When we sit down with clients today, the most important thing to them is not how much they have accumulated, it is how much income all that they have accumulated can create for them. One of the biggest challenges our clients face is making sure they have enough money to last for a 30-year retirement and to keep up with the rising cost of all that they will need.
As our clients get closer to retirement, they tend to be less comfortable with volatility in their world and they tend to dislike paying taxes even more at retirement than they did when they were working because they are no longer earning income and feel like they have lost control when taxes go up and their income doesn’t.
They are also very concerned about the rising costs of health care at retirement and want to be sure they maximize social security benefits as they paid into the system for many years.
One of the things we have found to be true over the years is that it is as important to diversify how things are taxed at distribution as it is to diversify the mixture of the kinds of investments we have in our client’s portfolio. Most of our new clients are between 50 and 55 and we help them take steps to benefit from all the things our other clients who are further along than them wish they had known or that they wished they had done more of or less of.
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We help our clients strategically position some of their retirement dollars into cash value life insurance because of the efficiency it creates later in terms of access to basis first at retirement, ie tax efficiency at distribution as other retirement assets like 401(k) accounts and pensions are fully taxable at distribution. We always make sure there is a need for the insurance itself in our thorough fact-finding and we also know that as an asset it becomes very relevant in their world.
The other thing that having cash value as an asset at retirement is that our clients appreciate the guarantees that it has and it allows them to perhaps be more equity oriented elsewhere and not have to draw down from their volatile assets in a down turn because they have something that is guaranteed to grow in a way that they don’t pay tax year by year on the interest that is credited.
Imagine two clients with exactly the same amount of money at retirement, let’s say $3 million. The first client has only equity investments and the second client has $2 million of equity investments in $1 million in cash value in a general portfolio product with a highly rated carrier.