Close Close

Financial Planning > Tax Planning

Secure Your Senior Clients’ Financial Future

Your article was successfully shared with the contacts you provided.

As financial professionals, what do we want most to sell to our clients? What they need, what they want and what matters most to them? What matters most usually drives what people need and want. So, what matters most?

A survey was done in September of 2001 asking a cross section of Americans what they felt they needed to have to be living the American dream. Quality health and life insurance products can help address four out of the top 10 items that matter most to people.

These same four out of the top 10 items have the biggest impact for seniors in their retirement years. Retirement brings many changes for seniors, changes in their circle of friends from their years in the workforce, change in income, change in lifestyle issues and change in relationships. Adjustment to these many changes often results in an unexpected realization regarding their income and assets.

So what would your senior clients like to have?

  • Security of principal?
  • Tax-deferral?
  • Liquidity?

Security of principal for seniors means a guaranteed interest rate, access to funds, and to know the cost of getting their money.

Tax-deferral for seniors means their interest grows tax-deferred, giving them the value of triple compounding:

  • Interest on their principal
  • Interest on their interest
  • Interest on their tax-savings–the money they would have paid in taxes

Liquidity may be provided through deferred annuities that are designed for long-term growth.

However, partial withdrawals may be available for any reason, typically after the first policy year. (Based on the withdrawal privileges of the contract, surrender charges may apply. If the client is under age 59-and-a-half, the IRS penalty will apply.)

The Real Rate of Return

What happens without triple compounding? Many people put their money in conservative investments such as CDs or money market accounts because they aren’t sure what to do.

This money in their CD or money market account may be reduced by taxes and inflation and could actually decrease in value.

This chart shows the interest rate required on a taxable investmentfor example, money in the stock market, CD, money market account, etc.necessary to equal the yield on the tax-deferred interest during the accumulation phase of an annuity product. For example, a person in the 35 percent tax bracket must earn 7.69 percent taxable to match the 5 percent tax-deferred yield. (Annuity earnings will be taxed in the “pay out” or distribution phase, where your client’s tax bracket may be lower.)

What is your clients risk tolerance?

Let’s evaluate your client’s current risk tolerance to see where their finances would fit best. Would they consider a CD a conservative investment for their money?

  • Let’s take a look at what a CD offers:
  • What is the best thing a CD offers? Safety?
  • What has their experience been with their current yield on a CD? Two percent, 3 percent or 4 percent?

Let’s look at alternatives. In your client’s opinion what is the most aggressive investment? Would they agree that individual stocks would be an aggressive investment?

What do they see as the benefit of stocks? Would it be the upside market potential? Then, obviously, the downside would be 100 percent risk to their principal, right?

Now, if you could help them participate in the growth of their principal and provide the protection from the risk of stocks, plus ensure safety, they would be interested in checking interest rates, right?

You can do this by repositioning their assets that have created a tax on their Social Security. So what could be the most important question you ask your clients? “Of the money they have left how much would they not want to risk anymore?”

Remember people buy on emotion and they are moved to action by logic. We have to give them a logical justification to make an emotional purchase.

For more from Lloyd Lofton, see:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.