Diamonds Are Forever…So Are Annuities
November 17, 2011 by Raymond J. Ohlson
Most people marvel at the lighthouse, a simple structure that played such a big role in navigating the sea. The lighthouse was designed to emit a beacon of light as an aid for ships at sea or on inland waterways.
Lighthouses have marked dangerous coastlines and provided safe entry into harbors. The personal pension plan does much the same regarding retirement income. It helps you avoid the dangerous financial reefs and the turmoil and destruction that can follow.
The old retirement model of past generations is gone. Back then, along with the gold watch, the company expected to pay retirement benefits for only three to four years. My, how things have changed.
Today’s retirement can last 25, 30, 35 years or more. The new retirement model is all about longevity. That is why the personal pension plan, a non-qualified program, is important in assuring that today’s retirees have an income guaranteed long after the gold watch has quit working.
First, we must start out by asking our clients the following questions:
1. What type of lifestyle do you want to maintain during retirement?
2. What life income is available to support that lifestyle? (Pensions, Social Security, 401(k))
3. What amount of essential and discretionary income do you need?
4. What financial lifeboats are available to sustain your lifestyle should the unforeseen occur?
5. Finally, how much do you need and when do you need it?
That’s the beauty in helping your clients develop their own personal pension plan. It is not a one-size-fits-all model. It is all tailored to their needs and desires. There are no wrong decisions. Most importantly, the personal pension plan is designed, funded, and implemented with fixed guaranteed products. No wishing and hoping, no gambles, only guarantees.
The personal pension plan provides a stream of income for as long as your client’s retirement journey takes, and not only for your client. If they have a spouse … he or she is afforded the same comfort.
It appears that the majority of Americans are not very positive about the prospects of having a secured retirement. Even for those lucky enough to have pensions, they know it is unlikely to be sufficient.
We have all been operating off the same three-legged stool concept that has been used for generations.
1. PENSIONS: We used to think that this would be enough. It turns out we need more. A recent Towers Watson survey stated that at the end of 1998, 90 of the Fortune 100 companies had a defined benefit pension plan. Today, only 17 of those companies offer such a plan to new hires. Now, most Americans are doing it on their own through 401(k)s. The difference between the “defined contribution” 401(k) and the “defined benefit” pension is all in the guarantees, or lack thereof. When it comes to 401(k)s, we just keep our fingers crossed and hope for good financial winds.
2. SOCIAL SECURITY: For most baby boomers and for those already retired, Social Security may make it through our lifetimes. However, boomers will need every penny as we haven’t saved enough.
3. PERSONAL SAVINGS: This is the most important component in planning for a successful retirement. Again, for those retired, the job isn’t over. They still need to have the maintenance plan.
How are personal savings converted to income? Well, there are many choices: investments, real estate, etc. For those who no longer have a stomach for risk, the choices are fewer. Many Americans are looking for safe money places. Many advisors present Monte Carlo simulations that present different withdrawal scenarios based upon years of past stock market performances. These show that based on different assumptions, you should be safe and not run out of money. Equities are, and will continue to be for many, an important part of their retirement plans.
But what about those who want a 100 percent guarantee that they won’t run out of money? What is available to them? The answer is the personal pension plan.
The personal pension is an old idea that is making a big comeback due to its simplicity. It entails separating essential and discretionary income needs, determining the need for increased income in the future, and analyzing assets available for income today and the potential income they would provide. And then determining how much do they need and when do they need it?
Sounds simple, doesn’t it? That is why it is in such favor today. Many Americans are taking some at risk money and placing it in safe money places. Some have determined that they are at a place in life where they want zero investment risk and are willing to sacrifice the potential of great returns for the comfort and tranquility of guaranteed income for life that cannot be outlived.
When most boomers or retirees are asked, “How long do you want this income to last?” They usually say “Forever.”
When they ask the advisor, “Why are you using annuities to accomplish these goals?” The answer is the theme song for the James Bond 1971 film of the same name …
Diamonds are Forever … and so are annuities.
Raymond J. Ohlson, CLU, is president & CEO of The Ohlson Group, www.ohlsongroup.com.
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