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.
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.
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.
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.
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.”
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