I want to wish all of my readers a very Happy New Year! The theme of the last eight blogs, beginning with the November 9th post, Using Fixed Income Annuities to Build Your Income Portfolio Ladder, through last week’s post, The Thrive® Income Distribution System – A Revolutionary Retirement Income Planning System, was creating and optimizing retirement income with fixed income annuities.
To summarize, the strategic implementation of single premium immediate (“SPIA’s”) and deferred income (“DIA’s”) annuities by trained and experienced professionals as part of a comprehensive retirement income plan can be a powerful solution for generating guaranteed (subject to individual insurers’ claims-paying ability), inflation-protected, and tax-efficient income that, when combined with other sources of income, e.g., Social Security, is designed to match a client’s projected retirement income needs.
If you’re within ten years of retiring or if you retired within the last ten years, you may be wondering why your financial advisor hasn’t talked to you about any of the strategies discussed in the last eight blogs. Rest assured, you’re not alone. A 2009 Fidelity study found that 83% of investors between the ages of 55 and 70 who are working with a fee-based adviser believe it’s more important for them to generate guaranteed (subject to individual insurers’ claims paying ability) income for retirement than to deliver above-average returns.
In the same study, 97% said protecting against market volatility is the most critical role that advisors can play today, and 86% said they would be interested in a product with monthly guarantees for life. So why isn’t your financial advisor talking to you about these types of products?
There’s a strong likelihood that if your financial advisor isn’t discussing fixed income annuities with you, he or she probably isn’t licensed and trained to do so. While your financial advisor may be an excellent retirement asset planner, he or she may not be equipped with the necessary tools to design and implement a comprehensive retirement income planning solution for you.
The purchase of annuities as part of a retirement income planning solution involves a technical process that requires the expertise of a trained and experienced professional, in this case, a retirement income planner. As stated in the December 21st post, Designing Your Income Annuity Plan, the design of an income annuity plan is complex and annuities should never be purchased as stand-alone products when used as part of a retirement income planning solution. As evidence of the technical nature and complexity of this area, 18 out of 56, or one-third, of the terms currently in the Glossary of Terms section of Retirement Income Visions™ were added in conjunction with the last eight posts.
As explained in The Retirement Planning Paradigm Shift – Part 2, retirement planning is undergoing a paradigm shift. Instead of relying on retirement asset planning as a solution for both the accumulation and withdrawal phases of retirement, people are beginning to recognize, understand, and appreciate the need for, and value of, employing retirement income planning strategies during the withdrawal phase. The understanding of this paradigm shift is the first step that is necessary for a financial advisor to be successful in the retirement income planning arena.
Once a financial advisor understands the difference between retirement asset vs. retirement income planning, and the importance of using retirement income planning strategies for clients approaching or entering retirement, he or she then must acquire the requisite tools to practice as a retirement income planner if not already possessed. To begin with, in order to sell any type of annuity, an individual must have a valid life/health agent insurance license issued by the state in which he or she would like to sell annuities. As with all professional licenses, there are initial and ongoing educational requirements to obtain, and maintain, an insurance license.
With any profession, while education provides the foundation, experience, in this case, in retirement income planning, including the design and implementation of retirement income planning strategies, is essential. The knowledge and experience obtained from having other related professional licenses and credentials, such as the CERTIFIED FINANCIAL PLANNER™ designation, CPA, or CPA Personal Financial Specialist (PFS), can also prove to be quite valuable in the design and implementation of a retirement income plan.
If you’re within ten years of retiring or if you retired with the last ten years, you may want to take a peek into your financial advisor’s toolbox to see if he or she has the tools to design, implement, and maintain a retirement income plan for you that will provide guaranteed (subject to individual insurers’ claims-paying ability), inflation-protected, and tax-efficient income that, when combined with other sources of income, e.g., Social Security, is designed to match your projected retirement income needs.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.