The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. – George Bernard Shaw

After four decades of inventing financial products that help people figure out how to retire comfortably, I am accustomed to the resistance these new ideas face. Please forgive me for trying to adapt the world of financial products to what I believe retirees and pre-retirees need.

As I’ve written about in this blog, I often critique financial advisers of all types who insist that their clients adapt their plans to the confines of whatever options the adviser’s business model supports. When it comes to retirement income planning, that model usually involves a pie chart of asset allocation, and a market simulation of when your income runs out.

New idea for retirement

My “unreasonable” view is that retirement income planning is about an allocation of income, and a plan that delivers that income for the rest of the retiree’s life.

Three consumers who know what they want

The people who decide to make lifetime income part of their retirement portfolio come from a wide variety of backgrounds:

  1. The medical researcher. She learned enough on her own to confidently compare her retirement options. She used the money in her IRA to buy several income annuities, which along with her Social Security, will provide her with secure income in retirement.
  2. The consultant and ex-pat living in Europe. Rather than rely on products in his country of residence, he decided to invest in the security of an income annuity backed by a highly rated U.S. insurance company.
  3. The manager in the construction industry. His job required him to be aggressive and make many gut decisions. Now, he views the stock market as too rough and tumble, and is looking for the security for his family that income annuities will provide. He still has money in the market, and he can be more aggressive because of the income he can count on.

Stages of an idea

Years back when my company was rolling out a new form of annuity* to financial advisors, I employed several regional sales representatives, one of which, expecting pushback from these advisors, reminded me of the stages of an idea:

  • Ridicule
  • Resist
  • Embrace
  • Self-evident

I have found that consumers are much more open to new ideas than advisers, particularly if it’s outside the adviser’s area of expertise or their business practice. However, often times the biggest naysayers eventually become the biggest supporters, usually asking themselves and others, “Why haven’t we done this before?” It takes time for our solutions to become “self-evident” but in the meantime we’re here to work with consumers.

So what’s the big idea?

The concept is simple; the execution is sophisticated. Here’s the idea:

In planning your future retirement income plan, consider incorporating regular monthly annuity payments that are guaranteed, will last your entire life, are backed by a highly rated insurance company, receive favorable tax treatment and continue to your spouse or beneficiary at your election. Together with Social Security and any pension, they can form the foundation of your retirement income plan.

Borrowing a tag line from a well-known brand, “annuity payments don’t make your retirement; they make your retirement better.”

Making your retirement better is where the sophistication comes in, since planning requires a deep understanding of income annuities in order to answer questions like the following:

  • What’s the source of premiums for the annuity? Is it a traditional IRA, personal savings, deferred annuity?
  • What annuity payment features do you elect? Your life only, continue to spouse or beneficiary, fixed period?
  • Do you want annuity payments to start now, in the future, or both?
  • How much of your safe income do you allocate to annuity payments?
  • Do you pick the annuity carrier with the best rates or the best rating?
  • How does the favorable tax treatment of annuity payments impact your other planning decisions?

It’s the last point I discussed in my previous blog on lowering your retirement tax rate that got a lot of “resistance” even from my own accountant.

Why even bother with annuity payments?

Financial advisers may pose this question to you, almost “ridiculing” the idea.

Keep the following in mind where these advisers are coming from when responding:Insurance agents sell products, usually promoting product features; they don’t do planning involving investment products.

Investment advisers often have little or no experience with income annuities; they may not even be licensed to sell them.

Financial planners often build plans with software provided by third parties; that software doesn’t answer or ask the questions above.

Accountants are generally not familiar with income annuities, and their tax software doesn’t specifically explore the tax value that income annuities provide.

Financial publications generally favor income annuities, but they don’t have the space to address the more sophisticated decision process. And logistically they don’t offer personal counseling.

Why I embrace the benefits of annuity payments

Like nearly all the pre-retirees now making plans for their future, I am a Baby Boomer who has watched employers stop offering pensions, and has lived through a few market “corrections.” I can relate to the challenges you’re facing. Here is a sampling of articles I have written about the benefits of adding income annuities to your retirement planning:

Are you ready to make the decisions that will benefit your specific retirement? Contact me at Ask Jerry, and I will answer your questions.

*That new annuity spawned a $1 trillion industry.