Annuities

That Time Coach Knight Went Fishing at Practice


Annuities

Because I was a student manager for Indiana University’s basketball team, I’m often asked how practices were with Coach Bob Knight. As you can imagine, they were generally intense with little time wasted. But, many of them included invaluable life lessons for all involved. One such practice was during our Christmas break. Coach came out of his locker room with a fishing pole in hand. I automatically knew this practice was going to different. 

 

Coach spent 90 minutes talking about being aware of your surroundings for the best chance of success. He used the analogy of fly fishing in a river with a fast current. He moved around the basketball court, simulating how a fisherman might move. He said you have to be careful when stepping on slippery stones, as you need a steady frame to cast your line. And, you have to pay attention to the strength of the current, so your feet aren’t pulled out from under you. 

 

You have to gather all this information into your decision-making process as you fish. And, you have to practice. Coach would cast his line and land the bobber within 6 inches of his target. Every time. Years of repetition created muscle memory, so he was extremely accurate. 

 

Practice for Planners

Coach’s fishing analogy was true for basketball, and it’s also true for income planning in an investment portfolio. There are hundreds of risks associated with a retiree’s income plans, but longevity-related issues multiply the chances of running out of money. Each risk in longevity is its own stone covered by moss. The client can easily slip and get caught up in the current. After that, it’s hard to recover. The damage is already done. 

 

In planning, you have to constantly check the variables surrounding your clients, just as you would check for slippery rocks or pay attention to the speed of the current. You can reduce the impact of longevity by shifting your client’s risk. 

 

The cash flow pressure of a long-term care event can be mitigated with insurance or income riders that provide additional income. Annuities are the only vehicle that use mortality credits to boost income yield to the client, and income streams can be guaranteed through immediate or deferred income products. And, inflation protection can be reduced through riders on many annuities. 

 

Want to be as accurate as Coach Knight? You’ll need repetition. Make income planning a repeatable process in your practice, and you’ll be more efficient and effective with your clients. You’ll also improve retention and increase referrals. 

 

Winning Strategy

Navigate the planning process like a skilled fisherman. Eliminate or reduce as many slippery stones as possible. Watch your step so you don’t get caught up in the current. Shift the risks and make your client’s journey more predictable. 

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon. 

Retirement Practice Management Financial Planning

Bringing Annuities to Light


Annuities

I recently attended a sales conference hosted by Allego, a training software company. The conference displayed best use cases for training but did so in light of the changing way people learn. As we attempt to bring more awareness to annuities in the financial planning process, I think it is really important to understand how our clients learn. 

 

Traditional brick and mortar business are rapidly declining, and our digital footprint is coming front and center. How we interact with prospective clients and clients is changing right before our eyes. Consider these stats from Forrester Research: 1

  • 68 percent of buyers want to research an idea online before they buy
  • 60 percent of buyers would rather get their initial information online instead of talking with a person
  • 62 percent of buyers say they decide on a vendor based on their digital image alone

 

Your prospective clients are more educated, have more resources and information at their fingertips, and have more choices of vendors than ever before. To remain relevant, you have to provide value upfront and more frequently than you did just 10 years ago. 

 

The learning curve in our industry is not steep; it’s more like a ramp. But, the longer a prospective client takes to engulf themselves in a topic, the longer the retention. That makes your sales cycle extremely long. But, education is positive for our industry. It’s always been a bedrock. It just needs to be delivered in a different medium. 

 

What’s Your Story?

Every financial planner can benefit from stepping back and thinking about how you deliver information to your clients. Before you dive into the digital world, take some time to clarify your message and your story.

 

The way your clients interpret your message can either be like holding several eight-pound bowling balls, or striking a cord that addresses their internal emotions. It’s not about us anymore. It’s about what we can deliver to them emotionally and philosophically. That’s what clients want to know. When you communicate in that perspective, you touch the hearts of many people, which can lead to new level of engagement. 

 

A new level of engagement is what will bring products to a new light. The change in perspective will allow the product to fit into the overall purpose of the financial plan, which is totally focused on the client. Take a few minutes to think about how you communicate. Are you talking the same way you did just a couple of years ago, or are you ahead of the curve in how prospective clients want to interact? If you want to learn more, check out my site, https://www.clarifyyourmessage.com/Michael-McGlothlin, and to see how I could help you market and grow your business.

 

Winning Strategy

Think about how your target market communicates and researches information. Match that behavior and you have a better chance of being the go-to financial planner for that group. 

Retirement Webinar

Craving More?

We're talking shop with Tim Ash! This webinar will be packed so register now and bring your notebook!

Register Now

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon. 

 

1Forrester, “B2B Buyers Mandate A New Charter For Marketing And Sales,” Jan. 10, 2017: https://www.forrester.com/report/B2B+Buyers+Mandate+A+New+Charter+For+Marketing+And+Sales/-/E-RES132705

Retirement Financial Planning Education Client Value

Cost in Absence of Value


Annuities

Throughout my sales career, several mentors told me the catch phrase, “Cost is only an issue in the absence of value.” Of course, I usually hear that and think about it from my perspective. 

 

It’s always important to add value to your business and personal relationships. But, when you talk about the added benefits of guaranteed income, you have to offset the cost with value. In many cases, the value of guaranteed income far outpaces the cost associated with the purchase of the vehicle to provide the guarantee. 

 

Now, it’s important to convey the same message to clients and not just sales teams. Specifically, we need to talk to company CEOs and human resource directors about the risk of their pension plans. 

 

Cost of Pension Plans

Today, billions of dollars sit in defined pension plans that have been frozen by employers. Those pension plans are no longer helping recruit new talent to the company or retaining existing employees. More worrisome are the expected increases to costs: 

  • The cost of administering a fully funded pension plan is guaranteed to increase by 25 percent by the end of 2019, due to the cost of Pension Benefit Guaranty Corporation (PBCG) premiums*
  • For plans that are not fully funded, the cost of maintenance might increase as much as 33 percent by the end of 2019* 

 

Those are real increases and real dollars that will be spent on an employee benefit that is not being leveraged to the full extent. So, the question is: Why would a company have a benefit that is going to increase in cost but doesn’t provide any benefit?

 

I doubt any CEO would invest in a new plant or machinery that didn’t have a suitable return. Especially with human capital, companies are reluctant to invest in additional funds without a plan to grow production through that investment. They shouldn’t do the same thing for an expensive employee benefit that is not providing value. 

 

The cost of additional contributions is expensive. Life expectancies have increased and returns are much lower than many old plan assumptions. Both of those result in funding shortages for a lot of defined benefit plans. Currently, CEOs are faced with making large contributions to bring the plan up to proper funding status. Since many are not willing to do that, they are left with the same problem year in and year out: an underfunded pension plan not benefiting the organization. Well, it’s about to create more of a drain due to the cost increases from the PBGC premiums. 

 

Value of Transfers

Myths exist around pension risk transfer business. Many believe that a company has to write a huge check to cover their shortage. Instead, in many cases, it makes sense to stagger the plan termination over a period of several years. Cash flow and capital requirements might make it easier to have a 5-10 year strategy instead of a one-time contribution. 

 

Another myth is that lump-sum distributions don’t help. In reality, lump-sum distributions can make a difference in the amount of shortage. Having educational meetings with employees can help the engagement level of lump-sum distributions. That’s where a good income specialist can benefit the employee base. Retirement remains the most complicated problem most Americans will face; our industry needs to be face-to-face with as many people as possible.

 

Winning Strategy

Take the cost of the least valuable employee benefit off the table for companies. In doing so, you can help a greater number of people retire more securely. 

Policy Review - 10 Ideas For Existing Life Insurance

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Watch the replay of the webinar where we talk how pension risk transfers can be an effective tool for defined benefit plan sponsors seeking solutions for rising costs and longevity risk.

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About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

 

*Pension Benefit Guaranty Corporation, Premium Rates, March 2018: https://www.pbgc.gov/prac/prem/premium-rates

Pension Risk Transfer Retirement Financial Planning

4 Reasons You Should Focus on Retirement Income Planning


Annuities

Over the next several decades, retirement income planning will only grow. Planners have so much opportunity to concentrate on income planning as a core competency. I spend a lot of time talking about Americans’ behavior over the last 20 years and why income planning will be paramount for the next 20. Here are four reasons:

 

  • Our savings rate continues to decline. In December 2017, our savings rate dropped to 2.4 percent.1 If you look at the past 20-year trend, you will see a steady decline in savings, with the exception of high inflation periods or around the dot-com bubble and financial crisis. This has left most people ill-equipped for their retirement. Therefore, we will be asked to create more income from fewer assets than ever before in our careers. We have to get our clients to think differently, and the planning community will have to act differently to accomplish this. 

 

  • We continue to misuse social programs. As I travel around the country, I always talk to clients who want to get their hands on their Social Security as soon as possible. They fear that the program will be bankrupt in the 2030s. There are some fixes to Social Security that will likely be addressed in future Congresses. For now, the bigger problem is the fact that we completely misuse the system. More than 50 percent of Americans take Social Security retirement early.2 That makes your benefit smaller, and you lose the valuable 8 percent growth of your income between full retirement age and age 70. For some people, that equates to a 76 percent reduction in income. Only 2 percent of men and 4 percent of women take Social Security at age 70, so there is a lot of education that needs to happen in order to secure more guaranteed income.2 With just a 20-year time frame, the difference could be as much as $122,000 in additional income. That makes a big difference for the typical retiree. 

 

  • Employers remained focus on shifting defined benefit plans to defined contribution plans. That’s good for many employees – low cost investing, multiple subaccounts to choose, tax deferral and matching employer contributions. But, the loss of guaranteed income creates a gap that needs to be filled. When I sit in a plan sponsor’s office, I see a litany of risk-tolerance tests, return sheets and asset allocation brochures. But, when I ask the sponsor to tell me how their participants are going to turn these assets into income, their faces turn blank. Turning assets into dependable income is a priority and makes a baseline for many Americans to be able to buy the things they are accustomed to buying. 

 

  • In many minds, longevity grows as the most troubling risk for retirees. The uncertainty around how long you will need income remains a fear for many Americans. Providing a plan to address this allows the client piece of mind and, if done properly, enhances the systematic withdrawal strategy. We are living longer at times at the expense of our quality of life. Clients need to plan to make sure they have not only lifetime income but also a plan if a long-term care emergency happens. The odds continue to increase that we will have a care event as we age. Shifting longevity risks for lifetime income and long-term care make sense in many cases. And, the shift of those risks is generally done for pennies on the dollar. 

 

Income planning should be thought of as a great spot to be in as a financial planner. There are large numbers of people retiring and needing planning for many decades to come. Our past behaviors create a reason to change our clients’ perspectives and create value for them. I’m looking forward to the challenge and the growth opportunities in this space. 

 

Winning Strategy

Income is the ultimate outcome for many retirees. You can’t spend assets but you can spend income. Add retirement income planning to your discussions, and you’ll add value to the client experience. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

 

1Bureau of Economic Analysis, “Personal Income and Outlays, December 2017”: https://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

 

2The Motley Fool, “When Does the Average American Start Collecting Social Security?” April 19, 2016: https://www.fool.com/retirement/general/2016/04/19/when-does-the-average-american-start-collecting-so.aspx

 

 

Retirement Income Financial Planning Practice Enhancement

Avoiding Derailment


Annuities

Let me ask you something …

 

What’s the one thing that can completely derail a near-retiree’s plan?

 

Many answers might come to mind. But, I’m willing to bet most of them revolve around the reliability of market returns. Think of your clients’ journey like a train on a long-distance trip – if you’re not careful, you could derail them just before their destination. 

 

Starting Up

As your clients travel through their working years, they sit in the conductor’s seat. Most don’t have a lot of disposable income in the early years – anything they make goes to pay the bills, and not much is left for long-term savings. As they work through their careers, they begin earning more money and committing more to their retirement. The locomotive starts to build steam and momentum. 

 

Slowing Down

Market corrections are inevitable. Your clients’ trains will have to slow down every now and then. But, that’s OK – most plans account for slow-downs, and there’s usually plenty of time to pick up speed. Once assured that the difficulties are behind, you can increase speed and head back on track. Sometimes, you even need to switch to a more aggressive line to make up lost time. 

 

Picking Up Speed

When we continue along a journey with little to no problems, it’s easy to forget about the fundamentals of steering a train. You can easily go too fast around a corner. If you’re not careful, the momentum that you built can work against you. After years of picking up speed, your locomotive and the cars behind it can derail and spin out of control, completely stopping you in your tracks.  

 

Avoiding Derailment

That’s what happens when we have a late-accumulation market correction. All the cars – retirement income, emergency funds, health care payments, long-term care plans – they all go off track of what we planned. The momentum your client has built for 30-plus years is ruined. But, it could all be avoided if we steer them the right way. 

 

You have a lot of clients with their eyes firmly focused on their final destination – retirement. Unfortunately, that means they sometimes take their eyes off the track they’re headed down. You can really make a difference for those clients now and during the distribution phase. You can help conduct the train and get it safely down the tracks. 

 

Winning Strategies

Ash Brokerage answers the complex questions you and your clients have in preparation for retirement. Begin by talking to your clients about the need to be more conservative and avoid the risks that can derail retirement at the end of their journey.  

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Retirement Financial Planning Market Risk