Offering married clients greater flexibility in retirement

Maintaining a comfortable lifestyle in retirement requires planning for income needs, but also requires preparing for sudden changes in circumstances. This type of preparedness is difficult to achieve, since no one knows how their life will unfold. This big unknown may explain why a report from Cerulli found that 63% of American households don’t have a sufficient plan for income in retirement.¹ Given the difficulty of predicting the future, and the array of products typically presented to them, many married clients often make assumptions about their future needs and make compromises when planning for retirement income — income that will have to last as long as they do.

A MetLife variable annuity with the optional FlexChoice rider ² can help remove some of the tough choices married clients often face, by offering them lifetime income ³ with fewer compromises.

The following discussion with Elizabeth Forget, executive vice president of the MetLife Retail Retirement & Wealth Solutions Group, explains how FlexChoice can help married clients prepare for the future better, with the lifetime income they may want and flexibility they may need, no matter how their lives unfold.

IN Content Strategy Studio: What is FlexChoice?
Elizabeth Forget: It’s a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider that we offer on MetLife variable annuities for people between 50 and 85 years of age. It’s intended for those who are five to ten years from retirement, and it can be well-suited for married clients.

IN: What challenges do married clients face when choosing lifetime income?
EF: The market shows there’s strong demand for GLWBs because traditional sources of retirement income are changing and retirees are living longer. But the typical product requires clients, especially married clients, to make decisions at the time of purchase about circumstances that may change in the future.

Typically, clients have to choose single lifetime or joint lifetime income upfront, even when they’re not sure what they’ll need in the future. If they choose joint lifetime income, they’ll receive a lower initial withdrawal rate and will have to pay a higher fee than the single lifetime income option. Also, the income they’ll receive is calculated based on the age of the younger owner, so married clients may have to wait for the younger spouse to reach a key age before they can withdraw the income they need.

IN: What features make FlexChoice more appealing to married clients?
EF: When creating FlexChoice, we listened to advisers and their clients to deliver a product that can help meet client needs. We eliminated some of the compromises married clients have to make at the time of contract issue. This allows clients to adapt their retirement income plan as their needs change, and can help them prepare better for the future, no matter how their lives unfold.

First, clients don’t have to choose between single lifetime and joint lifetime income options⁴ when their contract is issued. The choice is made only if and when their account value reduces to zero. ⁵

Second, the initial withdrawal rate for FlexChoice is the same for married and single clients, providing more income when clients need it most. This is important because most clients will spend more in early retirement than later. The maximum amount of income your clients can withdraw each year is calculated off the Benefit Base, and is determined by the age at the time of the first withdrawal after age 59½. ⁶

Third, income with FlexChoice is based on the age of the older owner, not the younger one, so married clients don’t have to wait for the younger spouse to reach a key age to qualify for a withdrawal rate. This means that a married couple could get more income by accessing a higher withdrawal rate sooner.

Finally, there’s no additional charge to cover a spouse because there’s one fee for all clients.

IN: What other features of FlexChoice provide flexibility?
EF: Depending on their needs in retirement, clients can choose one of two income options. There’s the Level option ⁷ that provides a guaranteed level of payments for life regardless of account value. For example, clients can begin 5% withdrawals at age 65 with the Level option. There’s also the Expedite option, which provides higher withdrawals earlier in retirement with a lower Lifetime Guarantee Rate if the account value reduces to zero due to market conditions or an allowable withdrawal. For example, clients can begin 6% withdrawals at age 65 with the Expedite option, which will reduce to at least 4% if the account value reduces to zero. All of the withdrawal rates that FlexChoice offers are available at flexchoice.metlife.com.

Also, clients have alternatives to lifetime income payments both before and after their account value reduces to zero. Before the contract’s account value reduces to zero, clients can cancel the rider on the fifth, tenth or later contract anniversary. If they choose to cancel on the tenth anniversary or later, and if their contract’s account value has dropped due to market performance, they’ll receive a guaranteed principal adjustment that increases their account value to the initial investment, reduced proportionately for withdrawals.

If their contract’s account value reduces to zero, and the owner or owners no longer need lifetime income, they can receive a lump‐sum payment⁸, based on a calculated value of lifetime income payments instead.

IN: How are the assets in a variable annuity with the FlexChoice rider invested?
EF: Clients have the opportunity to build an allocation that works for them from the available investment options. At least eighty percent of the assets must be invested in our Protected Growth Strategy portfolios ⁹, which are institutionally-oriented portfolios run by some of the world’s largest asset managers. They’re similar to a traditional, moderate 60/40 equity/fixed‐income portfolio, but enhanced to include more asset classes, while seeking to minimize exposure to risk. The approach is designed to smooth out returns, and many FlexChoice buyers have told us that they’re very pleased with the long‐term, investment approach of these portfolios. Other choices include the Pyramis Government Income Portfolio and the Barclays Aggregate Bond Index Portfolio. For the remaining 20% of assets, buyers and their advisers can select from an array of available asset allocation portfolios.

IN: What are some typical objections to FlexChoice?
EF: There’s the stereotype that annuities are expensive. With FlexChoice, we’ve focused on having a competitively priced GLWB rider that provides guaranteed lifetime income with market upside potential, even if markets don’t perform as expected. Quite simply, it would be hard for an adviser’s client to replicate FlexChoice’s guarantees, its flexibility or the caliber of its investment options on their own. FlexChoice provides a level of certainty and flexibility today, that can’t be found at a comparable price.

IN: For advisers and their clients, what’s the takeaway?
EF: Particularly, as people reach their 50s, they realize that life unfolds in unexpected ways. Circumstances, choices, and needs change. People lose their jobs, have unexpected expenses, come into money unexpectedly, get sick, divorce, and remarry. That’s why a retirement income plan should be flexible. FlexChoice can help clients to adapt as their financial needs change. Advisers should get to know FlexChoice and discuss it with their clients. We feel the combination of guaranteed lifetime income and flexibility will be very appealing.

It is possible to lose money in a variable annuity even when an optional protection benefit is elected.

Availability and features may vary by state. MetLife variable annuities are long-term investments designed for retirement purposes and have limitations, exclusions, charges, termination provisions and terms for keeping them in force. The account value is subject to market fluctuations and investment risk so that, when withdrawn, it may be worth more or less than its original value.

Variable annuities, other than Preference Premier^®, are issued by MetLife Insurance Company USA on Policy Form 8010 (11/00) and in New York, only by First MetLife Investors Insurance Company on Policy Form 6010 (02/02). The Preference Premier variable annuity is issued by Metropolitan Life Insurance Company on Policy Form PPS (07/01) (Collectively and singularly “MetLife”). All variable products are distributed by MetLife Investors Distribution Company (member FINRA). All are MetLife companies.

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¹ Cerulli Report, Annuities and Insurance 2013.
² FlexChoice is available for an additional annual fee of 1.20% of the Benefit Base. Upon Automatic Step-Up, the annual charge may increase, up to a maximum of 2.00%. In the prospectus and contract, FlexChoice is referred to as the Guaranteed Lifetime Withdrawal Benefit (GLWB).
³ We use the terms “income” and “lifetime income” to refer to any allowable withdrawal(s) under the FlexChoice rider, as well as any lifetime income payments your clients could receive under the rider if their account value reduces to zero.
⁴ The Joint Lifetime Guarantee Rate is less than the Single Lifetime Guarantee Rate. The Joint Lifetime Guarantee Rate is only available for spouses. The spouse cannot be more than 10 years younger (4 years in New York) than the older owner as determined by the birthdays of the two individuals. If a contract is jointly owned, the Joint Lifetime Guarantee Rate is only available for the spouse of the older owner.
⁵ If the contract’s account value is reduced to zero due to a withdrawal before age 59½, or due to an excess withdrawal, your clients will not be eligible for lifetime income, no further benefit will be payable under the FlexChoice rider, and the rider will terminate. See prospectus for details.
⁶ Clients can continue to withdraw income at their initial withdrawal rate until the account value reduces to zero. If the account value is reduced to zero due to an allowable withdrawal, they can elect to receive income for 1 or 2 lives based on the applicable Lifetime Guarantee Rate.
⁷ If FlexChoice Level is elected, the withdrawal rate used to calculate the Annual Benefit Payment will be the same immediately before and after the account value is reduced to zero (conditions apply prior to age 59½; see prospectus for details) unless joint lifetime income is elected.
⁸ Payment of the lump sum (or, in New York, commuted value) will terminate the contract and all obligations under the contract. Please see the prospectus and contract rider for details.
⁹ A risk managed approach like Protected Growth Strategies seeks to give your clients more consistent returns over time. While they may not capture all the gains in an up market, this strategy is designed to help them avoid big losses in a down market.