Your clients, Joseph and Mary, are nearly ready to retire. He will be 62 in November, Mary just turned 61. They have planned and saved what they feel will be enough to live comfortably in retirement. They estimate expenses of $8000 a month with a 2.5% inflation rate.

Joseph recently left his employment but Mary plans to work a few more years until she is 65. Her salary is $70,000 a year. Both have a 401k plan with $350,000 each. Mary is contributing $1500 a month with a $500 match from her employer. Other investments total $300,000 with a $250,000 basis. They have other savings of $50,000. They conservatively estimate a return on their retirement assets of 4%.

Using Cash Flow Decisions, you find that your clients can afford to optimize their Social Security. Joseph will file and immediately suspending at his Full Retirement Age (FRA), 66 which allows his benefits to earn delay credits. Mary will also file at FRA, also age 66, and restrict her benefits to spousal only. At age 70 she also will receive her benefits with full credits for delay. You find that their cash flow is sufficient until Joseph is 84, Mary 83.

If Joseph dies at his life expectancy of 85, Mary has 6 years of survivorship until her assumed death at 90. They estimate Mary will need 80% of the current monthly expenses. Notice the information to the right of the graph (Figure 2). The value of the remaining needs at Joseph’s death (the life insurance need) is $368,655.

Life Insurance Tip

Figure 1

Purchasing a life policy to cover the life insurance need accomplishes two goals:

  1. assures that Mary has sufficient funds after Joseph dies (Figure 2); and
  2. reduces the remaining needs while both are living to just $18,797 in today’s dollars.
Life insurance covers survivor shortfall.

Figure 2

Retirement income planning can be complex. Life insurance offers a simple way to fund survivor needs and gives your clients peace of mind.

Cash Flow Decisions can show your clients not only their cash flow but also provide suggestions to improve their plan.

Posted September 29, 2015 filed under Articles.

As a financial planner, sometimes you must sell a prospect on the most intangible of products—your advice.

Michael Kitces recently published an excellent article titled, “Selling Is Essential, Even for Planners.” He points out that the planner who evolved into financial planning from the insurance, banking, or brokerage business, already had a relationship with clients who had an appreciation for the value of the advice for which they were being asked to pay. Also, they had been taught sales techniques for selling intangible products. But, planners just entering the profession need help selling their prospects on paying for their advice.

It’s a vicious circle: if they could see an example of exactly how you could provide them value, they would be willing to hire you. If they would hire you, you would show them the value you could specifically be to them. They need to see the value of your planning before they will agree to pay for it, and you need them to agree to pay for the planning before you agree to do it. What’s the solution to this dilemma?

Let me tell you the story of a similar dilemma. An estate planner in Los Angeles had a very successful friend that he had been working for over a year on his estate plan. It was the most complex, and largest case he had ever worked. He was able to get the insurer to offer the life insurance policy needed for the plan which had an annual premium of $1,000,000. The friend had a team of trust officers, attorneys and CPA that were among the best in L.A. Although the entire team recommended that he put the policy inforce, he refused to do so.

As the agent was losing hope for this sale, he received a program from the insurer asking him to evaluate this program and to determine if he thought it would be effective for agents in the estate planning market. He loaded the program in his laptop and saw that it was an interactive, graphic program that walked a person through the estate tax process. It visually showed how life insurance and a proper estate plan could protect the family of a successful person. By coincidence, he was to meet his friend for drinks later that afternoon. He took his laptop still loaded with the estate tax concepts program.

Over drinks he showed his friend the program and let him “play” with it. After a few minutes, his friend told him, “Let’s do that life insurance thing you’ve been talking to me about.” Without asking any further questions, he proceeded to get the policy put inforce and all of the other work required of the estate team.

Later, after everything was in place, he was having a drink with his friend again. He asked him, “You had refused to act on that life insurance, even when the best estate planning team in L.A. was advising you to do so. I showed you that program that was almost like an interactive PowerPoint, and you decided to do it. Why?”

His friend replied, “Until I saw that program, I really did not understand why I needed that big insurance policy. I was afraid someone would ask why I was spending a million dollars a year on it, and I didn’t know. That little program explained the concept so that I could answer that question if anyone asked.”

People often need to see how the concept of a plan would work for them, before they will commit to the planning process. This type of conceptual products can provide a “bridge” to the complete planning. Impact™ developed the product, Estate Tax Concepts, used in the example above to help provide a bridge for a prospect to a detailed estate planning process. Now, Impact ™ has developed a suite of tools that can help a planner show his or her prospects the type of advice and services they can provide. This suite of tools is referred to as PlanFacts which are conceptual financial tools. Software tools that require a minimum of facts—no lengthy fact finders—and produce powerful presentations designed to show a prospect the value they receive from various financial concepts and arrangements. These tools drive the prospects to actions—either buying the products illustrated or agreeing to further planning.

Conceptual tools such as PlanFacts do not provide detailed cash flow analysis or specific recommendations, but instead show how a concept offers significant advantages applicable to the prospect’s individual situation. Some of the financial concepts illustrated are as follows:

  • A Social Security filing strategy to maximize Social Security benefits or integrate benefits with a specific retirement goal (Social Security Pro)
  • Showing concepts that use required minimum distributions (RMD) to accomplish other financial goals (Qualified Plan Concepts)
  • Various estate planning techniques that can determine the impact of federal or state estate taxes on heirs, and a review of techniques that may be useful in the distribution of an estate (Estate Planning Concepts(This is a 2015 version of Estate Tax Concepts referred to above.)
  • The order in which assets are used for retirement income, especially as it relates to income taxation (Cash Flow Decisions
  • Retirement planning concepts and time horizon investing (Retirement Road Map)
  • Providing a secured retirement income floor during retirement with annuities (Cash Flow Decisions) and (Retirement Road Map)
  • Developing a conceptual retirement plan, without numbers, and the various retirement risks (Ready-2-Retire)

Each of the various conceptual tools provide answers and an action plan; thus the prospect sees the value that the planner can bring to the table. The “bridge” is then established—by working with the advisors to obtain more detailed information, a detailed financial plan can be developed and implemented. The details and the implementation of a plan is the advice that is being sold.

The graphic, easily understood concepts are much easier for the prospect to understand and to get a sense of exactly the type of services the planner is selling. The PlanFacts tools are not competing with the detailed analysis and financial plans being developed, but can be a catalyst to get them started. Similar to the example above, PlanFacts tools help your prospects understand what they are paying for.

Posted September 8, 2015 filed under Articles.

The first step in retirement income planning is generally looking at and maximizing the potential Social Security income stream when possible. Careful planning can give your clients thousands of dollars more income.

Maximizing Social Security alone isn’t necessarily best as your clients’ other income sources, retirement plans and investments may affect what is really best. And in some cases, taking Social Security at different ages than a maximization strategy would suggest may make a huge difference.

Consider this example: Bob is 60 and Barbara 58. Their Social Security benefit at Full Retirement Age is $2500 and $2000, respectively, with 2.5% cost of living increases. They estimate their monthly expenses in retirement to be $5600, with inflation at 3%. They expect to live longer than life expectancy, living to age 85 for Bob and 90 for Barbara.

Maximization has been suggested: when Barbara is 64, she will file for her benefits. At the same time, at age 66 and 2 months, Bob will file a restricted application for spousal benefits based on Barbara’s record. Using a 5% rate of return, the future value of their benefits is approximately $3.8 million dollars. This is over $488,000 more than both just filing for benefits at age 62.

Great job of planning, right? But, what about the rest of their income needs? Bob has other income of $500 until age 85. They have $1,000,000 in qualified plans. Estimated effective tax rate is 20%.

When evaluated inside their actual cash flow, the optimal Social Security method is different. Bob files and suspends until age 70; Barbara files a restricted application for spousal benefits and delays her own benefits until age 70. Bob and Barbara can afford to delay benefits until later, taking advantage of delayed benefit credits and higher survivor benefits. Optimizing Social Security this way produces an additional $27,802 future dollars.

 

 

Start Social Security at 65 Maximize Social Security Benefits Optimize Cash Flow
Bob starts benefits Age 65 Age 66 Age 70
Barbara starts benefits Age 65 Age 64 Age 66
Filing Method File for benefits Bob files restricted, Barbara files Bob suspends, Barbara files restricted
Future Value of benefits $3,443,616 $3,791,223 $3,763,154
Assets at Death -$158,439 $252,261 $280,063

Figure 2 from Cash Flow Decisions: The maximization strategy does produce more cumulative Social Security benefit dollars, but less available cash flow over the client’s lifetime.

When your clients’ other income and assets are added to Social Security projections, taxation and RMDs can significantly affect the outcome.

 

Try Cash Flow Decisions and see what it does for your clients’ retirement income!

Posted September 1, 2015 filed under Articles.

Posted May 20, 2014 filed under News.

“When should I start my benefits to receive the largest total income?”

Breakeven analysis used to be the “the only game in town” for answering that question. New Social Security tools, with the ability to calculate hundreds, or thousands of different scenarios almost instantly, have made “breakeven analysis” almost obsolete. Monthly benefits vary by starting age, the older you are at start, the higher your monthly benefits; and, the younger you are at start, the smaller benefits.

Since benefits, regardless of when you start will last until your death, should you take less for longer or more for fewer years? Breakeven analysis compares two scenarios. If you took the larger income starting later, it determines the age you would have to live so that your total benefits are greater. That age is referred to as the “cross-over age” or “breakeven age.”

Breakeven Example

Consider a single client born in 1953 and fully-insured. His monthly benefit at full retirement age (age 66) is $2,400. If he takes a reduced early benefit at age 62 he will receive $1,800 monthly. A delayed benefit to age 70 would be $3,168 monthly. Let’s consider several breakeven analyses to answer this client’s question: “When should I start my benefits to receive the largest total income?”

Starting at age 66 instead of age 62 the breakeven age is 77
Starting at age 70 instead of age 62 the breakeven age is 80
Starting at age 70 instead of age 66 the breakeven age is 82

These numbers ignore cost of living adjustments. Would the results be different if cost of living adjustments averaged 2.5% over this period? Yes. The breakeven years would be a little sooner.

Starting at age 66 instead of age 62 the breakeven age is 75
Starting at age 66 instead of age 62 the breakeven age is 78
Starting at age 66 instead of age 62 the breakeven age is 80

But that ignores time value of money. Although the early benefits would be smaller, they can be spent now. If you consider the time value of money at 5% and the cost of living adjustments, the breakeven ages would be later.

Starting at age 66 instead of age 62 the breakeven age is 80
Starting at age 66 instead of age 62 the breakeven age is 83
Starting at age 66 instead of age 62 the breakeven age is 85

Your client agrees that he will probably live to at least age 85, that a reasonable cost of living adjustment should be assumed, and the time value of money should be included. So, how do you answer his question? You tell him to start at age 68!

How was that determined from these breakeven analyses? It can’t! Breakeven Analysis provides helpful information to the client, but it only provides tools to estimate the answer to the question: “When should I start my Social Security?”

Today’s tools, like Impact’s Social Security Explorer, makes answering the question easy. It calculates all the possibilities, using the conditions with which the client feels reasonable, determines the answer. The client wants a simple answer to his question—not various comparisons. Breakeven analysis is a good estimate, but not good enough with today’s technology.

For married couples the problem becomes even more complex. When one spouse dies, the survivor is eligible for an increased benefit—a survivor benefit. A typical breakeven analysis does not take these possible increases in benefits into account.

Instead of trying to figure out how to explain or make a breakeven analysis work, why not focus on the client’s original question: “When should I start my Social Security to get the largest total income?”

Using Social Security Explorer, the client decides what to assume, and then the software makes and compares the calculations. The client is shown almost instantly, the age combination that provides the greatest benefits and indicates it with a “star.” Breakeven analysis shows how long you must live for one scenario to be better than another. Social Security Explorer shows you best starting age considering the client’s other assumptions. Social Security Explorer provides answers to the real question.

J. Maxey Sanderson
President, Impact Technologies Group, Inc.

Posted May 20, 2014 filed under Articles.

Your PlanLab and PlanFacts data is not vulnerable to the Heartbleed security flaw.
The Heartbleed Bug is a serious vulnerability in the popular OpenSSL cryptographic software library. Impact doesn’t use OpenSSL in our data centers.

Posted April 17, 2014 filed under News.

Social Security Explorer

Today we received the issue notification for patent number D688687. The patented design of  Social Security Explorer resulted from intensive research by team leads Maxey Sanderson and Gretchen Smith. Their initial design was further refined during our development process and field testing. Social Security Explorer is now the easiest way to explore filing options with your clients. The attractive interactive design gives immediate feedback and makes the process enjoyable. All the complicated logic and the exhaustive calculations are reduced to a display clients actually understand and want to explore.

Currently Social Security Explorer is only available to financial professionals. We’re currently developing products designed to be used by consumers that expand on the patented design with additional interactive educational components to contribute the explanations that a professional would normally provide.

A 5 minute video tour.

Posted August 14, 2013 filed under Announcement, News.