The cruelest tax of all


“Fundamentals eliminate ways to fail, ways to lose. The greatest fundamentalists — in coaching, warfare, in theology, in business — were and always have been more concerned about losing than winning.

— Bob Knight
“The Power of Negative Thinking”

When you talk to some of the most successful coaches in any sport, they focus on eliminating mistakes. At Indiana University, we felt that if we eliminated mistakes (turnovers, giving up offensive rebounds to the other team, giving up easy baskets, or committing too many personal fouls), we gave ourselves a better chance to win any game. In retirement planning, we tend to focus on rates of return and how to maximize the return. In reality, the successful retirement plan eliminates the potential risks.

Too few times I hear advisors talking to clients about the impact of inflation, for example. Inflation may be the cruelest tax of them all. It is hidden, largely undisclosed until after the fact, and grows exponentially. When clients are concerned about living a long time, inflation is a risk that gets larger every year, and it must be addressed. Our typical solution is to earn a higher return. In order to do that, you must take greater risks. Unfortunately, you cannot afford to take greater risks with your nest egg as you get closer to distribution or during distribution.

The inflation risk on your income can be transferred to an insurance carrier. Annuity distributions can be tied to a number of consumer indices or set to grow at 3-5 percent annually. While you may start at a lower payment initially, it is easier to gain more return early in your retirement years when your life expectancy is longer and your time horizon is longer. Over time, these inflation-adjusted income checks increase to well beyond the initial payout structure. Health care costs, food, gas and consumer goods will continue to cost more. Your retirement income needs to produce more in later years. Look at annuities to shift the risk of longevity and inflation away from your clients' portfolios.

Shopping vs. saving


While reading some research data, I read an amazing, nearly unbelievable, quote from a KRC Research project sponsored by TIAA-CREF. It read, "Americans prefer choosing a restaurant or buying a TV over IRA planning." What's more disturbing is that 55 percent of respondents take less than an hour or less per year planning for retirement.

We have roughly 201,480 hours (or an average of 23 years) of retirement. So, with less than an hour each year during our working years, we spend less than 44 hours planning for the next 201,480 hours of our lives. That 2/10,000ths of the time. Add health, inflation and taxes to the mix, and that time invested seems unreasonably short. How can we feel comfortable in our retirement years without the proper planning? The trends grow worse. Only 17 percent of Americans are contributing to IRAs now, compared to 22 percent two years ago. Of the people not contributing to IRAs, only 47 percent of respondents would consider making contributions now.

As an industry, we can't blame our clients. We have a done a poor job of motivating people to save. We have become complacent with our assets under management and lost focus on our true responsibility — making sure our clients have confidence and can maintain a successful retirement. There are too many risks to be discussed: long-term care funding, longevity planning and inflation protection. These three topics require at least one to two hours of discussion. It's time we refocus on the client, educating Americans on the risks in front of them, and providing solutions they may not be aware are available to them. Let's get back to the basics and talk about how our industry can eliminate risk to maximize our clients' chances for success.

Let's compare income values


I talk to many advisors who simply sell the guaranteed income rider increases on fixed-indexed annuities and variable annuities. That alone creates confusion, as I routinely talk to clients who think they are earning 6 percent or 7 percent on their initial investments. Whether the annuity is being mis-sold or misunderstood remains a topic for another time. What is important is how much leverage the client can create for the assets being deployed for income purposes.

When LIMRA released its fourth quarter industry statistics recently, deferred income annuities rose to the fastest growing segment of the annuity market place. It's easy to understand when you look at the alternatives associated with income riders, especially those that bear market risks. For example, we placed $500,000 in a deferred annuity for a 55-year-old male. The client deferred income for 20 years (to age 75) and began taking a life with installment refund income option. The annuity produced a $9,015 income for life with a refund of unused premium. Assuming a 5 percent payout factor on an income rider at age 75 with a maxed out income rider, the client would have had to grown an income rider value equal to $1,620,000. I am not aware of an income rider that will generate more than three times the initial premium — guaranteed.

It's time to turn the conversation to income, leverage and tax efficiency — not false guarantees of paper value. Our clients need solutions to their biggest fear — outliving their income. Call Ash Brokerage for details on how a deferred income annuity may fit into your clients' retirement income plans.

Beating resistance


I attended the Society of Financial Service Professionals Leadership Development Conference in early March. If you are a credentialed professional and have not looked at this organization, please do so. It is our industry's best-kept secret for professional growth and ethical accountability among peers. I enjoy spending time with advisors who have a common goal of seeking knowledge, building relationships and maintaining client interests above their own.

Most seasoned advisors experience resistance with clients and collaborative partnerships due to the complexity of client solutions. I was re-introduced to Gleicher's Formula for overcoming resistance:

D x V x F > R

D = Dissatisfaction about the current situation
V = Vision of how things could be in the future
F = First steps necessary to change the outcome
R = Resistance

This formula explains how to persuade anyone — including ourselves — to change behavior. Getting people to act is one of the most difficult things to accomplish in any sales or leadership role. However, by understanding the depth of a person's problem, we create urgency. The vision of how the problem can go away increases the likelihood for change exponentially. Even if the person doesn't perceive a problem exists, a clear vision of success may motivate change. But if clear first steps are not demonstrated, the formula does not produce enough value to overcome the resistance to change. Think of the first steps as a zero in the equation. Anything times anything times zero equals zero.

If you are looking to beat resistance, either external or internal, evaluate the severity of letting the current behavior continue against how much better the situation improves by the change. But most importantly, focus on the first step. It energizes change. Resistance will always be greater without action. If you are unsure what actions you need to create change in your business, call Ash Brokerage to determine how we can help move forward with you.

Don't blame the product - work harder!


"Don't wish it were easier; wish you were better." 
 — Jim Rohn 

Prior to the 2014 Winter Olympics, the United States was favored to win several speed skating medals at Sochi. Shani Davis had won two previous gold medals at previous Olympic Games and was expected to win again. The United States medaled in every games for the past 30 years, since the Sarajevo games. Success seemed certain to some degree. 

The U.S. team began wearing “state-of-the-art" speed skating suits to provide an even more prolific advantage over the competition. To everyone's surprise, the Americans lost every skating event during the first week and won zero medals. An exception was granted to switch back to their old uniforms, but the results did not change. For the first time in 30 years, the U.S. speed skating team was shut out of any medals during the Olympic Games. A spotlight was placed on the uniform. It seems like the team members were hoping for the suits to make things easier; instead they were wishing they were more prepared. 

Sales is one of the most difficult professions due to the rejection, need for continual knowledge, and focus on ever-changing prospects. We all wish things would be different when we struggle in our sales. We spend a considerable amount of time, money and energy searching for the silver bullet. However, we need to concentrate on getting better. Just like a change in uniform didn't make the U.S. speed skating team better, a new product or lead system doesn't make your job easier. It takes hard work, new ideas, and commitment to the industry. Are you with the right partner to grow your business? Ash Brokerage provides more than 225 combined years of sales experience, brand marketing expertise, operational efficiency, and value-based leadership to your office. Are you ready to get better?