By Jeffrey R. Karp, CLU®, ChFC®, CASL®

One of the “early in life” messages we get from our parents- Get a job if you want to be able to buy things.  They did not call it an income stream but that is really what it was.  This single message formed the connection between a job and spending, which continued throughout our working career.  Some people can be driven off this message by life events like a temporary job loss or a need to care for family/friend, but there is never a question about the goal for re-employment.  The reliability of a paycheck keeps the focus on accumulating wealth not on the fear of income flow. 

This all changes as people begin the mental transition from -paycheck equals income flow -to - assets equal income flow.  In the blink of an emotional eye, the accumulation drive shifts into consistency drive.  When does this gear shift usually begin?  My experience has shown it to be somewhere in the mid-50’s or within 5-years of a target retirement age.

The key to managing this transition successfully is to be sure to develop an outcome based solution not product based solution.  If fear of running out of money (called longevity risk) drives decisions then products associated with guarantees become very attractive. 

How does this key planning concept work?  Let’s use annuities as a product example.  The various guarantees associated with many annuity products can make them very attractive for income flow planning but the associated fees could make them unattractive-a  Conundrum!  Add the multitude of negative articles about annuities and product analysis paralysis ensues.

Truth is that annuities should not be loved or hated as they are a thing not a philosophy or belief.  They should be analyzed as a solution to a desired outcome.  The outcome, of course, would be personal  retirement income flow.  Does the annuity add value or just sound good?

There are many products that my annuity message could apply to. Each will have pros/cons as stand-alone solutions. The success of consistent retirement income will be based more on how the “ingredients” are mixed than any single product. 

^{Securities and Advisory Services provided through LPL Financial, a Registered Investment Advisor, Member FINRA, SIPC.}

^{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.}