With the Fed’s commitment to keep interest rates between zero and 2% until mid-2015, the guaranteed income that annuities offer looks especially good.
More people will enter retirement as the Boomer generation ages. Pensions are no longer a sure thing. Social Security doesn’t cover most people’s standard of living.
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The annuity industry faced significant challenges in 2012 from the low interest rate environment and some companies have had to reduce the number and amount of benefits.
But benefits from products like annuities have to be evaluated within the current market environment.
When it seemed that markets would always go up, people weren’t interested in locking in higher rates.
Investors now realize that stock prices and housing values don’t always go up. So a steady stream of income looks pretty attractive and should remain so throughout 2013.
Investors often do not understand annuities so it’s likely they’ll need some education. The priority is to show clients how to cover their basic needs during retirement.
Assets that are available beyond those needs can be used as discretionary income or to generate growth to ensure the client doesn’t run out of money over his or her lifetime.
Clients often avoid retirement planning because they are afraid they don’t have enough assets to manage it well.
Educating clients on different sources of assets makes retirement planning seem less intimidating, more reasonable, and easier to digest. This may steer the industry focus
away from asset gathering and more toward income planning.
One danger in this view is the abandonment of growth strategies when retirement today tends to last two to three times as long as retirements of old when income was the only need.