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The upcoming retirement boom: Are your clients financially prepared?

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Baby boomers are set to make history again, this time with retirement. By 2030, the U.S. population will hit a demographic historical peak where one in five Americans in this generation will be old enough to retire. Gen X isn’t far behind. With 55 percent of Americans concerned about outliving their money, according to a survey Wakefield Research conducted for Athene, some clients may not feel as financially prepared as they would like.

You can be instrumental in helping these clients build their financial confidence. Taking a regular financial inventory from now until they retire can guide you in creating a plan that can help them retire with confidence and withstand factors outside their control such as higher health care costs, volatile markets and a potentially longer retirement.

Starting the conversation
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Are these roadblocks risking your client’s retirement savings?

Many factors play a role in financial planning, including triggers that can keep some people from making financial decisions that are in their best interest. Consider an annuity, for example. It could be a helpful addition to a client’s financial portfolio, but myths and misinformation may color some people’s view of these products and prevent them from buying one. What’s important is helping these clients understand the reality.

Annuities have evolved, and different types on the market now include powerful features to help grow their value and manage market risk. Despite the evolution, some people still resist them regardless of how they can help solve some of the most common retirement concerns.

To better understand the phenomenon, coined the annuity puzzle, Athene partnered with behavioral experts from the UCLA Anderson School of Management. Through extensive research, four uncertainties that can impact how some individuals approach complex financial decisions have been discovered and explored.

Take a closer look

Considering these uncertainties and sharing their potential long-term effect on assets may help clients financially position themselves better for retirement — and grow your practice. Before jumping to solutions, it may be better to first understand them and the concerns they could trigger.

1. Longevity uncertainty

How long will I live?
How long will my retirement last?

It’s natural for these questions to surface in financial planning conversations, especially when annuities enter the discussion. Barring a crystal ball, there’s no definitive answer. And for clients who feel uneasy talking about their own mortality, they may shut down the conversation. Finding other ways to approach the inevitable can pose a challenge for you, but there are strategies to help you keep difficult discussions alive so you can get to solutions that may help meet a client’s financial needs.

2. Spending uncertainty

How much money do I need to retire?

Answering this question with 100 percent certainty also requires a peek into the future. Since some people plan to maintain their lifestyle while others want to fulfill their dreams, there isn’t a one-size-fits all solution. Variables like a retiree’s health, where they retire, market conditions and inflation can affect how much money it will take.

With good planning, you can help clients think through their expected future income and expenses, the kind of retirement they want and how to best fulfill this chapter of their lives. Sharing this quiz could help start the conversation.

3. Investment outcome uncertainty

Could I outperform the market by managing my own investments?

Behavior experts have discovered people are sometimes overconfident in their ability to manage their own investments. Clients who try to outperform the market alone may miss opportunities to grow or protect their savings. For example, would they know how fixed indexed annuities can provide some growth potential while limiting losses due to market downturns, and how that may impact their future financial security?

There’s an opportunity to help your clients better understand the different kinds of annuities and their features. Starting by discussing a client’s risk tolerance and financial goals can help you determine if, and how, one may fit into their financial plan.

4. Decision-making uncertainty

Do I understand everything well enough to decide?

Not everyone feels comfortable with financial topics, especially as they get more complex. The result? People who question their understanding of an investment or other financial product like an annuity may put off or forgo buying one.

Your financial expertise and people skills can give you an advantage to explain product features so clients can understand them. And when presenting annuities as an option, you’re able to explain the different types and what they can do, such as:

  • Guarantee income for life. Annuities can help supplement retirement income from a pension plan, an employer-sponsored retirement savings plan, Social Security and personal assets.
  • Provide funds for a surviving spouse. Annuities often include options for a surviving spouse to continue receiving payouts for the remainder of their lives.
  • Leave a legacy. If an annuity owner passes away, annuities can provide their loved ones with a death benefit.
  • Ease concerns about economic downturns. Some annuities provide protection from market loss in a downturn. For example, fixed indexed annuities have a guaranteed floor, meaning a client would never earn less than zero percent interest. The upside? The principal can’t be lost.
  • Grow retirement assets. Besides protection from market loss, fixed indexed annuities also offer the potential to earn interest credits based in part on the upward movement of a market index. Once those credits are earned, they’re locked in even if the market goes down.

To buy or not to buy?

When it’s time for clients to make purchase decisions, using simple language and easing into different aspects of products may help prevent choice overload. For example, without the whole picture of the annuity options available, it could be easy for a client to miss financial opportunities like growth potential, protection from market loss and guaranteed income that some offer.

Chunking complex information into smaller bites and talking about them one at a time could help keep clients from information overload leading to decision paralysis.

The mechanics of an annuity’s growth potential and interest crediting structure, protection from market loss, and guaranteed income are important components to explain, as well as withdrawal charges, Market Value Adjustments (if applicable) and tax considerations.* Giving clients a complete picture of what they’re buying is not only important for assessing suitability, but it can also help them feel more confident about their decision.

Inspiring client confidence

In the next decade, tens of millions of Americans born after World War II will retire and millions of Gen Xers will follow soon after, according to the U.S. Census Bureau. Some of these new retirees may feel challenged by how to draw down their retirement savings without knowing:

  • Exactly how long they will live
  • What kind of spending they might do in retirement
  • How market activity could impact their assets
  • If they understand options well enough to make complex financial decisions

As people live longer and seek active retirements, helping your clients identify and remove roadblocks standing between them and future financial security has never been more important. Two good places to start:

  • Share this quiz to help clients communicate their approach to retirement savings.
  • Explore Build Confident Clients for tips and solutions based on expert research and interviews with professionals in your field.

Equipped with insights and strategies from these resources, you can build your practice while you help guide clients through financial planning to confidently become retirement ready.

Insights on Athene Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.

*We recommend that taxpayers consult with their professional tax and legal advisors for applicability to their personal circumstances.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

Guaranteed lifetime income is available through annuitization or an income rider. Income riders may be built into the contract or optional for a charge.

Death Benefit provisions vary by contract. Please review the Contract's Certificate of Disclosure for details.

The interest earned is subject to certain limitations such as an Annual Spread, a Cap Rate, and Participation Rate. These limitations are declared by the Company before the beginning of each Index Term Period.