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Creating a Lifestyle Annuity

Different annuities can be suited to your client’s lifestyle, but asking the right questions is key to finding the right investment.

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This article first appeared in Rethinking65 as Help Clients Identify Their ‘Lifestyle Annuity’ First.

Clients and prospects can get apprehensive when the phrases “financial strategy” and “creativity” are used in the same sentence. But  I  have learned in working with financial advisors that a lot of ingenuity goes into crafting the right monetary approach. That creativity is necessary when most people in their 50s have under $60,000 saved for retirement.

A topic that financial professionals tell me is discussed with great frequency is annuities. They offer guaranteed income streams and can be a key element of a secure future for those seeking greater financial consistency. As you work with clients to understand their risk tolerances and income needs, keep in mind that traditional annuities come in three main varieties.

  • Fixed arrangements, which offer a guaranteed, albeit lower, payout rate with minimal risk.
  • Variable plans, which invest in the market and can give higher returns but also carry greater market risk.
  • Indexed designs, which track a market index, offering growth potential with some downside protection.

If you are already using or thinking about annuities as a part of your offering, consider how they aligns with the lifestyle your clients plan to lead. Nearly 36% of those in their 50s who have taken my Retirement Time Analysis (RTA) self-assess they lack a desired structure in their life. That number improves only a little to 31% for those 60 and older. So, about one-third of your retirement-age clients are probably grappling with understanding the basic expectations of retirement living, not to mention the emotional challenges awaiting them.

Before you dive into annuities, determine whether your clients and prospects have a fixed, variable or indexed post-career lifestyle mindset. The more you understand their personal motivations, the better you can counsel them on the financial strategy.

The Retirement Time Analysis tool, offer of a free download.

Fixed Lifestyle Annuity

Retirement brings a significant change in how people live. Gone are the 40-plus hours of structured scheduling that is provided by a career. That time now is wide open. Initially, many retirees seek consistency and order. They may be in a fixed mindset. Should you sense this attitude, explore deeper with questions like the following:

  • How are you going to guarantee you will be spending your time wisely?
  • Have you created a detailed retirement budget that reflects your needs?
  • How much flexibility do you want in your life activities now and in the future?
  • What are things you would like to do if money were not an issue?

By assisting them to not be “fixed’ into a stereotypical retirement thinking, your clients will be provide you with additional lifestyle information. This in turn allows you to give more comprehensive financial advice.

Variable Lifestyle Annuity

I work with clients who are active in retirement, and I know you probably do, too.  They are able to grow emotionally because they continue to invest in their personal satisfaction. That has the potential to bring about a higher rate of lifestyle return but may involve additional risk if the financial aspect is not fully understood.  Push your near-retirees for a better understanding of what they envision for their future.

  • What have they done to prepare themselves for an active post-career life?
  • How do they see the first five years of retirement and the next five years?
  • What underlying concerns do they have when comparing their desired lifestyle to their financial options?
  • How will they adjust their living if something unexpected happens?

Highlighting the variable nature of retirement and the impact that time will have on their desired activities will influence how they view their resources today and what those funds will mean to their future.

Indexed Lifestyle Annuity

The familiar term work-life balance describes the desire to seek the right equilibrium between career and personal life. As an individual exits a career, the focus becomes retirement life balance. If work is no longer in the equation, your clients are attempting to land on a new life symmetry. You’ll want to get greater clarity from them.

  • What are your limits to traditional retirement activities like travel, hobbies, volunteering, and continuing education?
  • How willing are you to take new lifestyle risks like long hikes, skydiving, scuba diving, and horseback riding?
  • How much do you plan to invest in your personal care?
  • What are your backup plans if you find you are no longer able to continue an activity you are doing today?

An indexed lifestyle has an eye on the potential upside of retirement living while trying to regulate the downsides or limitations.

Aligning the Lifestyle to the Financial Annuity

At this point, I hope you realize that a lifestyle annuity may not align with a client’s needs. A couple with a variable lifestyle mindset might be best suited for a fixed annuity plan, based on financial reality. A widow may fit into a variable annuity but live an indexed lifestyle. However, when you begin to consider life and behavioral allowances, you will gain greater precision to guide the financial annuity strategy.

David Buck is the author of the book “The Time-Optimized Life,” owner of Kairos Management Solutions, LLC, and founder of the Infinity Lifestyle Design program. As a certified professional retirement coach (CPRC), David works with financial services providers helping their clients create a post-career lifestyle strategy. To learn more, contact him at dave@kmstime.com or visit Infinity Lifestyle Design.