Cracking the Retirement Income Puzzle

People on the cusp of retirement are facing uncertainty about their investments just when they need it least. To help advisors find smart solutions to the current market conditions—including a new approach to income—InvestmentNews Create recently connected with Jim Wagner, Chief Distribution Officer, Retirement Division, at Protective.

InvestmentNews Create: Clients are facing market pressures we haven’t seen in a long time. What strategies can financial professionals use to guide investors during this period?

Jim Wagner: Once-stable solutions no longer provide the safety net they historically have. The “60/40” portfolio—60% equities and 40% bonds—isn’t what it used to be. Bonds are not creating the desired level of safety within a portfolio anymore.

Taxes, inflation, rising interest rates and volatile markets pose increasing challenges, and clients are looking for solutions that can protect their assets and provide income in retirement. That’s where annuities can help deliver confidence.

InvestmentNews Create: We talked about the challenging economic environment; why do these conditions make it important for advisors to consider investments that offer growth potential, guaranteed income and legacy protection? How has Protective tailored its income solutions to meet client needs?

Jim Wagner: Put simply, annuities have become a critical element of asset allocation. Yes, they offer important death benefits and the potential for tax-deferred gains. But now more than ever we see the need for variable annuities to solve some of the threats we see present in today’s market. We’ve got rising interest rates. We have inflation like we haven’t seen in two decades. And these are hitting just as people are preparing to retire, so they need income. They’re also going to need that income longer, because their expected longevity has increased over that of prior generations. It’s a perfect storm.

Today’s higher interest rates make variable annuities that have guarantees and living benefits, such as options to pay lifetime income, very enticing. These solutions can help clients access the potential for growth in the market; holders of a living benefit may find that the benefit value of the annuity may shift with the markets but the guaranteed income element won’t.

InvestmentNews Create: How important is it for advisors to frame the discussion with clients when talking about lifetime income solutions such as annuities?

Jim Wagner: Well, we already know that for advisors, the way they frame their advice to clients can make a real difference in how likely the clients can be to take that advice. What’s funny is how this seems to be especially true for annuities.

In some of the research that we’ve conducted with partners, we have found that when advisors use the word “annuities” in talking with clients, the clients tend to be less receptive. However, when we surveyed clients about their desire to have a solution that provided guaranteed income in retirement, they were excited and said they would want to learn more.

This means advisors have to understand the problem the client is trying to solve and frame the solutions they propose in terms of helping their clients solve those problems. Annuities and other financial products can be very complex, and it’s important that financial advisors use language that resonates with their clients.

It’s an approach that we believe will be successful based on more than our own studies: Nearly half of Americans would be willing to convert some of their assets into a guaranteed lifetime income stream according to The Facts of Life and Annuities study conducted by LIMRA. And those Americans who already own an annuity feel they are on firmer financial ground than those who don’t. In fact, 69% of those who own an annuity agree they won’t outlive their savings by age 90, compared to 44% for those who don’t own an annuity, according to Secure Retirement Institute data.

InvestmentNews Create: What benefits should advisors look for? We’re thinking here about specific features designed to help address particular client needs.

Jim Wagner: Protective has put a lot of time and effort into understanding that, and we developed a new offering, Protective Aspirations Variable annuity, to help meet those needs.

Longevity risk is a major reason clients get interested in annuities. Based on industry research, we can safely assume clients will live 30 years during retirement. That’s a long time and their income needs can change drastically within that time frame.

We designed Protective’s variable annuities with those needs in mind, offering clients the flexibility to control their income withdrawals. If clients decide to retire later than expected, they could benefit from higher withdrawal rates. Conversely, if clients retire sooner than expected, they won’t see a huge hit to their income because our solutions offer unique withdrawal factors by age, instead of the typical age band structure often seen on living benefits.

Advisors should also be aware that most variable annuities don’t offer a credit or carryover amount for years that clients take less than their maximum withdrawal amount. And if clients were to need additional funds from their retirement portfolio, other VAs would reduce the guaranteed amount for life. We’ve developed a unique feature with SecurePay Reserve, which offers clients the flexibility to defer up to three times their annual withdrawal amount. It can then be used for financial emergencies like a health scare, or for a big-ticket item they’ve been working toward like a special family trip.

For financial professional use only.

Jim Wagner is Chief Distribution Officer, Retirement Division at Protective and a registered representative of Investment Distributors, Inc., a Registered Broker/Dealer, member FINRA and wholly owned subsidiary of Protective Life Corporation.

Protective® is a registered trademark of Protective Life Insurance Company. The Protective trademarks logos and service marks are property of Protective Life Insurance Company and are protected by copyright, trademark, and/or other proprietary rights and laws.

Protective refers to Protective Life Insurance Company (PLICO) and its affiliates, including Protective Life and Annuity Insurance Company (PLAIC). PLICO, founded in 1907, is located in Nashville, TN, and is licensed in all states excluding New York. PLAIC is located in Birmingham, AL, and is licensed in New York. Product availability and features may vary by state. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims paying ability of the issuing company. Securities offered by Investment Distributors, Inc. (IDI) the principal underwriter for registered products issued by PLICO and PLAIC, its affiliates. IDI is located in Birmingham, Alabama. Insurance and Annuities are: Not a Deposit | Not Insured by any Federal Government Agency | Have no Bank or Credit Union Guarantee | Not FDIC/NCUA Insured | May Lose Value

Protective Aspirations variable annuity is a flexible premium deferred variable and fixed annuity contract issued by PLICO in all states except New York under policy form series VDA-P-2006. SecurePay Investor benefits issued under rider form number VDA-P-6063. SecurePay Protector benefits issued under rider form number VDA-P-6061. SecurePay Nursing Home benefits issued under form number IPV-2159. Policy form numbers, product availability and product features may vary by state.