Charlie Gipple, CFP, CLU, ChFC

For all of us in financial services and those that plan on being around for the next several years, there are great reasons to be excited. I believe there will be more millionaires created in our industry over the next couple of decades than ever before. This is because of the supply and demand dynamics that will be taking place. There will be higher demand for our services while, at the same time, there will likely be lower supply of your competitors. Allow me to explain.

First, let’s discuss demand. Without boring you with a ton of the statistics that we all have heard numerous times, I think it is obvious that the demand for our services will continue to skyrocket. Over the next 10 years the entire Baby Boomer cohort—who own over 50 percent of the wealth in our country—would have reached retirement age. For purposes of this article, I will define retirement age as age 65.

Some of you have heard of “the pig through the python” when it comes to the wealth approaching retirement age. I like the analogy of “the pig through the python” because it is a great visual representation of the massive amount of baby boomer wealth working its way through the system. I don’t want to get too graphic in discussing a python’s digestive tract, but my drawing depicts a pig that had been eaten by a snake decades ago. That pig that is now in the python represents the massive amount of wealth owned by the baby boomer cohort that is now “digesting” its way to age 65. The entire pig is going to be fully digested over the next 10 years, with the youngest baby boomer hitting age 65 in the year 2029.

Clearly what this “pig in the python” means is a continued increase in demand. This means that baby boomers will need their retirement plan set up very soon, if they have not done so already. Furthermore, the baby-boomer opportunity is not over once the entire pig passes retirement age. This is because the later phase of their retirement will potentially present “long term care events” that also need to be planned for, if it has not been done already. Lastly, after the pig passes the retirement age and the long term care ages, the cycle is still not complete. The final part will represent the passing of that wealth to the next generation—estate planning.

What I just explained was the three-legged stool of planning opportunities that will only increase over the coming years: 1. Retirement planning. 2. Long term care planning. 3. Estate planning. If you do not represent all of these three opportunities, I would encourage you to take a more holistic approach, because the “pig in the python” needs your services.

What about my reference to the “supply” of your competitors? Although exact statistics are hard to come by, it is no secret that the average age of the independent insurance agency owner is somewhere between 58 and 61. Meaning, they are a part of the pig in the python that will be retiring over the next decade as well. This void in supply is what our industry really needs to figure out quickly because the agent attrition is already happening. However, this void will leave great opportunities for those of you that continue to stick around.

In short, there is a huge tidal wave of money that is coming the direction of you and your competitors right now. But many of your competitors are not going to be around in 10 years, leaving you to fill this void in supply.

My thoughts on how financial professionals can address the Pig through the Python:

1) Be holistic: particularly in the three areas that I previously mentioned. If you choose not to master any one of those areas mentioned, partner with somebody that can assist in that area

2) Be a student of the business: As Daniel Pink says, it used to be “buyer beware” but now it is “seller beware.“ Meaning, if you give a potential buyer a couple hours of web access, they can learn more about a particular product or solution than what many agents knew 30 years ago. If you are not as savvy with retirement planning, long term care planning and estate planning as the client is—beware. Read a lot, join webinars, subscribe to top publications like Broker World, and partner with the right GAs or IMOs that will allow you to be a “student.”

3) Educate and they will come: I often tell the story about when I was straight out of college (over 20 years ago) and went to work with a big career agency. The sales training that we received at the time was what I would consider slightly abrasive to the consumers. The theme of the training was something like this: “You should get the prospect uncomfortable, close them in one meeting with a powerful assumptive closing statement, wait for them to respond, and then the first one to respond loses.” And by the way, many times those “prospects” were your friends or family that they effectively forced you to contact as soon as you joined them.

My point is—related to my second point—times have changed and these tactics do not work (if they ever did). Frankly, I never followed those tactics to begin with.
Unfortunately many consumers today have biases against what we do and will immediately react negatively if you take the “hard-close” approach. Consumers today choose to be educated versus being hard closed. And turning a prospect into a client is a longer process than it once was.

How do you educate? First off, you be a student of the business as I suggest in #2. But you also need to leverage technology to drip the education to your consumers so that you are the one providing them with the best information versus Google. They will buy eventually if you do this effectively.

Tools for this “drip” educational process are:

• Your website. Have a Blog where you post educational content.
• Create an email distribution list of prospects that sign up for your blogpost emails. I like Constant Contact and MailChimp for email providers.
• Facebook Business Page: This is free! Add your comments to it every week. You will find that your personal “friends” on Facebook will gradually subscribe to your Business Facebook page, without you ever “soliciting” them. Free marketing…
• Email timely articles to your existing prospects with your summary of why you liked that article and why it made you think of sending that article to them.
• Do Virtual Seminars. This is one of the few positive things that the COVID crisis left us with. Consumers are willing to join “virtual seminars” more than they used to.

4) If you are independent, market the advantages: I have observed that many agencies that are independent do not market the “independence” enough to their consumers. Rather, some financial professionals view the lack of a big brand behind them as being a detriment. I beg to differ, and here is an example:

I ran a term quote on me—a 43-year-old healthy male—needing $1 million. The difference between the lowest priced term policy and the highest priced term policy on my list of carriers is about 80 percent. Meaning, the most expensive product is 80 percent higher in price than the cheapest. Imagine if I was tied to only one company and that one company was the most expensive?

Although “cost is an issue only in the absence of value,” my simple example does demonstrate the capabilities that independent agents have when it comes to helping their clients. Choice is freedom, and you should market that freedom.

5) You can be independent but don’t be alone: If the educational content and the ability to do everything that I mention above are something that seems intimidating to you, partner with the right people! This is where a good IMO comes into play and will make all of the above (education, tools, technology, marketing, etc.) a simple process. Afterall, this is what IMOs do…

6) Last! It was the legendary insurance professional—John Savage—that said, “One of the secrets to life insurance success is to last.” Sounds simple, huh? To merely last? That sounds very superficial, but I believe it is true and I believe that if you can “last” throughout your first couple of years, things really start to happen.

If you are just entering this business, know that the first couple of years is indeed tough. However, I believe there is something special about the 18 months to two-year mark. I believe there a few things that happen around that point:

• I believe that there is something psychological in our prospects’ minds that triggers after you have been in the business for around 18 months to two years. A lot like how in marketing they say that it takes seven views of an ad before a consumer acts, I believe that the magical point where you become more credible to consumers is 18 months to two years in. Of course, all of this depends on your particular skill set and assumes that you are doing the right things.
• This is a point where you have learned a lot from your mistakes and are finding that you are getting more effective at many things: Time management, prospecting, speaking, connecting, networking, product, etc.
• This is also point where your educational and marketing efforts that I previously mentioned (in #3) are starting to bear fruit.

I have heard it over and over again, “Man, after around the two-year mark I really started to make some money in this business.” Last!

A while back, as I was preparing to go to the gym, I made myself a protein shake. For whatever reason I actually read the label on the protein jar. The label had some guy that was jacked and tan as well as a lot of technical, chemical, and biological language that made it sound like I would turn into Arnold Schwarzenegger if I took this protein. One sentence in particular that stood out to me—as a marketer—was a sentence that explained what the protein powder was. It said that the protein powder was “A pre-workout energy and post workout recovery system.“ I thought to myself, “Wow, and for a second I thought I was just drinking protein powder mixed with milk.” That is marketing my friends! And our industry revolves around marketing.

Another example would be BMW. Instead of BMW saying, “We make good cars,“ their slogan is that they make “The ultimate driving machine.“

Now I am not suggesting putting lipstick on a pig, but rather I am suggesting giving credit where credit is due. Because, after-all, you must live up to your marketing message!

Like the old saying, “When you live inside the jar, it is hard to read the label on the outside of the jar.“ Many of us have lived in the financial services jar for decades and as a result we “normalize our excellence.“ We normalize our excellence just like how pro golfers probably can’t understand how hard it is for “normal people” to drive a golf ball straight.

Now, “normalizing our excellence” may sound like a bold and arrogant statement but I promise you, if you are reading this article, you more than likely are excellent at financial services relative to who your prospects and clients are—the public. Are you marketing your excellence adequately?

When you normalize your excellence you take for granted what it is that you know and the wonderful things that you do automatically.

So, the purpose of this article is to get you to reflect on exactly what it is that you do when you assist your clients in achieving financial security. Then, the goal should be for you to market that process. When you have a process, and that process has a name, and the process is clearly explained, you then differentiate yourselves from your competitors. And that is what you want—differentiation. Nothing is worse than just blending in…

Let me give you an example as a microcosm of my point. As a marketing organization, one of several things that my company does is we help agents/reps with case design. And because of the experience that I have been privileged to acquire over 23 years, my company’s case design process and knowledge is unique. My process—that I do automatically—is actually a substantial, detailed, and methodical process that I have when I help an agent with case design.

Now, If I just put in a brochure that CG financial group “helps agents with case design,“ does that have any appeal to it at all? No, it normalizes my company’s excellence and it blends in with every other entity that markets case design. That would be like my protein jar merely saying “Protein Powder.“

So recently I have reflected on exactly what it is that I do automatically when I get scores of phone calls per day to help agents/reps with cases. I have created sales material, videos, and brochures that communicate this message. I would suggest that you consider doing the same thing, whether you are a general agency, a marketing organization, a registered rep, or an insurance agent.

Here is my example that is effectively a “cut and paste” from some of our advertising. The purpose of the below is to get your wheels turning with your business and a different way of thinking about how you market:

The CG Financial Group 6-Step Case Design Process: This is a process that includes analyzing—using technology, quantitative analysis, and qualitative analysis—the products and solutions of around 80 different life, annuity, and long term care companies depending on the problems the client and advisor are wishing to address.

The implementation of CG Financial Group’s 6-Step Case Design Process usually begins with a simple statement from the advisor. That statement is, “I have a client who…”
Those Six Steps:

1. Exploratory conversation and assessment. This is where the advisor and CG Financial group discuss the financial situation of the consumer and what the problem is that needs to be addressed. This will lead to a preliminary conversation around potential solutions and to get a pulse from the advisor on those potential solutions.
2. Quantitative Solutions Screening Process. The numbers! This is where technology comes into play. Whether it is term pricing, GLWB payouts, long term care pricing, etc., the cost per dollar of benefit is always a factor. Using technological tools can take hundreds of financial products and narrow down the field to those products/solutions that are the most “cost effective” in the industry.
3. Qualitative Solutions Screening Process. Cost is an issue only in the absence of value! Although the quantitative analysis in #2 is important, this is where we identify if there is additional value by looking at some of those products/solutions that are not necessarily “the cheapest.” This is where experience and knowledge come in! For example, a term policy may be “the cheapest” but does it have living benefits? If there is a term policy with living benefits that we found and is only a dollar per month more expensive than “the cheapest,” we may want to go the living benefits route. This is where experience and “qualitative analysis” comes into play.
4. Plan and Solution Formulation. This packages everything together. This is where everything that was learned through the Exploratory Conversation, the Quantitative Analysis, and the Qualitative Analysis culminates into the formulation of the plan that will then be presented to the financial professional.
5. Proposal of Plan Session. This is usually a phone call or a Zoom call with the Advisor where the Plan/Solution is presented. Furthermore, this is where product descriptions, sales ideas, and proposed sales language is presented to the advisor so that they can communicate it to the client. Many times there are videos that are sent to the advisor laying out the sales ideas as well. We have over 400 sales idea videos already created in our private YouTube channel. Lastly, the willingness to join meetings between the advisors and the clients to propose the plan directly to the client.
6. Documentation Delivery. This is delivering the supporting sales material and documents to the advisor for the case to be written. Many times there is carrier mandated “product training” that accompanies this email as well. Whether the advisor wants paper apps or eapps, this email provides him/her with the preferred avenue for writing the app.

I think you would agree that the above is much more than “We help with case design.” Think about the process you go through with your clients and create something similar. If you want my opinion, email me your creation and I will give you my quick consultation.

At 43 years old I am no longer a young puppy. I remember being a 20-something in the business wishing that I could be older because I would then have more experience and credibility. Naturally, somebody who is 20-something in this business is dealing with people that are multiples the age of him or her. Well folks, be careful what you ask for because the time comes quickly.

Do not wish away time. Which is a topic for another column.

Anyway, as we get older and more mature, we tend to reflect on things that we didn’t slow down to do when we were in our 20s. Recently I have had a couple opportunities to reflect in a similar manner that probably many of you readers have done. My “reflections“ have been about “I wish I were a little smarter with my body when I was younger.“ That may sound odd because those that know me know that I do try to take care of myself. I work out, I read a lot, and I am usually the first one to bed at night while others shut down the bar. So, what am I referring to?

Allow me to explain. Back in January I had a major colon surgery because I have been dealing with diverticulitis for about 10 years—since I was 33. Why would a 33-year-old get diverticulitis? Nobody knows for sure, but it likely has to do with the strain of going too hard with athletics, lifting weights when younger, along with all the other stress I put on my body by—paradoxically—wanting to better myself.

Like the herniated discs in my back. My wife says that when I put my mind to something, there is no moderation involved. She is right.

Finally, late last year, I got sick of dealing with the diverticulitis so I agreed to surgery. The surgery went great, and I was basically told to sit on the couch for eight weeks to recover. For those of you that are physically active, you probably have not sat on the couch for an eight-week period of time for decades. That was me. And I did exactly that! I followed the doctor‘s orders perfectly.

After the eight weeks of rest, I felt better than I have in a decade as the surgery worked! So, I got back into working out with my 14-year-old future basketball star son (proud dad). After about a month, we were going pretty hard again. Well, that led to a hernia! Although a hernia surgery is not a big deal anymore, it was still very disappointing because that meant another surgery, another x weeks out, another scar! Two steps forward and one step back.

As I was talking with my doctor to plan the hernia surgery and recovery time, I said “I wish I had not been so stupid with my body when I was younger.“ Again, this is something that many of you may ponder from time to time. Here was my doctor’s response which I thought was pretty profound. She said, “But your scars are what make you who you are. You would not be who you are today if you did not have those scars.“

That statement has never been truer. As I think about it, almost all my scars have come from driving forward and wanting to better myself and better those around me. Now, granted, I have a few scars from just doing stupid stuff that I never should have done, but a majority of my “scars“ are from trying to get better as a human being. My dad, who died at a young age of 62, had a ton of “scars,” primarily because of him working hard with construction to support his family. He often said “If I knew I was going to live this long, I would’ve taken better care of myself.“ Well, at the same time, he had a reputation in our small town as being one of the hardest working people that anybody had ever met. He made a great living as well. Without his hard work ethic, his scars would’ve never come. Or maybe, without his scars, his tough work ethic would have never come. Chicken or the egg?

Your scars define you many times. Of course, I am not just referring to the “scars” in the literal sense. I am referring to the process of getting those scars.

Now I am not suggesting that you don’t take protective measures like wearing a weight belt (as I do), wearing a seatbelt, managing your stress, etc… Like anything, it’s a matter of magnitude. Said differently, we could all go through life without one scar by being couch potatoes, but is that what we want? You face bigger risks in life by being a couch potato than the risk of a “hernia” (figuratively and literally).

What about stress and anxiety? Seeing life insurance medical information on a daily basis, I know that a significant number of people have stress and anxiety as a “scar.” Those people that are stressed and anxious are oftentimes exceptionally good at their jobs. We read about actors and singers in the media that seem flawless with huge talent, yet they deal with stress, anxiety and depression. I would argue that many times those “scars” are a result of them actually giving a damn about what they do! I would argue that maybe that stress is a requirement for them to be good at what they do.

My son complains about stress and “butterflies” before his basketball games. It’s because he cares! If he did not care, he wouldn’t have those side effects. Before I give a big speech to an audience, I experience the same “side effect” and I love it!

I don’t know if it is the chicken or the egg. As in, because of the scars that we have, we get stronger and therefore become who we are. Or, conversely, because of being who we are and pushing ahead (maybe too hard at times) we will get scars.

It doesn’t matter to me if it is the chicken or the egg, or both. All that I know is, sometimes you must accept the scars as the entry fee for being who you are. If you would take who you are along with your scars over being a couch potato without any scars, then listen to my experience. Because my experience, and the conversation with my doctor, makes my scars something that I can be proud of. Embrace your scars. But do not be stupid and go out looking for more scars. If you do, buy life insurance first.

If you get shivers down your spine in excitement like I do when you think of things like CVAT, GPT, Modified Endowment Contracts, and Section 7702, then I hope you are sitting down. If you are an insurance agent that sells (or wants to sell) accumulation focused policies like IUL and whole life (short pay or PUAs), then this article is for you.

The roughly 5,500 page, $2.3 trillion “Consolidated Appropriations Act of 2021” that was signed into law on December 27 had much more in it than $600 stimulus checks to say the least. From $600 stimulus checks for Americans to $15 million for “Democracy Programs” in Pakistan, the law has a lot of stuff in it that many of us will never know.

One area that you would be interested in is revisions to Section 7702 of the Internal Revenue Code. If you have been in the insurance business for some time, you are familiar with what this section does. Quite simply, Section 7702 was established in 1985 and defines the wonderful tax advantages of life insurance and, just as importantly, the rules that life insurance policies must follow to retain those tax benefits. These rules largely consist of limitations on how much money one could put into a life insurance policy relative to the death benefit. (By the way, anytime I have been told by the IRS that I cannot do something or can only do so much of something, it is probably a great thing to do!)

To forego the suspense, I will do this article a bit backwards and give you the punchline before going into the details. In short, effective January 1, 2021, policies can be funded at higher levels than before, depending on the client’s age. In some cases we are talking about seven-pay levels that are over two times higher, per dollar of death benefit, than before. So when you think of maximizing your IUL for cash accumulation and/or putting “paid up additions” on the whole life policy, this is great! However, don’t get too excited just yet because the carrier implementation process needs to happen.

Let us get into the details.

Back in the 1980s, right after the first universal life insurance policy was created (1979) by EF Hutton, one could cram a lot of cash into a life insurance policy. So much that it became obvious to Congress that the consumers were not using it as life insurance, but rather as an “investment.” Consider an exaggerated scenario of someone putting a $100,000 premium into a life insurance policy with a $100,000 death benefit. Clearly that hypothetical consumer is not concerned about the death benefit leverage, they are concerned with accumulating as much cash as possible while ultimately being able to take out that cash—plus interest—that is 100 percent tax free. Furthermore, that person would not be paying “cost of insurance charges” that should be the cover charge to enter the nightclub (remember those things?) of tax-free life insurance benefits.

What do I mean in my last sentence by “not paying COI charges”? Well, if there is no “Net Amount at Risk” in a life policy, then there are no COI charges. Check out my training diagram (Diagram 1) that demonstrates what COI Charges are based on. This diagram is from www.retirement-academy.com.

What are the “cost of insurance charges” based on? They are based on not the death benefit, but the “Net Amount at Risk,” contrary to what many smart insurance folks may know.

In Diagram 1, think of how efficient of a tax-free “investment” a life insurance policy would be if you could get the Net Amount at Risk down to $0! This would be achieved by cramming a single premium in that equals the death benefit. Clearly, that scenario—although a bit of an exaggeration—was too good to last.

So, back in 1984, our friends in Congress said, “We cannot allow consumers to continue to have the wonderful life insurance tax benefits without paying the cover-charge of COI charges.” Thus, through DEFRA (Deficit Reduction Act of 1984) you had the establishment of two “tests” that defined life insurance. These tests were titled, the Cash Value Accumulation Test and Guideline Premium Test. This created Section 7702 of the Internal Revenue Code. DEFRA was the law and Section 7702 was what governed the law. Remember, Congress makes laws (DEFRA), and the IRS enforces the laws (The Internal Revenue Code Section 7702).

Even after DEFRA and the creation of these two “tests” that limited the amount of premium and cash value in the policy relative to the death benefit, consumers were still able to have “short pay” scenarios that felt too much like “investments” to Congress. So, in 1988 we saw a new section added to the internal revenue code via a new law signed by President Reagan. The new law was the “Technical and Miscellaneous Revenue Act of 1988 (TAMRA).” This new code section was Section 7702A. This created the “7-Pay Test.” If you fail the 7-Pay Test, the policy is a “Modified Endowment Contract,” which effectively takes life insurance taxation and turns it into annuity taxation.

The 7-Pay Test was a new and separate test that was layered on to the policies in addition to the CVAT Test and GPT Test. Many folks lump all these tests together as being “Modified Endowment Contract Testing.” That is false. GPT/CVAT and 7-Pay/MEC are separate sets of tests. GPT and CVAT define whether the policy is “life insurance” and the 7-Pay Test determines if the policy is a MEC.

What were the repercussions of a policy becoming a MEC? In all my training, I simplify it down to:

“Although the Modified Endowment Contract is still technically a life insurance policy, think of the taxation as almost the same as an annuity except the death benefit which is still tax-free. Last-In First-Out, pre-59.5 penalties, etc.”

Now, to discuss what changed January 1, 2021, let’s discuss the “MEC Calculation” that congress and their actuaries created in 1988.

Diagram 2 is very simplified, but it is a good visualization of the MEC calculation. Basically, Congress said that for a certain life insurance death benefit to carry to maturity, what is the level of premiums paid over seven years that would accomplish that? The resulting level of premium that the calculation generates will be the “MEC Limit” for that policy. And, if you put more into the policy than this limit, just know that you have a MEC and are taxed as such.

Now, there are some assumptions in Congress’ calculation, right? The big assumption is the interest rate assumption that the premiums get credited on. This “Insurance Interest Rate” they assumed in 1988 and still did until 2021, was four percent. By the way, ever wonder why many whole life policies have guaranteed rates of four percent? To match the MEC calculation.

Here is what happened, effective January 1, 2021. After 35 years of dropping interest rates, Congress has finally adjusted the “Insurance Interest Rate” down to two percent for 2021 and a floating rate based on benchmarks for years thereafter. This was long overdue.

What is the impact of this lower rate? The MEC limit is increased by anywhere from 10 percent for older insureds to around 200 percent for younger insureds! In other words, if a policy would have had a MEC limit before of $10,000 per year, it would not be rare for us to now see that increase to $20,000, depending on the age of the client. Of course, this would be on new policies. I do however have questions about how carriers will treat “material changes” on already existing policies, but I digress.

Check out Diagram 3 on why this new “Insurance Interest Rate” affects the MEC limit as we discussed.

The way that time value of money works is, if you are getting a lower interest rate (two percent instead of four percent) on your premiums, then there is more money needed to guarantee a later value. Remember, that “later value” that congress uses is the death benefit at “maturity.”

In Diagram 3, we overlaid the new MEC limit (blue) with the old (green). These bars are not meant to be proportionate to the changes. Rather, just a simplified visual. Clearly, at a two percent rate, there would be more premium required than the four percent rate. Thus, you have higher MEC limits now versus prior to 2021. Point of clarification: I am not saying that life insurance policies changed where you must put more money in because of the lower rate the IRS uses. I am saying that you will generally have the option to put in more premium, once the carriers enact these changes.

What is the benefit to the client of more premium going in? As discussed, compressed “Net Amount at Risk,” which means less COI charges. This was illustrated with my first diagram.

Note that although we are talking about one test (the MEC Test), the CVAT Corridor calculation and the GPT calculation are adjusting as well. I will not inflict anymore mental gymnastics by going into details on those, but they are affected in a similar fashion as the MEC calculation.

A Few Notable Impacts:

• Consumers will be able to put more money in per dollar of death benefit. Of course, there will be a transition period with carriers.
• Products in the IUL space and the whole life space will be adjusted by the carriers. I would bet that the whole life products see more drastic changes than IUL. This is not a bad thing though.
• Whole life policy reserving will become easier since the carriers will have more flexibility on the guaranteed interest rates they offer to the consumers. You may see required premiums increase and thus lower guaranteed interest rates on policies.
• Whole life dividends will become even more important than they currently are. At least relative to the “Guaranteed Columns” in the illustrations. I believe the gap between the “guaranteed columns” and the “non-guaranteed columns” will widen.
• I think there can be a negative to insurance carrier profitability as well. Carriers are getting very little profit today via “investment spreads” in this low interest rate environment. Much of their profit is coming from the COI charges in the policies. So, now that those COI charges and the “Net Amount at Risk” can compress further, it might be interesting to see what the carriers do.
• The big one that I have gotten a lot of questions on: Commissions will likely be negatively impacted. Why? Think of it this way: If a client is putting into a policy, say $10,000 per year, the minimum death benefit may be, say, 50 percent of what it would have been before. What does that lower death benefit do to your target commission? It reduces it. Or, if you are a whole life producer, what does that generally do to the proportion of “Paid Up Additions” relative to the base policy? It increases it. And you generally do not get paid the same on PUAs as you do the base policy.
• What I just discussed is on new business only. However, in the law from the 80s there is a new 7-Pay Test that happens if there is a “material change” in the policy. What does that mean for material changes going forward on already existing policies? I will let the carrier attorneys handle that one.

If you would like to see the five pages from the Consolidated Appropriations Act of 2021, you can email me at cgipple@cgfinancialgroupllc.com.

(Part 2 Of 2)

This is the second article of a two part “mini-series” on discussing “what the flow” (WTF) of an annuity conversation should be like. Afterall, based on CG Financial Group’s surveying of agents, discussing annuities with GLWB riders is an area where agents would like some further “refining.”

As discussed last month, there are five areas that financial professionals cite as areas they would like help explaining.

• Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals (example) seems paltry! Ken Fischer says he can do better!
• Only $5,724.50 in income on a $100,000 premium? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
• I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the contract value/green line (subject to surrender charges).
• Don’t these riders cost a lot? Suze Orman says they do.
• How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Objection Bullet Point #1: “Can’t A Financial Advisor Do Better?”
To jump right into bullet point #1 above, here is my belief that bears repeating: Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.

By educating consumers on these rules of thumb, you can “re-anchor” their expectations to reality and the fact that traditional withdrawal rate “rules of thumb” at retirement are anywhere from 2.3 percent to four percent, depending on which study you want to go by.

Many consumers know that the S&P 500 has gone up double digits on average for the last century and therefore overestimate what withdrawal rate they should utilize. Well, even though the S&P 500 could average 10 percent over the coming years does not mean the client will not run out of money by taking only four percent of the retirement value from their “stock and bond” portfolios! How is this possible? Because of sequence of returns risk that the “stock” portion can subject the client to and the low interest rates that the “bond” portion can subject the client to. And because of these two risks (sequence of returns and low rates), a client should not overestimate what a “financial advisor” can do as far as withdrawal rates. If you would like a graphic that helps you explain “sequence of returns risk” to your clients, email me.

Following are a few diagrams I use to help educate consumers on what their “financial advisor” might do as well as what an annuity might be able to do.

I first educate them on the old four percent withdrawal rule of thumb, (see diagram 1) even though that is being generous as the pundits are saying 2.3 percent to 2.8 percent is more like it today! I rationalize with them by drawing the diagrams on an “example” 63-year-old wanting to retire two years from now. Our 63 year-old has $100,000 in a stock and bond portfolio.

I discuss how this 63-year-old may have the expectation that her $100k grows by five percent or so per year between now and retirement in two years. Well, based on her $110,000 value at that point, what withdrawal should she take in her first year of retirement? This is where I discuss the old four percent withdrawal rule, which is contrary to popular belief. I also discuss the reasons for the withdrawal rate being only four percent. Hence, sequence of returns risk and low interest rates. But the end result of this diagram is a payment of $4,400. But that is only if her expectations Actually happen!

I then draw a second diagram (see diagram 2) that demonstrates the possibility of her expectations not coming true. As in, maybe between now and two years from now her portfolio loses 20 percent, versus gaining 10 percent that she had hoped for. This means she only gets $3,200 a year in income, a 27 percent pay cut relative to her “expectations.”

Lastly, I draw a diagram (see diagram 3) using the example GLWB rider that I showed you in last month’s column. This GLWB rider gives a “rollup rate” of seven percent per year then a payout factor of five percent at age 65. This particular rider is able to guarantee her 30 percent more income ($5,724 versus $4,400) than what she “hopes for” in her securities portfolio. No ifs, ands, or buts!

Usually, the response by the time I get done with the third diagram is, “How is that possible?” or “It seems too good to be true.” That is where I discuss longevity credits with her. (Email me for my conversation points on longevity credits.)

Objection Bullet Point #2: “Only $5,724 in income?”
We already discussed why these “rules of thumb” are so low—because of sequence of returns risk and also low interest rates—and why a guaranteed payment of $5,724 is quite attractive. However, if the client is only getting their premium back over 18 years ($100,000 divided by $5,274), they may question the worth of these riders.

This is where I discuss with them (diagram 4) that I showed you last month. Their contract value (dashed green value) is still available to them and still gains interest based off the index, although it likely will be reduced if withdrawals are taken out. Note, many consumers think annuities are just locking them into a “lifetime payment.” Obviously not so with the innovation of GLWB riders that began almost twenty years ago with VAs!

I then discuss with them that all we are doing with a GLWB rider is buying an “insurance policy” on their longevity. And that insurance policy is what gives us that additional blue “Benefit Base” line.

Objection Bullet Point #3: “Isn’t that blue line just “funny money”?
This is a good question because a carrier could just do away with the “Benefit Base” and the required algebraic formulas, and instead just list payout percentages for certain ages and deferral periods. An example would be our 63-year-old having a guaranteed payout factor at age 65 of 5.72 percent ($5,724 withdrawal on her $100,000). Some carriers have in fact taken this route! However, for marketing reasons or what have you, the bulk of the carriers use the benefit base rollup and payout factor design.

I have two responses to the “funny money” question:

1. I don’t care if the benefit base is “funny money” if the end result is that the client is guaranteed a very large withdrawal amount after the calculations are done. It is also important that agents not market the “Benefit Base” guarantee of seven percent like that is a liquid “contract value.” Lawsuits.
2. When I explain the blue “Benefit Base value,” I draw a comparison to cash value life insurance. It goes something like this.

“Now the blue elevated value is a value the insurance company gives you in addition to your green “contract value.” This is the longevity insurance you are paying for. Do you get to just “cash out” that blue value? No. Instead, there are various rules the insurance company mandates you follow in order to get that blue value. Kind of like cash value life insurance where you have your “cash value” that you can cash out and you also have another value that is usually higher than your cash value, right? Except that “blue value” on the life insurance policy is the death benefit and, as we all know, you need to follow certain rules for that death benefit to pay out, correct? (Chuckle) Yes, you must die! Well, for this blue value on the annuity, you don’t have to die. The insurance company just says that you cannot take any more than five percent per year of that blue value out in order to not have the blue value/blue line decrease. That is the main rule you have to follow.”

Objection Bullet Point #4: “Suze Orman says annuities cost a lot”
Most indexed annuities without GLWB riders have no fees. The high-fee objection has its roots in the variable annuity world where subaccount charges, M&E, and rider charges can very easily get above three percent.

Now, if you are adding a GLWB to the indexed annuity, a common fee might be one percent. What I have found is, if you have done a good job explaining the diagrams above, old rules of thumb, blue line versus green line, etc., a one percent fee per year should not be a huge hurdle for that client that is concerned about outliving their money. If they do take issue with the one percent, it may not hurt to put the risk of outliving one’s money into perspective:

1. There is an 18 percent chance you will total your car over your life. You buy auto insurance to hedge that risk!
2. There is a three percent chance your house will burn down over your life. You buy homeowners insurance to hedge that risk.
3. Morningstar says there is a 52 percent chance today that a stock and bond portfolio will not last a 30-year retirement by using the “old” four percent withdrawal rule. Why not hedge that risk as well? Afterall, there aren’t many things more important than not outliving your savings.

Objection Bullet Point #5: “How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition?”
We all think differently, process information differently, and speak differently, but I hope these articles at least gave you ideas on how you should articulate the GLWB conversation as well as ideas for “napkin diagram drawings” that you can use with your clients.

(Part 1 Of 2)

Recently I have been surveying financial professionals across the country on topics related to practice management, annuities, life, and long term care insurance. The purpose of these surveys is to get a better understanding of areas of confusion, training they feel they are lacking, and also what kinds of training they desire. The ultimate goal of my IMO is to then address these areas via videos, whitepapers, and ongoing coaching so that the agents can help consumers more effectively and make more money! (Shameless plug: This online training platform and sales community will be launching March 1, 2021, and it is called “The Retirement Academy”—www.retirement-academy.com.)

In these surveys, there is one particular question about annuities that goes like this: “What areas of annuities could you use more education and coaching on in order to be more effective at selling?” A common response to these surveys has been, you guessed it, around the withdrawal benefit riders (GLWBs). These surveys show that, even if financial professionals understand how the riders work, they may still struggle with how to effectively communicate the value proposition of those riders. I have known for some time that this was one of the top areas of annuity confusion, but these surveys have been an interesting confirmation. It is clear that agents would like more help with explaining the value proposition of GLWB riders in a simple and effective manner.

So, I figure since this month’s Broker World topics are on Retirement, Estate and Legacy Planning, what better item is there to cover than explaining the value proposition of indexed annuities and GLWBs for retirement income! In this article we will discuss how an agent starts the conversation, what the agent should point out to the client, what’s the flow (WTF) of the conversation, etc.

In an effort to make this topic manageable to the readers (and my friend and Broker World publisher Steve Howard) this is a two-part article, with the second half coming in the January column.

Background:
To give a little bit of background on where the issues lie, refer to my simplified illustration below of an example GLWB rider design. This is a greatly simplified visual representation of a rider design that I often use as an example with the numbers removed for ease of viewing. What the numbers and values are doesn’t really matter for this part, but usually I use the example of the blue “Benefit Base” line that the client gets representing their premium plus a “guaranteed benefit base rollup rate” of seven percent. That means that my blue benefit base line would be growing by seven percent per year on top of the premium the client puts in. Usually the premium I use in my examples is the good ole fashioned $100,000. The green dotted line is quite simply the client’s annuity “contract value” based on how the client’s $100,000 actually performs—whether the product has a cap, a participation rate, a spread, etc.

You can see that the green line has some good (five percent) years and some “flat” years. Remember, with indexed annuities you cannot lose value because of a market decline. There can be rider charges however that can slightly erode your contract value/green value, which I leave out in this demonstration for the sake of simplicity. This visual is merely a representation of what the “benefit base” typically does when there are no withdrawals/income being illustrated or “activated.” I will show you a diagram of WDs being activated in a bit.

GLWB Confusion
As the surveys show, there are many financial professionals—from new to seasoned–that experience a lot of confusion around how to explain the three main components of GLWBs:

• The “Benefit Base” value;
• The Payout Percentages of the benefit base that determines the ultimate income; and,
• The ultimate lifetime income at various ages.

To be clear, when I say that there is “confusion” around explaining how these three items work, I am not saying that financial professionals lack the ability to discuss the mechanics. Afterall, most of us understand that #1 multiplied by #2 will equal #3 (benefit base x payout percentage=lifetime income) at the age the client chooses to activate their withdrawals/income. Rather, the confusion lies in how to explain the power of those three values in a logical and linear fashion that allows the clients to recognize the value of what these wonderful riders do!

The illustration below is the same except zoomed in and now illustrating income that the client “activates” after the second year (as an example). Once the client activates income from the annuity, she can only take three to six percent (depending on age of client and the product) of the benefit base/blue line per year in order for the blue line to not decrease or disappear.

A payout starting at age 65 might be around five percent of the benefit base, although that is a little on the high end nowadays. This would mean that if the client elects income in the second year and she is age 65, she would be able to get income of $5,724.50 ($114,490 x .05) for the rest of her life. With many products, at the time we “activate” the income the blue line will stop growing and the income level will be a percentage of that static benefit base forever! (Note: There have been innovations in GLWBs in recent years where, even if you are taking withdrawals, the blue line continues to increase.)

Even if you live until age 150 and even if your green “contract value” hits $0, your income of $5,724 will continue forever in our example.

Areas of Objection:
Now, whether in the minds of well-intentioned financial professionals trying to articulate the value of these products or in the minds of consumers, there can often be confusion on the value proposition of the GLWB. Examples of confusion can be:

1. Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals seem paltry! Ken Fischer says he can do better!
2. Only $5,724.50 in income? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
3. I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the green line (subject to surrender charges).
4. Don’t these riders cost a lot? Suze Orman says they do.
5. How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Now that we have laid out the background in GLWB product design as well as areas where many financial professionals would like help, let’s dive in.

(Note: This month’s column will address my thoughts on #1 above. January’s column will address #2, #3 and #4 above. Of course, the overarching intent of both columns is to address #5 above!)

The Re-Anchoring (Confusion Area #1):
As we know from the field of behavioral science—or just plain sales coaching—anchoring is a remarkably effective strategy as we sell and explain complicated concepts. It is because of the power of “anchoring” that it’s been said hundreds of times over the years that:

“Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.”—Me

In other words, I believe that consumers are anchoring their retirement income expectations on the wrong thing and therefore should be “re-anchored” in reality. Hence these consumers should be educated on the fact that William Bengen’s study in 1994 showed that in order to sustain a stock/bond retirement portfolio for 30+ years in retirement, the consumer should take out no more than four percent of their retirement account balance that first year in retirement. Consumers should also be aware of the new updated studies by Morningstar and Wade Pfau that show “rules of thumb” of 2.3 to 2.8 percent.

I am not suggesting an agent go into a big dissertation on these individual studies. I just believe that going over the simplified math—specific to the client’s portfolios—based on these new “rules of thumb” should be done in order to show the power of annuity GLWBs. Heck, even using the old four percent rule of thumb will suffice in explaining the annuity value proposition. By demonstrating this math to the clients, you will be “re-anchoring” their expectations to realistic numbers. And only then do I believe they will realize the true power of GLWB riders. (An example of going over the math with a hypothetical client will be in the January “Part 2”.)

Why Do Consumers Need “Re-Anchoring”?
Re-anchoring is important because consumers are generally unaware of what a reasonable withdrawal rate should be from their retirement portfolio. They have seen the glorification of the stock and bond markets and have likely seen the mountain charts like the Ibbotson SBBI Chart. You know what charts I am referring to—those that show that the stock market has done double digit returns forever and that their one dollar invested back when Adam met Eve would be worth enough to purchase their own private island today. Thus, if a consumer has in their brain that “stocks and bonds” have always performed at seven percent, eight percent, 10 percent, 12 percent…then they will tend to believe that their retirement withdrawal rate is beyond the four percent or 2.3 percent that the research shows. Even if a consumer has heard of the “four percent withdrawal rule,” they may not have had the math laid out for them yet that is specific to their situation.

To demonstrate my points in the previous paragraph, I want to cite a study by Charles Schwab. In their 2020 Modern Retirement Survey they asked 2,000 pre-retirees and the newly-retired about how much money they had saved for retirement and also how much money they expected to take from their retirement portfolios. The answers from the participants were that they had $920,400 in retirement savings (on average), that they planned on spending $135,100 per year from those portfolios (on average), and that they were generally confident in those dollar amounts allowing them to live the retirements they would like.

I would argue that a 14.68 percent withdrawal rate ($135,100 Divided By $920,400) defies any retirement research I have seen! Naturally, Schwab then points out that—contrary to these participants’ beliefs—a $920k portfolio will run out in only seven years (obviously not including interest/appreciation). Clearly, these consumers should have the math explained to them. Even if the consumers understand the new “rules of thumb,” they may be experiencing cognitive dissonance that should be addressed by the financial professional. By doing so you will “re-anchor” their expectations to the new realities of 2.3 or four percent withdrawal rates, which will set you up for the annuity conversation that we will discuss next month.

To hammer home my main point here. Again, I believe the ensuing GLWB conversation will resonate most only after you anchor the client’s mind on the fact that their stock and bond portfolio will likely not last if they are withdrawing at five percent, six percent, seven percent, or 15 percent rates. If you would like more information on those previously cited “rule of thumb” studies, feel free to email me. See you next month!

I remember as a kid occasionally being forced to watch old western cowboy movies. That is because, like every other household back then, we only had one TV growing up! Crazy, I know! And unfortunately my dad’s choice of what to watch took priority over mine. Anyway, I remember being perplexed as I would watch a cowboy pull up to a bar and get off his horse to merely throw the little leather “horse leash” one time around the post outside of the bar. I thought, “How does that loosely wrapped small leather string keep those big strong horses tied to the post?” Afterall, the slightest effort by the horse to “unleash” itself would show the horse that it can easily run off.

The reason the horses never tried to pull the leash off the post–even though it would be easy to do–is because they have been conditioned to believe that it is a lost cause. Once upon a time that horse was broken by a real leash that was very much tied down to a very solid post. I once worked for an old cowboy neighbor of mine where I would feed his horses and I once helped him “break” a young horse that had never been tied down and never ridden. For this horse who had not yet been “conditioned” to be tied up, he actually ripped the post out of the ground.

There is also a process for horses to get “broken” when it comes to being ridden. Needless to say, horses aren’t born being comfortable with a 200 pound man crawling on their backs. Conditioning a horse (also known as breaking a horse) is the process of getting the horse to realize that pushing back is more of a risk than just conforming.

Although the horse is likely correct by “just conforming,” that mentality of being “broken” rears its ugly head in many areas of a human being’s life, whether it is in our finances, our work, or our personal life.

Being “Conditioned” With Financial Products
Our brains are one of the most complex things on earth. These little three pound organs between our ears have over 100,000 miles of blood vessels in them. We as humans are the smartest species on earth, outside of maybe a dolphin. Paradoxically, because we are so smart, we can be so “not smart” because we tend to overthink things and allow our brains to condition us to believe that the world is different from reality.

For instance, we have all seen the Ibbotson “Stocks, Bonds, Bills, and Inflation” chart. Of course, when many people look at this chart going back to 1926 they conclude that stocks are the way to go. Afterall, this chart is one of the most widely used charts by money management firms that has ever been created. Over the years I have heard many securities focused folks point at this chart as proof that stocks are the way to go. Well, although I do like securities for those with a long-term time horizon, I don’t focus on the top two lines so much as I do the bottom two lines; Treasury Bills and Government Bonds.

What do the bottom two lines tell me? They tell me that our perception of risk versus risk-free can be warped. Those bottom two lines were the only two lines to not keep up with inflation over the long run. Thus, Treasury Bills and Government Bonds were the only two on this chart to lose money (after inflation) over the long run. Yes, at the beginning of the chart during the great depression, stocks were horrible. However, if you had your money in T-Bills or Government Bonds from 1926 to 1980, you lost money after the effects of inflation. But at least the investor “felt safe” right? Perception is not always reality.

The point here is not about stocks versus bonds. The point is, risk is in the eye of the beholder. I’ve included my bar chart for inflation versus the average 5-Year CD rate over the last 10 years. By looking at this bar chart I would say the orange bars represent a fairly risky place to put one’s money! Yet for decades consumers have always looked to CDs and the massive brick and mortar banks that sell them as “safety.” (You can email me to get a copy of this graph.)

Furthermore, today a five-year “Jumbo CD” is yielding .38 percent per FDIC.gov. Thirty-eight basis points! So, if inflation is two percent over the next five years, you would be guaranteeing yourself a loss of 1.62 percent per year. Risk is in the eye of the beholder and consumers have grown accustomed to believing that CDs, Government Bonds, and T-Bills are “safe.”

Consumers need to know that their retirement savings are equivalent to the horse being tied to a flimsy post with a flimsy leather string. There are other options.

Being “Broken” in Your Career
If you are one of the 30+ million that has recently lost his or her job and has ever contemplated opening your own business, this is for you. Or, if you are a financial professional who is “captive” and has thought about going independent, this is for you. For those of you that have taken this step already, you probably can connect.
Two years ago, October 2018, I decided to leave corporate America after almost 20 years. Some people would have considered me crazy because I had done well in the corporate world and some would have thought of me as a “lifer.” Plus, why would I not continue the corporate route? When you work “for“ somebody you have the comfort of that paycheck that comes in every-other week, right? Conversely, when you work for yourself, you do not have that security blanket.

I would argue that society in America has “conditioned” us to believe that the guarantee of a paycheck is the definition of security and safety in our careers. I would argue that this can be the equivalent to the horse being tied up to a post by a tiny string.

December of 2018 is when I officially created my LLC, CG Financial Group–an Independent Marketing Organization. Around that time I was sitting with a good friend of mine talking about business. Twenty years ago he was an executive for a major transportation company, and he decided that he had enough of what he was doing. He left a comfortable job, a comfortable six-figure income, and started his own agricultural manufacturing business. To say the least, he has done very well from a financial standpoint as well as from a personal standpoint. He has a ton of money, a great family and has been married for a long time.

As we sat in his multi-million-dollar house there was something he told me that I thought was very well articulated. Effectively, he said that we as humans are conditioned to think of risk in certain ways. We are conditioned to think of risk as just uncertainty. We have been conditioned to expect that paycheck every-other week and by not having it we would be fed to the wolves. The “certainty” of a paycheck is the tail that wags the dog. He went on to say the below:

“So many employees go through their careers dealing with the volatility that their employers can subject them to with bad corporate decisions, misguided decision makers, layoffs, pay cuts, etc. All for that guarantee of a paycheck! For those employees that are in debt up to their eyeballs, that paycheck is probably a reasonable security blanket. However, if one has the liquidity, the skills, and the gut feeling that they could make it on their own, it’s a different story. For these folks, to stick with what they have always been “conditioned” to do brings on more risk and less reward than them opening up their own business.”

Of course, I am not suggesting quitting your job today. I am merely saying that this wonderful country we live in has given us luxuries that can skew our perception of risk/reward.

Do you ever wonder why it is that those that came from very little can turn into such a success? Because they have never been “conditioned” or “broken.” One of my best friends is now a very prosperous doctor who grew up in some very rough streets in India where he never experienced the security of a semi-monthly paycheck. Not long ago he came to America and now has several GI clinics across the country. Typically I would say, “He came to America and took risks,” but that would be inaccurate. By him leaving India, where he had no paycheck, to come to America, where he also had no guarantee of a paycheck, was not a “risk” for him because he had not yet been conditioned/broken.

What do these numbers represent: $3.4 trillion or $111,000 per household? Those numbers represent how much money retirees have left and are leaving on the table by making the wrong Social Security Retirement Benefit elections!

Even if the correct Social Security filing decisions were made by your clients/prospects, Social Security was not designed to replace much of their “pre-retirement income.” As a matter of fact, in our Social Security statements it clearly states that:

“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to make sure you have enough money to live comfortably when you retire.”

To me, those few statements straight from the U.S. Government equals some of the best marketing a financial professional could utilize! Make sure you are helping your clients and prospects see these statements by going to SSA.GOV. Here is another one below that I like that is also in the Social Security statement:

“Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2035, the payroll taxes collected will be enough to pay only about 80 percent of scheduled benefits.”

The fact that Social Security was designed to replace around 40 percent of pre-retirement income is interesting. This is because 21 percent of married elderly couples and 45 percent of unmarried elderly persons rely on Social Security for 90 percent or more of their income! There is a big disconnect between what Social Security was designed to do and what it is being relied on for. Also, the average monthly benefit paid for Social Security retirement benefits is $1,503 per month. Not much!

The reason I point out the above facts and statistics is to demonstrate a few things: 1. Retirees are not maximizing what the program can offer them because they are making the wrong filing decisions (hence my first paragraph in this column); 2. Tens of millions of people (65 million currently receiving benefits) love and rely on their Social Security; and, 3. Many of them need more of what Social Security provides.

The above statistics and the fact that 90 percent of Americans will use this system called Social Security is why I think that helping your prospects with Social Security filing strategies is one of the best, if not the best, prospecting tools you could utilize. This is a service that is completely different from some of the concepts that are out there that only target the “rich,” like estate tax planning for instance. Nothing wrong with targeting the rich but we all know that that market is very saturated by our competition. To the contrary, this concept appeals to the masses. And when you appeal to the masses is when you get more prospects and clients than you can handle!

With the above being said, when I initially talk with agents about leveraging Social Security planning I hear a few “myths” that I need to address with the agents.

Myth 1: “Social Security will be going away so why pay attention to it?”

My Answer: False! Although this statement is made tongue in cheek many times, I do think there can be the thought that Social Security is so much in flux right now that financial professionals tying their wagon to the Social Security horse will not get them anywhere. The concern for Social Security is certainly warranted. Afterall, when Social Security was launched in 1935, to get full Social Security retirement benefits you had to be age 65. Considering that the life expectancy of a person back then was age 62, it does not take an actuary to tell you that it was actuarially flawless! Times are different today which means there is stress on the system and changes will likely happen. However, Social Security will never go away. As the aforementioned Social Security statement says, even if it was to become insolvent, we can support 80 percent of the benefits by the payroll tax revenue the federal government receives.

Again, although this “myth” is sometimes used tongue in cheek, it is a legitimate concern. However, Social Security will stick around.

Myth 2: “Now that ‘File and Suspend’ is no longer an option because of recent legislation, there are very few areas of feedback that I can provide to my clients. Filing for Social Security is more clean-cut then it used to be, and financial professionals cannot provide much value!”
My Answer: False! Although it is correct that “file and suspend” has gone the way of the mullet, there are plenty of areas where you can help your client. For instance, if a client was born prior to January 2, 1954, there is something potentially available called a “Restricted Application.” This is where he or she would be able to “restrict” their application to just the spousal benefits and continue to let his or her own benefit continue to earn delayed retirement credits.

Myth 3: “OK, so if my clients were born on or after January 2, 1954, then the opportunities for me to help my clients are really limited.”

My Answer: False! Although the conversation about filing for Social Security retirement benefits is largely a timing issue at this point, do not mistake that for being simple! Take me for example. The Gipple’s rarely make it out of their 70s in a vertical position. I don’t even buy green bananas anymore. So, that means that on the surface one would think I should just file for Social Security as early as possible (age 62) right? Wrong! This is wrong because my wife, Noelle, will live forever. She can eat eight pounds of brisket and not gain a pound. Amazing.

Anyway, by taking my benefits early I am locking her into a smaller survivor benefit once I die. So, in the end, the total lifetime value of our Social Security payments will likely be more if I delay taking SS benefits instead of taking them early. It’s not just about me, it’s about both of us. This is where CG Financial Group helps agents and their clients optimize their filing options by assessing the four chronological phases of Social Security filing:

• The first spouse files—what is the monthly benefit?
• The second spouse files—what is the total of the monthly benefits between the two spouses?
• The first spouse dies—what is the survivor benefit?
• The second spouse dies—what was the total benefit over both lifetimes?

The goal is, by the time we get to the end of number four above, the total payout from the Social Security Administration was the largest possible. As you can surmise, the amount of filing options from a timing standpoint for both spouses are numerous and we have not even gotten into Social Security taxation. That is a topic for next month. In short, do not mistake a discussion around “just timing” as being simple! Clients still need your help.

Myth 4: “There are no opportunities for me to make money by helping clients with their Social Security filing options.”
My Answer: False! The fact that you can build trust by showing your Social Security prowess will lead to you getting their other assets. Plus, those other assets need to be optimized for the various Social Security scenarios. Are the clients going to delay until age 70 and therefore need an “income bridge” from an annuity? Or, conversely, should a client file early and let their annuity with a GLWB continue to build up? By the way, there are also parallels in how annuity GLWB benefits work relative to Social Security retirement benefits that you can emphasize.

What about taxation? Is most of the client’s Social Security going to be taxable because they will have too much “provisional income?” Well, you can provide those clients with solutions (Roth IRAs) and products (cash value life) that do not add to their provisional income.

Myth 5: “I don’t want to be an expert at this because it is complicated and takes a ton of time to learn. Therefore, there are no opportunities for me to leverage Social Security in my practice.”
My Answer: False! Although Social Security is complicated, if you have clients in their 50s and 60s that you can invite to zoom calls, virtual seminars, etc., you can make money without much effort! This is by partnering with an IMO that can give the presentation for you, assess their situation for you, and design the recommendations for you. I believe that it should be the job of every financial professional to either know Social Security or be partnered with the right folks who do know Social Security.

Feel free to email me if you would like a video where I go over “Charlie and Noelle’s Social Security Case Study.”