent of the advisors surveyed said finding new clients with retirement income planning needs was a critical or significant challenge for them. The good news: New business is well within reach.

Start by using your branch’s existing client data to identify high-balance IRA assets, both within and outside your own book, that do not have a lifetime income guarantee on their money. Investors with these assets will be particularly interested in discussing their retirement income risks and solutions for mitigating those risks. Schedule a quarterly or annual review with your clients to point out the stresses that recent market events have put on their retirement savings. Then point out there’s a solution that can potentially address these concerns.

Next, review your current variable annuity book for additional opportunities to help clients grow and protect their retirement income.

Over the last few years, many clients have witnessed first-hand the benefits of owning a variable annuity with an optional living benefit. Some of the optional living benefits available on the market help manage the guarantee by moving money out of equity markets during market downturns. In fact, variable annuities with optional living benefits can help provide periodic lock-in of gains for retirement income purposes and protection from market volatility. What a perfect time to contact clients to discuss the experience they’ve had with these features, in order to uncover further opportunities.

Here are some actions you might take:

• Contact clients to review their current retirement plan and investments. If they have a variable annuity with optional living benefits, make sure they understand its current values and guarantees.
• Ask your clients if they know anyone else who might appreciate having guaranteed retirement income—and who might welcome the same type of guidance on achieving that goal that you provided them.
• Also ask if they would like to have the same level of comfort they have with their other retirement assets.
• Use the same basic approach for prospects in and outside your network, as well as centers of influence such as CPAs or attorneys.
• Deliver this same message to groups of prospects in a seminar format.

Your clients’ need for guidance runs deep. And they’re looking for answers from you, their trusted advisor. Take advantage of this great opportunity by:

• Getting smart about your clients’ needs
• Getting smart about the solutions to those needs
• Getting moving and motivating your clients to act

The good news? Using resources available now, you can help your clients achieve a more comfortable and secure retirement. In return, they’ll likely reward you with their business and referrals. It doesn’t get better than that!

John Gies is Vice President, Strategic Relationship Management, Prudential Annuities.