Annuities

Why Your Digital Assets Will Outlast Your Retirement


Annuities

In the insurance industry, we spend a lot of time working to make sure that our clients don’t run out of money in retirement. We talk with our clients about their assets. Then we plan around them.

But longevity creates other assets that aren't always part of the planning process – digital assets. The longer we live, the larger the digital footprint we leave behind.

It’s both an asset and a risk – and few planners are talking about this risk with their clients.

I recently attended the Society of Financial Service Professionals 2019 FSP Institute. During the conference, an attorney specializing in digital assets talked about common issues with estate planning. Digital assets, he said, usually aren’t properly valued on balance sheets. They’re hard to value because there isn’t really a market.

But digital assets can be monetized if we help our clients think that way. Americans are living longer, and investing patterns are changing. Today’s technologies should be encouraging us to think differently.

First, there are digital assets with tangible value, like cryptocurrency, where individuals assume the risk of safeguarding those assets. One individual lost almost $60 million in assets because their cryptocurrency could not be liquidated in a timely fashion. A little risk mitigation would have gone a long way.

Beyond that, we often hear stories of deceased authors and musicians with memoirs or other works on their computers, locked forever because nobody has their password. What great ideas, what contributions to literature and the arts might never see the light of day? Or even personal memories – photos, videos and documents from a life well-lived. More than ever, this is the legacy individuals want to leave for the next generation.

The insurance industry needs to test the risks and rewards of managing a client’s digital assets. If they haven't already, your clients’ power of attorney or executor should have access to their social media and online financial accounts. Your client will need to give explicit authorization and direction to that person what to do with those accounts if the worst happens. Estate planning documents need to reflect the new world of technology and our reliance on it.

Retirement income planning is more than just a systematic withdrawal. It engulfs the need to have guaranteed income to mitigate longevity. But, it also requires us to look at other risks – health care, long term care, taxes, legacy planning, and now digital assets.

 

Winning Strategy

Consider adding digital assets to your financial planning and retirement discussions. Digital assets will last longer than any of us and our money. Plan to make sure they are controlled and disposed of properly.


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 Planning Digital Assets Winning Strategies

The Need for New Models


Annuities

Every few years, an economist wins an award for new money management strategies based on an algorithm. To date, many of these models have focused on the general principle of the bell curve. In numeric terms, 95 percent of market returns fall within two standard deviations of the mean.

At the Society of Financial Service Professionals 2019 FSP Institute, the new models focused on the other 5 percent. These returns – outside that bell curve – can be devastating, especially when combined with a longer life expectancy.

Let’s break it down. Managing a client's assets is difficult enough, but longevity breeds uncertainty. We know that clients either need significant assets or a low withdrawal percentage to sustain their retirement income stream. But both of those solutions assume a normal sequencing of returns. If they see significant negative returns, especially early on in retirement, it can devastate a portfolio. And the longer they live, the greater the likelihood they will experience an event outside of the normal bell curve.

Which brings us back to the models. New models, as they should, now include risks that fall outside the typical bell curve. The risk is simply too great to assume our clients will be in the 95 percent. And this risk factor – the unknown – is the main reason we continue talking about guaranteed income:

If a return-based portfolio fails, it is catastrophic. If a portfolio fails with guaranteed income, it is not catastrophic.

As we build client portfolios, we should maintain a deep focus on that 5 percent. The success or failure of our client's portfolio may depend on it. In theory, the odds of a financial crises are rare. The probability of these once-in-a-century events happening while in our retirement years is statistically slim. It all sounds reassuring.

And yet, three have happened in our lifetime. No matter how large or small your client perceives it to be, transferring this risk is critical to the success of retirement income plans. Factoring in the severity of these events will produce a more realistic view of how the portfolio will sustain itself.

In previous blogs, I've discussed the speed of today’s technology and the co-dependency of global economies. Financial markets are complex and can change rapidly. Despite the odds, it makes the risk of another Black Swan type of event very real. If that event comes at the wrong stage of retirement, it could be catastrophic. Timing is everything, and since we can’t predict the future, we must recognize that those returns might happen, then plan for them.

 

Winning Strategy: Look at not only the severity of market events but the timing. Consider the new models to portfolio management in producing income with longevity concerns in mind.

 


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.

 

Financial Models Winning Strategies FSP

4 Strategies for Rising Interest Rates (That You Might Have Forgotten)


Annuities

Fortunately or unfortunately, depending on your point of view, we haven’t had to worry about rising interest rates for nearly a decade. Monetary policy, including quantitative easing, forced interest rates to near zero for a period of time. Clients benefited from the falling rates through capital gains growth that historically has not been a large part of bond returns.

With today’s rising interest rates, financial professionals need to offer strategies that many clients haven’t thought of for several years. Some will seem foreign to clients, as well as financial professionals, due to the time lag since they have been last deployed.

  1. We can’t chase yield. In my opinion, this has always been a staple of good, quality advice. However, we tend to chase the highest rates in any vehicle. Pressure on adhering to best interest standards makes us think that the highest interest rate is only the right thing to do. I think we should make sure there is balance with long-term stability of returns, rather than simply chasing high returns. Look to build a more consistent portfolio instead of just finding yield for a portion of the portfolio.
  1. Laddering continues to make sense. Like all good professionals, we tend to tweak what worked for us until it no longer looks like the thing that was successful. Over the past decade, we have forgotten how to take advantage of rising interest rates. We’ve changed how we position interest-driven products as rates fell quickly after the financial crisis. By laddering your interest-driven vehicles, your clients eventually have all their funds at longer term duration, which should bear a better interest rate in normal yield curve scenarios, but with liquidity staggered throughout the portfolio. We find this is a good strategy for all rate environments, but we tend to get away from it at interest rate peaks. 
  1. The purpose of the asset must be defined. Many clients tell their financial advisor they want growth with the appropriate level of risk. And, we tend to oblige them with “custom designed” portfolios from a third-party money manager. Instead, let’s change the conversation to “What do you want this money to do for you?” This question has the potential to lead to a more open discussion around long-term planning. If the assets are for retirement, let’s position them accordingly, using strategies that make sense for protecting the longevity of the portfolio. Income is the new outcome which requires more complex analysis as opposed to the highest current interest rate.
  1. Adopt to new product development made for this environment. New designs tie returns to a variable interest rate benchmark. As that benchmark interest rate increases, the client’s rate increases the following year. Many will find a three or five-year duration long; however, using laddering strategies can be beneficial in mitigating this risk.

We face a lot of challenges as the baby boomer generation continues to leave the workforce toward retirement. If not handled correctly, a rapidly rising interest rate environment makes for a potential portfolio burden that many clients are not seeing clearly. Take time to review the client’s intentions and plan for a rising rate environment over the next several years. 

Winning Strategy

Evaluate your bond holdings and plan for a rising rate environment. Your clients are unlikely to see the risks ahead due to recent monetary policy. Put your clients in a position to win.

Winning Strategies Podcast

Craving More?

Catch the latest insights from Mike McGlothlin and his guests on his podcast, Winning Strategies.

Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

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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.

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Income, Income, Income


Annuities

As I write this, I’m traveling back from an industry meeting that my company sponsors. Being a numbers guy, I always enjoy hearing how the year unfolded, best practices in technology, and where sales increased and to what degree.

However, one of the disturbing trends that I noticed is our industry’s lack of focus on the best benefit of annuities: income.

In 2017, the industry lost $30 billion in sales that involved income, according to LIMRA. That trend continued in 2018. Economic conditions are the most likely reason for the continued shift. After all, clients have looked for safer places to place their retirement savings with the recent volatility in the fourth quarter of 2018. Basically, it’s been easy to sell annuities without the complexity of an income rider or loss of control due to the use of SPIAs or DIAs.

We tend to sell what clients want, not what they need. Ultimately, we have to work in conjunction with our clients’ goals but, too often, it feels like we may not be hitting the true need when we complete a transaction that doesn’t involve an income discussion.

Asset protection is an important function in today’s market conditions. Don’t get me wrong … annuities provide value to many portfolios with interest rates increasing, market fluctuations, and tax-deferred growth on nonqualified assets.

However, the biggest lift that annuities provide is the opportunity for lifetime income. Longevity affects so many other risks during retirement. The ability to shift this single risk to an insurer greatly enhances the probability of success in retirement.

Sequence-of-return risk remains a variable that no one can predict. The timing of a correction – in a modest or full bear market – can make as much as a 13-year difference in how long a client’s assets last. Without guaranteed income in place, an ill-timed downturn may affect the lifestyles of Americans who are depending on systematic withdrawals. Strategies that maximize Social Security and guaranteed income options can provide stress relief on the portfolio.

At the end of the day, failure of a portfolio with guaranteed income is not catastrophic. Portfolios without guaranteed income will be force into a different lifestyle.

Winning Strategy

With guaranteed income, failure is not catastrophic. Change your focus and talk to your clients about holistic income planning.

Winning Strategies Podcast

Craving More?

Catch the latest insights from Mike McGlothlin and his guests on his podcast, Winning Strategies.

Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

Listen 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 Income Income Planning Winning Strategies

Stop Saying, “I Don’t Have Time”


Annuities

I’ve traveled over 40 weeks this year, visiting our advisors and speaking at conferences. As I sit in the Atlanta airport on a layover, I see people playing video games and watching videos. By their reactions of smiling and laughing, what they’re watching isn’t likely educational or business-related.

But, these same people will likely complain to their co-workers about not having enough time to get things done. If you want to boost your productivity, you have to evaluate your time management skills.

No Time Wasted

When I was a student manager, in a typical two to three-hour basketball practice, there were no wasted minutes. Coach Knight mapped out the entire practice, drill after drill. He set the tone for each session by addressing the team in the locker room and telling them what they’d be focused on. He might be paying attention to the angle of the cuts or the position of screens. Each day was unique based on the current state of the team’s development.

Think about mapping your day in a similar fashion. Time blocking can be an effective tool to create an environment of focus. I color code my calendar to make sure I’m paying attention to all the things I need to do in order to run a business. Time is devoted to sales skill development, advisor and key account interaction and internal meetings, among other required activities.

To build a successful business, you must focus your energy. Every part of your business needs your undivided attention … but not all at once.

Additionally, you need time to relax and be with family. Unfortunately, for busy professionals, that time gets lost and ultimately needs to be scheduled – just like a client appointment. Sometimes that feels like a stigma, but the fact you are devoting time for yourself and family is just as important as working in your business. And, I’m as guilty of that as anyone.

Plan Ahead

At the end of the day, you have the same amount of time as everyone else. Some people simply use their time more wisely, effectively and efficiently than others. Here’s what you can do to make the most of each minute:

  1. Plan your business goals for the year
  2. Break those down into monthly goals and activities
  3. Map out the weekly and daily behaviors you must do in order to execute your plan
  4. Once you identify those activities, schedule them

Winning Strategy

Focus your attention on revenue-generating activities. Schedule those things that are most impactful to reach your goals.

Retirement Webinar

Craving More?

In 2019, retirement income planning will be more important than ever. Join us January 17 to explore the forces behind the trends that will shape and grow your business for the future.

Register Here!

 

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.

Time Management Retirement Winning Strategies