Four in five Americans fail to understand the basics of how to successfully plan for a financially secure retirement, despite feeling they are at least “moderately knowledgeable” on retirement income, according to a new study released by The American College of Financial Services.
The opportunity for insurance and financial planning professionals is twofold – you can help consumers achieve successful retirements by improving their retirement literacy and also grow your business at the same time. The key to achieving both is using technology that makes it easy and efficient, so that you’re spending your time serving the client and building that relationship, not crunching numbers and laboring over a retirement plan. The Senior Market Sales® (SMS) technology suite – a $300-a-month value that’s free to SMS-contracted producers – is designed to help you educate clients on retirement realities using their personal information, which motivates them to act, and positions you to provide the solutions.
While you can use three of the tools individually to address different retirement issues – Social Security, taxes and risk – Income ArchiTech® utilizes all the technology together in an all-in-one retirement planning income tool that identifies where prospects’ and clients’ income may fall short, so that you can provide them solutions in a comprehensive, multi-page retirement plan, called a client Bl(u)print. Here, we’ll look at three opportunities that the survey revealed and how Income ArchiTech can help you educate clients and suggest solutions they can act on that will grow your business.
Underestimating Life Expectancy
The study, which was conducted between April 29 and May 18, 2020, consisted of Americans age 50 to 75 with at least $100,000 in household assets, not including their primary residence. Eight in 10 people failed a 38-question online quiz on financial literacy, with the average score of only 42%.
More than half of respondents underestimated the life expectancy of a 65-year-old man. This finding suggests that many people don’t understand how long their assets might last.
With Income ArchiTech, you simply enter clients’ data to view a summary of their current financial state in easy-to-read charts. Because you must enter an expected life expectancy, you can show a client how long their income will last given their own personal expectation. Then you can show today’s average life expectancy – 76.2 years for a man and 81.2 years for a woman – and various other ages that the client could potentially live to. With The American College of Financial Services’ study revealing that many respondents underestimated life expectancy, you likely will be able to show clients or prospects that their expectations would result in an income shortfall. This positions you to provide solutions, whether fixed-indexed annuities, adjustments to their timing of when to claim Social Security benefits or life insurance with living benefit riders to mitigate the risk of longevity in retirement.
Lacking a Long-Term Care Plan
The study also revealed that only three in 10 have a plan for how to pay for long-term care needs and that only 8% consider it very likely they’ll ever need long-term care, despite the reality that 70% will.
One of Income ArchiTech’s strongest features is its ability to perform stress tests for a variety of possible events, such as long-term care, on a client’s or prospect's retirement income. Because Americans already underestimate the need for long-term care funding and often don’t understand how expensive this type of care can be, the stress test can open their eyes and lead to immediate action. Income ArchiTech’s easy-to-understand graphs show the dramatic impact on their retirement income, and with just a few clicks, they also can show how your solutions can help mitigate that impact.
One solution that people might be especially receptive to right now is a hybrid life-long-term-care policy. In a survey conducted by Life Happens, more than two-thirds (67%) of respondents said that the coronavirus disease (COVID-19) has served as a wake-up call to re-evaluate their finances, and a separate survey by Genworth showed that 32% of respondents said they want to make sure they can afford to get any long-term care services they need in the setting of their choice. Life insurance with living benefit rider, which allows a policyholder to accelerate a portion or all of their benefit for long-term care, can be one solution that appeals to consumers.
You, of course, have to evaluate which solution – traditional long-term care insurance, annuities, hybrid life insurance or other strategies – works best for each client’s situation. Income ArchiTech can help you determine that, as you apply different solutions and as the software calculates the impact of each on the client’s retirement income.
Misunderstanding Withdrawal Rates and Not Understanding Annuities
The American College of Financial Services survey revealed that only 32% knew that $4,000 is the most they can afford to “safely” withdraw per year from a $100,000 retirement account. This suggests that most do not know how to manage a prudent withdrawal rate.
And while seven in 10 think it is highly important to have a guaranteed monthly income source in retirement, only 31% are highly interested in owning a financial product that would deliver guaranteed lifetime income, according to the survey.
“This curious survey result suggests that consumers understand the importance of a guaranteed income conceptually, but they do not understand how annuities work,” Steve Parrish, co-director of the New York Life Center for Retirement Income and an architect of the survey, wrote in Forbes.
Income ArchiTech can illustrate different withdrawal rates, based on the client’s assumption and help you determine what is an ideal rate based on their lifestyle goals. If there is a gap between those assumptions and the desired lifestyle, you can provide solutions, such as an annuity. In this way, Income ArchiTech opens the door for the annuity discussion, but it does so in the most effective way – by showing the potential shortfall with their own money. By surprising the client that their assumption may have led to financial missteps in retirement, you demonstrate your value immediately, build trust and increase the chances that they’ll want you to continue working with you. The Bl(u)print you give them at the appointment documents the base case information and your recommendations to ensure that they do continue to work with you.
Understanding That Retirement Is Complicated
The final insight from the research is less about what clients don’t know and more about what they do know: retirement is complicated, and they understand the importance of getting a professional’s support. The survey revealed that 58% think it’s highly important that their advisor educate them about strategies to protect against investment risk.
“Consumers appear to be asking not only for solutions, but knowledge as well,” Parrish wrote.
With nearly four decades in the retirement space, SMS is adept at spotting the important trends and providing insurance and financial professionals the tools to leverage those trends to grow their businesses. Income ArchiTech was specifically designed to equip you with an easy-to-use and easy-to-explain tool that can deliver on the consumer need and demand for retirement literacy.
See Income ArchiTech in Action
When you see all that Income ArchiTech can do, you’ll see that these are just a few of the opportunities it provides to help you grow your business. Sign up for a free demo.
To learn about the other tools in the SMS Technology Suite – Total Social Security®, Tax Clarity® and SmartRisk™ – call an SMS marketing consultant at 1.877.645.4939.
Now, with the latest updates to the technology suite, you can access all four tools with a single sign-on and enter client data once, saving you even more time than this powerful technology already does. This efficiency helps you see more clients – and that helps you grow your business.
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