As a professional, you want to join the conversation your clients are already having in their mind.
At some point in the future, there are only three possible options (or some combination of the three) for your clients regarding any income asset, once they have committed to a particular investment path.
The Three Options:
1. Remove it (withdraw or transfer remaining account/surrender value)
2. Spend it (receive income or annuity payout until death with no remaining value)
3. Leave it (die with remaining surrender value or death benefit)
Corollary to the Three Options Rule:
The IRR (Internal Rate of Return) can be determined for each exit point at various ages and the ability to be able to make those calculations and use the results to make decisions, is at the heart of the AnnuityCheck™ philosophy. Always think and discuss IRR at every possible exit point for your client.
Let’s apply this line of thinking to the decision to sell your client an income rider. Since an income rider purchased at age 65 and turned on at age 70 has a 0% to 1% IRR at age 85, we could agree that there is no value derived until your client reaches a point at, or above, life expectancy. By adding mortality into the equation, we can make the following generalization for all human beings in the population.
At age 85, your clients will either be:
2. Poor health (below avg. LE)
3. Average health (avg. LE)
4. Great health (above avg. LE)
If they died or are in poor/average health and you sold them an income rider and selected a product with reduced participation rates, you’ve allowed the insurance company to capture the majority of their profits in the form of fees and spreads for the possibility of lifetime income (beyond life expectancy). When your client buys an income rider, you are setting them up for a “sucker’s bet” where they will most likely lose money. Only if your client is in great health and lives well beyond normal life expectancy would having an income rider result in a reasonable return.
What if your clients could wait until they are in their 80s to make that determination? At age 80 or 85, your client will be in a much better position to assess their life expectancy than they were at 65. That’s exactly what we do with our Income Under Management™ process. Based on your client’s annual growth account size, we calculate the age that they would need to make that decision. It is called a SPIA Option and AnnuityCheck™ calculates this important number on each illustration. The payout is based on today’s interest rates, so if you think interest rates are going to be lower 25 years from now than they are today, you may still want to sell income riders, otherwise the payout will probably be much higher than what we are showing. If your client’s uncapped annuity gains are sufficient, they will be substantially rewarded for not purchasing an income rider or buying an immediate annuity at a younger age. The direct saving can easily be over $50,000 on a $200,000 retirement account over 25 years.
By focusing on maximum account value and minimum fees, you can deliver maximum lifetime value to your clients based on their objective.