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Retirement Planning

Story Time

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I just finished reading an excellent book about Norse Mythology. Before that I read an incredibly fascinating book about using DNA in genealogy. Halfway through a story relaying how Odin is the Allfather (since all living beings come from him), I realized that both books dealt with the same exact questions:

Where did we come from?
Where are we going?

I believe the former question is important, but I have always been enamored by the latter. So much so that it penetrates nearly everything I do and am interested in.

First, I love technology. I enjoy playing with it for fun, learning about how it works, utilizing it in business, and any other way I can interact with it.

Second, I lament that our time is finite. I would love to see what future generations build off the technologies created during our brief time on this planet. I truly believe we are living in one the most exciting periods in Earth’s history. Yet we are only in the infancy of what our contributions will offer.

That is all well and good, but what does that have to do with work?

I sell Insurance. What is that if not the ultimate nod to the inevitable future? Yes, we will all pass on one day, but while we live we have the power to leave our own (pecuniary) legacy.

I sell Annuities in an acknowledgment to the unknown future. There is a growing segment who believe that everyone alive in the year 2030 will have a life expectancy of one hundred and twenty years old thanks to medical advances in gene therapies. How does an extra forty years of life expectancy fit in to a retirement plan?

Who is luckier than me? The future is my passion and I get to discuss it every day!

If you are interested, I highly recommend Norse Mythology by Neil Gaiman and A Brief History of Everyone Who Ever Live by Adam Rutherford.

Insurance Planning Opportunities in Light of New Tax Laws

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Last Wednesday we had the privileged of hosting a Webinar presented by Kevin Blanton, J.D.. As the Assistant Vice President and Associate Counsel of Advanced Markets for John Hancock, Kevin had incredibly astute and informed observations regarding the current tax bill.

We are happy to share a recording of this webinar and some marketing materials that can assist you in finding more opportunities to advise your clients.

Click Here to listen to the recorded webinar

Click Here for John Hancock’s Central Intelligence on the New Tax Bill

Click Here for Insurance Planning Opportunities in Light of New Tax Laws

Click Here for a Fingertip Tax Guide for 2018

That Time of the Year, Again…

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This year marks the ninth holiday season that I will be celebrating as a part of the Financial Services family. Similar to many of you, I was sitting in a retail position for the first five years.

Over the past week or two and into the new year we will all be inundated with the same mantra that we have heard before.

“It’s that time of the year again… no one does business between Thanksgiving and the New Year.”

For many people this has turned into a license to sit back, relax, and procrastinate. The problem is that everyone knows that no one does business during those first few weeks in January either. Forget about Presidents week, and don’t even think about May/June when the kids get out of school. There’s never any business during the summer because everyone is away. In the fall you have school starting and the Jewish holidays, there’s just no time to sit with anyone.

I have great news. It IS that time of the year again. In fact, it’s always that time of the year when people are thinking about their families. It’s always the time of the year when babies are being born, when people are looking towards retirement, and when companies are planning for the future.

If you need any more incentive to make an end of the year push, check out John Hancock’s sales contest.

So, let’s all work together and make the last push of 2017 a memorable one.

What are CVAT and GPT?

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This is an easy one. CVAT stands for Cash Value Accumulation Test and GPT stands for Guideline Premium Test. Next Question?

Ok, so maybe a little more information would be useful…

CVAT and GPT are the two tests that the Internal Revenue Code utilizes to determine the tax favorability of Life Insurance contracts. It is important to note that the specific test a policy will adhere to must be chosen at inception and cannot be changed once the policy is placed in force.

The Guideline Premium Test must meet two requirements. The first is a limitation on the cumulative premium and the second is on the Cash Value as it is relative to the Death Benefit and the insured’s attained age.

The Cash Value Accumulation Test requires only that the account value not exceed a specified percentage of the death benefit. It does not technically limit the amount of premiums to be paid, however, excessive premiums could still create a Modified Endowment Contract.

Some general rules of thumb:

Policies adhering to CVAT tend to perform better for clients looking to access Cash Value in early years or pay lump/limited sum premiums.

Policies adhering to GPT tend to perform better for clients looking to build cash value over a longer period.

There are of course exceptions to every rule which we consider on a case by case basis.

Success Story

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At Algren Associates we take pride in every case we help you close. One of our greatest pleasures, however, is assisting our advisors create quality plans that they and their clients see value in.

One such case was just submitted, and we would like to share it with you.

A tax-advisor of ours that we will call, Ben, has a wealth, young, savvy client (Jerry) who works at an investment bank. Over the course of three years, roughly a decade ago, Jerry was sold three Whole Life policy that were “Guaranteed” to be paid-up two years ago and be cash rich.

The policies did not perform as advertised and Jerry found out a month ago that he will have to continue paying these policies for at least 9 more years and that the cash was not projected to be nearly as rich as he had been told.

An unhappy Jerry went to Ben and said he was interested in looking at other options. Ben came to us and asked us for suggestions. We showed Ben and Jerry that a new Indexed Universal Life policy could take the full amount of cash in his three Whole Life policies and with a conservative interest rate, Ben would only have to pay half of his current premium for five more years. We also showed that if the index under-performed our conservative assumption by 1.5% that Jerry would have to pay an additional five years’ worth of premium twenty years down the line.

Jerry was happy and ready to move forward with the proposal.

One week later, Jerry came back and said he had been thinking and decided to just take all of the cash, put a down payment on Real Estate, and purchase term insurance.

Before we go further. Some of the figures that are important to know:

  • Each in-force policy has a face amount $1,000,000
  • Two policies are under basis with total Cash Surrender Values of about $172,000
  • The third policy has a Cash Surrender Vaue around $146,000 and is over basis by about $12,000
  • The total premium for all three policies is $30,000
  • Jerry is 43

In less than a week our team and Ben came back to Jerry with the following suggestion:

Jerry could surrender both policies under basis. He could then take $150,000 and use that for his down payment instead of the full $318,000. This would cause his mortgage payments to be about $9,000 a year more than had he used the full $318,000.

Next Jerry would drop-in the reminder $22,000 from the surrenders of the first two policies and 1035 the $146,000 from the third policy (so as to not trigger any taxable events on the gains) into an IUL product. Showing a premium of $15,000 we illustrated the Minimum Non-MEC face to be $1,400,000, which he would pay until his age 65. We supplemented the rest of his $3,000,000 of coverage with 30 Year convertible Term insurance with an annual premium of $3,500.

At age 66, Jerry would be able to take 20 years of distributions, between $72,000 a year to $104,000 based on assumed rates of 1% and .2% less than the current illustrated rate.

If you are still reading this, we appreciate you. If you did the math and realized that adding up the new premium ($15,000), the additional mortgage payments ($9,000), and the Term Insurance ($3,500) is $2,500 less than he is currently paying on his Whole Life policies, then we applaud you.

The response we received from Jerry was simple but incredibly gratifying.

“I agree on all the above information.  I truly appreciate you guys working this hard to help find the right solution.  Very impressed.”