Have you ever thought about the true cost of income? Too often, we simply take the current payout percentage and divide that into the required annual income to find a solution. But, are we really helping the client understand the cost of generating income? Or, are we even doing the client justice by simplifying the solution with the hottest income rider?
In reality, clients need to consider many factors as they transition from asset accumulation to asset consumption for the rest of their lives. As advisors, we must create a strategy that provides a minimum level of income the client will not outlive. So many of us stop after completing the simple calculation with an income rider. However, there are other considerations.
Planning to minimize the tax impact on income received has a collateral effect on other aspects of the income stream. For example, minimizing taxable income can assist with the taxation of Social Security through the compression of the Modified Adjusted Income calculation. Reducing taxation early in retirement may allow for bracket bumping with Roth conversions for qualified assets.
More importantly, we must deliver income that is adjusted for some level of inflation. Many say inflation is the cruelest tax of all. It is silent, you don’t feel it at any particular time of the year, and it is generally in small increments; but, over time, it will reduce the effect on a retirees buying power. While it is difficult to speculate where inflation will be in 10 or 20 years, there are ways to increase the minimum income level through cost of living increase riders on some products. This should be done on a guaranteed and frequent manner.
Finally, we must consider the impact of fees on the income stream. Too often, we look at a gross number for income. But, as I’ve said before, it’s not what you earn; it’s what you keep. A 1 percent fee on a portfolio earning 6 percent reduces the return by 17 percent. As we move to a more transparent environment, discussions with clients will become more important. They’re becoming knowledgeable about the impact of fees, so they will look for advisors who will help them keep more of their assets.
Client demand for advice and solutions will remain high, so there has never been a better time to be in the industry. However, we have to think about our efficiency and effectiveness in helping them generate income. Instead of reaching for the easiest solution available in an income rider, I challenge everyone to look at more options.
Bottom Line: Taxes, inflation and fees can cost your clients a lot of income. Look deeper for solutions to make the client’s income more efficient and effective during income distribution.
My seventh grade son played his first season of middle school basketball this year. To be honest, he didn’t play well and didn’t get as much playing time as he’d hoped. Instead of being discouraged, however, he continued to work hard and practice.
It’s paid off. He’s improved dramatically over the last month and he’s getting much more playing time with his summer team. It’s a great jumpstart for him because his summer coach will also be his eighth-grade coach next year.
With the large amount of baby boomers retiring over the next few years, it seems like the financial industry is also starting a new season. Advisors need to be focused on retirement income planning, but it will take a lot of work and practice to stand out in the crowd.
The Bottom Line: If you want to help your clients win, you’re going to need a good coach. Ash Brokerage can be there to help you train and improve. With hard work and practice, you can be your clients’ go-to resource for retirement income planning. Jumpstart your season with Ash Brokerage on your team.
In their lifetimes, your clients will own several kinds of insurance. For example, let’s look at Jim – a 45-year-old man who’s got a house, wife, two kids, a truck and a great job as an electrical engineer.
Like most people, Jim has health insurance through his employer – to help cover his family’s medical bills should they get sick or injured. He buys his home and auto insurance through his buddy Pete, a property a casualty agent in town. Pete also told Jim he should have life insurance – to replace his income for his family should he pass away prematurely – so he added that as well.
Jim’s feeling pretty covered at this point. But he worries about the future. He hopes to retire in about 20 years, but he wants to make sure he’ll have enough money to last – he doesn’t want to run out of income later in life.
Well, in a few years, Jim could consider another type of insurance: an annuity. Just as life insurance offers a benefit for a shorter-than-expected life, an annuity can offer income for a longer-than-expected life.
An annuity is a long-term product designed for retirement income – it’s a contract between a client and an insurance company. Jim, or other clients like him, can use a portion of their retirement fund to purchase a guaranteed stream of income – potentially for life.
An annuity could create reliable income for Jim, helping to fill the gap in his retirement income plan no matter how long he lives. Additionally, depending on the type of annuity he chooses, he may be able to access his contract value for long-term care needs should he need to, and/or a death benefit for his beneficiaries.
Bottom Line: Annuities are an insurance product – they’re insurance for your clients’ retirement income. Talk to Ash Brokerage about options to help them through this significant stage of life.
*Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company
For financial professional use only; not for use with the general public
Seemingly everything we do as part of our normal daily lives has some level of risk. We make decisions every day to help mitigate our level of risk; some of these decisions are even done subconsciously or purely out of habit.
Some activities in our daily routines have a risk associated with them, whether we know it or not. For instance, how many of you have ever read the back of your toothpaste tube? I decided to read mine this morning and found, “Warning: If more than used for brushing is accidentally swallowed, get medical help or contact a poison control center right away.” Who knew using too much toothpaste was a risk?
Many risks are viewed differently today than they were 20 years ago, and I would say as a society, we have become much more risk averse. When I was a kid, my father had a two-door pickup truck with a cover on the back of it. Occasionally on the weekends, he and my mom would put all our bicycles in the back of the truck and take us to the park to ride our around the pond. The part I remember being most fun is all three of us kids riding in the back of the truck as well. Today, I would venture to say there are very few who would attempt this stunt, and if someone did, they would get plenty of dirty looks.
Although smoking cigarettes has become taboo and organic food is the new vogue, many Americans still take unnecessary risks with their investments. While we have had an amazing bull market and are achieving new all-time highs since the lows in March of 2009, there are certainly still risks when investing in equities.
At a time when we are becoming more conservative as a society, many people are becoming less risk averse with money; perhaps simply because they are not aware of any good options that eliminate or reduce risk.
The Bottom Line: At Ash Brokerage, we offer great solutions for Americans who are concerned about risk associated with their money and want to help as many of them as possible to address their needs/concerns. If any of your clients are looking to mitigate risk in their portfolio, you should get in touch.
Think back 10 years ago. Did you have competition in 2005? Did you think there were a lot of regulations prior to the financial crisis? Did you think it was difficult to do business 10 back then? How would your answers change now? A lot is different, but at the end of the day, nothing has really changed.
Compared to a decade ago, there’s more competition today, from a variety of channels. Banks are more prevalent in our industry. And, disruptors like Google are entering the business, making it easier to sell, underwrite, apply for and sell insurance. The financial services industry continues to evolve and, in general, grow in complexity. Because of that, more regulation burdens us than ever before.
Additionally, applications are longer, more information is requested of clients, and our revenues continue to shrink. Nothing has really changed.
Jim Rohn, American author and businessperson, said to not waste time wishing things were different. Instead, you should wish you were better. One of my wholesalers told me our new world is difficult and challenging. I argue that today is just as challenging as it was 10 years ago, proportionally.
The successful salesperson will adapt. The successful salesperson will understand the new complexities of our industry. The successful salesperson will be more transparent than ever before and demonstrate the value he or she brings to the client engagement for the fee charged. At the end of the day, the successful advisor will simply get better.
This year, let’s turn our attention to our skillsets. Focus on adapting to the changing environment by gaining new insights that will enhance the client relationship. Focus on becoming more effective at designing income-generating portfolios that provide guarantees, safety and predictable increases in income. Don’t wish things were different (because they can never be the same); wish you were better – and do something about it!
Bottom Line: Don’t wish things would change back to, “The good ol’ days.” Wish you were better and focus on how you can improve for your clients’ sake.
© 2018 Ash Brokerage LLC.