Image alt tag

Page not optimized for mobile browsing

DST vision is best viewed on desktop and tablet

The Muni-Ladder Interest Rate Scenario Tool is only available on desktop and tablet.

PROCEED GO TO LORDABBETT.COM

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)
View All Tracked Funds
View All Tracked Funds

Quick Links

Follow Us

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Check Out Go Literature Center

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Practice Management

Insuring Versus Budgeting: What Some Clients Don't Get

May 29, 2014

When it comes to planning for retirement, advisors should tell their clients to budget for likely events and insure against unlikely events.

This Practice Management article is intended for financial advisors only (registered representatives of broker dealers or associated persons of Registered Investment Advisors).
 

Americans have numerous problems in planning for retirement, but one that is seldom discussed is a common confusion of budgeting versus insuring.

This is according to finance professor Moshe Milevsky, who spoke earlier this year at the annual Bank Insurance & Securities Association conference in Hollywood, Florida.

People tend to underestimate the chances of dying from likely causes, like heart failure or cancer, while overestimating the chances of dying from unlikely causes, like murder, Milevsky said. In one survey, fully 10% of people thought they would be murdered when specifically asked how they thought they would die, he said.

But the difference between "likely" and "unlikely" in this scenario is important, because you should budget for the likely events and insure against the unlikely, Milevksy said. As one example, he said that you might be in a car wreck and get sued for $1 million, but you don’t set aside that much money just in case. You insure against that unlikely event.

These factors contribute to Milevsky’s conclusion that it’s misleading to tell clients they may live to be 100 so they need to save a lot of money for that scenario. Instead, he said that advisors could better help clients by insuring with a combination of guaranteed income products.

He offered one way to start the conversation based on an interesting experiment he previously conducted. Sixty people were given poker chips that represented their nest egg. Next, he gave them six boxes labeled as retirement ages (70–75; 75–80; and so on, until 95–100) and had them dole out portions of their 60-chip nest egg.

No matter how they allocate their "savings," having clients do this kind of exercise is an easy way to start an important discussion about retirement and death without using phrases that tend to stop a conversation, such as "legacy" or "longevity risk."

And because there is so much uncertainty surrounding retirement, Milevsky said, clarifying clients’ misunderstandings is crucial for any meaningful advisory relationship.

--Lee Conrad

 

Lee Conrad is a bank investment consultant.

RELATED TOPICS

THE INVESTMENT CONVERSATION

 

videoOur blog features timely commentary and analysis from Lord Abbett experts. Join the conversation.

image

RELATED COMMENTARY

The information provided is for general information purposes only and is not intended to be legal, tax or investment advice. The information contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this information.

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field