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People today are living longer, 80 is the new 70.  Therefore, new thoughts and strategies must be given to the subject of how people can make certain that their retirement income distributions are protected against a loss of assets.  This loss would result in a reduced flow of income that will adversely affect their lifestyle during retirement

If it seems like all the attention has previously been placed on accumulating assets, you’re right!  Emphasis by brokers as well as investors has always been on tax deferred growth, highest returns and lowest expenses, with hardly any attention paid to better managing risks or distribution planning techniques. In my opinion the Financial Service Industry did a poor job and as a result millions of our current retirees are being ill served.

One can recognize the significance of this statement when you consider that $3.5 trillion dollars were lost in the US equity marketplace in just the last 2 years.  While it is always difficult to come back from a loss, it is especially more so for retirees already in the distribution phase of their lives.

Today’s retirees need to pay more attention to protecting what they already have while still being able to participate in the growth of the equity marketplace.  In the past, when individuals got close to retirement, they shifted their asset allocation to the fixed arena of CDs and Bonds to assure against loss of capital.  However in doing so, they continuously eroded their asset base due to inflation.  As a result, their subsequent cash flow was reduced.

The challenge for the Financial industry today is to shift gears from accumulation planning alone and to come up with new riders to allow retirees to take advantage of guaranteed strategies that will ensure that neither market downturns nor expected life’s events such as the need for long term care can get in the way of their anticipated cash flow needs.

According to a recent Ernst & Young study there are signs that the industry is responding with new versions of innovative products such as Variable Annuities and riders that attempt to take into account protection against loss from market and interest rate fluctuations, i.e.: Longevity Insurance combines deferral and maximum payout techniques

Without having to give up control of  your principal.

o Guaranteed living benefit riders to insure a minimum dollar monthly payout
o Guaranteed withdrawal benefits to insure minimum length of time that benefits will be received.
o Innovative product bundling which provides a combination of long term care and life insurance.

The Ernst & Young study goes on to state that “There is tremendous opportunity for the insurance industry to draw on their core strength and provide protection and guarantees by converting some of the assets under management into premium for a much needed lifestyle and cash flow protection strategy for retirement. Retirees must stop buying retirement products and start purchasing managed cash flow solutions.”

In order to better serve the upcoming 76 million boomers, the financial services industry must challenge conventional thinking and attempt to change the philosophy of both the individual broker and the retiree through education as to the proper application   of how these new riders and options should best be used to convert future cash flow into a guaranteed cash flow.   It is imperative that when choosing a Certified Financial Planner to assist you in these matters, he or she be familiar and have experience working with these new innovative strategies. And most importantly that they have the independence and ability to choose from amongst the many available products in the marketplace.

Sometimes the answer to a person’s problem isn’t necessarily adding new assets, but d to simply rearrange their existing ones so that they do a better job of maximizing and protecting what’s already there.

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Tags: assets, insurance, long term care, longevity insurance, retirees, retirement income, tax deferred growth, variable annuities

About the Author: Henry Montag is an Independent Certified Financial Planner as well as a CLTC. He’s been in practice since 1976 with offices on Long Island, New York. He is a contributing writer for The Moneypaper, a national financial publication, been my sourced by Investors business Daily, Long Island Business News, Newsday, Wall St Journal, The Moneypaper,Investment News, Senior Lifestyles and has held insurance and securities licenses for over thirty years.

This entry was posted on Wednesday, March 25th, 2009 at 9:43 am and is filed under retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.