The first index annuity was sold in February 1995. When index annuities turned 12 years old, we didn't just celebrate because they got older -- we celebrated because they got even better.
The biggest news in financial planning is that index annuities now have living benefits. The same product that can guarantee upside market performance and downside market protection can now guarantee income for life.
The new guaranteed for life withdrawal benefits (GLWB) are becoming quite popular. Income planning is the insurance industry's new frontier, and GLWB index annuities are a tool that you may want to consider adding to your portfolio.
A guaranteed for life withdrawal benefit is exactly what it sounds like -- it provides an income guaranteed for life.
Until now, the only way to guarantee income for life was to annuitize. But a GLWB does not require annuitization. Clients get what they are accustomed to getting in life -- a guaranteed paycheck. But they also get to keep absolute control of their money.
Clients want the guaranteed income for life benefit of immediate annuities. But they don't want to give their money away in exchange for monthly paychecks guaranteed for life. GLWB allows you to receive guaranteed paychecks for life without taking your money away.
An index annuity with GLWB guarantees that the client will receive a specified annual income, even if the account value falls to zero. The income keeps going, guaranteed for life.
With a GLWB index annuity, your clients can retain complete control of their money. They can take out more money, take out less money, or cash out and walk away. Only a GLWB offers the certainty of lifetime income and the security of complete control.
Need 5 to 7.5 percent guaranteed? Has the inverted yield curve inverted your income? Is it hard to compete with short-term rates on CDs? GLWB can help.
If your client gets a good rate on a CD for a few years, what happens to their income when rates go down in the future? For clients living on interest income, their income goes down every time rates go down. Inconsistency and instability in income is a major problem, a problem that can be solved with GLWB.
The guaranteed income on most index annuities offering GLWB ranges from 5 to 7.5 percent. Furthermore, the income from the index annuity with GLWB is guaranteed for life -- no more inconsistent or unstable income.
If you've been selling annuities for at least a year, you can make a quick list of 10 clients living off interest income. Make your list, then make appointments to solve their income problems.
Turn it on and turn it off
There are over 400 index annuities on the market. There are 1 million advisors licensed to sell index annuities. You can stand out from the crowd by offering index annuities with GLWB.
At the time this article was written, there were only a few insurance companies offering index annuities with GLWB. Some companies even allow clients to stop and restart income at any time.
What's more, the income paid out is cumulative once started again. For example, if you are receiving $5,000 income per year and stop the income for five years, when you restart the income, your first check is for $25,000. Checks to follow will be for $5,000 per year as usual.
Another difference in index annuities offering GLWB is how the client is charged for the benefit. Most companies offer GLWB as an optional rider and deduct internal charges for it.
Other companies offer GLWB as an embedded benefit. It is on all annuities and you don't pay for it unless you use the benefit. This frees your clients from speculating whether they will need the benefit in the future.
This pricing model is similar to having medical insurance but only paying for it if you use it.
A big market for boomers
As baby boomers hit retirement, we will see the greatest transfer of wealth in American history. An estimated $100 trillion is moving and needs assistance.
Turning assets to income is the main concern 80 percent of boomers list for their retirement years. They've done a great job of accumulating assets but don't know how to turn their assets into income. With GLWBs, now you can help.
Ron W. Rawlings is principal and founder of Dallas Financial Wholesalers. He may be reached at 800-746-8397. For more information, visit www.ronrawlings.com.
