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New Personal Financial Consulting

Our new Personal Financial Consulting practice will be rolling out in early 2019.  As an Independent Agent, we will be offering select Targeted Annuity and Life Insurance products to help our clients meet their personal long-term financial cash flow needs and objectives.    Our Founding Director Mike Johnson will be heading up this practice.  We will offer annuity cash flow and insurance products from 15 to 20 different insurance companies, with the main objective being to help our clients construct a well-designed runway to retirement.

Mike’s multi-decade relationships with dozens of CPA’s (and high-end private and public sector clients) identifies him as the clear professional and trusted source to offer annuity and insurance advice with honesty and integrity.  Our firm will advise and present options to individuals, and their chosen advisors, on how to best meet and supplement their retirement goals with contractually guaranteed life-long risk-free cash flow.   We will not be selling direct investments in the stock market, managing money, offering mutual funds, selling variable brokerage house annuities or selling high commissioned products from low-rated insurance companies.  By not offering these riskier products, it will enable us to focus entirely on offering risk-free positive cash-flow streams and working to mitigate other personal financial risks.  When appropriate, we will offer suggestions for Long-Term Care (LTC) and Medicare Gap Insurance (Medigap) and Life Insurance products to manage and mitigate some of the future risks which could negatively affect client (and spouse) retirement and well-being.

Increasingly more articles are being published in respected financial publications like Barron’s suggesting that people need to start considering income annuities, deferred income annuities and indexed annuities in order to guarantee safe cash flow in retirement.  Unpredictable and erratic stock market investments, combined with low interest rate bearing bonds, CD’s and treasuries are leading people to focus more on the predictability and higher returns offered by annuities.  The search for higher returns has made future retirees more vulnerable to risk as they try to move up the yield ladder.  The US Government itself, in recognizing the lack of available safe retirement income and the heighted risk with the under-funding of Social Security program obligations, has started focusing on the need for individuals to consider annuities.  Bi-partisan efforts have gained momentum in Congress regarding how to facilitate opening up markets to invite more individual participation in annuity contracts, both inside and outside traditional retirement vehicles. 

Most importantly when a client works with us, IDC will state clearly when a client’s needs are NOT going to be best served by annuities, life insurance or any other product in the market place that we might offer.  Call it integrity, call it honesty, but frankly it is simply us being “60-something” ourselves and being comfortable with our own financial plans.  Having been a management consultant for over 30 years, and as a former Deloitte Management Consultant, it is apparent to Mike that professional relationships last only if we are honest.  It is important to us that our clients have a positive opinion of us, and in our mind that is mandatory for a lasting network of business relationships…all of which is much more important to us than any given commission check.  If a client appears to already be well prepared for retirement, and the risks of retirement, we will clearly acknowledge that.

We will offer advice free of charge, and we will spend as much time as needed with our clients and their advisors to help them fully understand the options, and terms and conditions of any product contract.  Admittedly many of the annuity and life insurance products are complex, but that is because they are in fact “contracts” and not investment vehicles in the traditional sense (like mutual funds, or even hedge funds).  The fact that our clients will execute a strong binding contract with a large financially sound insurance company reflects the safety of annuities and select life insurance products.  These contracts are not something to fear.  We will explain each contract, and make sure that all questions are answered either by us or the insurance company offering the product.  We will offer education to our clients detailing the life Insurance company business model to increase personal knowledge and confidence, and why it is often prudent to place at least some money with an insurance company.   Some of the more advanced topics that you might want to discuss with us:

  • Suggestions on how to fund early retirements and build bridges to your other retirement cash-flow streams for use beginning in the age 59 to 70 + time frame.
  • The pure concept of “longevity” insurance.
  • How annuities can offer high internally compounded tax-free growth, similar to common retirement accounts (IRA’s, 401Ks, etc.) … yet with no annual limitation on contribution limits.  Great for early retirement goals.
  • “Joint” Annuities and Life Insurance that cover both spouses.
  • What amounts are you budgeting for retirement, and the “unexpected?”
  • Medicare limits and Medicaid Spend Down Rules, including “look-back” periods of 3-5 years and how this can unexpectedly shorten your Retirement Preparation Runway.
  • What does “self-insuring” your long-term health care really mean?
  • How to balance your retirement cash-flow needs, with planning for your own long-term healthcare and money that you wish to pass to your heirs.
  • Solutions to potential Tax Burdens found in existing life and annuity products that you may hold.
  • How to provide additional Social Security-like cash flow for your children and grand-children (reduce their risk and reliance on Social Security and changes to tax treatment of retirement plans).  Who actually owns an IRA?

When investors approach retirement age, the runway gets very short…time quickly runs out to lock in and capture guarantees for retirement cash-flow.  At age 60 it is more difficult to start trying to lock in higher rates of return.    If the stock market suddenly deals a 40-50% unexpected market loss to a retiree (or a soon to be retiree) it can be absolutely devastating (caution noted here: percentages used in financial advertising are often misleading.)  For example, to get back to “even” after suffering a 50% market loss, it won’t happen in 3 years with 15% average gains compounded (rare and unlikely anyway) …that only gets you half-way back to even.  Reality is that It could take you 10 straight years of a 10% return (or 7 to 8 years with true/smooth compounding) … and that would only work only if there isn’t another highly probable mild 5%-10% down year somewhere in that timeline, which could deal you another 2 to 4-year setback.  Again, this is just to get back to even.  Yes, it takes a 100% GAIN to get back to EVEN after a 50% LOSS, and that can take a decade or more.  Ouch.

Instead, imagine if you could eliminate the erratic movements of the market in exchange for cash flows that could grow at rates 1-4% higher than other safe available investments… and there would be zero downside risk of a negative return in bad times.  In a 15% up-market year for example, your “gain” might be capped at 8-12% contractually, but in a 15% down market year your worst return is contractually set at 0% (no loss).  There is a long explanation behind how this actually works, but suffice it to say that this exemplifies the absolute advantage that insurance companies have over money managers at Mutual Funds, Hedge Funds, ETF’s, etc.  Those managed funds by charter (and because of competition) are required to be continually invested in specific stocks/sectors, etc.  When the market is going to have a bad week, and everybody knows it, those managers must stay invested to a large extent.  Yikes!  Insurance Companies are free (within the guidelines of their heavily audited and regulated risk pools) to move in and out of the market, hedge with options, futures, own real estate, etc.  Their promise to you is an annual contractual rate of return, and that promise in this example is to match the contracted annual market rate of return.  This is a fairly easy obligation for insurance companies to meet, they are not required to stay in the market constantly, or to own a basket of stocks with your name on it.

There are many safe annuity contracts (and some hybrid life insurance products) which eliminate most downside market risk completely.  The retirement preparation runway can also become beneficially long with some of these products in the case of deferred annuities and certain specific tax-friendly life insurance options.  The earlier in life that an individual begins the process (some annuity products are written Age 0 to Age 80), the less initial investment it takes to meet future cash flow needs.  A one-time single annuity premium with a deferred withdrawal start date stretched out 10, 20, 30 years can yield phenomenal cash flow at the time monthly withdrawals begin.  We will be encouraging young clients to start annuity “investing” in their twenties and thirties, in at least a small way, to take advantage of tax-free compounding.

There is a reason that all highly rated insurance companies survived 2008-2009, and even survived and did well during the Great Depression.  These long-standing highly rated Insurance Companies have done far better than banks and brokerage houses in bad times.  They have a unique internal strength, and their business model has always allowed them to honor their contractual obligations to millions of individuals and families.  Once we help you understand the insurance company business model, you will see how these insurance companies actually survived and prospered in the 1930’s, as did their many wealthy individual annuity and policy holders.  More recently, annuity sales nationwide are up double digits, and this growth is expected to continue as people become more educated and aware.  IDC wants to be your trusted advisor.

Whether you choose to lock-in future cash-flow streams now or later, we feel that it is extremely important for you to at least fully understand your retirement enhancing options, and any associated risks to your current or planned approach.  The famous (often cited) story about Babe Ruth maintaining his wealth through the Great Depression by placing his funds in annuities with large financially sound life insurance companies is true.  He did just fine with annuities, while many of his peers were financially destroyed.

Within your life span, just think about the Savings and Loan Crisis in the mid ‘80s, the Flash Crash in 1987, the Dot-Com Bust, Lehman Brothers collapse, The Great Recession 2008-09., etc.  While we survived these tough episodes, they did inflect long-term damage to our financial plans …and if one of those type of events happened during or close to your retirement age, think about how vulnerable you are.  For example, just look at your Mutual Fund performance in Q4 of 2018 (Ouch!).   Even the so-called safe and well-managed “Target Funds” for near-term years such as “2020”, which are supposed to prepare you to retire next year, lost 4% to 9% in this 3-month period.  How safe it that?   Moreover, what does a retiree do with the balance in their 2020 Target Fund next year to earn 2-12% returns going forward?  Can that retiree even find adequate guaranteed income, with no down years, for the rest of their life, while they are drawing down that balance?  What happens if they outlive the draw-down process?  Many annuity contracts have options where the payment streams continue for life (even if you live to be over 100), AND those payment streams can be contractually guaranteed to inflate each year!

Please feel free to call or e-mail Mike Johnson any time.  Whether he meets with you over the phone or in person, if all that you gain from that discussion is a better understanding of annuities, then we will have met our objective and we’ll call that meeting a “win”.  We won’t be making a play to manage your entire financial life, that is not our purpose.  We are committed to enhancing client retirement cash flow, and mitigating any risks to those cash flow streams.  Whether you are your own financial advisor, or you seek advice from a CFP/CPA on a regular basis, it would be beneficial for you to include us on your team.  Having worked with CPA’s his entire career, Mike is comfortable with and understands his team role, and would not be involved to compete with other professionals on your team.

 
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