Thought for the day:
“It has long been my belief that the sight of a good-looking woman lowers a man’s IQ by at least 20 points. A man who doesn’t happen to have 20 points he can spare can be in big trouble.” Thomas Sowell
If you will read no further:
If I didn’t already have a paid up long-term care insurance program for me and my wife, I would allocate a $1million fund to provide extra tax free income to pay for our care, regardless of what kind it would be or where it would be provided. (Since I have been doing this for over 20 years, I often see the kind of bills people are paying for care, so I am probably more sensitive to the incredible financial impact that homecare will have on our finances.) I won’t have to reallocate that much all at once because I am leveraging some of my investments into a special tax free fund that instantly creates the $1million LTC fund. In the long run it won’t cost me anything to make an annual deposit from cash flow or just move assets from another investment.
At our age and still in good health our annual deposit would be about $25,000. That would assure that $1million would be available (tax free) if either or both of us were unfortunate enough to need care for a long time; or $500k would pass to our kids if we never needed it for our care.
I did something similar recently for a 72 year old gentleman whose daughter was on his case about making sure there was money available in case she needed to get care for him someday. We set him up with a $300k life policy with a long-term care rider. He’s depositing $10,500 per year. If he ever needs care his daughter can draw down up to $12,000 per month. If things work out the way he plans and LTC is never major issue, any amount of the $300k not used for his care will be received by her upon his death. All tax free and everyone is happy.
Thought for the week:
If you spent any time hanging around our offices you would notice how happy we are to see the annuity sales coming in. It appears that advisors are finally recognizing the value of these interesting. Clients who have limited assets to fund their retirement (not your fault, they obviously did not get with you until it was too late to really build their retirement assets to your typical level of expectation) need to get as much as they can out of the portfolio. One of the best ways to do that is to annuitize a portion of the assets and realize a substantial improvement in after-tax cash flow. So now we can let the rest of the money grow for a while and only tap it for special needs or to offset inflation.
Most advisors who have been around for a while have a view of fixed annuities based on their original introduction to them 10 or 20 years ago. In fact, for many years, few advisors would ever recommend someone actually purchase annuity income. Today, the carrier’s ability to increase fixed interest rates and guarantee an increasing principal is enhanced by incorporating the addition of derivatives to the portfolio of bonds that back the annual interest. This raises the fixed return without adding risk. The income is determined and generated by combining life expectancy tables with amortization tables to provide the income guarantees without making the client commit his money forever; hence the Guaranteed Lifetime Income Rider.
Even the old style SPIA is enhanced by better actuarial accuracy, combined with the carriers ability to get better returns out of their portfolios while maintaining the same degree of security and predictability which is then passed on to the client.
If the client is still several years away before he needs to take income from his assets, you should definitely consider placing a portion of his portfolio into one of these amazing deferred income products. Call Josh (or email him firstname.lastname@example.org) to have him take them. Trust me, by the time he finishes telling you how these things work, you will be setting one up for yourself. Once you place some of the client’s money into this unique plan, your client will no longer be bugging you about portfolio volatility. And finally, the ultimate (in my mind)…the ability for the advisor to continue to receive and asset based fee in addition to a one-time up front commission.
This is good stuff.