Thought for the day:
Wood burns faster when you have to cut and chop it yourself.
Harrison Ford
If you will read no further:
“I am waiting until rates increase”.
We continue to hear a common theme from many advisors and some prospects when considering a SPIA or other fixed annuity to add to their retirement strategy.
How high do rates have to go up before we stop waiting? Three and a half years ago, we started talking about the cost of waiting and rates have continued to languish at the lowest levels in two generations. The Fed met recently: They are going to continue on their path until unemployment hits 6.5% and inflation slows to 2.5%. They predicted no change in rates until at least 2015. When they last met, unemployment numbers were 7.5% and many are predicting an increase in 2014.
How long will you wait to give your client the peace of mind that a SPIA in their portfolio will provide? See actual example.
Get a male age 70 $7650 per year, (80% tax free) from a $100,000 investment for the rest of their life. Then invest the rest of the portfolio for growth to offset inflation. Now that they get that monthly payment in their checking account no matter what happens in the world or in the economy or on the nightly news, volatility doesn’t feel so bad.
BTW: Here is a great website to calculate your life expectancy. Check it out http://www.livingto100.com/
Thought for the week:
In the late nineties I heard tales of financial planners being accused of improperly advising their clients to benefit themselves thru commissions. Today I am watching fee-based planners making recommendations to their retired clients based on how it will affect their own (the advisor’s) income stream. By that I mean things like avoiding leaving money in Money Market accounts or purchasing a SPIA that would clearly address the clients’ need for safety and predictability in favor of investing in the managed portfolio to collect the ongoing fee.
In many cases, I’m not sure they even realize it; although many have expressed that exact sentiment. But when you opt to distribute 4% per year to provide income when the client could often receive as much as 8% mostly tax free and guaranteed for life you have to consider if that really helps your ageing client to enjoy piece of mind.
Think interest rates are going up soon?
In the past 707 rolling-12-month periods since 1953 the 10 year treasury jumped 200bp only 30 times (4%); the last one in 1986. Don’t try to time rates. Ask Josh (800)238-8144 to help you place money in the best place available at the time that provides the additional safety and peace of mind to the client.
A final thought:
As financial planners ourselves we understand that insurance should only be a part of a well-balanced financial plan. But it amazes me the number of advisors who use no insurance in their clients’ plan; and then the calls we get from those who ignore these products and strategies until it is too late, “I would like to get a quote for long-term care (or life) insurance. My client is pretty healthy. The stent is working fine and her arthritis doesn’t bother her too much. What do you think?” …and the best one of all, “she only uses a cane when she walks.”