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.  


It’s Coming: Protecting Assets from a Market Correction


In the game of investments, how many times have we heard the old adage, “Buy low and sell high”? In a perfect world, that’s what all investors do. In reality, the opposite happens – more frequently than we’d like to admit. 

The game of investments isn’t really a game because all players are at risk of losing – losing assets they need for income, retirement, savings, etc. An imminent market correction increases that risk. We’ve enjoyed the market’s highs, but we know it will likely see some real lows. When is the next correction coming? Tomorrow, next week, next month? History tells us it will be soon, though we can’t predict exactly when. 

So how can players protect their assets from a market correction? Annuities are one option. A fixed annuity guarantees a fixed rate of return over a time period you choose. As a general rule, the rate of return increases with the length of the time period. 

Some investors want more than just guaranteed returns, however. They don’t want to miss out on market gains. A fixed indexed annuity allows both. Its rate of return is tied to gains in a specific index, such as the S&P 500, and its principal is protected from market losses. 

The Bottom Line: Both of these annuities are guaranteed to protect assets when the next correction comes. Talk to your clients about their options before they lose anything in the game of investments. 


Never too late to win


Born and raised in Indiana, I, like many Hoosiers, came to love the game of basketball. In 1995, the New York Knicks were playing my Indiana Pacers in game one of the eastern conference semi-finals, and I can recall when one of the most spectacular 18.7 seconds left in the game unfolded. Reggie Miller, a shooting guard for Indiana, scored 8 points in 11 seconds and sealed the victory for Indiana. If you’re a fan of the sport, you have to see it – if you haven’t already, Google Reggie Miller to watch this unlikely feat. 

I share this great moment in sports to remind everyone it’s never too late. Clients nearing or in retirement can still protect their savings – for themselves, and potentially for their beneficiaries! There are countless strategies to lean on, and not enough space or time to begin to reference them all. With that said, there are three common sense ideas that are widely recommended by financial advisors across the country.

  1. Be ready for the next market correction. Since 1957, there has been a market correction (a loss of 10 percent or greater) about every two years on average. The last correction was in the summer months of 2011, when the S&P 500 fell 19 percent. The lesson here is to make sure your asset allocation is up to date based on a current risk tolerance model, and maximize safety in your investments.

  2. Make certain you have a strategy in place for guaranteed lifetime income. Remember, survey after survey suggests that running out of money is the No. 1 concern of seniors today. Fixed indexed annuities with lifetime income riders put the “guarantee” in guaranteed* lifetime income.

  3. If you plan on leaving some assets to your beneficiaries, consider buying life insurance on your own life, especially if those assets are qualified monies. The tax-free death benefit for your beneficiaries will help offset tax due on the passing of those qualified assets at your death.

The Bottom Line: Reggie Miller always believed it was never too late to win the game. Employ some common sense strategies today, and it won’t be too late for your clients, either!

*Guarantees are backed by the financial strength and claims-paying capability of the issuing insurance company

The Tortoise and the Hare, Revisited


As kids, we all learned the story of the tortoise and the hare. As a matter of fact, I ran across an old Bugs Bunny cartoon last week, and it took me back to my childhood. Anyway, the hare reminded me that this story can be used in today’s economic environment.

If you can eliminate the downside of any portfolio, you don’t need to have nearly the upside possibility to keep up. Let me explain.

You have an equity portfolio of $100,000, and the market is up 12 percent in the first year. What’s your balance? One hundred percent of people answer correctly: $112,000.

But if the market is down 12 percent in the next year, most people will answer that they still have $100,000 left, because the average return mathematically is zero. The answer is actually $98,560 – you’ve lost 12 percent of the $112,000, which is $13,440.

Now, throw a fixed index annuity into the mix with a 5 percent cap rate. On the surface, it’s not terribly exciting, like the tortoise. But the beauty is that in the first year you lock in the 5 percent gain, and your balance, even with the down 12 percent year, is $105,000. It beats the equity portfolio by $6,440.

I’m not here to tell you that an FIA will beat a market return in the long-term. What I am saying is that a percentage of every client’s portfolio should have the protection of an FIA to smooth out market fluctuations.

The Bottom Line: If you can eliminate the risk of losing money with a portion of your assets in an FIA, you don’t need the full upside of the market to keep pace.

The forest for the trees – focusing on what’s important


Within the fixed indexed annuity (FIA) marketplace, volatility controlled (VC) index options are the talk of the town. Developed to increase the attractiveness of FIA returns in a low-interest-rate environment, these new crediting strategies present something new and interesting to consider. 

However, without a full understanding of the underlying mechanics and, more importantly, the setting of realistic expectation of their potential returns, these new indexes could turn into a new reason for a client to be confused and turned off.

It’s easy to lose sight of the forest for the trees when discussing these indexes. It’s critical to remember the attractiveness of an FIA rests in its simplicity, insulation from market losses, periodic lock in of gains, and its ability to provide lifetime income, even increasing income, all for no to low annual fees. No individual index should overshadow or distract from this package of benefits.

VC crediting strategies were designed to potentially increase the overall return on FIAs. A VC option should be used if a client is looking to increase their accumulation value, increase or extend their residual death benefit, or increase their lifetime income by either outperforming a rollup or providing more punch to an increasing income option.

VC indexes vary significantly in structure and design. Some use spreads, while others use participation rates and/or longer crediting terms. Many are uncapped. It’s important to understand the underlying indexes and to be comfortable with their transparency. You should also understand how the indexes are managed and will respond under various market conditions.    

The Bottom Line: Make sure you understand the latest hot topics and how they could impact your clients before you start making recommendations. Ash Brokerage has access to top carriers in the industry with exposure to a variety of VC indexes, and we’d love to discuss the intricacies and opportunities they may present for your clients.