Debunking Income Planning Myths

Debunking the Myths of Income Planning: What Advisors Need to Know

Retirement income planning is one of the most critical, yet misunderstood, aspects of financial advising. Many advisors and clients alike hold on to outdated beliefs that can negatively impact long-term financial security. In a recent McGSpeaks podcast, I interviewed Randy Kitzmiller, ChFC®, CLU®, FLMI®, RICP® and tackled some of the biggest myths surrounding income planning and revealed how advisors can better serve their clients by challenging conventional wisdom. Below, we explore these myths and present actionable insights that can transform retirement planning strategies.

Myth #1: Adding Guaranteed Income Hurts AUM Growth

One of the most prevalent misconceptions in the registered rep and RIA channels is that incorporating guaranteed income products—such as annuities—into a client’s portfolio means surrendering assets under management (AUM), thus reducing the advisor’s revenue. This belief often prevents advisors from considering the benefits of guaranteed income as part of a comprehensive financial plan.

However, multiple studies have shown that incorporating 20-25% of a retirement portfolio into guaranteed income solutions can actually enhance AUM over time. Not only does it decrease portfolio risk, but it can also leave more money for heirs. Firms like BlackRock and American Funds have published white papers demonstrating how guaranteed income can stabilize portfolios and improve long-term client outcomes.

Myth #2: Income Phase Annuities Are “Dead Assets”

A common sentiment among advisors is that once an annuity enters the income phase, it becomes a “dead asset” with no room for improvement. This could not be further from the truth.

In reality, annuity audits frequently uncover opportunities to increase a client’s guaranteed income—sometimes by as much as 30-40%. During inflationary periods, boosting income can be a game-changer for retirees. Advisors who proactively review their clients’ annuity contracts can often find ways to optimize payout structures and ensure that income streams keep pace with rising costs.

Ignoring these opportunities can have significant consequences. If advisors fail to review existing annuities, clients may seek second opinions from other professionals, potentially resulting in a lost relationship. Worse yet, heirs or beneficiaries who later discover that income could have been significantly increased might take legal action, questioning why no proactive planning was done.

Myth #3: A High-Income Base Guarantees the Best Outcome

Another dangerous misconception is that a high income base on an annuity contract automatically ensures the best retirement outcome. Many advisors believe that if a contract has a large income value, there’s no way to improve it. However, this overlooks the importance of payout structures and market conditions.

In some cases, advisors have been able to transition clients from an old annuity to a new structure that offers a significantly higher payout percentage—sometimes 8-8.5%—even when the original income base was high. The key is to evaluate all available options and choose the one that maximizes guaranteed lifetime income, rather than blindly trusting an existing structure.

Myth #4: Social Security Should Always Be Claimed as Early as Possible

Many retirees and even some advisors believe that Social Security should be taken at the earliest opportunity—usually at age 62—out of fear that benefits will diminish over time. However, delaying Social Security until age 70 results in a 76% higher payout, creating a substantial long-term benefit.

A powerful strategy to bridge the income gap between early retirement and a delayed Social Security claim involves using period-certain annuities. By utilizing a portion of assets to fund a structured income stream from ages 62 to 70, retirees can maximize their eventual Social Security benefits while maintaining financial security in the interim.

Myth #5: Frozen Pension Plans Are Untouchable

Many advisors assume that once a pension plan is frozen, there’s no flexibility in how those assets can be managed. What they do not know is utilizing Qualified Domestic Relations Orders (QDROs) can provide opportunities for greater control over pension assets, even without a divorce.

For example, in cases where a spouse is significantly younger, a QDRO can be used to transfer pension assets into an IRA in the younger spouse’s name, effectively delaying required minimum distributions (RMDs) and enhancing long-term planning flexibility. This little-known strategy can create significant planning advantages, particularly for high-net-worth clients looking to manage their retirement income streams more effectively.

The Importance of Proactive Income Planning

Income planning should not be a set-it-and-forget-it exercise. Financial advisors must continuously evaluate opportunities to enhance their clients’ retirement income, whether through annuity audits, Social Security optimization or pension restructuring.

By debunking these myths, advisors can provide better solutions, not sacrifices. A well-structured income plan ensures that clients maintain financial stability, maximize their income potential and build stronger legacies for future generations.

If you’re an advisor looking to enhance your clients’ retirement income strategies, now is the time to challenge these common myths and embrace new opportunities for financial growth.

To see my entire interview with Randy, please visit  www.youtube.com/@mcgspeaks/podcasts. There, you can find my interview with him and other resources. Or call our sales desk at 800-589-3000 to learn more about our annuity audit process and some of these myth-busting ideas.