Sixty-five years old: Does the idea of any other age cause more cold sweats and sleepless nights?
Cruises to faraway places? Forget it - the reality is that clients nearing retirement age wake up at 3 a.m. with just one thought kicking around in their heads - reliability of income (ROI). That's what the fear of 65 boils down to: not having a reliable source of guaranteed income in retirement. Insurance advisors must help dispel this fear, or run the risk of losing clients to CDs or advisors who know about more than just accumulation.
One popular ROI strategy is the split annuity, which involves simultaneously purchasing two annuities to provide current income and preserve capital.
But here's the problem: The way the split usually works tends to confuse people.
Simplify the split
Stop 50 people on the street and ask them to define "split." I'd bet not one of them would say, "It's when you divide something by one-third and two-thirds," yet that's the definition we expect clients to accept when we talk about splitting an annuity. No wonder they're confused: A "split" to most people means 50/50.
So why not avoid the confusion? Instead of putting a third of your client's money into a single premium immediate annuity (SPIA) and two-thirds into stocks or a variable annuity, put half into each.
It's not just a matter of making the math easier to digest. We're talking about clients who, when push comes to shove, tend to opt for more guaranteed income rather than potential growth. For that reason, 50/50 just meets their needs better.
Build in more recovery time
When you're looking for the right SPIA for your clients, consider one that has a 10-year period certain payout rather than the usual six-year payout. We've had two major recessions in the past 10 years; six years is simply no longer enough time to achieve the growth needed for the split to work. You also can expect a higher commission for a 10-year SPIA.
Here are a few other things to look for in an SPIA to help dispel your clients' fear of 65.
- "Pay raise." Retirement-age clients are always concerned with keeping up with inflation. Find a 10-year SPIA that gives them a "pay raise," or a payout step-up, in the sixth year.
- Advance access. Your client is probably also thinking about cash liquidity in case something unexpected happens. Some carriers allow clients to withdraw up to 30 percent of their contract's future value as often as every 36 months. Find an SPIA that does this.
- Deferred payouts. And finally, look for an SPIA that features deferred payouts if your client plans to retire, but not quite yet.
How hard is it to find all these features wrapped up in one package? Not as hard as you'd think. Introduce it -- and a true annuity split -- to your clients, and you'll be delivering a clear message: Don't fear 65.
Laura Hahn is managing director of the Annuity Center for The Marketing Alliance (TMA). She can be reached at 314-275-8713 or firstname.lastname@example.org.