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Should volatility derail retirement plans? No, but it often does…. What are the pitfalls of an exclusive stock-oriented investment portfolio?
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While stocks can provide attractive returns, the market is subject to frequent declines, as the table below illustrates.
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The world is becoming more interconnected and events in seemingly far-off places can enhance stock volatility.
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If your client plans to retire on a certain date, and it coincides with a bear market, he or she may have to delay retirement because of insufficient asset. We saw that in reality in 2008-2010.
STOCK MARKET DECLINES SINCE 1900
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Jan 1900 to Dec 31, 2010
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Dips (5% or more)
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Corrections (10% or more
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Bear Market (20% or more)
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Total Number
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378
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122
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32
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Per Year Average
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3.4
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1.0
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About 1 every 3.5 years
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(source: Ned Davis Research 2012)
How can Fixed Indexed Annuities help clients retire on schedule?
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Fixed annuities, with their guaranteed interest rates and guaranteed return of principal (less any withdrawals of interest or principal) can help preserve client’s assets, potentially softening the impact of a choppy stock market on their accounts.
- A conservative approach….. provides the client with safety of principal, tax- advantages, liquidity, and legacy planning.
June is Annuity Awareness Month: the age-old question and worry from clients never stops: “what happens if I live longer than my money lasts?” The growth of annuities mainly comes from challenging market conditions, a perpetual low interest rate environment, and financial professionals looking for fixed income alternatives outside of bonds. So, the natural question to ask from a lot of the financial professionals new to the FIA products is ” how do we position these annuities to be suitable with our clients? ” Below is a simplistic way to explain these insurance products and their functionality inside of a retirement income strategy.
The basics are very easy. Safety of principle, reasonable rate of return, and a lifetime income stream that your client can’t out live. The challenge is, how do I know which annuity product will be the appropriate fit? There are many annuities available today and each one has a specific design and place.
When looking at the FIA space any insurance product will fall in one of four categories:
1. Accumulation – a favorable return with no risk to principle (we have seen treasuries plus 2% as an average rate of return over the life of an insurance product)
2. Performance Based Income – guarantees to income with upside potential based on indexed interest growth
3. Guaranteed Income – pension style income with a guaranteed payout at specific ages with no potential for increase in the future
4. Legacy or Death Benefit
And here are just a few reasons why some people should consider an annuity to be a part of their financial strategy:
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Contractual guarantees – guaranteed minimum interest rates and principal protection
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Transfer risk to the insurance company – the annuity carrier bears the market risk not the policy owner
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Alternative product to traditional conservative investment options – addresses interest rate risk and sequence of returns risk
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Multi-purpose product – optional riders may be available to provide enhanced death benefit guarantees or nursing home benefits
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Additional retirement income – lifetime income riders can provide guaranteed income that will continue even after the annuity contract is depleted of any cash value
It all depends on the client’s situation whether an annuity can be right for them. It is important in the financial strategy process to understand the contractual benefits of annuities along with the accumulation potential, as well as the fees and expenses of these products. For the right client, an annuity can provide features and benefits to help ensure financial stability and may provide a solution. Call us and let’s talk about your next case!
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Life can present many circumstances which can be financially scary: divorce. Divorce isn’t a fun subject, but as most people already know, around 50% of marriages end in divorce. The decision to divorce is never easy, and the process can be very difficult for those involved. Helping your clients organize themselves financially and being a knowledgeable resource will be invaluable help to your impacted clients. There are so many items to consider when clients are faced with separating their financial lives. When divorce occurs, many realize they need to update life insurance policy’s beneficiary designations, or buy a new policy that insures income protection in the case of child support or alimony agreements. Life insurance protects against the premature death of a divorced person making alimony payments, but what if that person becomes disabled and is unable to work? The average disability from the government is $1,145 a month, which most people would struggle to live on, let alone have the ability to fund alimony or child support obligations. Many people use SPIAs (Single Premium Immediate Annuities) or Fixed Indexed Annuities with Income Riders to protect against outliving their retirement assets, but when divorcing, how are the value of those future payments determined and how can they be split on what may be an irrevocable contract? Click here for more information.
http://www.lifehealthpro.com/2014/04/24/its-splitsville-divorce-and-spias
http://ida.dmplocal.com/dsc/collateral/NFM-12463AO.pdf
The Next Big Thing in Annuities: If you’re not talking with your clients about QLACs, expect that your competition is. Learn how big this opportunity really is!
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It is imperative to explore all financial options for the clients- why let a client lapse or surrender a policy when determining there is an alternative. Life Settlements- Life Insurance , like every other asset, has a Market Value. Before your client considers letting a policy go, call us to discuss the specifics. And interestingly, all policy types are considered now for Life Settlements- even convertible term insurance. The reality is: you will set yourself apart from other advisors and agents by educating clients on Life Settlements and the options for the unwanted/unneeded life insurance. Clients remember you told them about an idea that others did not- and isn’t that what we want as agents and financial advisors? To be distinguished as unique, with different and compelling ideas for clients provides them with more than the average agent.
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Are you aware within Fixed Indexed Annuities and Indexed Life Insurance there are 100% participation in the various indices up to the caps? Are you aware there are uncapped (yes uncapped) index strategies allowing the client the full index performance less a spread? Why is any of this important? Because clients have told this industry after 2008 that they no longer can endure the wild rides with their money. They have firmly said they are aware they need some exposure to the non-guaranteed markets, but they now also know they must be more diligent with safety, as their individual lives are uncertain and when retirement happens often is not by choice but more by circumstance.
See the attached White Paper by Allianz Life Insurance Company “Reclaiming the Future”
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