Help Minimize the Impact of RMDs


Who would’ve ever guessed that one day we’d be saying, “I may actually live longer than expected”? It’s true – we’re actually living longer! According to data compiled by the Social Security Administration:

  • A man reaching age 65 today can expect to live, on average, until age 84.3
  • A woman turning age 65 today can expect to live, on average, until age 86.6*

Those are just averages – the SSA also reports about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Since we can expect to live longer, then we need to help our clients’ retirement funds live longer as well. QLACs (Qualified Longevity Annuity Contracts) are one new option to help ensure your clients don’t outlive their income. These long-term investments designed for retirement income planning are a contract between your client and an insurance company. Though annuities are not new, QLACs were only introduced to the market last year. 

On July 1, 2014, the U.S. Department of Treasury and IRS issued the final rules regarding deferred income annuities (DIAs), thereby deeming longevity annuities that meet specific requirements QLACs. Like all annuities, QLACs help retirees plan for their retirement by using a portion of their savings to purchase a guaranteed income stream. This income stream is backed by the financial strength and claims-paying ability of the issuing insurance company. With QLACs, however, this income stream begins much later in life. 

By purchasing a QLAC, retirees can reduce their RMDs (required minimum distributions) by up to 25 percent (a maximum of $125,000) and not have to take distribution on those funds until later (up through age 85). This is not ideal for all clients, but it's a good opportunity for clients who aren't using their RMDs for necessary income. 

Carriers had to create specialty DIAs to meet QLAC guidelines. They started rolling out products at the end of 2014 - more are likely coming soon. 

The Bottom Line: As your clients approach retirement and their life expectancies increase, QLACs can help them hedge the risk of outliving their retirement income. Contact your Ash Brokerage annuity team for information explaining this new offering. 

 *March 1, 2015: "SSA Calculators: Life Expectancy,"

For financial professional use only. Not for use with general public. #E1503-591 Rev. 3/15

Sweeping Gains Off The Table


Over the last five and half years, we’ve seen a 192 percent increase in a bull market … it’s been a nice ride! However, the average bull market only last four years. Are your clients ready for the next big market change? 

Even the experts aren’t sure how long this performance will last, and our clients are more uncertain than ever about when they will retire. Worker confidence is down 43 percent. With only 19 percent of them having some type of pension outside of Social Security, many are concerned with their accounts taking any losses ... and having enough time to make up with gains.

Now more than ever, clients want the flexibility to turn on income whenever they need … and not be locked in. 

Of the 76.4 million baby boomers, the oldest are currently in their 60s, and the youngest are entering their 50s. That puts the median age at 57, and we’re finding that 50 percent of retirees are retiring sooner than expected.

So, if a 57-year-old client is still looking to retire age 65, they have about eight years left. But in reality, the average retirement age is closer to 62, so they would only have about five years left. Maybe it’s time to start looking at age-based, in-service withdrawals. Now might be the time to sweep their gains off the table, locking them in and eliminating risk to their principal.

We’ve got to ask ourselves: What are the ramifications for staying at the party too long? Do these baby boomers have time to make up for any market losses? What would it take to get back to even? Based off where we are in the market now, where are we going next.

With a fixed indexed annuity, a client near retirement can protect a portion of their portfolio from downturns and still participate in gains. When the market is up, interest is locked in and account value is intact with any growth that might have been credited – not capturing 100 percent of the gain, but protecting the loss to principal when the market goes backwards. Even if the market would be down every year, with a fixed indexed annuity, there still is a minimum guarantee somewhere close to 1 percent.

The Bottom Line: Now is the time to sweep gains off the table and reduce portfolio volatility. Talk to your clients now – you never know when the bull market will end. 

bull market

Start the long-term care conversation


We often use annuities to protect our clients from longevity – the risk of outliving their income. But annuities can also help protect against another risk of living longer – the risk of needing long-term care. Statistics show that almost 70 percent of the population will need long-term care, but less than 8 percent of people have traditional long-term care insurance. 

Many advisors do not discuss the topic with their clients and view the LTC conversation as arduous; clients seem to be laissez faire or in denial that they will need some sort of care. Those with assets often state that they will use up some “safe” money (like a CD or money market) in their time of need. However, it’s not uncommon to deplete those resources at a rate of $5,000 to $10,000 per month for various types of home care or nursing home services.

Consider the leverage of a linked benefit annuity. With today’s evolving world of solutions, there are annuities that combine a powerful leverage and tax advantaged treatment of care coverage – think Pension Protection Act if funds are nonqualified. The client spends down their contract value, and if still on claim, the leverage factor begins after that. The fee is deducted from some contracts; others are more modular but the cost is generally less than traditional LTC plans. 

Do you have any clients with old, non-qualified annuity contracts that are out of surrender with a low cost basis and a minimum guaranteed rate better than currently available? Do you have any clients who have asked about traditional LTC but have backed away because they could not grasp the value? Start having conversations with these clients, asking them what they would liquidate first if they experience a health event and are unable to do two of the six activities of daily living.   

These plans are not for the uninsurable, but the process isn’t as rigorous as traditional, standalone LTC insurance and generally consists of a questionnaire, phone interview and medical information. If your client never has a need, the contract value is the death benefit. There are many options depending on the source of funds and the leverage your client is looking for.

The Bottom Line: Consider linked benefit options to protect your clients not only from the risk of outliving their income, but also from the potential costs of long-term care. Call Ash Brokerage, and we’ll help you start the conversation. 



Increasing Client Cash Flow with Temporary Life


Upon entering the insurance business, I learned I should do two things: Uncover the need and find the money to pay for that need. A prospect with a need – but not the means to pay for it – isn’t really a prospect. Obviously, the more money you can find, the more of the need that can be met.

Frequently, you can fulfill a need and find the money by suggesting your prospect purchase a single-premium immediate annuity (SPIA) and using the annual payments for life insurance premiums. This creates a systematic process for the client and provides the funds just when they are needed to pay the premium. Additionally, it provides you with two sales opportunities. 

Many times, in wealth transfer situations for older clients, a limited-pay option may be utilized i.e. 10-pay life paired with a 10-pay certain SPIA. Hypothetically, let’s assume a $100,000 SPIA paid out 10 payments of $10,000. What if that same $100,000 instead generated 10 payments of $11,000? Wouldn’t your client now be able to afford more insurance? Alternately, if the SPIA payout is increased, your client may be able to generate the same $10,000 premium for less than $100,000, say $92,000.

The temporary life payout option gives your client greater purchasing power and cash flow. The key difference between a 10-year temporary life payout and a 10-year certain payout, which may normally be used, is that the temporary life option pays out for the lesser of 10 years or death. Because a chance exists that the payouts might stop prior to the 10-year guaranteed period, the amount of the payments increases. The older the client, the greater the chance of death prior to the 10-year period, so the greater the payout differential. For older clients, payout differentials in the double digits are not uncommon. 

The Bottom Line: Utilizing the Temporary Life payout option may result in increased  cash flow, enabling your clients to fill more of their critical need for insurance protection, and greater revenue to your practice.  

Earning and keeping income


We work with thousands of advisors across the country, so I see a lot of client statements and financial plans – the overwhelming majority focusing on gross retirement income. Most Americans don’t live on their gross income; however, they live on what’s left over. Or, as I like to remind my clients: It’s not what you earn – it’s what you keep. 

So, when planning for retirement income, we need to look at what the client actually lives on and not what the highest income rider generates. After we determine the actual gap, we can attack it with a solution. Too often, I see the quick fix: “Here’s an income rider that meets your guaranteed income need.” It’s great to meet the client’s income need, but did we really look at best possible solution? 

Understanding the tax drag on income payouts allows us to better estimate what the client will actually keep and be able to use for living expenses. If we don’t settle for the easy sale, we might look at a combination of tax-advantaged income involving single-premium immediate annuities, deferred income annuities and other lifetime income solutions. Today’s products allow you to ladder income with some first in, first out taxation and exclusion ratios, and others remain taxed as last in, first out. 

More importantly, we can stagger income with the least amount of tax impact during life phases with the most income need. As Social Security increases, required minimum distributions and other income sources begin; fee and tax implications can be reduced with proper planning. 

When the next income planning case comes across your desk, ask if you’ve taken a look at the tax impact of the proposed income solution. If the client wants more money for living expenses, think about leveraging annuities for reducing the tax drag on the income portfolio. 

The Bottom Line: It’s not what you earn or what the income rider generates … It’s what the client gets to keep that matters.