Annuities

4 Reasons to Focus on Income Planning


Annuities

Throughout the year, I travel around the country to visit advisors. Regardless of when or where I am, there is always an inclination that our industry will be replaced by technology.

Many firms have established some type of robo-advisor platform to attract the younger generation of investors. But we have to look at the future in terms of our clients’ needs – which goes beyond access to technology.  

I feel confident and bullish in our industry. And I believe we need a reinvestment in people to help overcome the challenges that so many Americans face during retirement. Below are just a few reasons:

 

  1. 10,000 Americans retire every day.1 This number will not decrease significantly until after 2030. There is nearly an endless flow of prospective clients for our industry to help. In fact, I would argue that we are underserving the majority of retirees because we don’t have enough advisors in our industry today.
  2. Social Security continues to be misused. Even with all the education that our industry has provided over the past decade, less than 5 percent of retirees maximize Social Security and defer the income to age 70.2 Case study after case study show the benefits of the primary wage earner delaying income.
  3. We continue to live longer. According to the CDC, Americans are living 2.5 years longer for every decade since 1900.3 But we have saved less money than any time in American history. The combination of these facts means that we will have to provide more income for a longer period of time with fewer assets than any planners before us.
  4. Annuities are one of three vehicles to protect against longevity. Defined benefit plans continue to be removed from employees’ benefits. Social Security provides longevity and inflation protection to some extent. However, annuities are the only vehicle that Americans can put their hard-earned assets into and gain mortality credits that help offset longevity.

 

All of these reasons mean the need for income planning will continue to increase for the next 10-15 years. If you are looking for a new concentration, look at retirement income planning. I am confident that you will help thousands of Americans and find a pool of prospective clients for many years.

 

Winning Strategy

Implement retirement income planning into your practice. There are plenty of prospective clients and an abundance of need.

 

Winning Strategies Podcast

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Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

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1Pew Research Center, “Baby Boomers Approach 65 – Glumly,” December 2010: http://www.pewsocialtrends.org/2010/12/20/baby-boomers-approach-65-glumly/

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

3Duke University, “People are living longer and healthier: Now what?” March 2010: https://www.sciencedaily.com/releases/2010/03/100324142121.htm

Retirement Income Planning robo-advisor

Inflation: Your Best Lead Generator of 2019


Annuities

Inflation. It’s been called the cruelest tax of retirement. But as an industry, we’ve failed to talk about income increases for the last 10 years. The inflation rate has been near zero for a long time due, in large part, to quantitative easing.

It’s easy to forget the devastating effects of inflation. However, over time, the same income will be able to purchase fewer things than it does today. Suddenly, your clients will wake up and feel their cash flow is constrained by more expensive items. That is especially true with items such as higher education, health care, and long-term care.

Most Americans will plan for their income needs through qualified account balances, nonqualified savings, a few pension plans that are still available, and Social Security. Of all of those, Social Security is the only source that potentially increases with inflation. For 2019, recipients will receive a 2.8 percent increase from last year. Other forms of income – guaranteed or not – don’t have a built-in feature for inflation protection.

How many retirees are happy with a raise in their income? I guess that no one will return the additional cash they receive in 2019. So, the conversation you need to have with your clients is: “If you like the raise you got from Social Security, let’s talk about doing the same with the rest of your retirement income.”

I bet if you talk with your clients about their recent raise from Social Security, they would likely come to your office to learn how to do it with the rest of their retirement income portfolio. That question alone might be the best lead generator you use at the beginning of 2019.

 

Winning Strategy

Think in terms of after-tax, after-inflation income. Help your clients understand how they can give themselves a raise by addressing inflation in their retirement plans.  

 

Winning Strategies Podcast

Craving More?

Catch the latest insights from Mike McGlothlin and his guests on his podcast, Winning Strategies.

Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

Listen 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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Retirement Inflation Lead Generation

The Regulation You Need to Be Talking About


Annuities

Recent news indicates a new U.S. Department of Labor rule will be set forth in the fall of 2019. But don’t be distracted. There’s another piece of legislation that needs your attention.

Pending tax reform, which will likely be addressed when Congress reconvenes in January, puts several tax benefits in question for retirees and their beneficiaries. And, some are critically important in the transfer of wealth.

 

The Great Tax Transfer

It’s estimated that trillions of dollars of wealth will pass to the next generation over the next two decades. It will come to the surprise of many beneficiaries, however, that most of their money will be taxed.

One of the changes that the Retirement Enhancement and Savings Act addresses is the ability to stretch qualified accounts at death of an IRA owner. It would limit the amount to just $450,000. Everything else would have to be received as a lump sum or within five years of the death of the IRA owner. This places a significant amount of tax due at the time of death.

As I travel around the country, I sense that the increased federal gift and estate tax exemption limits have lulled planners and their clients from looking at the income tax payable at transfer. That’s dangerous – they could be dropping an income tax bomb on their beneficiaries.

 

Defusing the Bomb

Like any obstacle, legislation can become an opportunity for the financial services community. There are several ways that you can position your clients – and their beneficiaries – to win, regardless of what happens in Congress.

  • With the lower tax rates introduced by the Tax Cut and Jobs Act of 2018, it benefits the client to convert qualified accounts to Roth IRAs. This allows the client to have tax-free income for retirement. At death, the proceeds are disbursed tax-free to beneficiaries as well.
  • The embedded gains in nonqualified annuities are treated as taxable distributions, and they are generally taxed on a last in, last out (LIFO) basis. This creates a great opportunity to take advantage of innovative income riders that allow the exclusion ratio to be used for tax purposes. More importantly, it allows the beneficiary to access the cost basis first at the death of the current annuity holder. That puts the beneficiary in control – not the IRS.
  • Finally, it’s always a great time to discuss the importance of life insurance with large IRA holders. It remains the most tax-efficient method to transfer wealth.

 

So, the government is likely to continue regulating the way we interact with our clients. But Congress is likely to have a larger impact due to the tax consequences on our income strategies. Focus on creating income that is efficient for both clients and their beneficiaries.

 

Winning Strategy

Don’t let the DOL distract you. Pay attention to regulation that can impact your clients’ future.

 

Retirement Webinar

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Catch the final retirement webinar of 2018 where Mike is joined by retirement income expert Patricia Taylor, MBA, ChFC®, CFS®.

Watch the replay to hear case studies and strategies that highlight new, untapped and hidden opportunities for 2019, and how you can make yourself more referable than your competition!

Watch 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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Retirement Regulation DOL Tax Transfer

The Future of Charitable Giving


Annuities

In the financial world, 2018 was an eventful year – starting with the most sweeping tax reform in decades.

The reform had a lot of positive impacts, but I think one unintended consequence was the impact on charitable giving. Because of the new standard deduction, it’s estimated that only 16 million taxpayers will able to make a deduction for their charitable contributions. That’s down more than 50 percent from when the standard deduction was not as high and more people itemized.1

Many charities will likely see reduced gifting because donors lose the financial benefits of making a donation. However, a few outlets have been talking about a unique gifting strategy – Qualified Charitable Distributions, or QCDs.

QCDs aren’t new. They’ve just been out of favor – or at least unknown – for some time. Previous tax brackets and limits for itemized deductions made this strategy less favorable. Today, with a higher standard deduction for individuals and older couples, QCDs will become much more valuable for charitable contributions.

 

If you’re not familiar, here’s how QCDs work:

  • Your clients send their required minimum distributions (limit $100,000 per person) to a charity
  • The distribution is tax free – that’s an important distinction
  • The QCD does not go into the calculation for Modified Adjusted Income or Combined Income, which are used to calculate annual tax on Social Security income, and also affect the amount of premium a client pays for Medicare Part B health insurance


For retirees, the result can be hundreds to thousands of dollars in tax and premium savings. Using this type of charitable contribution allows your clients to continue benefiting their favorite charity without taking a hit to their personal finances.

 

Winning Strategy

2019 is new ballgame. New tax laws. New regulations. New strategies. Try a new way to help clients with Qualified Charitable Distributions.

Retirement Webinar

Craving More?

Catch the final retirement webinar of 2018 where Mike is joined by retirement income expert Patricia Taylor, MBA, ChFC®, CFS®.

Watch the replay to hear case studies and strategies that highlight new, untapped and hidden opportunities for 2019, and how you can make yourself more referable than your competition!

Watch 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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Learn More

1Tax Foundation, “Nearly 90 Percent of Taxpayers Are Projected to Take the TCJA’s Expanded Standard Deduction,” September 2018: https://taxfoundation.org/90-percent-taxpayers-projected-tcja-expanded-standard-deduction/

Retirement QCDs Charitable Giving

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