Displaying items by tag: retirement

(New York)

One of the challenges with annuities, whether as an annuities salesman or as an advisor explaining them to clients, is how to position them. The most fundamental utility of an annuity is the idea that it can provide income for life. In other words, the client can have peace of mind that they will have income even if they live to be 120. In this way, an annuity is not a market-based investment in the traditional sense, but rather it is an insurance contract. For advisors this concept will be second nature, but for clients this is not as clear. Accordingly, the main value of the annuity is not specifically in the income it provides, but in the risk mitigation it offers against very long lifespans for clients.

FINSUM: If you are active in annuities this might sound like a broken record; if you aren’t, it is a useful line of thinking. Either way, everyone needs to be reminded!

(Washington)

The reality of the political situation in the US is that markets and the media are betting that Biden is going to win the presidency. Many also think the Democrats have a fair shot at sweeping Congress and the presidency. If either eventuality happens, especially the latter, tax hikes look likely. Biden formally announced his plan to do so recently. Therefore, a rise in corporation tax and a hike in the top tax bracket back to Obama-era levels seems highly probable.

FINSUM: The tax hikes that seem most likely will create a host of considerations for high earners. For instance, a reversion to previous tax levels would change the utility of certain pass-through entities versus other types of businesses.

(New York)

Imagine retiring this month. The Dow’s recent bottom means it was 18%+ off its peak. That is a really rough time to be entering the late stages of a career or early stages of retirement. One option for those worried about protecting income is a fixed index annuity. The insurance product guarantees full principal and is designed to offer upside as well. The idea is to have their yields outperform the market, but at the same time offer full downside protection.

FINSUM: Fixed index annuities are probably going to see a big rise in popularity this year given how poorly the stock market is doing. Worth consideration.

(New York)

Variable annuities can be a fantastic product for long-term income security. However, they are complex products and buyers need to make sure they understand what they are buying. In particular, here are a few key points to remember when purchasing. Firstly, providers often have unique policies for how benefits are paid out once one spouse dies, so make sure these are understood to avoid accidentally disinheriting someone. Secondly, make sure clients understand the differences between the different value measurements of a variable annuity, such as cash-out value, death benefit, or “annuitized” value, as these can potentially cause some shocks. Finally, be careful when exchanging an older annuity for a new one, as older versions can be significantly more generous and are worth holding onto.

FINSUM: Variable annuities can be great long-term income streams, but it is integral to understand exactly what one is buying.

(New York)

Here is an eye-opening stat for anyone working in wealth management: 37% of all advisors expect to retire in the next decade. That will put about 39% of all AUM in the industry in motion. The biggest surge in retirement will be on the B-D side of the fence. The major question is who will replace all these advisors? “While some progress is being made, the industry is struggling to recruit and retain advisor talent that is adequately prepared to inherit the businesses … In an effort to overcome this challenge, firms are boosting recruiting efforts to bring new advisors into the industry and revamping training efforts to improve success rates”, says Cerulli Associates.

FINSUM: Succession panning has not been very good in general, so there are big questions about how this will play out. This is either one of the best opportunities in the history of the business, or the whole market might shrink naturally if older advisors retire and Millennials don’t hire new ones.