Organize Productive Conversations With Your Clients
Presented by: Jason E. Lea, CFP ®
The Retirement Challenge:
Some Stunning Statistics
• 14.4% (.144)
• 73.3% (.733)
• 87.6 %
• 11
• 22
• 0.00%
• Red Sox Team World Series Batting Average
• David Ortiz World Series Batting Average
• Likelihood you will stay awake for 1:45 today!
• David Ortiz # hits• Rest of Team- total hits
(not including Ortiz)• Koji Uehara’s W/S ERA
Agenda
• Changing Landscape• Economy, Politics, and Interest Rates• Our Mission Today• 3 Main Client Objectives • 5 Simple Steps• Strategies• Carrier Panel
Talking to Your Clients
• 1 conversation every day• Work with your BSMG advisors• Have the right tools to present solutions• Understand the risks
• For your clients• To your practice
Retirement Market – It’s Pretty Big
U.S. Total Retirement Market
Trillions of dollars, end-of-period, selected periods $20.9 Trillion
* The Investment Company Institute“The U.S. Retirement Market, Second Quarter 2013.”
DC Plans and IRA’sRetirement Assets by TypeBillions of dollars, end-of-period, 2013:Q1–2013:Q2
* The Investment Company Institute “The U.S. Retirement Market, Second Quarter 2013.”
The Retirement Landscape
• The Financial Crisis – what’s the impact?• A wake up call for clients• Clients realize they need advice on retirement• Clients feel more secure when they work with a
financial professional
A Stunning Opportunity
75% of Clients switch advisors at Retirement1
67% percent of clients want a retirement income plan, only 25% have received it.2
87% of clients who received a retirement income plan moved their assets to that advisor.1
1Source: McKinsey & Co., Cracking the Consumer Retirement Code, 20072Source: Fidelity Investments, Adapting a Practice for Retirement Income Planning, 2006
Consumer Poll: Important Features
Guaranteed to Not Lose Value
Protects Lifetime Income from Market Losses
Provides Guaranteed Rising Income
Provides for My Family If I Die or Become Disabled
Has Higher Returns
67%
62%
58%
50%
19%
Biggest Retirement Concerns
Rising Cost of Healthcare
Inflation and the rising cost of living
Insufficient funding for Social Security & Medicare
Higher Taxes
The Gov’t budget deficit
50%
50%
40%
20%
19%
Global crisis and uncertainties13%
Pain Outweighs Gain
• Which is more impactful to retirees?
• Protection from loses is more important than higher, riskier returns
8x More important!*
• Peace of Mind is 4x more important than wealth**2012 AIG Retirement Reset Study
Gain 20%
Lose 20%
or
Life Expectancy
• Doubled in the last 100 years• Average Length of Retirement for a married
couple age 65?
27 Years! (Age 92)
Economy, Politics, Interest Rates
• Slow recovery, unemployment remains high
• Washington refuses to collaborate
• Persistently low interest rates
• Market Volatility
Post-retirement expenses
Financial In
dependence
Needs
Wants
Dreams
Legacy
Travel, entertainment, gifts, motorcycle
Food, shelter, clothing
Grandchild’s education, vacation home, RV
Heirs, charities
Freq
uency
Less
More
Retirement
Income•Needs (Non-Discretionary)•Wants (Discretionary)
Assets •Emergency Fund•Diversified Portfolio•Protection against Healthcare & LTC Costs
Legacy•Life Insurance death benefits•Assets transfer to spouse/heirs
Make it Personal
Income•Mortgage•Monthly Bills•2nd home•Travel•Gifts
Assets•Emergency fund•Unexpected health-related expenses•Grandkids’ education
Legacy•Surviving Spouse•Kids•Grandkids•Charity
Income
Defined Benefit “Pension Plans”Social Security
Will these be enough for your clients?Clients can create their own personal “pension”
plans
What’s Your Legacy?
Spend Pennies on the Dollar to:
Take Care of your spouse when you’re gone
Take care of Kids and Grandkids
Give to Charities/Organizations that have
meaning to you
Retirement: Solutions
Income•Pension•Social Security•Annuities•Life Insurance Cash Value
Assets•Cash•Investment portfolio•Protection products for LTC costs
Legacy•Will•Life Insurance•Trusts, if applicable
6 Simple Steps
1. Define Your Relationship with the client
2. Ask key questions, gather data
3. Evaluate client’s financial status
4. Develop and present your recommendations
5. Implement your plan
6. Yearly or quarterly check-ups
Define The Relationship
• Let them know this is conversation you are looking to have with your clients
• Ask if they are willing to discuss with you, and explain that it’s a very important
• What Retirement goals do they have?
Ask Questions, Gather Data
• Use a Fact Finder• Determine Client goals and priorities for
income, asset protection and legacy• Determine client needs
Goals vs. Needs
• Client goals often > Client resources • Good fact-finding will reveal their actual needs
and those should be addressed first.• Advising is easier your client once you
understand their needs.• Clients appreciate good homework.
Evaluate Client’s Financial Status
• Do they have adequate:• Cash• Protection from HealthCare and LTC costs• Sources of Retirement Income• Life Insurance
• Do they have an estate planning attorney who has drafted a will, health care proxy, power of attorney, trusts if necessary
Results of Data gathering
• Findings determine:• Income Gap• Asset protection needs• Legacy objectives
Develop and Present Your Retirement Recommendations
Income•Pension•Social Security•Annuities•Life Insurance Cash Value
Assets•Cash•Investment portfolio•Protection products for LTC costs
Legacy•Will•Trusts, if applicable•Life Insurance
Protection Products Offer…
• Risk Transfer from client to Insurance Co.• Peace of mind• Asset protection from financial risks• …in a word…
Protection
Match-up Solutions to the Needs
• Annuities• Lump-Sum funded Retirement Income• Fixed Asset to protect from market losses
• LTC Products• Lump Sum or Flex-pay funded• Protect assets from largest risk in retirement
• Life Insurance• Lump sum or-Flex pay funded• Provides Death benefit and now access while alive to DB for
LTC expenses• Access cash value for income after 15 years
Implement Plan & ConductYearly or quarterly Reviews
• Build Client Trust over time• Chance to uncover other opportunities• Become a Center of Influence, and develop
retirement referrals
Michael (engineer) & Mary (teacher), age 60
• Retiring in 5 years • Current income = $7.5k / month after taxes• Current expenses • Net Savings $1.5k/month
• ($500 to NQ savings, $1,000 to 401(k))• (2) Children – 28 & 30 years old• (1) Grandchild – 2 years old
Retirement Budget
Housing Costs
Mortgage / Rent
Real Estate Taxes
Maintenance & Repair
Home Insurance
Retirement Budget - @ age 65
• Non-discretionary expenses: $5,000/month (mortgage, bills, food)
• Discretionary expenses: $1,000/month (vacations)• Pension @65 of $2,000/month• Social Security @65 of $2,500/ month
Personal Balance Sheet
• $500,000 qualified plan
• +70,000 in additional (saved from 60-65) = $570,000
• $250,000 NQ assets
• + $30,000 saved (saved from 60-65) = $280,000
• $500k Term Insurance (5 years left), no plan for LTC
• $200,000 Vacation home Mortgage (Florida)
• $20,000 Auto loans
Assumptions• 4% IRR on investments, 3% inflation, 30% income tax rate• Plan to retire in 5 years
A Thought on Reducing Expenses…
• Much more financially powerful than increasing income because the expense reduction (savings) double effect:
• Increases savings each month• Permanently decreases the amount you’ll
need each month for the rest of your life.
Michael and Mary: Goals
• Inflation-protected lifetime income• Keep remaining assets safe• Travel• Help with grandkids’ College• Protect against LTC costs• Leave a legacy for their kids & grandkids
A Snap Shot @Age 65
Income-$5,000 Expenses
-$1,000 Discretionary Expenses.
$2,500 Pension
$2,500 S. Security
$1,000 Income Gap
Assets
$80,000 Cash
$200,000 NQ
$570,000 Q Plan
No LTC Plan
Legacy
$500k Term Life Insurance
Beneficiaries & Charities
Help Grandkids with College
Retirement Income
• Use a deferred annuity with a guaranteed joint lifetime
withdrawal benefit.
• Client retains control of account value
• Guaranteed withdrawals for life
• Withdrawals can be started when the client wants
• Longer deferral = larger guaranteed w/d!
• Annual fee ranges between 0.65% - 1.25%
Three Lifetime Income “Buckets”
Age 65
$240,000Qualified Funds
Monthly after-tax Income $1,116
Annual Income $13,400
Age 70
$80,000Qualified Funds
Monthly after-tax Income $500
Annual Income $6,000
Age 75
$87,000NQ Funds
Monthly after-tax Income $1,000
Annual Income $12,000
Annuities Create a “Personal Pension”
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 900
6,000
12,000
18,000
24,000
30,000
36,000
Income yrs 15+Income yrs 10+Income yrs 5+
Earning 3% every Year
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 950
50000
100000
150000
200000
250000
300000
350000
400000
450000
AssetIncome
Earning 4% Every Year
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 950
50000
100000
150000
200000
250000
300000
350000
400000
450000
AssetIncome
Pension & Social Security Income
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 900
1200024000360004800060000720008400096000
108000120000132000
Social Security
Pension
Fill the Income “Gap”
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 260
20000
40000
60000
80000
100000
120000
140000
160000
180000Total Income Income Needed
Income Strategy Recap
• Client has $850,000 in assets• Used $407,000 to create $823,400 of after-tax
guaranteed income over 30 years• $443,000 remains for Liquidity, LTC, Legacy
planning
Asset Protection – LTC “Linked Benefit”
• LTC protection goals• Legacy benefits if LTC not needed• Transfers risk of LTC “Health Event” to
Insurance Company• Not an Expense, an “Asset Reposition”• Once policy on each spouse
$200,000 LTC solution
$5,000 per month in LTC benefits
6 year min. benefit period
Zero day elimination
100% Liquidity (return of Premium)
Death benefit = $120k
Linked Benefit GraphicOther
Life insurance tocreate a legacy
Portion of savings
Cashsavings
Investments &retirement income
$75,000Premium
$360,000Income tax-free long-termcare reimbursements$120,000
Income tax-free deathbenefit for beneficiaries
$75,000Money back guarantee
OR OR
LTC “Linked Benefit” Recap
$443,000 remains after retirement income funding
Use $150,000 of Qualified assets($110,000 after taxes)
Use $50,000 of NQ assets
Net After taxes = $160,000
$243,000 Remains after LTC Funding
….Or buy a UL policy w/ LTC rider
• Buy (2) $250,000 Death Benefit UL Policies
• LTC Rider or Chronic Illness Rider
• 100% of DB available for LTC needs, tax free
• Guaranteed Lifetime DB
• Fully Underwritten, More DB than Linked
• Guaranteed DB = Max LTC Benefit
…UL with LTC/CI rider
$5,000 per month in LTC benefits
50 Month Benefit Period
90 day elimination period
Return of Premium… available with some Carriers
Death benefit = $250,000LTC benefit = $250,000
20 Pay Mary $5,000
Michael $5,700Total = $10,700 Single Pay
Mary $68,000Michael $78,000Total = $146,000
$146k funding a Life Pay vs. 20 Pay (4% IRR)
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900
20000
40000
60000
80000
100000
120000
140000
160000
Life Pay20 Pay
Affect on Assets of buying Life Insurance
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900
100000
200000
300000
400000
500000
600000
700000
800000
Life PaySingle Pay20 Pay
Single Pay v. 20 Pay v. Life Pay (4% IRR on Assets )
Single Pay v. 20 Pay v. Life Pay (3% IRR on Assets )
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900
100000
200000
300000
400000
500000
600000
700000
800000
Life PaySingle Pay20 Pay
Affect on Assets of buying Life Insurance
Results of UL with LTC Rider
$443,000 remains after retirement income funding
Use $130,000 of Qualified assets($100,000 after taxes)
Use $46,000 of NQ assets
Net After taxes = $146,000
$267,000 Remains after UL with LTC Rider
Legacy Planning – “IRA Max”
• Client have spent Ability to Access Cash Value in 15 years
• Asset Maximization for beneficiaries/charities.
• Can liquidate cash value if needs change
• Survivorship UL (SUL) policy for $300,000
• Annual Cost = $3,500
• Use NQ $ until RMD age (70.5) then use Qualified RMD’s
Legacy - Add a Survivorship UL
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900
100000200000300000400000500000600000700000800000900000
1000000
$300k SULAssets @ 4%
Total Legacy - Add a Survivorship UL
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900
200000
400000
600000
800000
1000000
1200000
1400000
1600000
$300k SUL $250k UL2 $250k UL
Assets @ 4%
Results of our Three Strategies
Income$1,000 after-tax
monthly Income Gap
Need for inflation protection
Purchase 3 Annuities
Total of $347,000
Income funded for both lives
Assets$50,000 Cash $200,000
NQ$500,000 Q Plan
Purchase linked benefit solutions for $200,000
Or 2 UL polices for $180,000
$5,000 per monthLTC Expenses Covered
Legacy$500k Term Life
InsuranceCan look at conversion
Added $300,000 SULAnd Either $240k or
$500k
Plenty of Assets remain to Help with Grandkids College
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