Planner Talk

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tenthtee's picture
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Joined: 2006-11-16

Phrases, concepts, ideas, funnels that communicate your value and services. Example: I help my clients develop streams of income for retirement.I can't tell the future, so let's diversify your money into three areas: taxable, tax exempt, tax deferred. Putting about a third of your portfolio into an annuity, we can pick up certain guarantees. I can't use the word guarantee with any other product, except CDs. What's important to you, what makes you happy? ( Being outdoors, fly fishing) So, in a relative sense, we need to cut through the clutter ( this close ended fund, owning gold, chasing that ETF or managed fund)  and diversify your assets, so we can fund your desire to spend your time fly fishing out in nature, with a reasonable amount of certainty.  

David, RR editor's picture
Joined: 2010-01-17

We're doing a special on retirement. I feel like we have done so much on it, i am looking for some fresh ideas. Let's see we've done a few on the very real problem of relying on Social Security. That will be bankrupt soon enough. And we've so too are state and local governments also on the brink and public employees, who get generous promises in their pension plans, how do you counsel them? Is retirement now one of the biggest unknowns in financial planning?

David, RR editor's picture
Joined: 2010-01-17

We're doing a special on retirement. I feel like we have done so much on it, i am looking for some fresh ideas. Let's see we've done a few on the very real problem of relying on Social Security. That will be bankrupt soon enough. And we've so too are state and local governments also on the brink and public employees, who get generous promises in their pension plans, how do you counsel them? Is retirement now one of the biggest unknowns in financial planning?

tenthtee's picture
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Joined: 2006-11-16

Absolutely. How I counsel them - in some ways, when you hire a financial planner, you buy a ticket into Disneyland. Walt said, folks want to forget the outside world. Folks want to delegate the worry about running out of money. People are looking for solutions, not products. The key is to be a time diversifier for your clients. Risk protection buys time until you can earn enough money or educates your kids if you die early. Money should be diversified into taxable, tax exempt and tax deferred accounts. Most people have too much in one area, yet the tax future is uncertain and you need to be able to control your taxes a little in the future. That's my job, to help. Social Security is not going away - in  your case, it may well be taxed away. What makes you happy? Are you waiting for money, or are there things you can do to have balance in your life now. You are obscessed with the fees on managed funds or ETFs, but you have not insured yourself against the downside risks. Your group life insurance will die like lightening bugs in a jar if you choose to leave your job or are fired. How does your life insurance plan relate to your other investments?Your readers are faced with the biggest problem you face: trying to get focused on good information and take action is like trying to drink from  a fire hose. I would do an article on how planners get renewed, focus, excited about the biz again, in terms of some of the new b/d products out there (VUL, variable annuities). RR stuff. Open your mind and get convicted about helping people dig out from this train wreck. Maybe you already did the article. I have a stack of journals a foot high next to my desk, and have been transfixed by the train wreck, even knowing it is time for action.  

JumpMan's picture
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Joined: 2010-06-08

Until someone allows you to contribute to a "buy in" private pension plan retirement planning will continue to be a huge unknown. I'm not talking about that crap that Hartford offers - a real deal pension plan. I tell my clients under 55 to act as if SS will not be there for them.  They need to make sacrafices now and save more. If I'm wrong, good for them.  If I'm right, buy me a steak.  I refuse to work with people that refuse to prepare.  

tenthtee's picture
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Joined: 2006-11-16

Jump could school us all on annuities (please). Mr. Editor, here's a PM response I wrote to a question from a newby about considerations on not overfunding a 401k (sure, pick  up the match). Obviously, I missed the really important stuff or got some things wrong while I was writing and watching football on TV, I hope others will point some things out- if I had to transform this web site and your magazine, I would turn it into a simple teaching site that stays positive on all of the options ( RR or RIA) and products, and draws in newbies, the general public, experienced advisors, everyone is hungry for the basic stuff and having their own view point validated by sharing in a meaningful way. If you get some wacko Boglehead ( I love Bogle) you just hit "delete", but like newspapers, as you know, the action is online. I share this in hopes others would share specific concepts or teaching or closing phrases that might be useful:A few thoughts:Any actions have to be driven by goals, age, investment risk tolerance, attitudes, so all I can do is throw out some very general thoughts. Age 55 plus, see if he can do an inservice distribution from 401k to IRA. Then, you have to consider Roth conversion, as well as potential for that on existing IRAs. Generally, I would start the discussion by talking about time diversification. At retirement, you want to end up with money in three areas: taxable, tax exempt, and tax deferred. I can't tell the future, so I am in the biz of helping clients diversify for an uncertain future. Will you be in a higher or lower tax rate at retirement?Having too much money in your 401k or IRA at r retirement leaves you more vulnerable to taxes - at retirement, we need to combine income streams from the three areas above, to help control your tax bracket at retirement. Take a close look at his group benefits. What are his life insurance needs? Is he relying on group term insurance to provide for a family - or will he have dependents in the future. Group term life insurance is cheap, but it is like lightnening bugs in a jar - it dies when you leave your job. Same with group disability insurance. Does he earn a bonus? Group disability insurance usually does not cover the bonus. It is not portable when you leave your job. Your ability to earn an income is your most important asset, so get some coverage on it while you have income that can be underwritten into a policy. Permanent life insurance VUL) should generally be "max funded". Even a small policy ($225,000) would be a good supplement. If it is loaded with cash, you are only buying the difference between the cash value and the face value, so in later years, you have mostly cash growing tax deferrred and the "loan" option offers the potential to receive a tax free pension in your retirement - one of the alterative streams of income. Some of the new annuities are good, I don't know how old your friend is or what other investments he has. Tax exempt bonds could be a good, aggressive cash reserve. Permanent life insurance (UL, not VUL) could be used as an aggressive cash reserve, just using a fixed account. With regard to not max funding the 401k, sure, take the matching, and then try to fill up the taxable and tax exempt buckets a little, maybe plan to have 1/3 in each time diversifier at retirement. You have to look at other goals ( second home, college, trips) and do basic planning for these, obviously the annuity or life insurance are going to cause liquidity issues.   

loneMADman's picture
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Joined: 2010-05-10

Tenth, most of your recommendations look really good, but can you tell me what calculus you arrive at to be such a big fan of permanent life insurance?  It seems to me and most independent financial planners that the superior bet is to pocket the savings between term and whole life insurance and invest it in a diversified stock and bond portfolio that earns superior returns at lower fees.  Yes that term policy will become "too expensive" at some future date, but by then you would have grown your portfolio substantially enough to make life insurance obsolete.  I really struggle to find the scenario where permanent life insurance is better than the alternatives for anyone but the insurance company.But you are a smart guy and if anyone can find it for me, you can. 

tenthtee's picture
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Joined: 2006-11-16

Ha ha Madman, me an analytical fool. I bought a VUL about fifteen years ago, when I first got in -wanted to walk the talk. Spent the next decadge hating it, and looking over blown out, underfunded policies inherited from other planners. I don't believe the internal rate of return stuff works on VULs unless they are max funded. Beyond that, I was sitting in training last week where they were showing me max fund with internal rate of return of six something percent, with a level market return of 8% and retirement income withdrawals of fifty k each year in twenty years. Give me a break. Here is what I do believe: whether you use VUL or UL, your insurance need is not likely to last precisely twenty or thirty years. The fixed account in a UL could pay an attractive rate of return compared to CDs, and the earnings would compound tax deferred. The policy would be protected from creditors. The life insurance need could be tailored to your needs by reducing the death benefit in later years, blah, bah, all of the usual reasons. I've been pumping cash into my policy these days, seems like a nice place to stash some. Finally walking the walk and talking the talk. Our job is to give people choices, educate, inform, let them choose. Letting the media blow us off as (fully licensed and yes commissioned planners) is ridiculous. I feel like I have found the dynamic, leading edge of the profession, again. It is being a real planner, having conviction in your strategies, giving clients choices and peace of mind and not just peddling ETFs or no load funds. For UL or annuities, you need to find the money. Then the money finds you. Then you can afford to be a social worker for the other stuff. The people who hate UL or annuites usually don't have much money, or are very rich. These products, like long term care, in my estimation, are for the mass affluent ( $250,000 - 2m).

Sportsfreakbob's picture
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Joined: 2008-08-24

David, RR editor wrote:We're doing a special on retirement. I feel like we have done so much on it, i am looking for some fresh ideas. Let's see we've done a few on the very real problem of relying on Social Security. That will be bankrupt soon enough. And we've so too are state and local governments also on the brink and public employees, who get generous promises in their pension plans, how do you counsel them? Is retirement now one of the biggest unknowns in financial planning?David,What about a story on the Bucket Strategy? It hasn't gotten a lot of publicity, and I don't use it so I couldn't help, but I could give you a name of someone to talk to if it interests you, PM me.I have no agenda, and no financial interest in what this person does, but I have spoken with him and explored using his product. Decided against it only because it doesnt fit my investment strategy.

loneMADman's picture
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Joined: 2010-05-10

Hi Tenth, I appreciate the insights.  As a non-commissioned RIA, I would be inclined to refute all of your points, except the one about it being our job to educate and give clients options.  But if I thought the insurance products could be dismissed out of hand, I wouldn't have asked the question.  I definitely agree with you that these products are targeted at individuals who have just about enough to retire comfortably and are naturally biased towards wealth preservation at the expense of modest growth.  If you have too little, you need more growth than these options can offer.  If you are loaded, there's no sense in paying for the insurance you don't need.  But the mass affluent is the prime market for most of us, so as an RIA, my job is to find alternatives for them that address their needs.  I will point them towards an insurance product where that's in their best interest, and hope to benefit from a future referral, but I'd rather a win-win that's puts them in securities where I can get paid.  Luckily, I think there are plenty of those.  I just can't convince every client of that and, frankly, it would be wrong of me to try (too hard).

David, RR editor's picture
Joined: 2010-01-17

Here is a fun fact to know and tell, pulled from Rydex/SGI Advisor Benchmarking research: Fewer RIAs offered retirement planning in 2009: it was down to 77% from 83% in 2008. AdvisorBenchmarking speculates that is because advisors don’t feel knowledgeable about it: 34% of responding advisors said they need to improve their knowledge of retirement related issues. Am looking for feedback on this. What is so complicated, tricky about retirement planning? What should we editors here focus on when doing retirement stories? What would you like us to write about? Would be grateful for feedback. Thanks.

iliketennis's picture
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Joined: 2010-08-30

Tenth, Would you use Whole Life to hedge against risk in a client portfolio ever?

B24's picture
B24
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Joined: 2008-07-08

Couple things:1. Most larger RIA's are focused on asset management, not the planning side.  And more and more brokers are taking their investment strategies and setting up SMA's or private wealth management firms.2. I think it's a mistake to tell people not to expect Social Security.  It's and invalid argument.  The Trust has over $2T of Treasuries in it currently.  By 2041, the Fund will be exhausted, but will still be able to pay 75% of it's obligations from then-current receipts.  Now, that's assuming Congress does NOTHING between now and then.  So, at worst, people collecting in the 2040's and beyond should expect 75% of their entitled benefit.  Most likely, between now and then, (1) the retirement age will rise slightly, (2) the SS tax will rise slightly, and (3) benefits will drop slightly.  These three components pieced together will keep the liabilities funded (even if the Trust is exhausted).  Now, the bigger issue will be how the Treasury expects to make good on those $2T of Treasuries that are being redeemed between now and 2041.  You think we have problems now.....

B24's picture
B24
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Joined: 2008-07-08

Hey David, one other thing.  Can you PLEASE get the Moderator(s) to do their jobs on this board.  There has been so much spamming lately it's getting ridiculous.

BigFirepower's picture
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Joined: 2010-07-09

David, RR editor wrote:Here is a fun fact to know and tell, pulled from Rydex/SGI Advisor Benchmarking research: Fewer RIAs offered retirement planning in 2009: it was down to 77% from 83% in 2008. AdvisorBenchmarking speculates that is because advisors don’t feel knowledgeable about it: 34% of responding advisors said they need to improve their knowledge of retirement related issues. Am looking for feedback on this. What is so complicated, tricky about retirement planning? What should we editors here focus on when doing retirement stories? What would you like us to write about? Would be grateful for feedback. Thanks.  David, great question. Oh man, where would one start in answering that question!??....

David, RR editor's picture
Joined: 2010-01-17

B24 wrote:Hey David, one other thing.  Can you PLEASE get the Moderator(s) to do their jobs on this board.  There has been so much spamming lately it's getting ridiculous.I'll get someone on it. If you have any insight into who might be doing it, why I'd appreciate it. You can call me or message me. thanks.

JumpMan's picture
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Joined: 2010-06-08

Point is B24, while I know SS will be there in some form or fashion I have no idea how it will look.  I refuse to build someone into the plan that is an absolute unknown.  Better to save more now and scale back later.. IMO. David,  retirement planning is all I talk about with 75% of my clients.  Accumlation is the easy part ... distribution is where it currently gets tough.  I think some good distribution strategies would go a long way to help many FAs. The lack of clarity around SS and taxes is another issue. Toss in LTCi and estate planning and this stuff get's pretty deep.

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