Using Dollar Cost Averaging to Take Advantage Of
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Issue 1 Vol 11 | Spring 2020 IRI Insured Retirement Institute myIRIonline.org In This Issue: USING DOLLAR COST AVERAGING Using Dollar Cost TO TAKE ADVANTAGE OF MARKET Averaging to Take Advantage of Market VOLATILITY Volatility 1 By Tim Seifert Finding Confidence in SVP and Head of Annuity Sales, Chaotic Times Lincoln Financial Distributors 4 IRI Fast Facts The ongoing COVID-19 pandemic and resulting economic repercussions have changed every 6 element of our daily lives and the way we plan for the future. Among top concerns during this time, including physical wellness and financial security, investors are navigating extreme Stay Secure When market volatility and the potential long-term impact it will have on their retirement savings. Working from Home Research from the Alliance for Lifetime Income shows that more than half of Americans are concerned they may need to delay retirement due to the current volatile market,1 and 7 Lincoln has found that half are interested in exploring protected lifetime income solutions.2 Maintaining Perspective in Times of Financial Volatility 9 SECURE Act Gives Annuities a Boost 11 FOLLOW US! © Insured Retirement Institute 2019 Continued on page 2 Financial Professional Use Only 1 Spring 2020 | myIRIonline.org Continued from page 1 More than ever, investors are turning to their financial professional’s Unlike a single investment, this strategy of easing into the market counsel to help protect their nest eggs and position them for the can help protect against risk. Given the current circumstances, future – especially if their retirement years are in view. Some clients DCA presents enhanced opportunity for investors to boost their may feel spooked, agonizing whether to participate in market retirement savings, particularly when leveraging a variable annuity risk in exchange for potential growth or go to cash but miss the that combines the power of DCA with an interest rate as high as 8%.3 upside potential of a rebound that they may need to reach their With a systematic DCA strategy, clients will be able to make the long-term goals. most of their investment dollars by smoothing out fluctuating share Advisors can help clients feel confident about their investment prices over time. Because DCA involves continuous investment decisions amidst the crisis by guiding them through the emotional regardless of changing price levels, clients can consider their highs and lows of the turbulent market, and providing tax- ability to continue purchasing through periods at all price levels. efficient options that involve a simple, disciplined approach This steady investment pace requires discipline by clients during to investing. periods of market volatility, which may require an advisor’s ongoing LEVERAGING DOLLAR COST AVERAGING DURING guidance. MARKET VOLATILITY PROTECTING RETIREMENT INCOME AND GROWING One way to help clients see the potential of market movement INVESTMENT DOLLARS and keep them steady during the crisis is to explain the value of DCA can be an especially effective strategy within annuity allocations dollar cost averaging (DCA). This strategy is a simple, disciplined for investors looking to increase their protected lifetime income. and proven approach where investors follow a regular investment Using a DCA approach within an annuity contract that features schedule over time, regardless of market conditions. Clients will an optional living benefit rider allows clients to take advantage of buy more assets when the market is low and prices decline, like guaranteed interest payments while their money is invested over in current conditions, and buy fewer assets when the market is time, in addition to managing fluctuating market prices. yielding higher prices — generally resulting in a lower average cost per share. Here’s an example that illustrates how this concept allows for growth of annuity investment dollars when coupled with a DCA program. Monthly guaranteed cumulative interest earned $1,941 Total interest $1,833 earned This example illustrates the $1,610 total interest earned assuming st earned tere a $100,000 investment into e in ativ $1,288 an annuity contract with DCA, Cumul assuming an 8% guaranteed $848 interest rate over a six-month $337 period. The 8% guaranteed interest rate that clients would receive over the six-month period is in addition to the Monthly interest annuity’s crediting rate. Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 $337 $511 $440 $322 $223 $108 Spring 2020 | myIRIonline.org 2 Using a DCA strategy within a client’s annuity allocations gives contain both investment and insurance components and have fees the opportunity to invest in underlying investment options on a and charges, including mortality and expense, administrative, and regular basis, locking in guaranteed interest payments via a living advisory fees. Optional features are available for an additional benefit rider as they invest over a set period of time. Doing so may charge. The annuity’s value fluctuates with the market value of result in an annual yield that may outpace market interest rates the underlying investment options, and all assets accumulate tax- and help accelerate savings for future income. deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional This simple, methodical approach can provide clients with a boost 10% federal tax. Withdrawals will reduce the death benefit and to their retirement savings to help them reach their retirement cash surrender value. income goals, despite a downward trending market. Additionally, while DCA is an effective way to initially get clients into the market, Investors are advised to consider the investment objectives, risks, it’s important to keep an eye on your client’s overall portfolio and and charges and expenses of the variable annuity and its underlying rebalance as necessary. An annuity allows this activity to occur investment options carefully before investing. The applicable in a tax-deferred environment. prospectuses for the variable annuity and its underlying investment options contain this and other important information. Please call SOLUTIONS FOR A BRIGHT TOMORROW 888 868 2583 for free prospectuses. Read them carefully before In times of crisis, clients can feel empowered by knowledge and investing or sending money. Products and features are subject solutions. DCA is an option that can help clients navigate their to state availability. concerns regarding current unstable market conditions by easing Lincoln Investor Advantage® variable annuities (contract forms them into the markets steadily over time. When describing this 30070-A, 30070-B and state variations) are issued by The Lincoln strategy to clients, advisors can help them feel more comfortable National Life Insurance Company, Fort Wayne, IN, and distributed investing in the market by employing an annuity with a DCA by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln program. While DCA cannot guarantee a profit or protect from National Life Insurance Company does not solicit business in the a loss in a declining market, it offers a strategic approach to state of New York, nor is it authorized to do so. counterbalancing the turmoil. Contracts sold in New York (contract forms 30070-A-NY and 30070- By Tim Seifert, Head of Annuity Sales for Lincoln Financial Distributors. B-NY) are issued by Lincoln Life & Annuity Company of New York, Lincoln is currently offering investors a DCA option through its Syracuse, NY, and distributed by Lincoln Financial Distributors, Investor Advantage annuity, offering an 8%, six-month fixed rate Inc., a broker-dealer. special through June 30, 2020. All contract and rider guarantees, including those for optional LCN-3076361-050720 benefits, fixed subaccount crediting rates, or annuity payout rates, Lincoln Financial Group® affiliates, their distributors, and their are subject to the claims-paying ability of the issuing insurance respective employees, representatives, and/or insurance agents company. They are not backed by the broker dealer or insurance do not provide tax, accounting, or legal advice. Please consult an agency from which this annuity is purchased, or any affiliates of independent advisor as to any tax, accounting, or legal statements those entities other than the issuing company affiliates, and none made herein. makes any representations or guarantees regarding the claims- Variable annuities are long-term investment products designed paying ability of the issuer. for retirement purposes and are subject to market fluctuation, There is no additional tax-deferral benefit for an annuity contract investment risk, and possible loss of principal. Variable annuities purchased in an IRA or other tax-qualified plan. 1 Source: Alliance for Lifetime Income: 2020 Retirement Reset Survey 2 Source: Phoenix Marketing International / Lincoln Financial Group, Affluent Market Study, 2020 3 Lincoln Investor Advantage® offered at 8%, six-month fixed rate special through June 30, 2020. 3 Spring 2020 | myIRIonline.org FINDING CONFIDENCE IN CHAOTIC TIMES Annuities as an income strategy for beleaguered investors Where do we go from here? That’s the big good news is many of those investors are stocks in April of 2007, prior to the Great question on everyone’s minds — individual also revisiting their retirement plans, looking Recession.1 More than a decade after the investors and many professionals included. for stability among uncertainty. Now is the financial sector meltdown that