Low rates, market volatility, sequences of return risk, and longer life expectancies are all effecting what safe withdrawal rate planners are comfortable recommending during the income phase of retirement. Due to these factors, many financial studies claim the safe withdrawal rate is closer to 3% nowadays verses the standard 4% of the past.
Have you looked at what implementing guarantees into the portfolio can accomplish?
I know what you are thinking…the 4% safe money withdrawal rate is adjusted each year for inflation and on a fixed contract, you are stuck with level income. Well, not anymore.
Insurance companies have been getting more and more sophisticated in their product design – looking to increase market share with the baby boomer generation. As a result, many have developed CPI-U adjusted SPIAs to help combat inflation from eroding retirement income in future years.
A SPIA, or Single Premium Immediate Annuity, is extremely efficient at generating lifetime income and reducing the stress of the remaining income generating portion of client portfolios. Even with these low interest rates, SPIAs belong in most clients’ income plans.
A 65-year-old male depositing $100,000 can achieve over a 4.45% cash flow per year off of this with a SPIA. In future years, the payment will increase to mirror the CPI-U, helping to offset inflation, and can never go down – think about what this can do for the rest of his plan.
Clients can either increase their income in retirement by implementing these, or they can even increase liquidity in other areas due to the SPIA’s efficiency of generating the needed income.
Too often we look at SPIAs in a vacuum and question, what if I need liquidity? The answer: elsewhere in the portfolio.
We have new software available that can provide a bird’s eye view of a client’s portfolio – to better show how these SPIAs will help each client’s overall income plan.
After all, they are only part of their plan, complimenting other products and planning techniques you can put in place – including a ‘buckets of money’ approach, or the safe money withdrawal rate approach.
To learn how guarantees can help your clients achieve their retirement goals and ensure spending power throughout their golden years, contact your Annuity Sales Rep today.