Help PrepareClients for the “Knowns and Unknowns” of Retirement Planning

Discuss the known factors they will need to be prepared for, and the uncertainties that lie ahead.

By Dale Meinders and Wayne Hechanova

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As financial professionals, we don’t have a crystal ball that allows us to look clearly into our clients’ financial future, but we can offer retirement solutions that can help address financial uncertainty, no matter what comes their way. We should talk through the potential issues that our clients may face both leading to retirement and when they start receiving retirement income.

New realities are reshaping the American retirement that call for different strategies and discussions. So to help your clients, discuss the known factors that they will need to be prepared for and the unclear uncertainties that lie ahead.

Longevity. The Stanford Center on Longevity found that Americans have an average increase in life expectancy of 30 years, compared with 100 years ago. When Allianz asked about this increase in “The Gift of Time”* study we found that 93 percent of Americans have a favorable view of living those 30 extra years but 70 percent feel financially unprepared to live to 100 and beyond. People are worried about having enough money to last their whole lives – retirements could now last more than 25 or 30 years. Financial professionals have an opportunity to put the appropriate resources in place to ensure that their clients do not outlive their hard-earned money.

In many cases, too, clients hope to leave a financial legacy behind to support their loved ones for years to come. A potential solution like an annuity can help protect clients as they live longer with guaranteed lifetime income. Fixed-index annuities (FIAs), for example, can help clients meet long-term retirement goals by offering taxdeferred growth potential, a death benefit during the accumulation phase and a guaranteed stream of income at retirement.*

Increased costs of living. People fear that the rising cost of living will affect their retirement plans. Clients worry about not being able to afford the lifestyle they want in retirement or they believe they will need to work longer to support their goals. When considering a solution that can help combat their concerns, think about how clients may need to adjust to a rising cost of living. When we asked people in the “Allianz Life 2017 Inflation Study” about solutions that could help them manage the effects of inflation, we found that 86 percent were interested in a product that offered guaranteed income for life, plus the opportunity for income to increase over time.

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Another uncertain element that will affect everyone’s retirement is Social Security because no one is sure about its long-term solvency.

Similarly, when presented with two options for guaranteed income one that starts with a higher income rate but has no opportunity to increase over time and one that starts with a lower income rate but offers the possibility of increases – 73 percent preferred the increasing income option. Solutions that supplement a client’s income will also help with rising health-care premiums – which are an integral part of a long-term retirement strategy. Look into increasing income options that may be offered through either built-in or optional riders for an additional cost. Pensions. Many employers have shifted away from providing pension plans that pay retirees a steady stream of income (a defined benefit) and have moved toward defined contribution plans (such as 401(k) plans). This shift not only puts the onus on employees to take the reins of their retirement saving; it also gives your clients the responsibility of creating their own lifetime income. In the absence of pensions or defined-benefit plans, discuss how clients will cover their expenses in the future. Will they have enough by just contributing to their employer’s plans? Financial professionals can help by exploring solutions that provide consistent income that is guaranteed for life.

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Financial professionals have an opportunity to put the appropriate resources in place to ensure their clients do not outlive their hard-earned money.

Social Security. Another uncertain element that will affect everyone’s retirement is Social Security because no one is sure about its long-term solvency. The ratio of covered workers to Social Security beneficiaries has changed significantly since 1950, which means fewer employees are covering each Social Security beneficiary. Thus, more of their income will need to come from their own retirement savings.

Market volatility. Over the last 10 years, markets have been a rollercoaster – from historical lows to recordbreaking highs, no one knows what to expect. This may have a major effect on retirement assets as clients’ IRAs, 401(k) plans and 403(b) retirement-savings plans are taking the brunt of the change. Just ask Gen Xers and baby boomers who went through the 2008 market crash. We found that some of them have become “postcrash skeptics” in our “Generations Apart”SM study. Because of this, many Americans are switching to more conservative investments. Clients who are worried about their retirement future may be good candidates for products that help protect a portion of their portfolio. To counter the volatility that clients may experience, financial professionals should look for annuities and other solutions that offer income with the potential to increase based upon positive market performance, while offering a level of protection against market losses.

When discussing a client’s retirement strategy, it’s up to you to discuss solutions that provide protection by managing both the knowns and the unknowns that could affect them. A well-planned portfolio can offer a level of protection, no matter what happens.

*The Allianz Life “The Gift of Time” study was conducted online by Larson Research + Strategy last year with 3,000 U.S. adults, including 1,000 Baby Boomers, 1,000 Gen Xers , and 1,000 Millennials.

*Your clients should carefully consider the features, benefits, limitations, risks and fees that may be associated with an annuity to determine if an annuity is appropriate for your clients based on their financial situation and objectives.

*Guarantees are backed by the financial strength and claims-paying ability of the issuing insurer.

Distributions are subject to ordinary income tax and, if taken prior to age 59 ½, a 10 percent additional federal tax.

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Dale Meinders and Wayne Hechanova are Senior Directors of Distribution Insights for Allianz Life Insurance Company of North America.