People in their 50s and 60s realize they must get their financial house in order to eventually retire in style. At this stage in life, retirement is no longer a vague, far-off goal, and more people are willing to take concrete steps.

Additionally, many 50-somethings and most 60-year-olds already have paid for their kids college education and perhaps the mortgage, so they can start really socking away money for their golden years.

Knowledgeable financial advisors have many opportunities in the pre-retirement planning market. They can earn excellent commissions and, just as important, cement a life-long relationship with their client. By doing the right things for your clients, youll do well for yourself, too.

Here are some key steps in pre-retirement planning:

Do a fact finder. Find out what your clients or prospects needs and goals are and what kind of financial resources the individual or couple has to meet those goals. The fact finder doesnt have to be an exhaustive financial planning exercise, but you do need to understand the clients goals and the key facts (such as their risk tolerance) of their situation. As the financial “doctor,” you must understand the patients financial health before you make a diagnosis and recommend a plan.

Plan for long term care. Everyone with a reasonable amount of assets to protect needs a long term care policy, and its very advantageous for clients to buy it during their 50s and early 60s. Later on, theyre more likely to have health problems that will prevent them from getting a full-featured policy preferred premium rateor even being insured at all. By buying early, the client nails down a low premium and will save substantially over the long haul.

But LTC is a challenging sale. A healthy 60-year-old usually finds it harder to envision the need for LTCI than a 74-year-old who has had some health problems. As the agent, you must know how to build a sense of urgency so your client realizes the need must be addressed today, not tomorrow.

Insurers, fortunately, have developed products that appeal to younger buyers and answer their concerns.

One feature is a return-of-premium rider. If the insured hasnt used the LTC benefits before his or her death, this rider will refund a portion of the premiums paid. This responds to the younger buyers concern about “wasting” money paying premiums for years if care is never needed.

Another appealing product is the dual-purpose policy, which provides life insurance and LTCI in one contract. With a single payment, this whole-life policy provides a guaranteed death benefit. When clients need nursing home care, at-home care or assisted living they can tap into the LTC benefit that is wrapped inside. Again, this type of product addresses your clients objection of “wasting” premium dollarsthe insured will definitely use the death benefit, and the LTC will be available when needed.

For some people, this can be exactly the right product. As the advisor, you need to look at the internal cost of LTC coverage in the life policy, compare it to an ordinary LTC plan and find out which one offers the best benefits. Show both sides of the equation so you can help your client make the right choice.

Consolidate your clients qualified retirement plans. Many people have more than one IRA accountthree separate IRAs are fairly typical. The first step is to consolidate multiple IRAs into one IRA. This makes it simpler to manage and properly allocate IRA assets. A similar opportunity exists when the client has multiple 401(k) plans from former employers, which can be rolled over into one IRA. The client can then direct their investment choices with you.

Once the plans have been consolidated, the required minimum distributions that will be coming out starting at age 70 1/2 can be determinedsomething very important for clients to know and plan for.

Consider using life insurance as a supplemental retirement plan for successful individuals. Despite the plethora of qualified retirement plans available today, successful professionals and small-business owners often want to shelter additional income from current and future taxes. A variable universal life policy can meet that need.

For instance, consider a 52-year-old dentist who can contribute a maximum of $40,000 a year to his retirement plan but can afford to save $52,000 a year. With a 10-pay VUL he can put $12,000 a year into the policy and have it fully funded by age 62. In retirement he can take out loans against the policys cash value to supplement his income.

Provided the policy is not a modified endowment contract, loans received will be tax-free.

The dentist can shelter a lot more moneyplus the death benefit will be available for his family.

Unlike the Roth IRA, which isnt available to upper-income people, VUL is available to everyone healthy enough to be underwrittenand even that isnt always a barrier. If our dentist has a health problem but has a healthy wife, he could buy a second-to-die VUL policy.

Remind the client that income taxes can dwarf estate taxes. While some affluent people have estate-tax issues that must be addressed, many more estates will be hit with significant income taxes at the second death. This is the time when the IRS gets back the tax breaks it gave for qualified retirement plans and annuitieswhich are tax-deferred, not tax-free. These taxes can take a big chunk out of the estate, and life insurance can be invaluable to help the beneficiaries offset the taxes with an income-tax-free death benefit.

Furthermore, if the policy is held in a properly drafted trust, it will also be estate-tax-free.

As part of the fact finder, you can make some estimates of the clients future income-tax liability and show how insurance can meet that need.

Wilma G. Anderson is president of The LTC Exchange, Ltd., Littleton, Colo. You may e-mail her at wilma@TheLTCcoach.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.