For comparison, your client could invest $1 million in an immediate annuity, to secure $58,982 in annual income for life (based on rates for New York Life Guaranteed Lifetime Income Annuity, 65-year-old male, Life with Cash Refund payout option as of 03/03/2017.) Or maybe he invests a portion of his assets in the annuity. No matter the amount, his annuity income is guaranteed and unaffected by the markets. With income annuities, it’s the insurer’s job to pool risk and to manage that risk effectively to provide long-term guarantees. Risk pooling can help create a secure payout that would be difficult to match in the broader financial markets on one’s own. By pooling risk and removing investment risk, everyone wins.
In fact, research by New York Life and others has shown that retirement portfolios are optimized by adding insured assets like an income annuity. By utilizing a portion of the client’s assets in this way, there is greater capacity to bear risk in the rest of a portfolio. Because income annuities are not correlated with market swings, they exert a powerful smoothing effect on overall performance.
3. What Keeps You Up At Night?
The top worry for people when thinking about retirement is that they will run out of money. There are real concerns around health-care spending, inflation, taxes and other income-draining components outside one's control in retirement.
With that concern in mind, many current retirees prefer to hold onto their nest eggs, and that behavior is often driven by fear. When we look at how retirees spend their nest eggs, we see that many tend to spend only their guaranteed sources of income, like Social Security, pensions and annuity income. One way to help your clients enjoy more of their nest egg is by creating more insured income so they’re more confident to spend it.
Economists traditionally assume that people act rationally when it comes to their money. The study of behavioral finance shows, however, that emotion drives a great deal of our actions (and often, inaction) with regard to our finances, even when it’s not in our own best interest. Uncovering what keeps your client up at night will give you insight into their needs and help you best present solutions that address their specific concerns.
These questions are a great first step in understanding what’s most important to your clients and how they think about the future. They’ll help you tailor a solution that works for them and can help them succeed in retirement.
What other important questions do you ask your clients? Send me a note at [email protected].
Dylan Huang is the head of retail annuities at New York Life.