Having sufficient liquidity will be the defining economic issue of 2020. Now more than ever, cash is king.
As millions of retired seniors witnessed the value of their retirement portfolios plummet amid the COVID-19 crisis, financial advisors were urging them not to take withdrawals that would lock in losses. This same reasoning was behind a provision in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which waived the required minimum distributions (RMDs) in 2020 for seniors age 72 or older.
But seniors who had been relying on portfolio withdrawals for a variety of financial needs are now looking to their financial advisors for creative ways to fill the cash flow void.
Although many professionals in the financial services industry may feel they are operating in uncharted territory, it’s time to roll up our sleeves, think outside the box, and help senior clients identify cash flow solutions. Indecision and hesitancy do not qualify as creative solutions, but a life settlement does.
For those seniors who are eligible, the cash proceeds from a life settlement could be the lifeline that gets your retired clients beyond the economic crisis.
If you are a financial advisor who has never explored the problem-solving potential of a life settlement transaction, this is your opportunity, the time is here, the moment is now.
Cash Flow Rules
For business owners and individuals who were caught off guard without sufficient cash resources, the months ahead may be difficult as they adapt to the new reality of this unprecedented economic crisis.
But perhaps those hardest hit are retired seniors, whose nest eggs have lost a quarter of their value.
That’s why selling an unwanted life insurance policy, especially policies with escalating premiums or those on the verge of lapsing, is often a smart strategy for seniors who want to generate immediate cash flow. During market downturns, having sufficient liquidity facilitates the ability to achieve a wide range of financial goals depending upon the senior’s net worth, emergency reserves, and cash flow objectives.
Market-savvy seniors want extra cash to invest back into the market while stock values are low. They recognize an opportunity to leverage the financial crisis and need liquidity to seize it.
Market-wary seniors want a source of cash to purchase a guaranteed income stream, such as investing in an income annuity. Their goal is to enjoy a comfortable retirement free from the financial anxiety caused by market volatility.
Cash-depleted seniors want to shore up their emergency reserves to get through the crisis without making withdrawals from their investments. For them, cash is not only king, but cash flow rules.
If there is a silver lining in the 2020 market crisis, it’s the fact that the three scenarios listed above may be readily achievable (for seniors over age 65 who qualify) by selling an unwanted life insurance policy in the secondary market.
A Case in Point
To illustrate our point about market-savvy seniors and life settlements, we recently brokered a life settlement transaction for a 79-year-old senior who owned a $1 million policy with escalating premiums. Over the past 17 years, the annual premiums had spiked to more than $78,000 and were becoming a burden the owner’s cash flow.