VAs With GLWB Riders: Helping Clients Take Charge Of Their Retirement

By Jason Frain

As Americans continue to live longer and financial markets remain unpredictable, many retirees and preretirees are deeply concerned about outliving the income their savings will generate during their non-working years. Yet, 63 percent of American households don’t have a sufficient plan for income in retirement. Combining a variable annuity with a guaranteed lifetime withdrawal benefit (GLWB) rider could be the solution to help solve your clients’ needs.

The need for certainty

Although the stock market has rebounded strongly since the steep downturn in 2008 and 2009, investor confidence continues to lag. Financial advisors regularly face questions from clients who are concerned about the downturns to come. They question whether their retirement assets are protected enough while still allowing them to enjoy growth opportunities if market increases occur. In fact, more than three-quarters of preretirees are very or somewhat concerned about their long-term financial futures, while some 47 percent of clients list market volatility as their top retirement planning concern.

Such worries are not unfounded. According to some studies, retirees who follow the traditional 4 percent withdrawal principle have a 57 percent chance of running out of money if today’s market environment persists.

Increases in life expectancy are another factor contributing to fears about retirement income.  A 65-year-old man has approximately a 50 percent chance of living to age 85 and approximately a 25 percent chance of living to age 92. For a 65-year-old woman, it’s about three years longer, in both instances. Furthermore, a married couple, both age 65, have approximately a 50 percent chance of at least one partner living until age 92 and approximately a 25 percent chance of one partner living until age 97. Given these circumstances, it makes sense that people are looking for retirement products that can offer guaranteed lifetime income regardless of market conditions while allowing for the potential for growth if the market performs well.

One way to help your clients preserve their retirement assets is to invest in an annuity. A variable annuity with a GLWB rider can offer clients a unique combination of certainty with the potential for market growth.

For example, think back to 2009 and imagine having two clients. Client A was invested in a variable annuity with a GLWB rider and Client B was invested in a well-diversified basket of stocks and bonds. Imagine telling Client A that while the account value in their investments went down, their level of income in retirement wasn’t going to decrease and it was still guaranteed for life, so long as they remain within the provisions of the insurance contract. On the other hand, imagine you had to tell Client B that they had to make a significant reduction in the level of income they were taking or they would face a much higher risk of running out of money in retirement. It’s easy to see how Client A would have faced the market downturn and the rest of their retirement years with more confidence than would Client B.

The need for flexibility

Even as clients seek stability, they’re also contending with the fact that retirement isn’t static. Indeed, clients’ expectations often differ significantly from their actual retirement experience. For example, your clients may work part-time in retirement or decide to start a small business. They may travel for a few years, incurring larger-than-average expenses. These shifting circumstances mean their income needs and withdrawal patterns are likely to evolve over time as well.

A flexible financial plan that not only provides guaranteed lifetime income, but can also adapt to one’s needs as they change is critical to helping ensure a financially secure retirement, because life can unfold in unexpected ways. A variable annuity with a GLWB rider can provide that flexibility with the ability to start or stop withdrawals at any time while maintaining the security of guaranteed income for life.

To address changing needs, a retirement plan needs to have some built-in flexibility to respond to the unpredictability of contemporary retirement, while also offering the stability clients need. In other words, clients need a strategy that is designed to be nimble enough to respond to the evolving face of retirement.

Ultimately, every client has different needs and goals for retirement, yet every client must be prepared for the unexpected. For those clients looking for a retirement solution that can offer guaranteed income coupled with the potential for growth and flexibility, a variable annuity with a GLWB rider may be right for them. As many clients grapple with the fear of outliving their retirement savings, this solution can help them take control of their retirement income and help give them the peace of mind to fully enjoy the retirement they’ve worked so hard to earn.

Jason Frain is vice president, MetLife Retail Retirement and Wealth Solutions. Jason may be contacted at [email protected].

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