Annuities

Non-Insurance Options for Long-Term Care Risk


Annuities

Most clients wait too long before addressing longevity and long-term care. They reach a point in their lives when it becomes apparent that they will need care, or people around them need care. Unfortunately, at that point, many find the cost of transferring this risk to an insurance company is unaffordable. That’s when I think you should devote more resources to the problem. 

 

I realize many Americans have not planned enough to feel secure about their retirement, let alone a long-term care event. But, these concerns can be mitigated through the use of guaranteed income strategies. As I’ve said before, long-term care is as much of a cash flow issue as it is an insurance or capital issue. 

 

There are many options available to most consumers that are free of underwriting or have reduced underwriting. Annuities provide alternatives to income that are free of medical underwriting yet must meet best-interest standards for clients. These vehicles provide tax-efficient income, longevity protection through lifetime income, and the ability to hedge the cash-flow increase due to health concerns. 

 

  • Income riders allow a client to produce guaranteed minimum levels of income, which can be withdrawn when they need it the most – at the time of a care event. Otherwise, the asset continues to grow tax-deferred, which allows for the account value to grow faster than a normal non-qualified asset.  

 

  • Deferred income products can allow flexibility in the timing of the disbursement so that your client may turn on the income at a specific period or range of time.

 

  • Exclusion ratios can allow for part of the income to be returned to the client tax-free – it’s a return of their original basis in the contract. By having some of their income on a tax-free basis, the client may not have to erode as much of their account balance. 

 

Guaranteed income can play an important role in mitigating long-term care expenses, especially for the uninsurable or those that who afford to shift their risk to an insurer. When you have a client declined for coverage or rated to a point where they will not accept the offer, don’t let the risk go unaddressed. Take the initiative to position guaranteed income in the proper light and reduce the cash flow risk. 

 

Winning Strategy

Guaranteed income not only helps with retirement income, but it can also reduce the risks of long-term care expenses. Don’t ignore the risks of clients who can’t be covered through insurance. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Long-Term Care Longevity Retirement

Why You Shouldn’t Wait to Plan for Long-Term Care


Annuities

Aside from running out of money, a long-term care event may be the largest threat your client’s retirement plan. An extended care event can devastate a balance sheet and family’s cash flow. More importantly, it adds unnecessary stress for the retiree, their caregiver and their family. 

 

I’m not suggesting that everyone go out and buy long-term care insurance. Although insurance is the best risk-transfer agent ever developed for situations like this, the reality is not everyone can afford or have access to the proper risk mitigation. But, that doesn’t mean you can’t have a reasonable plan. What’s important is that everyone is on the same page and the individual gains the best care possible. 

 

So many times, we get calls for placing assets in other names or entities in an effort to qualify for Medicaid. While that is an effective strategy, I think you need to keep you clients in the front of your mind and provide the best possible care. You need a plan to do that. Planning doesn’t hold value when it’s time to execute. Planning hold value when you maximize options. You can only do that BEFORE the time of need. 

 

Ask Questions, Find Answers

Talking to your clients about long-term care risk requires a holistic view. Many of our inbound calls possess transactional level detail about a client. In order to serve the client best, advisors need to dig deeper than the balance sheet. 

 

You have to ask: 

  • What level of care does the client want in the event of a short-term or long-term event?
  • If there is a chronic diagnosis, what type of care can the family caregiver provide and up to what point?
  • Where does the client want to live? (This is one of the most under-discussed aspects of retirement and longevity planning.)
  • Which assets can be used most effectively now and at the time of the care event? 

 

There are avenues that can alleviate the retention of longevity risks like long-term care. Home equity conversion mortgages provide access to tax-free funds based on the value of the home, annuities and income riders create cash flow as well as increases in cash flow for long-term care, and housing facilities can provide a lifetime estate. 

 

Obviously, transferring the entire risk to an insurance company provides the best protection, but chances are that all of your clients will need an alternative plan. Planning can make a difference, even just a few years prior to a care event. So, talk to your clients about deploying some of their assets to address a risk that might devastate their plan in the future. 

 

Winning Strategy

Planning doesn’t hold any value at time of execution. Planning adds value when you maximize options. Look at the options now, before your client needs extended care. Address one of the largest risks that can devastate a retiree’s plan and transfer the risk as much as possible. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

 

Long-Term Care Longevity Retirement

Make Your Clients ‘Smile’: Longevity is a Cash-Flow Issue


Annuities

Long-term care is an important topic to be sure. However, many industry experts and advisors concentrate on traditional long-term care insurance or linked benefit products. Let’s focus on the real problem: Long-term care problem is a cash flow issue, not so much a capital issue. 

 

Extended care expenses can vary widely due to the length of care, severity of condition, and level of care required. In reality, these expenses are paid more commonly through cash flow and not capital. If you are using large amounts of capital, you’re likely beginning a downward spiral. Things like basic living expenses, income for the healthier spouse or any luxuries become burdensome. The solution is having a suitable and sustainable cash flow for long-term care needs. 

 

Now, you can argue insurance provides the necessary capital to generate that income. It’s true. But, rarely do you pay for long-term care in single lump sums to the providers. You need a steady source of guaranteed income that can be flexible enough to turn on and off in order to accommodate those changing expenses.

 

Smiling Income

Longevity, specifically long-term care, generates a “smile” of expenses. Early in retirement, most people travel and visit friends and family. In the next phase, most retirees see a period of slowing down where they stay closer to home and have fewer expenses. Finally, end-of-life issues arise with health care costs that are unpredictable. Longevity is not a linear line but more of a smile – and it can become a smirk very quickly if you don’t address it. 

 

In order to create cash that resembles a smile, you can prepare clients with guaranteed income now and later through the help of annuities. Inflation protection can come from assets under management with equities historically outpacing inflation. Additionally, income can be further supported with guaranteed cost-of-living adjustments. This can further reduce the risk on the investment portfolio and its required distribution percentage. 

 

So, when planning for long-term care with a client, think about cash flow, not capital. By focusing on the “smile” of retirement and providing income flexibility, you can address a major concern and offset longevity risks. By having the right amount of income, your client can rest at night, knowing their care will be taken care of and their healthier spouse will not have to experience a change in lifestyle. 

 

Winning Strategy

Create flexibility and control when it comes to income planning for long-term care. Think about cash flow, not capital, when it comes to mitigating longevity risks. While insurance provides the capital, you need to be able to provide income for varying needs. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Long-Term Care Longevity Retirement

The Question that Raised the Hair on My Neck … and Can Raise Your Business Standards


Annuities

Early on in my career, I participated in training for wholesalers that emphasized the need to create a business plan with each of my top advisors. 

 

The plan was not complicated. In fact, it was bare bones, simple and to the point. It established a commitment between me (the wholesaler) and the retail representative, outlining how each expected certain activities from the other to make the relationship mutually beneficial. It was never more than a single page.

 

Sounds easy, right? Well, it required me to ask the advisor a new question. Changing habits can be hard … but I knew I had to try. 

 

Taking the First Step

After the training, I went out into the field. I had doubts about the value of making a quarterly business plan with every one of my top producers. However, as a new wholesaler with the company that sponsored the training, I felt compelled, even obligated, to try it. 

 

When I arrived at my next meeting, I took nothing other than my pad of paper. The advisor and I talked about her business for about 45 minutes. I learned a lot by asking the right thought-provoking questions, and I gave her some ideas that I thought she might use, based on her business and clientele. This advisor sat in a bank and during my time at her desk, I discovered she did millions of dollars of business with a competitor. 

 

As we wrapped things up, it was time for me to ask her for the next appointment and for us to sit down and do a business plan together. A “yes” meant that she liked the interaction with me, and my company, and had interest in our products for her clients. A “no” meant that I destroyed the relationship before it got off the ground. 

 

In the past, I would have asked for the next appointment but with no specific purpose. Or, I would have relied on my internal partner to follow up with the advisor and set another follow-up appointment. But, I had made a commitment to myself to change the way I sold – times were changing and advisors were looking for better partners.

 

So I gathered my confidence up and asked for the next meeting in three weeks, when I would be back in the area. And, I asked that we set aside 90 minutes so we could jointly create a business plan that would help keep both of us accountable to reaching some of the goals she had outlined.

 

There was dead silence for what seemed like an extended period of time … like eternity. I could feel the hairs on the back of my neck standing up, and it felt like I was about to break out in a cold sweat. 

 

Her response? She was happy to do it. In fact, she said she didn’t move forward with a wholesaler before making a formal business plan with the company’s representatives. I was floored. It was as if it was set up by the training school. 

 

Planning for Success

This advisor went on to become a multi-million dollar producer for me. In our business plan, we agreed to set out the very next quarter to host a client event, where she would have 50 clients and prospects in attendance. In the following quarters, I would provide training to her staff and mailers to use with existing clients, and I would host a networking event for centers of influence around town. For those commitments, she said she anticipated placing a portion of her business with me and my company. 

 

I encourage all financial professionals to have this same requirement of their partners and distributors. As we move deeper into the fiduciary world, it’s more important to surround yourself with firms, wholesalers, and other advisors whom you can trust with your clients. 

 

Business planning comes in many forms. But, planning with your partners might be the most crucial aspect for the ongoing support you need in this complicated financial services world. 

 

Winning Strategy

Create a business plan with each of your vendors. Those who complete the exercise with you should be considered partners. That’s what you are looking for in today’s complex distribution. You need partners who understand you business and can help it grow. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Financial Planning Business Planning Practice Enhancement

4 Trends that will be Critical to Your Practice


Annuities

Right now, clients are demanding that we have their best interests in mind. And, that’s where it should be. Unfortunately, many consultants and outside counsel tell our industry that best interest translates to level fees and lower commissions. While you may be feeling the effects of leveled commissions, it’s no reason to stop growing your business. 

 

Many commission-based products are well suited for clients in the retirement income planning space. And, there are some major demographic shifts taking place that will affect them over the next several decades. The proper combination of assets under management (fees), advice (advisory practice), and commissionable products can create best interest solutions for many Americans feeling the impact of these trends. 

 

The Trend: Our savings rate has continued to fall over the last two generations. Today, the savings rate rests around 5.0-5.5 percent. We only see spikes in the savings rate during high inflationary periods or when we completely distrust Wall Street. The result, according to the LIMRA Fact Book, is that trailing baby boomers (age 50-59) have saved a median retirement account balance of $130,100.1 

The Impact: You will have to generate more income with less assets than any planning generation before. 

 

The Trend: Americans continually misuse our Social Security system. More than half of Americans take Social Security early – only 2 percent of men, and 4 percent of women, defer their income to age 70.2 That means nearly 98 percent of men and 96 percent of women are missing out on 8 percent guaranteed growth on their income between full retirement age and age 70. Over half the population takes their income earlier than full retirement age and elects to take as much as 25 percent less in income. 

The Impact: You must provide solutions to bridge the gap of income and maximize social programs for your clients. 

 

The Trend: Defined benefit pension plans are being replaced with defined contribution plans. The loss of guaranteed income in a retirement plan will prove devastating over long periods of time. Our research shows that retirement is optimized (95 percent probability of having at least $1 in the portfolio at age 95) with anywhere between 15-25 percent of the portfolio dedicated to producing guaranteed income. 

The Impact: You must educate clients that guaranteed income can only come from Social Security, defined benefit pension plans and insurance company contracts (annuities). 

 

The Trend: Longevity must be mitigated in order to have a successful retirement strategy. Our spending taper in the United States mirrors a smile more than anything else. Retirees tend to travel in early retirement followed by a slow down period of spending. At the end of life, there are health concerns, long-term care events, and housing elections that increase spending. It’s this final phase that is unpredictable, uncapped, and highly inflationary, making it difficult to address without proper planning. 

The Impact: You must help your clients plan for longevity, or their spending smile will turn into a smirk very quickly.

 

All of the above are major shifts that are either taking place now, or will affect our business over the next several decades. You have to make sure you can address these issues in your planning practice, regardless of your business model (advisory or commissions). It will be critically important to do more with less assets, maximize Social Security, create guaranteed income streams, and take the longevity risk off the table. These risks can be mitigated with assets under management and complementary commission-based products. Plan differently to address the shifts that are taking place in America, and grow your business with solutions-based recommendations that include all products. 

 

Winning Strategy

Plan differently to think differently in the future. There are major demographic shifts occurring in the United States that will affect planning over the next two decades. Get your arms around them now to stay above the crowd in the future.  

  

Learn More

1LIMRA, Fact Book on Retirement Income 2016: https://www.limra.com/bookstore/item_details.aspx?sku=23518-001 

2The Motley Fool, “When Does the Average American Start Collecting Social Security?” April 19, 2016: https://www.fool.com/retirement/general/2016/04/19/when-does-the-average-american-start-collecting-so.aspx

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Retirement Social Security Annuities