Annuities

The First Five Minutes: How to Set a Positive Tone for Your Entire Year


Annuities

No matter the sport, there are a few critical points in every game when coaches focus on motivating their team. Obviously, finishing the game strong is a must – you have to execute down the stretch and perform in pressure situations. 

 

However, coaches also talk about the first five minutes of each half as being critical to success. The first five minutes set the tone, allow the team to put pressure on the opponent, and energize (or take out) the crowd.

 

As we begin 2018, I think the first five minutes of your year are important for the same reasons. You have to set the tone for your clients, relieve them of the pressures of retirement income planning, and take out some of the risks of retirement, namely longevity issues. Each has a specific purpose in helping your clients feel more confident in their long-term retirement strategy. And, by focusing on your clients’ needs, you add tremendous value to their lives. 

 

  • What are some events that might derail your clients’ retirement today?
  • If you could reduce that risk, how much value would your client feel you delivered?

 

Set the Tone

Could a correction happen in 2018 or 2019? Are your clients going to be able to time the market to avoid an eventual correction? With today’s rising equity markets, it’s hard to take investments out of the market. 

 

We have a tendency to maximize the returns for our clients each and every year. However, as they age, return is less important to many as their focus turns to income versus accumulation. Our clients fear they will not have enough income in retirement, and our response is mistakenly to accumulate more assets. In reality, we have to protect their asset base and help them generate more income. 

 

Lock in Gains

Our clients have accumulated trillions of dollars of assets in qualified plans, including their personal IRAs. The current tax law allows for qualified transfers from one IRA to another rollover IRA with no current tax as long as it meets the transfer criteria, i.e., direct trustee-to-trustee transfer. 

 

By using conservative vehicles to sweep gains from their account, the client can take investment risk off the table while earning a competitive, conservative return. In many cases, the client can still earn indexing credits tied to their favorite equity or blended allocation index up to 5 or 6 percent (current pricing as of this blog). If the client sweeps the gain from their mutual fund or accumulation-based variable annuity, they have “locked in” the gains from the previous bull run.

 

If the markets continue to increase, they can participate in some of the equity returns up to the stated maximum cap or participation rate. But, they will not lose the gains they have been building. 

 

Your clients will enjoy knowing that if a market correction comes in 2018, you have protected their gains and positioned them for success. A 20 percent correction may take years to recover, and many of our trailing baby boomer clients (age 50-59) cannot afford a dip in their assets just prior to retirement.  

 

Winning Strategy

Locking in gains from the recent long bull run allows you to set a positive tone for your clients in 2018. It takes pressure off their decision of when to exit the stock market by still being able to participate in equity indexing, and you can maintain positive momentum for income in the event of a market correction. 

 

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 Longevity Annuities

How You Can Find Safety in Guaranteed Income


Annuities

Our headquarters is at the heart of Fort Wayne, Indiana, a city that was severely hurt by the downturn of the automobile and manufacturing sectors. But today, it’s seeing a resurgence, especially downtown. Our building, the Ash Skyline Plaza, is about 18 months old, and 15-story complex, Skyline Tower, is being built adjacent to us – just across the rooftop park. 

 

I can see all the construction activity from my office – many times, I have to turn and look away so I can concentrate. There’s nothing like a portable toilet flying up on a crane to make you lose your train of thought. 

 

But, I admire those workers. They’re on site before I arrive and still there long after I leave, even on the weekends. It’s tough work, for sure. And, it’s dangerous, plain and simple. But the crew members all wear safety harnesses, hard hats and boots to protect themselves. It’s part of their everyday habits. 

 

That makes me think … 

 

What safety habits are you instilling in your clients?

 

As they build their portfolios and retirement income, your clients are taking risks. Many of those risks are associated with longevity or outliving their income: 

  • Market returns
  • Sequence of returns
  • Inflation
  • Long-term care events
  • Legacy planning constraints 
  • Taxes

 

Regardless of what happens with all those risks, the safety harness is income. As long as a client has income, they will likely feel more comfortable, regardless of what risks arise. Now, those risks still have to be addressed. But, if your client can feel confident that their income is secure from market drops and inflation, you have a good chance at addressing the other risks. 

 

We have to instill safe habits when it comes to retirement income planning. Nearly everyone can benefit from having guaranteed income as part of their retirement plan. Whether it’s from defined benefit plans, Social Security or insurance company annuities, guaranteed income shifts the risks of longevity. However, only one of those sources has embedded inflation protection, so you must address inflation with your client. Income serves as a great safety harness for those taking investment risks. 

 

Winning Strategy

Focus on the risks that longevity creates for your clients. If you address their fears and concerns, you are likely to win a client for life, as well as many quality referrals. 

 

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 Guaranteed Income Longevity

Making the Comeback Count


Annuities

Everyone loves a comeback. How many time have you watched a sporting event where the losing team suddenly comes from behind? It doesn’t matter the sport – at that point, nearly everyone cheers for the underdogs. 

 

As thrilling as it is, many comebacks end in disappointment. The losing team expends so much energy and effort, they don’t have enough in their tanks to win.

 

 Seems familiar, doesn’t it? 

 

Are you preparing your clients for a retirement comeback but a shortfall in the end?

 

Sometimes, we have to help clients make a comeback – they didn’t save enough during their working years to get the income they were hoping for. You have to come to their rescue so they can “catch up.” Even if they did save enough, we too often focus on just getting them to the goal line. Great – now, it’s time to finish the game.

 

Unfortunately, many people get seven to 10 years into retirement and realize that they have fallen short in their plan. Inflation begins to take a toll on their spending. Most notably, the cost of health care increases at a rate much faster than other goods and services, and puts pressure on them to make adjustments. By planning ahead – looking beyond just “catching up” or making it to retirement – you can help position both guaranteed income and inflation protection. 

 

Winning the Game

One of the easiest ways mitigate inflation is to push Social Security to age 70. Social Security typically has an inflation component that increases the income annually, even if at a slower rate than other inflation indices. Other income sources provide guaranteed options to increase the monthly income by 1-5 percent annually. And, other riders allow the income to increase by changes in the underlying crediting method. Either way, by increasing the client’s income, you have have helped push them closer to the top of winning their income game – longevity and inflation. 

 

Winning Strategy

Don’t be like the teams that get behind early and spend too much energy coming back, only to lose in the end. Make sure your clients complete the comeback with inflation protection in addition to guaranteed income. 

 

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.”

Annuities Retirement Longevity Inflation

Why Longevity is a Crucial Factor in Retirement Planning


Annuities

Longevity can mean different things to different people. We want to think that it signifies a long life, an active lifestyle, and remaining relevant in our communities as we age. Reality has a different take on longevity. For many Americans, longevity remains an unknown risk with unknown costs. 

 

Longevity creates a spending “smile.” Here’s how it looks:

  • Retirees start out their golden years traveling and visiting with family and friends – enjoying their retirement. 
  • Often, they begin to slow down. Rarely is it because they want to. Instead, their energy levels and health begin to take a front seat to their vision of retirement. They stay home more frequently and follow a routine. 
  • Finally, in too many situations, their health deteriorates to a point they need additional care services. The retirement that they planned for – both figuratively and financially – is off course, and there is little chance of pulling it back. 

 

Risks are all over the place during retirement. A growing number of Americans need extended care, either at home or in a facility, which costs thousands on a monthly basis. Our savings rate continues to decline, placing pressure on whether our clients will run out of income during retirement. General health care expenses remain an unknown and a topic which is surely going to change several times during a retirement span. Simply put, we cannot ignore the risks of living too long. 

 

Start Talking

As planners, we owe it to our clients to have a conversation about longevity. By planning ahead, you give your clients options that can’t be offered at the time of the need. Risks can be mitigated using guaranteed income, shifting the risk to an insurance product, or through proper distribution planning.

 

It’s easy to simply apply a distribution percentage and assume a rate of return. That’s why we have software – to do the easy stuff. But, our value can’t be brought down to the level of a software package. Our value as planners is to think critically about our client’s situation and help them meet challenges – those they are aware of and those that are not present today. That requires making sure there is enough income to meet the demands of longevity. 

 

We have to make sure our clients can transition from accumulation to distribution. The rules are dramatically different for these phases of life. Take the time to discuss the client’s vision of retirement, the duration, the standard of living, and potential risks that might get in the way. Hit those risks head on. It will provide confidence and peace of mind to your client. And, at the end of the day, that is one of your largest value propositions to your clients and prospects. 

 

Winning Strategy

Longevity means a lot of different things. Make sure you have a clear picture of what longevity is and what risks come into play. Hitting those risks head on can mean the difference between success and failure for many Americans in retirement. 

 

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.”

Long-Term Care Longevity Retirement

Turning Tax-Deferred Into Tax-Free


Annuities

One of our most successful webinars this year featured two ideas for turning tax-deferred income into tax-free benefits. (If you missed it, you can watch the webinar replay here.) It’s easy to understand the excitement around the topic as there is a large, blue ocean of opportunity for financial advisors who focus on non-qualified annuity sales and the industry’s book of business. 

 

According to the 2016 LIMRA Fact Book, there are approximately $468 billion dollars of non-qualified, tax-deferred annuities in the United States. These contracts aren’t being used for annuitized, lifetime income. When you peel back the onion, you’ll see 31 percent of those contract holders are older than 75, and 68 percent are classified as affluent, high net worth, or mega-millionaires by LIMRA. That pairs the industry down to about $100 billion of annuities with a tax-deferred explosion ready to happen at death of the owner.

 

With long-term care as a huge risk in the longevity plan for retirement, it’s important to consider options for those annuities. Those idle assets are no longer need for their original purpose: income. Instead, they are being conserved and protected to be passed on to the next generation. 

 

A Better Way

Using a tax-free exchange under IRC Section 1035, the client may exchange the old annuity for a linked-benefit annuity. This transfer benefits the client in several ways:

 

  • The new product captures all the gain in the old policy. If the old annuity was connected to variable sub accounts, now might be a good time to “lock in” those gains using a fixed contract like a linked benefit annuity. 
  • Clients gain leverage on the policy’s value if used for long-term care expenses. For a 65-year-old, a $100,000 policy value may create a pool of long-term care benefits of $250,000 or more. This translates to transferring $1 and getting $2.50 when used for long-term care. You create tremendous leverage through this transfer. 
  • If the old policy had tax-deferred gains built in, those gains are transferred and continue to grow on a tax-deferred basis. If the contract is used for qualified long-term care expense, all the proceeds – the cost basis and the gain – are received tax-free. 

 

Look at your client’s balance sheet and the current purpose of certain assets. A lot of them aren’t being used for their original intent. Now is a great opportunity to repurpose those assets and create leverage and value in the planning process. 

 

Winning Strategy

Look to turn tax-deferred income into tax-free benefits. Repurposing assets that are no longer meeting client goals is a great way to add value to your relationship. By looking at old annuities, you may be able to reduce the tax burden of certain assets to the client and their beneficiaries.  

 

1LIMRA, Fact Book on Retirement Income 2016: https://www.limra.com/bookstore/item_details.aspx?sku=23518-001

  

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.”

Long-Term Care Longevity Retirement