Lifetime income offers advisers key sales opportunity

NEW YORK — Having enough income to last until age 90 and beyond is a future problem for baby boomers, but it can be solved now.
So said retirement income executives who spoke at the Guaranteed Income — The New Asset Class news conference here last week, which was sponsored by the Hartford (Conn.) Financial Services Group Inc.
Many advisers are having a difficult time grasping the transition from accumulation to income, and that goes double for their clients, said John Diehl, senior vice president of the retirement solutions group for The Hartford.
But the transition is also an enormous opportunity for advisers, especially for those who are able to cultivate relationships with benefit plan providers that allow them to pick off potential clients when they cash out of employer-provided retirement plans, he added.
“Financial advice has never been more important due to these clients’ asset allocation needs,” Mr. Diehl said.
“I was talking to an 86-year-old recently who kept referring to his father as if he was still alive,” said Joseph Eck, vice president of the institutional-solutions group for The Hartford. “It turns out that the father was alive — he was 106 years old and still active in community work.”
So people shouldn’t make fun of actuaries when they make calculations that assume that people will live to be 105, Mr. Eck added.
Despite the reality of increased longevity, many clients aren’t planning for it, however.
The chance of a client’s having a house fire within the next 20 years is five out of 1,000, and almost everyone thinks that is worth insuring against, Mr. Diehl noted. The chance of one 65-year-old spouse living to age 85 or older is 840 in 1,000, but that is often seen as not worth insuring against, he said.
“A problem with how clients think about retirement income is that they see themselves as mountain climbers but don’t understand their objective,” Mr. Diehl added. “The ultimate objective is not climbing the mountain but getting all the way back down.”
Many clients have enough savings to climb the mountain and enjoy the summit for a while, but they underestimate the downside terrain, and they may not be able to descend, Mr. Diehl said. Annuities that keep clients invested in equities and guarantee a certain minimum lifetime income are among the solutions to this dilemma, he said.
Another flaw in clients’ retirement thinking is that they don’t consider how inflation will affect their income, Mr. Diehl added. That is because the clients received raises and bonuses while they were working, which at least partially made up for inflation.
But as soon as they retire, those raises and bonuses stop coming, Mr. Diehl noted.
Cash for life
The Hartford recently launched a lifetime-income option for employee retirement plans, in which payroll contributions purchase “income shares,” with each share worth $10 a month in guaranteed income at age 65, Mr. Eck said.
When those employees retire and are in the income stage, they receive monthly income for life — based on the number of shares accumulated — unaffected by stock market swings, he said. The concept is brand-new, and only one employer-client has implemented the plan so far, but The Hartford has high hopes for it, Mr. Eck added.
One reporter asked him why each share bought just $10 a month in income — an amount that is unlikely to excite clients. Mr. Eck responded that the company had experimented with various amounts and had decided on the $10 figure.
The figure is more a way of determining how much monthly income will be received at retirement than significant in its own right, Mr. Diehl added.
The bottom line is that a client can’t wake up at age 75 and suddenly decide to do something about guaranteeing his lifetime income, he said.
“That’s like a person who is about to enter a nursing home deciding that he wants to take care of his estate planning,” Mr. Diehl added.