Thursday, May 21, 2015

Prepare Clients for Mandatory Deductions in Retirement Income

The entrance into the working world can be quite the adjustment for young adults, especially in regards to finances. They’re suddenly introduced to a multitude of taxes and deductions and it can quickly become overwhelming. Forty years later, some retirees face another financial surprise - the difference between their gross and net retirement income. To diffuse this problem, financial professionals can assist people ahead of time so their retirement income is protected.

Now, instead of payroll deductions, retirees are dealing with mandatory medical deductions such as Medicare Supplement insurance premiums, Medicare premiums, and payments for long-term care support services. There’s also a myriad of health-related deductibles and coinsurance amounts to worry about.

Clients need help from financial professionals to learn suitable insurance solutions to create more discretionary retirement income so they can plan ahead for the upcoming mandatory deductions. For instance, when considering income taxes, products such as life insurance products and tax deferred annuities can reduce tax payments. Municipal bonds and tax-free income from Roth IRAs can also have a positive impact on reducing tax outlays.

For each mandatory deduction there are products available to help reduce the amount of retirement funds paying for each of them. This is why financial professionals need to stay up-to-date on the new mandatory deductions, making their services more valuable to their clients.

The Annual Retirement Income:
  • Social security
  • Pension income, if any
  • 401(k) withdrawals
  • Investment income withdrawals
  • Work income, if still in the workforce
  • Annuity payments
  • Other sources
  • Total Retirement Income (A)
Mandatory Deductions:
  • Federal and state income taxes
  • Medicare part B and D premiums
  • Medicare Supplement insurance premiums
  • Long-term care insurance premiums or out-of-pocket expenses
  • Medicare deductibles and coinsurance amounts
  • Support for children or grandchildren
    • Total Mandatory Deductions (B)
    • Net Retirement Income (A) – (B)
For financial professional use only. 
The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Partners Advantage does not provide legal or tax advice. Partners Advantage cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Partners Advantage does not assume any obligation to inform you of any subsequent changes in the tax law or other factors that could affect the information contained herein. Partners Advantage makes no warranties with regard to such information or results obtained by its use. Partners Advantage disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.


Thursday, May 14, 2015

The Pros and Cons of Roth Conversions

William H. (Bill) Jackson J.D.,CLU
Sr. Advanced Markets Consultant at Partners Advantage

Traditional IRAs and 401(k) plans have been the mainstay of retirement planning in recent years. These plans allow investment of pre-tax dollars and provide tax deferred growth. This tax advantage normally translates into larger account balances. The disadvantage of these plans is that all distributions are taxable as ordinary income. They are also subject to required minimum distributions beginning at age 70 1/2. A Roth conversion on the other hand allows individuals to avoid RMD's and to receive tax free income during retirement while still providing tax deferred growth. Roth conversions will generally result ordinary income tax on the amount that is converted. The conversion amount, however, is not subject to the 10% early distribution penalty.

So which alternative is most beneficial? That of course depends entirely on the specific situation of the participant. Generally speaking, average participants will be in a higher tax bracket during their working years than during retirement and will benefit using a traditional IRA. The Roth conversion favors those who will be in the same or higher tax bracket during retirement and who have other assets to pay the tax on the conversion. The Roth is also useful for those who want to pass a tax free benefit to their heirs. Traditional IRA the benefits are taxable.

Let's take a look at some typical examples to see whether the traditional IRA or the Roth does better in different settings.

Client Assumptions for both examples:
Client Current age 55
Age when income should start 65
Number of years to receive income 20
Before tax return on savings (accumulation phase) 5.5%
Before tax return on savings (distribution phase) 5.5%
Income tax bracket (accumulation phase) 25%
Income tax bracket (distribution phase) 15%
Current IRA balance ($) 400,000

The Average Tax Bracket Roth Conversion Scenario:
Current IRA balance:     $400,000
Roth conversion amount:    $400,000
Less conversion tax liability:   $100,000
Adjusted beginning comparison balance traditional IRA: $400,000
Adjusted beginning comparison balance Roth IRA:   $300,000
Estimated IRA balance:  $683,258

Estimated Roth IRA balance:
Distribution Phase Traditional IRA versus Roth IRA:  $512,444
Annual after tax income for the traditional IRA in a 15% bracket:  $4,050
Annual tax free income for the Roth IRA:  $3,573

The assumptions for the second case are the same except the tax brackets in the accumulation and distribution phases are both 25%.

The Higher Tax Bracket Roth Conversion Scenario:
Current IRA balance:      $400,000
Roth conversion amount:  $400,000
Less conversion tax liability     $100,000
Adjusted beginning comparison balance traditional IRA:  $400,000
Adjusted beginning comparison balance Roth IRA: $300,000
Estimated IRA balance:  $653,258
Estimated Roth IRA balance:
Distribution Phase Traditional IRA versus Roth IRA:   $512,444
Annual after tax income for the traditional IRA in a 15% bracket: $3,573
Annual tax free income for the Roth IRA:  $3,573

As you can see from the examples the end result is entirely dependent on the tax brackets during the accumulation and distribution phases. Many typical clients are in a higher bracket during their peak earning years and in a lower bracket during the retirement period. If this is the case, the first example indicates that a traditional IRA would generate more after tax income. On the other hand if you have an affluent client whose income is likely to remain the same during retirement or even increase, then the second scenario indicates that a Roth conversion will at least break even. If rates or income are higher during the retirement period then the Roth conversion will be more favorable.

Often overlooked alternatives include paying the taxes on a Roth conversion from another source, offsetting the tax impact with traditional IRA contributions, and offsetting the tax impact with deductible charitable contributions. These alternatives will enhance the attractiveness of a Roth conversion.

For example in the second scenario above where the tax rates are the same and the tax on the Roth conversion was paid from a different source, the traditional IRA provides a payment of $4502, while the Roth pays $4765 each month. So, when the taxes are paid from a different source and the tax rates are the same, the Roth payment is higher.

There are many easy to use Roth calculators on the internet, some are carrier sponsored and some are independently offered. They can help your clients make informed decisions. Encourage clients to contact their legal and tax advisors when they make an important tax decision like a Roth conversion.
So is a Roth better than a traditional IRA? That depends on the probable tax bracket of the client both now and during retirement.

Important note: Please remember that converting an employer plan account or traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to have your clients consult with a qualified tax advisor before making any decisions regarding an IRA.

For Financial Professional Use Only. Not For Use With The Public.
This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. Partners Advantage Insurance Services and their representatives do not give tax or legal advice. The material in this presentation and the concepts presented here are provided for informational purposes only and should not be construed as tax or legal advice. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of publication.


Thursday, May 7, 2015

5 Reasons to Consider Cash Value Life Insurance as Part of a Retirement Strategy by Curtis Cloke

It’s becoming more challenging to find a financially reliable source of retirement income. The traditional avenues, such as IRAs and 401(k)s, can be threatened by the risks of the stock market, while Social Security may not be enough for most individuals to live on and for most people pension plans are becoming a thing of the past.

Given this reality, clients need to start thinking beyond the traditional sources of retirement income. Fortunately, we do not need to venture too far as our industry provides a solution. One of the most powerful but underused retirement income opportunities available today has long been in the retirement planning tool box: life insurance. Specifically, cash value life insurance policies.

1. No Strict Contribution Limits 
There are limits imposed by the IRS on the level of contributions consumers can make to their employer plans.  These limits do not exist for cash value life insurance plans; however, you’ll need to discuss with your clients on how to avoid using the policy in a manner that the government may interpret as abusive or tax sheltering.

2. Variety of Options 
One of the most attractive benefits of using cash value life insurance policies is the variety of options. You can find a policy that conforms to your client’s financial goals. Consider the differences of whole life and indexed universal life.

3. Access to Money 
With cash value life insurance, the policies provide for access to funds, whether it is being used for retirement as intended or for an unanticipated emergency expense. Clients have two options they can utilize for accessing their money in a cash value life insurance policy. The first is through a straight withdrawal* and the second is by securing a loan*.

4. Death Benefit 
The key benefit to life insurance is the death benefit. This can help protect a family in the event of an untimely death during a client’s working years or secure a legacy for a client in their retirement years.

5. Possibility of Deferring Social Security Benefits 
Another useful income planning option that life insurance provides is the ability to defer Social Security benefits. The withdrawals from the cash value account can be used to replace Social Security income from age 62-70.

It’s vital that financial professionals broaden the retirement planning toolbox for clients so they can help their clients find alternatives for potential retirement income. Cash value life insurance plans are a viable alternative solution in today’s world. Given their ability to provide powerful benefits, they are something to be considered.

For more information on cash value life insurance options for your clients, contact Partners Advantage 888-251-5525, Ext. 704.

For financial professional use only.

About the Author:
Curtis V. Cloke, CLTC, LUTCF, RICP®, is an international speaker author and trail-blazer on deferred income annuities (DIAs). He is the founder and developer of Thrive Income Distribution System, launched in 2009, which helps financial professionals and clients focus on strategies to create more retirement income. Cloke is also a key contributor to the curriculum of the Retirement Income Certified Professional (RICP®) program developed by The American College of Financial Planning were he serves as an adjunct instructor.

* Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the ex that they exceed the policy owner's cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions.

The third party information and opinions included in this article have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Partners Advantage.   The material is being provided for information purposes only and is not a solicitation for the purchase of any product, nor should it be construed as advice designed to meet the particular needs of clients.  Financial Professionals should ensure they continue to follow the current policies on the use of any advertising, third-party materials and/or social media as required by their broker/dealer and registered investment advisor, if applicable, and the insurance carriers they represent.


Thursday, April 30, 2015

Shape Up Your Customer Service

This blog post was provided courtesy of North American Company for Life and Health Insurance®

“There’s only one boss—the customer.”  —Sam Walton, Founder of Walmart

Customer service is an integral part of business. No matter what your product or service is, the customer is really the heart of your business. In the financial services industry, it’s essential for building meaningful relationships between you, a financial professional, and your clients. It helps build loyalty and shape your brand’s reputation.

Whenever you’re interacting with a client, remember this “SHAPE” acronym to ensure you’re providing exceptional customer service.

Set Expectations
Set expectations for yourself and for your customer to ensure that everyone’s needs are being met. Be clear about what your customer wants, and how you can help them accomplish their financial goals. Finding ways to go the extra mile and exceed expectations is great, too!

Customers feel the most appreciated when they are treated like individuals. In the last year, 67% of customers have hung up the phone out of frustration that they could not talk to a real person and 75% of customers believe it takes too long to reach a live agent. What does this mean? People want to talk to people that care. Take those extra few minutes to learn about them and their individual needs. Ask specific questions so that you can present them with all of their options.

Customer service begins and ends with attitude. A positive attitude and outlook can change the entire mood of a meeting or phone call. Make sure to use confident language and strive to show your client that you are doing everything you can to help them.
Great customer service doesn’t end when you hang up the phone. Go beyond the walls of the meeting and follow up. This could be a simple thank-you email or checking in to see if any new needs have come up.
Evaluate! Evaluate! Evaluate! Outstanding customer service is about always improving and reassessing how you can better meet your clients’ needs. Talk to your clients, have them take surveys, and follow your competitors to see how your service stacks up. Have some difficult or unhappy customers? Those can be the best opportunities for improving customer service—use it as a way to learn and grow.

Every interaction with a customer is an opportunity to provide top-notch service. Remember this SHAPE model to help you offer the best customer service you can.

NAM-3024  10/14

Friday, April 24, 2015

The Administration Goes on the Offensive Prior to DOL Fiduciary Proposal

Opinion/Editorial provided by:
Juli McNeely, NAIFA President & Owner/President at McNeely Financial Services, Inc.

The Obama administration is preparing to re-propose a Department of Labor rule to redefine which  financial advisors must act as fiduciaries when providing advice to retirement investors. While the proposal is not yet public, all indications are that it will be hostile to many NAIFA members and the middle-class clients they serve. 

In advance of publically proposing the rule, the administration has begun to soften the beaches with what certainly looks like a scare-mongering campaign. In a speech delivered at AARP headquarters, President Obama stated that some financial professionals are “selling snake oil” and bilking their retirement clients out of billions of dollars per year. By implication, he zeroed in on advisors who receive commissions as compensation.

NAIFA rejects this argument outright, as numerous studies show that consumers who receive professional financial advice grow their retirement savings faster than those who go it on their own. There are myriad laws and regulations already on the books protecting consumers from fraud and inappropriate practices. The products and services provided by NAIFA members and their colleagues have helped tens of millions of American families obtain financial security and maintain needed income throughout their retirement years.

For Financial Professional Use Only.

Thursday, April 23, 2015

Finding a Win-Win Solution for Changing Needs

This blog post was provided courtesy of North American Company for Life and Health Insurance® By Gary Proco, Sales Vice President

It’s safe to say that generally all clients have the same goal in mind when it comes to life insurance: finding a product that meets their needs at the lowest price possible. And guaranteed universal life (GUL) is a great option to present to them. Not only does it provide low-cost life insurance coverage, but it also comes with a guaranteed death benefit.1 It’s a win for them.

Choosing the right GUL product can not only provide a winning solution for your client, but also set up future wins for your sales.

When looking at GULs for your clients, consider these two questions:

1.     Does it offer your clients the flexibility and control to change their coverage as their needs change, without evidence of insurability?

2.     Does it provide you with the opportunity to build future sales through an exchange privilege?

Win #1: North American’s Custom Guarantee® universal life insurance provides you both.

When recommending a GUL product as the solution to meet the needs of your client, it is very important to not only plan for today, but also for the future. We all know the client’s life will change over time. This product has a Guaranteed Exchange Privilege, which allows the client to exchange part or all of their original face amount to any of North American’s currently available cash accumulation products, without evidence of insurability—even if their health has changed.2

Win #2: Set up future sales.

The Guaranteed Exchange Privilege gives you a reason to review the GUL each year with your client to discuss the option of exchanging the original policy to an accumulation product. With this privilege on the GUL, you as an agent have created a lead system for future sales. Remember, just as you would discuss the conversion opportunity on a term policy, you can now have a similar discussion on the GUL. Once the exchange is exercised, you will receive commissions for the difference in premium of the original GUL.

The next time you’re looking at a GUL product for your clients, take a look at North American’s Custom Guarantee.  Low-cost coverage and flexibility for the future can benefit your clients as their needs change.

1.  Subject to premium payment requirements.
2.  Not available for policy ages 76 and above or if there is an outstanding policy loan. The Cash Surrender Value on the new policy may not be greater than the Cash Surrender Value on the policy being exchanged.
Custom Guarantee is issued on policy form series LS170 or state variations by North American Company for Life and Health Insurance, Administrative Office, Sioux Falls, SD 57193. Product, features, riders, endorsements or issue ages may not be available in all jurisdictions. Limitations and restrictions may apply.

NAM-3105 1/15

Monday, April 20, 2015

Getting Clients to Take Action

May 15 - Live Workshop in Riverside, CA with Anthony Morris

If you are looking for WHAT TO SAY to clients and WHAT TO SEND and SHOW TO prospects to motivate them to want to meet with you, join us to learn practical step-by-step, plug-and-play referral strategies, unique and intriguing marketing approaches, and strategic alliance techniques. It's all here in one package - instructions included!

Friday, May 15 - 9 a.m. - Noon
Riverside, CA - Hampton Inn

Come and learn high-impact ideas to break through your income barrier. This fast-paced, idea-a-minute session will cover these topics:

·         Not getting enough/any referrals from accountants and attorneys? Use this unique campaign that motivates current clients to make these introductions actively and willingly. Mix in our Professional Development Day sponsorship methodology and you'll add a multiplier to this momentum-builder
·         New, fast "fix-it" techniques to renovate your client experience. Uncover the secret to accessing High Net Worth clients and the three power questions that get you invited into their financial lives under favorable circumstances.
·         Equip yourself with an inexpensive way of meeting dozens of new clients in one day - and having most of them wanting a private conversation with you about their financial direction.

Complimentary workshop brought to you by Partners Advantage.

REGISTER HERE before we reach capacity!

For Financial Professional Use Only. Not for use in solicitation or advertising to the public.

This material is intended for educational purposes only and is not intended to serve as the basis for any investment or purchasing decision.

This marketing session is for informational purposes only and is meant to illustrate some of the best practices that may make building your business more effective. These practices and results are based on Anthony Morris experience with financial professionals. The use of these practices or tools is strictly voluntary and is not required by the Partners Advantage. The testimonial may not be representative of the experience of other financial professionals and is not a guarantee of future success. The testimonials were not paid for. The information provided is for your own practice management purposes.