Josh Ver Hoeve – VP Annuity & Life Distribution
It’s that time of year again — TAX season. As many of you are working with clients, you may have gotten comments about tax refunds being less than expected. After all, taxes were reduced, and deductions increased, so shouldn’t refunds be larger? Well, tax refunds are only down eight percent on average this year (IRS.gov). However, I think we all seem to be hearing about those cases in which certain individuals were hit harder. The three most popular reasons for lower refunds are; 1st the loss of a $4,100 personal exemption, 2nd limits on state and property tax deductions, and 3rd, perhaps the most substantial impact, more money in your paycheck with adjusted withholdings.
Conventional financial wisdom from many CPAs and financial planners advises clients to stash more away into tax-deferred accounts like IRAs and 401(k)s to solve an immediate tax issue, sometimes ignoring what those same tax savings today will cost in the future. Perhaps we need to see tax rates go back to 80+% like they were sixty years ago before people start saving for retirement differently.
We are currently over $22 trillion in debt. A pretty interesting website along with videos depicting that debt can be found at http://demonocracy.info/. To give us perspective, we have doubled our national debt in just the last ten years, and have tripled it in the last fifteen years. In the year I was born, 1982, we were just under $1 trillion of debt, and we are now 22 times that amount! Plain and simple, taxes have to go up at some point, and we might all agree that they’re not only on sale today, but actually predictable right now.
A typical 50-year-old saving for a retirement age of 67 will gamble with 401(k) contributions in hopes that the tax rate is lower in twenty years when they access the cash. Of course one of the unique investments that works unlike anything else is cash value life insurance. We can pay that tax now, and take it tax-free at retirement. While IUL is an amazing product, the IUL industry is spinning right now. We had a major regulation put into place about three years ago requiring us to show clients specific RORs and specific loan arbitrage. At first glance, these regulations made sense. They made sense to me and everyone else who thought a 10% ROR on an IUL illustration was absurd. However, the regulation Actuarial Guideline 49 (AG49) has had the opposite effect.
Insurance carriers are simply revising products to illustrate at 6-7% which seems reasonable, but they have added crediting bonuses and increased fees. Don’t get me wrong, crediting bonuses are great, but it’s starting to get out of hand. To pay for many of these bonuses, fees and costs on IUL have nearly doubled and tripled. In addition to insurance carriers trying to outpace regulations, we have new CSO tables which must be used for ALL life insurance products. What this means is clients are living longer, and because of that, every insurance carrier must revise or create new products using the updated mortality tables. The deadline for this is 01/01/2020 so we will see a plethora of new products come out this year in the life insurance space. The effect will be different for each type of life insurance. We would assume everything should be less expensive. However reserve requirements have also increased, so even though people are living longer, premiums will go up for most policies.
Asset’s life team will work diligently to keep you informed as this happens. We’re committed to vetting out products thoroughly before recommending them to you. Life insurance is a long-term commitment, sometimes as long as 30, 40 or even 50+ years. For this reason, it’s vitally important to make sure the products we recommend are not just the best today or a year from now, but even more important that they stand the test of time. Allianz, National Life Group, and Minnesota Life have been core carriers for us on the IUL side, and they have all held true to their promises. You won’t get a product recommendation from Asset because the cap is high today when we know that same cap rate is just as important year after year. The Asset life team spends a tremendous amount of time understanding carrier pricing and product development to assure the best solutions.
Back to taxes…have you used the Planning Compass with a client before? Do you know what the Planning Compass is? This tool compares all of the statistics discussed above to determine which product makes the best sense to use when saving for retirement. It’s a dynamic calculator that compares cash value life insurance with tax-deferred accounts. Start by filling out the Request Form then call our life team to schedule a thirty-minute phone/web call with us to show you the power of this tool.
There is over $2.5 trillion in IRA assets in the United States, and when I speak with advisors, they all tend to agree with me that taxes are on sale and the future holds tax increases. If we can agree on that, how about we all do our clients a favor and take some of that $2.5 trillion in IRA assets and convert them to a Roth IRA. Contact our annuity team at 888-303-8755 to tell you about Fixed Indexed Annuities that work well with Roth conversions! If you missed Kurt Metcalfe’s breakout at Sales & Networking on “Annuity Product Niches” which includes these “Roth-friendly” annuities, you need to hear it.
Taxes are inevitable, so let’s do all we can to protect the retirement incomes of our clients from them!