Annuities

Have You Adopted the Forward Pass?


Annuities

In football, the forward pass is a must by today’s standards. In fact, the highest producing NFL offenses are built around the ability to throw the ball around the field. But it wasn’t always that way. The game changed significantly in 1905 when the forward pass was approved for play … but not every team adopted the new rules immediately. 

In the early 1900s, football was pretty much a running game. Because of this, concussions and head injuries were very common. One year, 18 deaths occurred on the football field due to the severity of the game. To make football less violent and safer for college students, Teddy Roosevelt worked with school leaders to figure out new rules. Thus, the forward pass was instituted.

Unfortunately, not every school took to the forward pass quickly. Initially, if a player dropped a pass, it was a turnover, and if a pass was caught in the end zone, it was a touchback. If a pass didn’t go five yards, it resulted in a 15-yard penalty. Risks were high in being different.  

Saint Louis University’s Eddie Cochem instituted the forward pass into his offense in 1906, when most colleges continued to run the ball. They won their next game, 22-0. Pop Warner began to use the forward pass at a small college, Carlisle Indian Industrial School, in 1907. His teams outscored their competition 148-11 over the first five games of the season. Then, tiny Carlisle took on the University of Pennsylvania football team using the forward pass. Pop Warner’s team beat the mighty school in front of 22,800 fans by a score of 26-6. While that score is decisive, the yardage gain was even more lopsided. Carlisle outgained Penn 402 to 76 yards that afternoon.  

The new wave of offense was noticed by bigger eastern schools, and the forward pass began to gain traction. 

What’s my point in all this? We need to look toward the innovators within our industry. Using the same withdrawal strategies for our clients will no longer work in economic environments where bond prices and rates are unpredictable, life expectancies are increasing rapidly, and volatility creates anxiety. It’s just like running the football into the middle of the line and getting crushed. 

We have to look for new ways to make sure our clients are safe. No rule, legislation or single product can solve the concerns and multiple risks of so many Americans. Instead, financial professionals have to use combinations of products and tools to meet the income demands of retirees. If your client’s retirement income isn't safe, it’s time to change the game and look for new ways to play the game. 

Bottom Line: You can’t win the game running the same old offense that won in the past. Times have changed, economics have changed, and client attitudes have changed. Innovate and look for new ways to help your clients win in retirement. 

 

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

 

What’s Your Distribution Rate When It Really Matters?


Annuities

Let’s face it. Many of us have short attention spans. Whether it’s looking at our phones or tablets, quickly changing conversations with multiple people, or simply not being able to focus on a task, technology and social pressures have changed the way we interact with people and weakened our ability to pay attention for long periods of time. 

I feel we tend to keep a shorter vision on retirement planning as well. And, this could be dangerous for our clients.  

We talk a lot about life expectancies increasing and determining the proper payout for a client’s assets. Unfortunately, I see many people making plans based upon life expectancies of newborns. We need to concentrate and look at the expanding life expectancies of 65-year-olds and the complications that those extra years bring. 

Rising income needs due to inflationary pressures are greatest in retirement because of health care and housing issues. Longer retirements cannot withstand level income for long periods of time, especially with a volatile base of assets. As planners, we need to consider the impacts of our clients’  income sources in 20 years, not just in that initial five- to 10-year period. 

Over the years, the 4 percent distribution rule has been kicked around by many industry professionals and academics. Again, I don’t think the distribution percentage at age 65 is as important as what the percentage will be in 15 years. Too often, we set a withdrawal rate based upon today’s factors. And, we don’t mitigate the other risks in retirement. Eventually, due to inflation primarily, the withdrawals must invade principal. This starts a downward spiral of asset depletion, resulting in the client running out of money. 

We have to challenge our thinking about income distribution and asset accumulation so that both counterbalance one another. Today, we use one to fund the other. But, they need to complement each other throughout a client’s lifetime.  

If you’re using a simple withdrawal strategy for income, chances are the withdrawal rate will escalate in the client’s late 70s and 80s. This adds pressure to the remaining portfolio and might eliminate options. Instead, think about designing a guaranteed, inflation-adjusted floor of income and creating liquidity with funds that don't supply income. At the same, complement the plan with risk mitigation products to increase the probability for success.  

Bottom Line: You’ve heard the saying “It’s not what you earn; it’s what you keep that matters.” Well, it’s not the distribution rate when you start that matters; it’s the rate in the second half of retirement that makes retirement sustainable.  

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

Make a Game Plan to Remove Risks


Annuities

As a former student basketball manager at Indiana University, I remember listening to Coach Knight talking to his assistants about strategy. Typically, the game plan revolved around taking away a strength for the opposing team – or taking away a risk to our team. Reducing a significant risk greatly increased our chances of winning. 

Why don’t we do the same with our clients?

Maybe we don’t know the risks for each client. After all, there are so many risks associated with retirement planning. In order to best serve our clients, we look holistically at tax consequences, cash flow, charitable and gifting strategies, survivor’s income protection techniques, and maximizing Social Security. Risk mitigation strategies like long-term care and life insurance are usually discussed, but not necessarily as urgently as they should. To a lesser extent, we address inflation, housing and health care concerns for retirees.  

All those risk are important; however, there is one risk that multiples all the above risks: longevity. If your clients run out of money, several things can happen at once: 

  • Cash flow becomes strained due to a reliance on government provided programs
  • Maintaining income to a survivor becomes nearly impossible with few alternatives, as past Social Security decisions can’t be changed
  • Long-term care (at the level of care the client deserves) becomes burdensome and creates emotional conflict due to the financial stress

One way to alleviate the exponential impact of any of these risks is to address longevity up front. Planning for a guaranteed, inflation-adjusted floor of income should be the cornerstone of any retirement planning strategy. Additionally, the risk of longevity can only be shifted to insurance products that provide income that you can’t outlive.

Regardless of net worth or total assets, your clients should never self-insure their longevity. Because the risk of longevity isn’t a singular impact. It’s a risk that impacts their entire net worth. 

Bottom Line: Make a game plan for eliminating your clients’ biggest risk by addressing longevity first.  Start their retirement income strategy with guaranteed, inflation-adjusted income with a life contingency. By taking longevity off the table, you increases your clients’ probability of success in retirement.

 

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

The Good News of Market Downturns


Annuities

Many people look at market corrections in largely a negative way. Of course, we can always talk to clients about buying low and selling high as a reason to invest or reinvest when a correction occurs. Just like making lemonade out of lemons, advisors should evaluate all angles of a client’s situation and look for ways to improve it in an ever-changing world. 

Following the August 2015 market drop, a potentially good subject to bring up at your fourth quarter client meetings is the re-characterization of Roth IRAs. Oct. 15 was the cutoff to change a Roth IRA back to a Traditional IRA for the previous year. However, if your client took advantage of converting a Traditional IRA to a Roth prior to the market dip in 2015, there are reasons to look at re-characterizing the asset back to a Traditional IRA and then re-convert.  

Because the client converted prior to the correction, that client will pay tax on the larger amount converted. Re-characterizing the asset allows them to eliminate the tax consequences at the higher asset value. The asset must stay a Traditional IRA for 30 days; then, the funds can be re-converted to a Roth IRA at the lower market value. Assuming the market stays lower than the original conversion date earlier this year, the client can convert the same amount of shares at a lower value and less tax. Then, any future gains (even those below the original conversion amount) grow tax-deferred and are accessed tax-free for qualified withdrawals.  

Of course, the client only benefits from this transaction if the account value stays below the originally converted amount prior to the re-conversion. This is a market risk you and a client must discuss. However, this tactic allows them to potentially convert more under the same tax bracket than prior to the market correction.  

Looking at ways to efficiently convert funds from a taxable consequence during retirement to a tax-free status positions the client for potentially more disposable income later in life, and it gives them a higher probability of not running out of money. That’s truly looking out for your client’s best interest. When you have that conversation, my guess is your client will appreciate your knowledge and attention to detail in handling their account.  

Bottom Line: Look toward the tax code for opportunities to open up conversations with your client and help position more tax-free income for them later in life.  

 

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

Be Ready for Change


Annuities

Change. Wow, some things sure have changed in the insurance business, while others remain the same. (More on the latter in a bit.)

At the risk of showing my age, I remember selling life insurance out of a rate book. Paper illustrations were next, and now we can display values on an iPad or other mobile device. The same goes with mutual fund sales – they used to include a paper prospectus. Now, a CD delivers the same information.

I just attended our national sales meeting and change was a continuous topic. The message was loud and clear: Be prepared and able to change because change is constant.

The market is always introducing new products, and new strategies to use them. Government regulations and carrier changes can make our jobs more complex, but they can also make things more interesting. 

Don’t forget our clients’ needs are always evolving, too. Retirement planning isn’t what it used to be, and the economy can change without notice. We have to be on our toes if we want to be effective. 

That brings me back to the latter … There are some constants in our business, such as protection and reliability. Clients will always need solutions to give them those things … and they’ll always need professionals like us to deliver them!

 

Put It In Practice

Be ready for change, but hold on to your beliefs for the solutions we provide. The core of our business will never change.