A Combo Plan for Boomers
Your baby boomer clients and prospects have a lot on their minds. They’re concerned about having enough money to live on in retirement, rising medical and long-term care costs, and providing for the people they love. For many, the number one priority is having a guaranteed lifetime income stream to ensure that they do not outlive their retirement savings.
Their worries are well founded. Just 14 percent of workers say they are very confident they will have enough savings to retire comfortably, according to a 2012 Employee Benefits Research Institute (EBRI) survey. Sixty percent report that the total value of their household’s savings and investments, excluding their primary home and any defined benefit plans, is less than $25,000.
With many people on their own when it comes to making vitally important decisions, the need for skilled advisors is greater than ever. For some clients, an emerging option‑a single product designed to address multiple needs‑may be an excellent solution. A combination product allows clients (and their advisors) to customize an annuity, adding optional riders for enhanced death and extended care benefits. A multi-need product like this provides very competitive flexibility and security.
Combination products also address a common roadblock to sales: People’s hesitancy to buy a product they may never use. With these products, clients are guaranteed to derive a benefit.
The marketplace is embracing combination products and their growth is expected to accelerate as the number of retirement-aged people with multiple needs rises.
The three scenarios that follow outline the three key issues baby boomers face‑ensuring a dependable income stream in retirement; covering fast-growing health-care and long-term care costs and providing for their families‑and ways producers can help address these issues.
Guaranteeing an income stream
The need to create a dependable income stream in retirement has never been greater. A limited number of people have defined benefit plans, and many believe Social Security has an uncertain future. Savings took a hit during the recession, and people are leaving the work force earlier than they planned. According to the EBRI survey, half of current retirees said they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure.
An annuity with aGLWB rider can be used to meet a range of income and asset-protection needs. In particular, indexed annuities with GLWBs have become more popular over the past few years, both for the guaranteed income features and the downside protection they provide.
GLWBs can also accommodate clients with different income horizons. Clients looking to begin a stream of income immediately or within a few years may have come up short on their retirement savings because of investment losses or other setbacks. A GLWB rider tailored for clients with near-term income needs might provide an upfront bonus to the benefit base to provide an immediate additional value.
Clients with a bit more time before they need income can benefit from an accumulation period of four to 10 years while income is deferred. A GLWB rider tailored for these clients might provide a guaranteed growth rate during the deferral period. For instance, a specified growth rate might be added as simple or compounding interest to the benefit base each year the client defers the start of withdrawals. The longer the deferral period, the higher the level of guaranteed retirement income.
An Rx for rising health-care and long-term care costs
After age 65, there is a seven in 10 chance a person will require long-term care, according to the American Association for Long-Term Care Insurance’s 2011 LTC Sourcebook. With the average cost of nursing home care now at $82,000 a year, and fewer than 5 percent of Americans with long-term care insurance, there is an acute need to address the issue.
Linking an annuity with an extended-care benefit protects savings and assets, provides a range of care options if they’re needed, and may give clients enhanced withdrawals for a period of time if they require prolonged nursing care. There can also be cost savings, since people don’t pay for a long-term care policy they may not use.
Providing for family in life and death
Ensuring that loved ones are financially protected is almost always a priority. However, in today’s economic environment, protection for heirs can be neglected due to the more immediate need for retirement income. The most common uses for a death benefit include final expenses (78 percent); income replacement (53 percent); and wealth transfer (20 percent), according to LIMRA’s 2010 U.S. Life Ownership Study.
Combining an annuity and an enhanced death benefit ensures that clients have a dependable income stream and their families are taken care of when they die. An annuity is structured so it has just a single premium, making it easier to explain and price for clients.
Some enhanced death benefits guarantee increases in the death benefit by a specified amount each year, regardless of the performance of the underlying account value. A combination design also offers flexibility and security. For example, clients can protect family while maximizing their income potential by electing a GLWB with an enhanced death benefit. If the client dies prematurely, the enhanced death benefit would provide the client’s family with an added level of protection. The benefit is typically available after a deferral period, minus any withdrawals taken. It’s important to note that the enhanced death benefit is taxable, however.
Meeting the multiple needs of today’s clients
Clients and prospects have complex needs. Typically, income in retirement comes first, but taking care of family and preparing for long-term care costs are also essential. And, while the primary purpose of annuities is to provide money in retirement, they can also provide some help in these areas. For producers, converging forces‑an expanding older population, flexible and effective combination products, and widespread financial insecurity‑have created a strong sales opportunity and the ability to make a positive difference in their clients’ lives.
By Mark S. Fitzgerald for LifeHealthPro.com
Mark Fitzgerald is national sales manager for Saybrus Partners in Hartford, Conn. Prior to his role at Saybrus, he was regional vice president and the national sales manager for Phoenix Life Insurance Co., a Saybrus affiliate.