May 16, 2014 | BY PJ BEHRENS
There are many different ways to structure an income plan. The fixed annuity definitely has a place in a structured plan, whether it is a fixed indexed, multi-year guarantee, or traditional fixed annuity. Unfortunately, a recent AARP-sponsored article beat up the fixed annuity pretty bad. It’s sad to know there’s such a lack of knowledge in the world of income and financial planning. The article stated that a fixed indexed annuity is among the most complex financial products. It makes me wonder how the word “complex” is really defined. I’m sure most investors have held or seen a 90+ page document. It’s referred to as the disclosure in the world of registered representatives. Most times you’ll see it defined as the “prospectus.” Is this not complex?
There are two critical factors when we start to look at a client’s plan: 1) the client’s age, 2) the amount of assets that are available to include in the plan. Typically there are three components to a plan; income, accumulation for income later, and managed money for future income needs. And, depending on the size of the plan, there may be money that can be used to set up legacy opportunities and/or estate protection. Most of the time there is an opportunity to include managed money in the plan as well. Sometimes we have to” back into” a plan when the client has a preferred amount of income he or she desires, but ultimately the available assets steer the plan. Often, a fixed annuity is the best product to meet these goals.
It’s important to recognize the uniqueness of each and every client. I say this because all too often we see the “one size fits all” approach used and we know that this cannot be the case. The most important thing is to identify all opportunities and design a plan that custom fits the client. If the advisor puts the client first, the effect on his/her income will follow in the same fashion.
So what’s your take on AARP’s stance against annuities? Post your comments below to get the conversation started.