Retirement Through Air Travel


I fly nearly 60,000 miles per year. As I sit in a terminal, I’m still amazed at the size of the aircraft that manage to take off and stay aloft. But pilots will tell you there are four basic principles that make air travel safe: thrust, lift, weight and drag. I think most Americans can benefit from the same four principles in retirement.

Thrust: Now is the best time to buy a fixed annuity (as I already wrote in a previous post). Given the likelihood of low interest rates for the foreseeable future, an additional 100-150 basis points in rate make a surprising difference in accumulating money. Change your conversation to focus on the time it will take to double your client’s money. With today’s rates, it can make a 36-year difference – that’s thrust in a financial plan. 

Lift: One of the basic benefits of an annuity is tax deferral. Over time, tax deferral can make a significant difference in the accumulation value of nonqualified dollars. If nominal interest rates are similar, tax deferral provides lift in retirement planning. Tax considerations need to be evaluated during the distribution phase as well. Life insurance and exclusion ratios can be a tool to ladder income payouts at retirement. Positioning income with respect to taxation also allows clients to maximize their government entitlement programs. 

Weight: Weight slows an aircraft down and makes it inefficient, just as investment portfolios become inefficient when their asset classes have not been weighed properly. A diversified strategy to take advantage of all investment options makes returns more stable over long periods of time. Additionally, taking gains off the table allows an investor to reduce the weight of their portfolio. Rebalancing the portfolio regularly keeps the asset allocation in line, and allowing the client to take gains off the table with more conservative vehicles provides more consistent returns.  

Drag: When flying, resistance comes from many items on an aircraft. Reducing drag allows the plane to fly faster and more efficiently. Aside from taxes, fees are one of the biggest drags on an investment portfolio. Whether they’re advisory or product fees, they make the portfolio work harder to attain desired results. Client-friendly annuities and life insurance (during both the accumulation and income phases) allow clients to reach their goals faster.  

When talking to clients about their retirement goals, try to think about how to keep their retirement portfolio soaring. Provide thrust in form of better nominal rates; create lift through tax deferral; reduce the weight of equity-heavy portfolios; and minimize the drag in fees.

The Bottom Line: Flying may seem complex, but it can be broken down into four simple principles – use them to make your clients’ retirement portfolios soar like an airplane.  


Now is the Best Time to Sell Fixed Annuities!


Many may question my sanity when they read the title of this blog. You might think that you can’t put your client in a fixed account during some of the lowest interest rates in the U.S. history. However, in sales, it is all relative to the current situation, environment and client attitude. 

Try positioning the current fixed sale in relation to the impact the current interest rate can have on your client’s funds in terms of year. One of our top sales professionals challenges his advisors to change their mindset and look at ways to impact their clients – he uses the Rule of 72. This rule, discovered by Einstein, says you can take the number 72 divided by your interest rate and you’ll have the number of years it will take to double your client’s money. It’s an easy tool to show clients how you can impact their savings. 

Let’s assume that we were selling fixed annuities in the mid-2000s, when CD rates hovered around 4 percent. Using the Rule of 72, we know it would have taken 18 years for your clients to double their money (ignoring taxes and inflation). During the same time, fixed annuities were selling for around 5 percent. That would have allowed you to shorten their money-doubling time to 14.4 years.  

In today’s rate environment, five-year CDs are paying clients around 1 percent, while a typical fixed annuity is paying around 2.25 percent.* You might not think those rates are attractive, but change your attitude by focusing on time, not rates. It would take 72 years for clients to double their money with a 1 percent CD. For clients with a fixed annuity at 2.25 percent, you reduce that cycle down to 32 years. A 40-year difference is far more significant than the four-year difference you would have made in the clients’ situation in the mid-2000s.  

Re-examine how you think about fixed annuities in the low-rate environment. Focus on the client and how fixed annuities can positively impact their financial position relative to other solutions. When you look at the impact you can deliver, your clients will appreciate the conversation.  

The Bottom Line: We need to change how we look at the fixed annuity market. We can have more impact selling a fixed annuity today than we did when an annuity earned 5 percent interest. 


*Source: as of Dec. 15, 2014.


Fixed Annuities

Crediting methods: Options for filling your clients’ buckets


A lot of advisors think of crediting methods like buckets. Most fixed indexed annuities use a one-year crediting method, so your client gets whatever’s in the bucket at the end of the year. The bucket is dumped out annually (reset) and everything starts over.

If you have a three-year crediting method, the bucket isn’t emptied until the third year. So, if the market has a weak first year (little in the bucket or leaks), but it recovers in the second and third (takes on lots of water), your client could come out ahead. They would have a lot more water in the bucket at the end of the third year than at the end of the first. 

However, let’s say the opposite happens – the market has a good first year (lots of water) but stumbles in the second and third (a few leaks in the bucket). Your client could lose out on those returns from the first year and get less than they would have with the one-year option.  

Despite the potential for smaller returns, the multi-year crediting option offers several advantages. The pricing on these annuities is usually lower, with higher caps, lower spreads and higher participation rates. 

Remember, it’s possible to have a negative return with any crediting method, and we can’t predict market performance. Some clients and advisors simply can’t wait three whole years to see their results – others wouldn’t mind waiting for more. 

The Bottom Line: If you have a client who’s a little more patient and wants more upside potential, look at longer crediting options. It may take time, but their bucket could be filled to the brim.  


Crediting returns

Ever Consider In-Service Withdrawals?


I realize you’ve heard about the opportunity with baby boomers more than a thousand times, but it’s vital that boomers be adequately prepared for retirement. With one misstep, years of planning could be jeopardized.  Not safeguarding their life’s work from a market downturn while transitioning into retirement could be devastating.

Your clients’ 401(k)s need some level of principal protection, and now may be the perfect opportunity to educate them about aged-based, in-service withdrawals at market highs. The strategy works by completing a direct rollover with a portion of their employer’s retirement plan into a fixed index annuity within an Individual Retirement Account. Keep in mind the IRS allows age-based, in-service withdrawals; however, each plan may have its own particular restrictions. In some cases, withdrawals may be based on service credits or subject to a vesting schedule. The benefits of an in-service withdrawal include more control over assets, additional income and wealth transfer options, and the opportunity for more investment strategies.  

It may be the perfect time for this strategy considering history and today’s market levels. Take a look at the S&P 500 index, for example. In the last 14 years, the S&P was nearly cut in half twice. According to the Federal Reserve, U.S. median household net worth decreased by 39 percent between 2007 and 2010, consequently reducing 18 years of gains during that time period. 

The Bottom Line: Help protect your clients’ nest eggs and create the retirement lifestyle they hoped for. Ash Brokerage will help you in selecting an appropriate fixed indexed annuity with the latest crediting strategies and cutting-edge GLWB’s to help maximize lifetime income while keeping the nest egg intact in the event of a market downturn. 

in-service withdrawal IRA 401k

How income riders provide guarantees and flexibility


Today’s income riders available with fixed indexed annuities (FIAs) have evolved tremendously over the past several years, based upon what clients want, as well as what they need. Ten years ago, clients had to turn to variable annuities if they wanted a compelling income rider, but insurance companies have heard clients’ demands and have stepped up to deliver. 

Clients want guarantees, flexibility, liquidity and control. Not every income rider or annuity has all four components, but you can customize an annuity plan based on your client’s personal priorities.

Let’s discuss guarantees, flexibility, liquidity and control. FIAs always have a guarantee on the downside, and now a rider may be added to guarantee that a client will never run out of income. These are not annuitized riders, they are guaranteed minimum withdraw benefits. Yes, if the contract value does go to zero, there is no cash value left, but the income continues until death of the client(s). 

This approach also gives the client much more flexibility in how they receive the income and take the withdrawals. The withdrawals may be stopped and started, and in some cases, the deferral will go back into the contract or be held in a separate “bucket” for future use. This may be useful from a tax liability standpoint if a client is close to moving into a higher bracket. 

Because the withdrawals are not annuitized and the client can turn them on or off, this also gives them control. It enables them to maintain contract value for a longer period of time if the value does start to decline and they do not wish to take all of the income available. The degree of control varies between carriers – some allow the income to start immediately while some require at least a year of waiting and also restrict the client as to when they can turn on the rider (anniversary date only or daily rollup). 

All insurance companies reward clients who wait by offering rollups and/or age-based withdrawal factors. Find out when and how the client plans to use the rider, and we will find the best fit. 

Most annuities have more-than-adequate liquidity provisions as well. With FIAs, it is generally 10 percent – this is either 10 percent of the premium or contract value. If it is the contract value, the client usually must wait a year. Some carriers even allow withdrawals without triggering the income rider.

The best recommendation I can make is to ask your client what they feel is most important. When do they want to start taking income? How much flexibility do they want with those withdrawals? 

The Bottom Line: Know your clients and their hot buttons – drill down and find the best match for them. It may even make sense to split your client’s funds between two carriers, based on what they are trying to achieve. 


riders annuities guarantees