Use Multiple Products To Address Income Needs Of Older Clients
By Judith F. Rovinelli
Financial planners are often asked by existing or potential clients how to establish a steady stream of income for their retirement years.
Although the answer depends in large measure on what the clients did for themselves before contacting the advisor, the conscientious planner can help clients make the most of whatever they have accumulated.
The first step is to perform an accurate assessment of the clients financial circumstances. How much income are they getting, or will they get, from Social Security, retirement plans and similar sources? Will that income stream be sufficient to meet day-to-day needs, and does it include discretionary income? Will the discretionary portion of the clients cash flow be sufficient to fund the things they plan to do in retirement?
The financial planner must also assess client risk tolerance.
Particularly if current cash flow is insufficient, the planner must also look at how much the clients have saved and invested, and the vehicles they are currently using.
If a client needs additional income immediately, it may make sense to move assets from savings accounts, certificates of deposits, or stocks, bonds, and mutual funds into a single premium immediate annuity. As its name states, the SPIA may begin generating income immediately. Keep in mind, however, that the fixed income created by the SPIA may not be adequate to protect against inflation.
What if the clients monthly income is adequate today but does not include a large amount of discretionary funds to offset future inflation? In that case, a deferred annuity might be an appropriate vehicle.
The deferred annuity can help protect the principal today, while continuing to grow tax-deferred until the earnings are withdrawn. In addition, some deferred annuities offer the investor the ability to access some or all of their original investment without a surrender charge.
