Thought for the day:
“How did you go bankrupt?” “Two ways. Gradually, then suddenly.” Ernest Hemingway the sun also Rises
If you will read no further:
Financial advisors are about showing clients and helping them to become financially successful. That means not losing what they already achieve while growing it more. That’s why it is important for you to understand risk in the real sense and learn how to incorporate insurance-based strategies in you clients’ portfolios.
Thought for the week:
Most of what I write in these weekly messages is inspired by what we are seeing day to day in our business and yours. In the past few weeks I have seen an increase in the number of requests for LTC quotes and information from advisors for clients who will have no chance of qualifying for an insurance-based strategy. In the conversation I always try to find out how long the person has been a client of the advisor. I shouldn’t do that though, because it always makes me sad when I find out that they are long-time clients and the condition that disqualifies them has only been recently diagnosed. This means that for the past several years or more they could have set up a plan that would provide significant extra income to cover the additional expenses for care that they now most assuredly know are coming.
I really don’t understand what some people don’t get about a 70% chance of needing long-term care and why an advisor thinks his client can ignore it. Certainly it is very easy to say, “I/you can afford to self-insure” when one is healthy; but it is quite another when it’s time to “belly-up” to a $7,000 or $8,000 (or more) per month care bill. And write the entire check from estate assets for “I-don’t-know-how-long”.
For years we have been focusing on growing assets with a time line that is 10, 15, 20 years or more. Now each day we have clients who are focusing on living off of those assets and many advisors haven’t come to grips with the financial risks awaiting their clients that have little to do with market volatility. All that does is increase the consequences of not preparing. Then eventually, one-by-one the calls start coming in from clients and family asking us to look into some long-term care insurance, “Dad was just diagnosed with Parkinson’s disease”. That’s the call I got on Wednesday. What? All of sudden you don’t want to self-insure????
The same thing goes for income planning. The investment gurus tell us that we should be able to receive an inflation adjusted income from our assets of 2.5 – 4% that will last all of our lives. Sure, if we die at life expectancy (85 – 87). What about 93 – 94? What about the increased uncertainty that an 88 year old lady will endure if she has no guaranteed income? How comfortable is she with the economic news at that point?
If all of your clients have income generating assets in excess of $5million and have unremarkable lifestyles, annuities may not be necessary although the research tells us their lot can be improved if their portfolio includes them. But if you have some smaller clients with $1- 5million you should be moving assets into index annuities and SPIAS like crazy. It’s coming up on 7 years since the last major correction (oh wait, that was “the worst downturn since the Depression). Do you remember what it was like to deal with your clients then? You do know that they are 7 years older now. The 78 year old lady is now 85? Think she will be scared when the next one happens? How will her portfolio perform? How will her capacity to pay long-term care expenses hold up? What will you be telling her and her family about how you have prepared her portfolio to weather the times.
So my point is? Don’t ignore these facts, for yourself or your clients. Don’t let your clients brush you off too easily on these issues. They don’t want to think about the bad things any more than you do. But you know better; and it is your job to convince them to do the right thing.
We can help you.
Consider the retiring client with $1million in financial asset to provide additional retirement income in addition to their Social Security. 70% is in an IRA and 401k; and the rest non-qualified invested $200k in CDs & govt. bonds, and $100k in Blue Chip Stocks, The IRA is 60% stocks and 40% bonds and you will continue to manage that so that he can receive as much income as possible without outliving it. So we are talking about a retirement income her of $35,000 plus another $20k from Soc. Sec. for a total $55k. Hopefully, their home is paid for so their basic expenses are a couple thousand dollars a month less than they might be. If not, perhaps a reverse mortgage is in their future.
This will all work fine until
1. The market crashes
2. One or both of them gets very sick or takes a serious fall
3. Or dies