What advisors need is some sort of hybrid product that successfully integrates asset management with guaranteed income, said Tom Modestino, senior analyst at Cerulli who wrote the report: “State of Retirement Income: Addressable Opportunity, Strategies and Future Outlook.”
This is an excerpt I read last week from Advisors Need Better Income-Generating Tools on financial-planning.com.
So today I am going to tell you about a vehicle that will address this. I really wonder if Tom or the person writing the article is aware of this. This vehicle is called the Retirement Management Account. I won’t go into too much detail of the history but it was actually designed by Jerry Golden. He is the one that developed the Guaranteed Minimum Income Benefit at The Equitable back in 1996.
The RMA at its core is an income planning and monitoring program. What it accomplishes is simplifying a person’s retirement income planning by using one account where multiple use to be needed. The benefit of this is an easier to use and understand account for the client to manage not only their retirement income but also the taxes and rules surrounding that access of retirement accounts. It allows a single monthly distribution check, a single statement and a single account in compliance with custodial IRA requirements.
The RMA is made up of two separate pieces in one shell. The two pieces are mutual fund model portfolios and a multi-premium immediate annuity, also known as a Flexible Benefits Annuity. This creates more flexibility for the client than the traditional lump sum annuitization. The FBA also has built in cost of living and survivorship options.
The biggest benefit of this program is flexibility and liquidity. It allows the client to balance guaranteed income and market participation. By combining the two under one shell, distributions can be taken through one check and can be turned on or off at any time. Now you might be thinking that you can’t turn off an annuity, which is true. By using one shell, it allows the client to turn off distributions from the account. The way it does this is by flowing the annuity income stream back into the mutual funds, thus, avoiding any taxable distributions that aren’t needed. This could be a huge benefit in years such as 2009 where the IRS waives required minimum distributions. It also can allow the mutual funds to recover from market losses by not only, not drawing on them in a down market but in fact adding to them without taxable consequences.
The downside to such a program is that it is still at the heart, mutual fund portfolio plus immediate annuity. Any money that is annuitized is just that and turned into a stream of income. The mutual fund portfolio also is not an open architecture platform. What that means is your fund choices are limited. Some people might not mind this and it might be a deal breaker for others. The account is limited to retirement money, it is an IRA account. One other question that arises is fee structure. The mutual funds have an asset based fee of 1% or less depending on the level of assets while the FBA pays a commission just as any annuity does. This means that the advisor’s role with a program such as this is to help manage the mutual fund portfolios while also reviewing and aiding with decisions in regards to the need for guaranteed income.
This program is designed for the baby boomers. It’s target market is people ages 55-75 who have either retired or are planning to do so. In today’s environment this type of program can really increase the flexibility and control a person has over their retirement money. Today more and more people are figuring how to deal with losses in their account, increasing expenses and thus increasing needs. When things change for you, you need to have a program that can change with you. This just might be a piece to that puzzle.
If you have any further questions about this program please feel free to e-mail me.
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