Annuities

Insurance for the Uninsurable: How Annuities Help Fill the Gap


Annuities

With so many uninsured Americans out there, I always think there’s a great opportunity to sell protection-based products. My rational brain reminds me that not everyone is insurable. But don’t let that stop you.

Too often, planners give up when they can’t secure life or long-term care insurance for their clients. Don’t forget to look at other insurance-based options. Annuities can provide some of the protection your clients need when insurance coverage cannot be secured through underwriting.

Here are three ways our products help to fill the gap:

  1. Many income riders provide ancillary benefits, including death benefits and long-term care coverage. Of course, there is an additional cost for these optional features. But, even with the additional cost, these riders could be a good option for people who could not otherwise enjoy the protection of a death benefit or long-term care coverage due to their health conditions.
  1. We’ve previously explained how you can use annuities to not only pass along family wealth, but also pass along family values. When you attach your planning to your client’s values and not just their wealth, you create a stickiness that can’t be beat by any competitor. You might not create as large of an estate as you’d be able to with life insurance, but you can help the family control the disbursement of wealth. In the end, proper estate planning is getting the right asset to the right person at the right time.
  1. Remember, long term care is more of a cash flow issue than a capital issue. Many income riders have an enhanced feature – for some additional cost – to increase the benefit base or payout rate for long-term care events. Again, it’s not going to be as good as a traditional or asset-based long-term care plan. However, it will provide improved cash flow.

 

Winning Strategy

Because annuities provide valuable benefits in a cost-effective manner, they can be a vital part of your clients’ overall protection plans. When they can’t secure the insurance coverage they need through underwriting, look to annuities to fill some of the gap.

 

Winning Strategies

Craving More?

As our population continues to age, risks increase due to longevity. And, longevity is the greatest multiplier of all the retirement risks. We were joined by Tim Ash to tackle these risks and offer solutions.

Watch the Replay

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.

3 Tips to Simultaneously Protect Income and Legacy


Annuities

Planning for retirement and protecting a client’s legacy go hand-in-hand. You cannot pass along family wealth without adequate life insurance planning. And, your client will not be able to sustain a standard of living without proper longevity planning.

A retiree who lives off a systematic withdrawal strategy risks the chance of eroding their family’s wealth due to longevity-related issues. They might live beyond their planned life expectancy and need more income. There’s also a high chance of needing long-term care – a single event may cost several hundreds of thousands of dollars and wipe out anything to pass along to children or grandchildren.  

Strategies exist to both maximize your client’s retirement income and protect their family members using life insurance and lifetime annuities or pensions. At the end of the day, it just requires planning and preparation.

Here are three ways you can protect your clients’ income and legacy at the same time:

  1. Make the most of guaranteed income. Guaranteed income comes in many forms. I’m not just talking about annuities. Social Security and employer-provided pension plans are also sources of guaranteed income. It’s critical that you help your clients maximize each by carefully weighing their options. There’s no one-size-fits-all strategy. By maximizing income from these guaranteed sources, you’re lessening the burden on other assets to perform.
  1. Approach prospects earlier. Too often, I hear wholesalers and advisors talking about the right client to approach for retirement planning – they usually say late 50s or early 60s. In today’s economic environment, I think it’s younger than that. Americans’ retirement savings rate remains dangerously low. That has to change through education with advisors. The sooner you can get clients on the right track, the better. They’ll have more assets to work with, giving them more options for how – and when – they want to retire or pass on their wealth.
  1. Use non-correlated assets. Our studies have shown that withdrawal strategies using a non-correlated asset reduced the failure rate of retirement plans to just 2 percent – compared to 25 percent with a systematic withdrawal strategy.1 I think all your clients would appreciate increased confidence that their retirement and legacy plans will work.  

 

Winning Strategy

Use guaranteed income properly and in conjunction with life insurance to create holistic financial plans. Protect your client’s retirement income and their legacy at the same time.

Winning Strategies

Craving More?

As our population continues to age, risks increase due to longevity. And, longevity is the greatest multiplier of all the retirement risks. Join us along with Tim Ash as we tackle the opportunity in retirement!

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.

 

 

1Ash Brokerage, “QLACs Improve Probability of Retirement Success,” 2018: http://go.ashbrokerage.com/WC2018-03-12-RET-30007_LP-Content.html

Annuity Arbitrage: 3 Reasons it Works, Even with Low Interest Rates


Annuities

If you were to name the most discussed but underutilized idea in the life insurance industry, I think it would be the annuity arbitrage. In essence, you purchase an immediate annuity and use the payout to purchase another product, like life insurance or long-term care.

With low interest rates, many people don’t see the benefit of annuity arbitrage. But, today is the absolute best time to take advantage of this strategy. Here are three reasons why:  

  1. In today’s low-interest-rate environment, using nonqualified assets to purchase an immediate annuity provides the highest exclusion ratio we’ve seen in decades. The payout, which is heavy in tax-free income, allows the client to purchase more protection because more income is after tax. Also, the higher tax-free ratio affects government thresholds for Social Security and Medicare Part B less than other income-yielding instruments. Lower Medicare premiums could save clients in the middle-income brackets thousands of dollars.

  2. Many people believe low interest rates create a low payout, so they are waiting for interest rates to rise. This is a myth that will cost many Americans millions of dollars of income over their lifetimes. Interest rates make up only a small fraction of an annuity payout, with the majority of the payout being mortality credits. As your clients live longer, their mortality credits will decrease, making for longer, smaller payouts on immediate annuities.

  3. The cost of insurance will not get less expensive as clients get older. They will get less healthy and have fewer years to live. So, now is the perfect time to capture and lock in the costs of life or long-term care insurance. Not to mention, the cash value inside life insurance can be enhanced with the lowest possible cost of insurance. So, securing insurance now is the best option for future leverage.

At the end of the day, annuity arbitrage makes sense in many situations – not all situations. We have a lot of assets on the books of insurance carriers that aren’t being used for their full purpose. I encourage you to evaluate your book of business to see if there are assets available to pay for protection products in an efficient manner.

 

Winning Strategy

Look to understand the value of annuitization in today’s environment. Avoid the myths and focus on the facts.

Winning Strategies

Craving More?

As our population continues to age, risks increase due to longevity. And, longevity is the greatest multiplier of all the retirement risks. Join us along with Tim Ash as we tackle the opportunity in retirement!

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.

The Zone: Opportunity and Need


Annuities

Back when I worked as a retail financial services professional, every once in awhile I had one of those days when I was in “the zone.” You know the feeling – when everything you recommend is accepted and implemented by the client. Unfortunately, that feeling doesn’t come often enough.

When I was in the zone, I was prepared for presentations and had evidence why the clients should accept my recommendations. But, when I look back to my most successful days as a retail planner, I must admit two other factors were present: opportunity and need. When those two factors crossed paths, nearly everything was a slam dunk. 

I was most successful when a client clearly had a need they wanted to fill while, at the same time, they had the opportunity, or means, to sure up the gap. My sales were easier when those two factors existed, regardless of the time I spent preparing for the presentation or how good I was at selling that day.

The same potential exists for all of us when it comes to asset-based long-term care. There has never been a bigger opportunity or greater need to protect families and their wealth. With the opportunity and need intersecting for this generation and the next several generations, we can stay in “the zone” for several decades.

The Need

  • There is a 69 percent chance that a 65-year-old couple will need long term care during retirement1
  • Approximately 11 percent of the U.S. population has secured individual long-term care insurance 2
  • That means 89 percent of Americans are completely unprotected from a potential long term care event2

 The Opportunity

We still have $471.1 billion of annuities on the books of insurance carriers that are not being used for income or annuitization.3 They were purchased for an emergency like long-term care. Those annuities – variable, fixed and indexed – all have embedded gains that will create taxable distributions either at death or during retirement. What better use of those dollars than to provide tax-free benefits?

By exchanging an old nonqualified annuity to purchase an asset-based long-term care annuity, you could continue the tax-deferred growth. And, if the asset is used for a long-term care event, the basis and the gain are returned tax free.

Get in the Zone

There is nothing better than turning tax-deferred gains into tax-free benefits for clients. The opportunity exists and the need is huge. But, you need to recognize the crossover before someone else does.

Winning Strategy

Look for moments when opportunity and need cross over. Now is one of those times with asset-based long-term care.

Winning Strategies

Craving More?

As our population continues to age, risks increase due to longevity. And, longevity is the greatest multiplier of all the retirement risks. Join us along with Tim Ash as we tackle the opportunity in retirement!

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.

 

1LongTermCare.Gov, “How Much Care Will You Need?”: https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

2Forbes, “Who Owns Long-Term Care Insurance?”: https://www.forbes.com/sites/howardgleckman/2016/08/18/who-owns-long-term-care-insurance/#3e4566b62f05

3LIMRA Secure Retirement Institute, Retirement Fact Book, 2018

How to Reduce or Eliminate Taxes on Wealth Transfer


Annuities

When estate planners talk about annuities and IRAs, they say those vehicles are the worst to be holding when you pass away. I generally agree with the statement. Moreover, planners focus on the estate tax and reducing the impact of it. The deferred gains in a tax-deferred product – qualified or non-qualified – has the tendency to force the gain to be taxed at the recipient’s highest marginal tax bracket.

 

Because those assets become taxed at the highest marginal bracket, it’s important to have plans for the tax deferral or qualified accounts in a client’s estate. Many planners should look to life insurance as a way to create the necessary capital to pay for the tax. Life insurance also provides the liquidity needed in order to pay the tax without invading the IRA.   

 

Other planners look to leverage the power of the stretch IRA to minimize taxes and reduce the burden of the overall tax on the beneficiaries. Unfortunately, it appears that Congress is making plans to limit the amount that can be stretched to $250,000. For the mass affluent and middle-America clientele, the loss of the stretch provision might be devastating to wealth transfer. 

 

One Product, Two Tax Strategies

So, how can life insurance work in conjunction with IRAs and tax-deferred vehicles like non-qualified annuities? 

 

  • Life insurance can be used to pay for the income tax on the transfer of wealth. Income tax brackets remain extremely high – as high as 39.6 percent on a federal rate. That doesn’t even take into consideration the state tax revenue. That can push it well over 40 percent of the gain being taxed. As I travel around the country, I don’t hear enough people talking about the income tax effect on wealth transfer. Clients and planners hide behind the exemption of the federal or state estate taxes. Unfortunately, those do not apply to income taxes. Creating liquidity to meet the demands of the income tax due the April after the death of the IRA is a smart option. Life insurance pays for the cost of the tax on discounted dollars, and it generates the cash position when people need it most. 

 

  • Qualified assets above those that can be stretched can be transferred to life insurance. This allows the client to turn the transfer of wealth from tax-deferred to tax-free. This can be meaningful to beneficiaries and easier to transfer outside of the estate with proper use of trusts.  

 

Look at your tax-deferred vehicles and identify clients who will pass along not only a big inheritance, but also a big tax bill. Talk to them about using life insurance to reduce overall costs or completely eliminate the federal income tax on the transfers of wealth. 

 

Winning Strategy

Life insurance can be meaningful for those with larger IRAs or accounts with tax-deferred gains. These vehicles are the worst to have in your estate on the date of death. There are strategies to eliminate or reduce the income tax.  

 

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.”

Tax Efficient Wealth Transfer Estate Taxes Life Insurance Annuities