Clients who are 10 to 15 years away from retirement need you. They're likely getting more concerned about market volatility and its impact on their savings, but at the same time they're more aware than ever that they need their nest egg to grow significantly before they can retire. Here are three ways you can help your 50-year-old clients today:
1. Understand what is changing for them. Many clients will make portfolio allocation changes 10 years from retirement, and those financial decisions can greatly impact their enjoyment of life during their distribution phase. Here are two strategies your clients might consider in this precarious period before retirement:
Stay the course: For those 50-year-olds who want to continue to be invested in the market, it's important to consider market risk and the negatives of market timing. Although there is no guarantee that historical trends will continue in the future, consider that the S&P 500 index had annualized returns of 7.2% over the last 20 years (1998-2017), but the average investor only had returns of 5.3% over that time, according to Dalbar. It's critical to remind your clients of the value of long-term investing.
Change of course: What's potentially worse than market timing? Doing nothing. Lots of investors are biased by loss aversion, in which people give more weight to the possibility of loss than the possibility of gains, and as a result they stay away from the market. Clients who are overweighted in conservative investments need to be reminded of the value of staying in the market and the impact of underinvesting with more than 10 years of market participation at stake.
More than 30% of investors are underinvested in equities, according to Fidelity Investments' 2016 Retirement Savings Assessment, despite the conventional consensus that they need equities for growth potential. What if there was a product that potentially could grow their assets and protect their investment at the same time?
2. Introduce the value of "guardrails." Talk to your clients about solutions that offer guarantees. Think about driving across a suspension bridge. As you drive across, what's on either side of the roadway? Guardrails. You don't need the guardrails to drive over the bridge, but you probably feel safer knowing that you won't fall. Those guardrails give you confidence to make the drive across.
Investment protection guarantees act as guardrails for your clients, possibly giving them the courage to invest during the vital span before retirement.
3. Show how growth + protection = the courage to invest. So what are these solutions with guarantees? One possibility may be a long-term retirement product like a variable annuity along with the purchase of an optional accumulation benefit rider, or AB, which could meet the needs of your 50-something clients.
I recently spoke to a 55-year-old with $500,000 invested in a variable annuity with an AB. He chose it because he wanted a way to weather the recent market volatility, but also retain a certain level of equity exposure for his retirement assets.
An internal study of New York Life clients from 2007-2017 showed that policyholders of a VA with an AB had 20% more invested in equities than clients who didn't have this protection.
Keep in mind that although ABs provide investment protection, they also contain certain limitations and restrictions, including a constraint on the amount the policyholder can invest in equity funds.
Of course, investors should consider fees, guidelines and risks with variable annuities and riders. Withdrawals or surrenders may be subject to a surrender charge, ordinary income taxes and, if they're made prior to age 59½, may be subject to a 10% IRS penalty.
And your clients should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. Remind them to carefully read the prospectuses, which contain the information about the products and underlying investment options.
In these uncertain times, set yourself apart with solutions to help your clients invest confidently and protect their investments for today and tomorrow. Which of your clients fit this category? How have you helped? Do these clients feel better prepared for retirement? Feel free to share in the comments.
Philip E. Caminiti is a managing director at New York Life Insurance Co.