Retiring Early

Creating a plan and evaluating income replacement options is critical if your client is considering retirement or being forced into retiring sooner than expected. Even for those clients who do not anticipate retiring in the next few years, it's a good idea to have a plan for peace of mind and financial security. You will need to evaluate ways to alleviate your client’s concerns about running out of money and tools such as annuities, which can provide a reliable income stream for life.

Replacing Income In Retirement

Now, more people are considering their retirement savings and options for a steady income beyond Social Security. One increasingly popular option is annuities, which also saw growing demand during the 2008 financial crisis.

Many people see annuities as a form of retirement-income insurance that guarantees a regular income stream once they stop working. Many annuities also offer income riders that ensure the policy will keep paying until a set age or for your client’s lifetime. Before investing in an annuity or adding a rider, you will need to work with your client to calculate the amount of income they will need to retire comfortably. Any remaining value can be passed to your client’s beneficiaries.

Riders Beware

Annuity riders are nothing new, but they have grown in popularity as people look for income guarantees that are insulated against market volatility. However, before adding a rider to a policy, it is important to make sure your client understands it.

Essentially, a rider adds benefits or amends the terms of the basic insurance policy. Generally, each rider addresses a specific need, such as lifetime income or long-term care costs. Riders are purchased along with the policy at the time of application and cannot be added later.

Each rider, however, adds to the coverage cost, whether in reduced investment earnings or higher fees, and is typically shown with separate calculations. For example, a policy statement may show the accumulation (investment) value, surrender value and rider value separately. Discuss these with your client to make sure they understand the differences.

Providing Peace Of Mind

While we are living in unprecedented times between the pandemic and the social unrest in the U.S., remember that your client is looking at 20 to 30 years of retirement. Who knows what can happen during that time?

The best advice for your clients who contemplating retirement is to develop a realistic picture of their expenses for the foreseeable future. Then, work with them to consider options that will provide a secure income if they do retire.

Make sure you show your client the projections with and without riders so your client understands their options and the impact of fees. Each percentage point, or even fraction, can make a big difference.

For your clients who are approaching retirement, their decision to retire early could impact their lifestyle for decades. You can help protect them and give them peace of mind by creating a plan for a secure income and educating them about all their options.