Eliminating Squirrel Mentality

Eliminating Squirrel Mentality

It’s pretty common to be distracted by the next big thing – that shiny new object that everyone’s talking about. For me, it’s technology. If it’s newer, faster, more exciting, it’s for me. Sometimes the next big thing is worth our time and attention. And sometimes it’s just smoke and mirrors. The trick is to distinguish between them and focus on the industry changes that really can impact your clients and your business. And right now, the big topic for discussion — today’s shiny new object — is The SECURE Act.

So, is The SECURE Act worth your attention? The answer is an emphatic yes. We wouldn’t be able to advise our clients if we were not up to speed on the current legislation affecting qualified funds. And every columnist and professional in our industry agree that this is the most significant piece of legislation since the Pension Protection Act of 2006 (PPA).

Of course, there is still room to be distracted within The SECURE Act, especially if you look at each change separately instead of as a big picture. We don’t want to be the dog that spots the new squirrel in the neighborhood and chases after it until he gets tired. Or until he sees another squirrel.

We need to take each new piece of retirement legislation and stack it on top of the last, building on what we know and increasing our total understanding with each new piece. Think of it like building the ultimate Lego tower. It’s only possible with a good base – and a good amount of patience.

And while The SECURE Act builds on the Pension Protection Act, it also made significant changes to the way we help our clients plan. We have a lot of resources to help you wade through the important aspects of retirement income planning, arguably the single most complex problem you will face with your clients.

Focusing on both the Pension Protection Act and The SECURE Act as a cohesive pair is one of the most important things you can do to give your clients a higher probability of success in retirement.



Missing Variables

Part of what makes retirement planning so tricky is the unknown. Think about the details you are missing:

  • How long the client will live
  • Future tax rates
  • Future rates of returns
  • Sequence of returns
  • When a long-term care event might strike


A lot of those variables are out of our control. But even though we can’t control them, we can teach our clients the behaviors needed to mitigate some of these risks, including:

  • Proper diversification
  • Asset location over allocation
  • Placing guaranteed income in the appropriate percentage of the portfolio
  • Maximizing Social Security for at least the primary wage earner


Building a Cohesive Plan

By focusing on the big picture, we can stack the valuable benefits of the Pension Protection Act as a foundation for long-term care and income planning. There is a high probability of one spouse having a care event during retirement, but the need gets pushed aside for more exciting conversations about managing money and creating income. Today, more than $1 trillion rest on insurance carriers’ books inside non-qualified annuities1. Given the recent continued bull market, many of those annuities dependent upon equity investments and/or indices have seen considerable growth.

In its current format, the distribution of non-qualified annuities is interest first, or taxable until you reach your basis. This creates more taxable problems under Modified Adjusted Gross Income (MAGI) calculations when it comes to other means-tested benefits.

Under the Pension Protection Act, clients can take those embedded gains from the old contracts and move them to a PPA compliant product. If used for qualifying long-term care expenses, the distribution is tax-free – not tax-deferred. Tax-free. You have moved the buildup of the tax-deferred growth from tax-deferred in the deferred annuity to tax-free under the Pension Protection Act.

This strategy mitigates a significant cash flow crunch to many families when they need it the most. By eliminating the tax on long-term care distributions, it is as if you have increased the distribution by the assumed tax rate. And, you have provided relief from the increased distributions on an already pressured assets-under-management systematic withdrawal strategy.

It takes planning. It takes having the conversation. It means that you understand the needs of your clients. And, by protecting the family’s wealth, you become valuable to the next generation.


1LIMRA 2019 Fact Book

Transformational Tactic: Don’t chase the shiny new legislation. Coordinate the benefit of all the pieces of legislation to create the most holistic and comprehensive plans possible.