Celebrating and giving at the holidays is how we show love for family. And what better gift can adult children receive than the confidence of knowing their parents have planned for retirement income they can’t outlive?
Celebrating and giving at the holidays is how we show love for family. And what better gift can adult children receive than the confidence of knowing their parents have planned for retirement income they can’t outlive?
With the holidays upon us, your clients are likely thinking about shopping for gifts. A designer bag for a daughter who is a working mom? Practical items for a son’s new home? Gifts like these are generally appreciated, but as a financial professional, you can bring longer-term “gift” ideas to your clients: a self-sufficient financial future and creating financial security for family members.
Clients who have raised families are likely to take pride in their children’s accomplishments, enjoy their grandkids, and want to help however they can. What they are unlikely to want is the need for financial support from their children because they outlive their income. The children may be concerned about this, too: Among adults with parents aged 65 or older who support their own children, 66% say that are stressed about affording their family’s financial obligations.1 If your clients don’t want to be a burden to their families, what can they do about it?
When clients can ensure they have a source of income for life, there is a reduced risk that they will need help from their children. Annuities are built for providing lifetime income. And today’s annuities often go beyond traditional annuitization (converting the contract to annuity income payments), which provides income but no additional access to funds. Optional benefits, often available for an additional cost with an annuity, were developed to allow clients to:
One caveat: Optional benefits may have restrictions on the investment options available. For financial professionals who fully manage investments to their clients’ respective risk tolerance levels, this might be a deterrent. The good news is that there are a few annuity companies that allow access to all the investments in the variable annuity, some with up to 100% equity exposure, even when an optional benefit is elected. This creates the potential for greater growth and greater future income.
Another way to maximize lifetime income is to consider an income annuity such as a single-premium immediate annuity (SPIA). One strategic use of a SPIA is to fill an income gap while the client waits until Social Security retirement benefits are maximized before taking them, potentially providing greater overall income.
Even with optional benefit and SPIA strategies available, annuitization of qualified annuities might be an option and has been given new luster. The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 Section 204 has provided clients who are receiving annuity income payments from qualified annuities more flexibility with planning. The provision now allows these payments to be aggregated toward the client’s required minimum distributions (RMDs). This change provides the opportunity for retirees to keep non-annuitized assets invested longer for growth or legacy strategies when the annuitization payments satisfy most, if not all, of the RMDs.
When the plan goes well or market growth reduces the need for annuity income, another strategy for the future well-being of family members is available. Annuities can be used for legacy planning to help ensure the future needs of loved ones are met.
As a financial professional, you can support clients’ financial goals with strategies that create the gift of confidence in the future with lifetime income for them and legacy options for their families.
For more information about retirement-planning, please contact our Retirement Strategies Group at RSG@PacificLife.com or (800) 722-2333, ext. 3939.
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1Source: Ma, Myles CPFC. “29% of the sandwich generation is ‘very stressed’ about financially supporting their kids and aging parents.” Policygenius .com. January 4, 2023
This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. Clients should consult with their accounting or tax professionals for guidance regarding their specific financial situations.
Annuities are long-term contracts designed for retirement.
Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
Investors should carefully consider a variable annuity’s risks, charges, limitations, and expenses, as well as the risks, charges, expenses, and investment goals of the underlying investment options. This and other information about Pacific Life are provided in the product and underlying fund prospectuses. These prospectuses should be read carefully before investing.
Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal income tax may apply. A withdrawal charge and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefit, and also may reduce the value of any optional benefits.
The value of the variable investment options will fluctuate so that shares, when redeemed, may be worth more or less than the original cost.
This material is educational and intended for an audience with financial services knowledge.
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Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
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Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company and an affiliate of Pacific Life & Annuity Company.
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