Annuities

Inflation: Your Best Lead Generator of 2019


Annuities

Inflation. It’s been called the cruelest tax of retirement. But as an industry, we’ve failed to talk about income increases for the last 10 years. The inflation rate has been near zero for a long time due, in large part, to quantitative easing.

It’s easy to forget the devastating effects of inflation. However, over time, the same income will be able to purchase fewer things than it does today. Suddenly, your clients will wake up and feel their cash flow is constrained by more expensive items. That is especially true with items such as higher education, health care, and long-term care.

Most Americans will plan for their income needs through qualified account balances, nonqualified savings, a few pension plans that are still available, and Social Security. Of all of those, Social Security is the only source that potentially increases with inflation. For 2019, recipients will receive a 2.8 percent increase from last year. Other forms of income – guaranteed or not – don’t have a built-in feature for inflation protection.

How many retirees are happy with a raise in their income? I guess that no one will return the additional cash they receive in 2019. So, the conversation you need to have with your clients is: “If you like the raise you got from Social Security, let’s talk about doing the same with the rest of your retirement income.”

I bet if you talk with your clients about their recent raise from Social Security, they would likely come to your office to learn how to do it with the rest of their retirement income portfolio. That question alone might be the best lead generator you use at the beginning of 2019.

 

Winning Strategy

Think in terms of after-tax, after-inflation income. Help your clients understand how they can give themselves a raise by addressing inflation in their retirement plans.  

 

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Retirement Inflation Lead Generation

The Regulation You Need to Be Talking About


Annuities

Recent news indicates a new U.S. Department of Labor rule will be set forth in the fall of 2019. But don’t be distracted. There’s another piece of legislation that needs your attention.

Pending tax reform, which will likely be addressed when Congress reconvenes in January, puts several tax benefits in question for retirees and their beneficiaries. And, some are critically important in the transfer of wealth.

 

The Great Tax Transfer

It’s estimated that trillions of dollars of wealth will pass to the next generation over the next two decades. It will come to the surprise of many beneficiaries, however, that most of their money will be taxed.

One of the changes that the Retirement Enhancement and Savings Act addresses is the ability to stretch qualified accounts at death of an IRA owner. It would limit the amount to just $450,000. Everything else would have to be received as a lump sum or within five years of the death of the IRA owner. This places a significant amount of tax due at the time of death.

As I travel around the country, I sense that the increased federal gift and estate tax exemption limits have lulled planners and their clients from looking at the income tax payable at transfer. That’s dangerous – they could be dropping an income tax bomb on their beneficiaries.

 

Defusing the Bomb

Like any obstacle, legislation can become an opportunity for the financial services community. There are several ways that you can position your clients – and their beneficiaries – to win, regardless of what happens in Congress.

  • With the lower tax rates introduced by the Tax Cut and Jobs Act of 2018, it benefits the client to convert qualified accounts to Roth IRAs. This allows the client to have tax-free income for retirement. At death, the proceeds are disbursed tax-free to beneficiaries as well.
  • The embedded gains in nonqualified annuities are treated as taxable distributions, and they are generally taxed on a last in, last out (LIFO) basis. This creates a great opportunity to take advantage of innovative income riders that allow the exclusion ratio to be used for tax purposes. More importantly, it allows the beneficiary to access the cost basis first at the death of the current annuity holder. That puts the beneficiary in control – not the IRS.
  • Finally, it’s always a great time to discuss the importance of life insurance with large IRA holders. It remains the most tax-efficient method to transfer wealth.

 

So, the government is likely to continue regulating the way we interact with our clients. But Congress is likely to have a larger impact due to the tax consequences on our income strategies. Focus on creating income that is efficient for both clients and their beneficiaries.

 

Winning Strategy

Don’t let the DOL distract you. Pay attention to regulation that can impact your clients’ future.

 

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Watch the replay to hear case studies and strategies that highlight new, untapped and hidden opportunities for 2019, and how you can make yourself more referable than your competition!

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Retirement Regulation DOL Tax Transfer

The Future of Charitable Giving


Annuities

In the financial world, 2018 was an eventful year – starting with the most sweeping tax reform in decades.

The reform had a lot of positive impacts, but I think one unintended consequence was the impact on charitable giving. Because of the new standard deduction, it’s estimated that only 16 million taxpayers will able to make a deduction for their charitable contributions. That’s down more than 50 percent from when the standard deduction was not as high and more people itemized.1

Many charities will likely see reduced gifting because donors lose the financial benefits of making a donation. However, a few outlets have been talking about a unique gifting strategy – Qualified Charitable Distributions, or QCDs.

QCDs aren’t new. They’ve just been out of favor – or at least unknown – for some time. Previous tax brackets and limits for itemized deductions made this strategy less favorable. Today, with a higher standard deduction for individuals and older couples, QCDs will become much more valuable for charitable contributions.

 

If you’re not familiar, here’s how QCDs work:

  • Your clients send their required minimum distributions (limit $100,000 per person) to a charity
  • The distribution is tax free – that’s an important distinction
  • The QCD does not go into the calculation for Modified Adjusted Income or Combined Income, which are used to calculate annual tax on Social Security income, and also affect the amount of premium a client pays for Medicare Part B health insurance


For retirees, the result can be hundreds to thousands of dollars in tax and premium savings. Using this type of charitable contribution allows your clients to continue benefiting their favorite charity without taking a hit to their personal finances.

 

Winning Strategy

2019 is new ballgame. New tax laws. New regulations. New strategies. Try a new way to help clients with Qualified Charitable Distributions.

Retirement Webinar

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Catch the final retirement webinar of 2018 where Mike is joined by retirement income expert Patricia Taylor, MBA, ChFC®, CFS®.

Watch the replay to hear case studies and strategies that highlight new, untapped and hidden opportunities for 2019, and how you can make yourself more referable than your competition!

Watch Now!

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Learn More

1Tax Foundation, “Nearly 90 Percent of Taxpayers Are Projected to Take the TCJA’s Expanded Standard Deduction,” September 2018: https://taxfoundation.org/90-percent-taxpayers-projected-tcja-expanded-standard-deduction/

Retirement QCDs Charitable Giving

Why Your Clients Can’t Live With 2 Percent


Annuities

Many people say they can’t take a 2 percent return on their money. This was especially true after the financial crisis and the aggressive monetary policy in the United States. However, many Americans have felt that 2 percent was a good return on vehicles like certificates of deposit or money market accounts. Regardless of your perspective, you can never take 2 percent as a probability of success in your retirement plan.

Well, that’s exactly what you might find for many Americans. With just one, three-year long-term care event during retirement, an otherwise successful plan could be wiped out. In fact, we have several case studies that show the impact of a long-term care event on a retirement portfolio. All are devastating to the probability of success, regardless of market performance.

We find that many people who use Social Security properly and have saved a comfortable nest egg can generally retire at or close to their spending levels. That’s not to say that annuities can increase the probability of success to higher levels, but most Americans aren’t too far off their goals with a few solutions, not sacrifices.

However, if we factor in a long-term care event, that dramatically changes the client’s chances of success. In many cases, the probability of success drops from 85-95 percent down to just 2 percent for a healthy spouse. A client can feel comfortable with 85 percent, but not 2 percent.

The solution is properly planning for long-term care through by shifting the risk to an insurance carrier. The additional capital or cash flow rarely replenishes the probability of success to the full 95 percent; however, it typically moves the number back to 70-80 percent. We commonly hear, “I can live with 70 percent, but I can’t live with 2 percent.”

Many people have been comfortable living with 2 percent for a rate of return. Unfortunately, when you show them 2 percent probability of success, they lose nearly all comfort and confidence. Make sure you provide an appropriate probability of success to your clients’ retirement plans by addressing the risk of long-term care.

 

Winning Strategy

Talk about long-term care. Ask questions. It could mean the difference between a success rate of 95 percent or 2 percent.

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Retirement Winning Strategies LTC Social Security

3 Ways to Protect Against Inflation in Retirement


Annuities

More Americans are living to age 100 than ever before and the number continues to grow. If you are looking at separating yourself from the competition, you must address the impact of inflation on both income and assets for your retirees.

Some people consider inflation to be the cruelest tax of all. It slowly eats away at the value of the dollar over time. Most people don’t feel it year-by-year. But at some point in the future, the client will wake up and say they can’t afford the same things they did at the beginning of retirement. That’s on us.

One of the best strategies to protect income erosion is to maximize guaranteed income streams that have inflation protection. Below are a few examples.

  1. Social Security – This income stream has a built-in inflation hedge with annual increases tied to an index reflecting consumer price increases. If you position Social Security correctly, and leverage its growth past Full Retirement Age, the higher income grows with the index. This provides a higher likelihood that the retiree will be able to afford the same things in 20 years that they do today.
  1. Guaranteed Income Annuities – With any asset that you control, you can leverage the power of guaranteed income options available on some annuities. It’s important to realize that any person should limit the amount of funds that go into annuities to the proper allocation. If too much of a person’s assets go into a conservative vehicle like annuities, it can actually decrease the probability of retirement success.
  1. Inflation Riders – Several income riders can provide increases tied to the underlying index. Single-premium annuities have options for a guaranteed 3-5 percent inflation adjustment. You need to understand the client’s risk tolerance before deciding which solution is appropriate for them. Maintaining control is an important aspect with many clients that should not be overlooked.

Regardless of the solution you provide for inflation, make sure you don’t make your client sacrifice their standard of living due to loss of buying power.

 

Winning Strategies

Protect clients from inflation. Make sure not only their assets but also the income streams increase with inflation during retirement.

Winning Strategies

Craving More?

Catch the latest Winning Strategies video where Mike dives into risks in retirement!

One of the largest risks in retirement is a long-term care event.Mike shares two winning strategies you can implement as an advisor to help clients make it through retirement with confidence.

Watch Now!

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Retirement Inflation Annuities Mike McGlothlin Social Security Guaranteed Income Annuities