People today are concerned about their future. The concerns cover the gambit of economic, cultural, and political. There are many causes for concern, however here are the 5 leading causes for their anxiety.
Higher Taxes in the future
We are enjoying lower taxes since 2018 due to "The Tax Cuts & Jobs Act of 2017", was signed into law December 22nd 2017. It was the most significant tax cut since the 1986 Tax Reform Act. The tax cuts have boosted the economy, but with that it has lead to larger deficits and increased the national debt.
The US National debt over $23 trillion (see Us Debt Clock.org), and budget deficit over $1 trillion. Also, if any of the programs being discussed by the Democrat presidential hopefuls get their way, the debt and deficit will increase dramatically.
One of the ways to solve the debt crisis would be to increase tax rates. As most Americans have their retirement savings in qualified plans (IRA's, 401(k)s, etc.), and increase in taxes would impact the after-tax income from these retirement plans.
Another solution to the rising debt would be for the federal government print more money. By printing more money, you could pay down the debt quickly. However, putting more money into the system would lead to inflation.
Inflation has not been an issue for several years. It does not change the size of your retirement account, but it will change how much you can buy with those dollars!
Reduction in Benefits
Retirees biggest cost is projected to be health care. Fortunately, seniors have been able to rely on medicare & Medicaid. With rising deficits it is conceivable that these benefits will be reduced.
With the size of the debt we have today, it is more likely than not that the government will have to use a combination of all 3:
- raise taxes
- print money
- lower benefits
Today the markets feel unstable and volatile. Anytime you make major changes to tax laws, entitlements, are alter fiscal policies, you can expect increased volatility. Young investors with little assets in the market can handle market fluctuations. People at or near retirement cannot.
People are more interested in not losing money versus how much can they gain. After all, Warren Buffet's rules for investing:
- Rule #1 - Never lose Money!
- Rule #2 - Don't forge rule #1!!!
Another fear, influenced by the above 4 concerns is running out of money. When social security first came out in 1935, the life expectancy for an average male was less than the retirement age. Today, people are living much longer, therefore the amount of money you need to last through your retirement years is staggering.
No one knows how long they will live, but statistically, it is several years beyond age 65. Outliving ones money is not a comfortable feeling.
Ways to mitigate the risks - Insurance Products
There is no way to eliminate the above risks, however, there are products available that can dampen the impact. The insurance industry has a variety of solutions you can consider:
- Higher taxes - Life insurance and annuity products are tax favored. Life insurance enjoys tax deferred growth, tax free income, and an income tax free death benefit. Annuity products grow tax deferred, thereby enhancing the amount available for retirement.
- Inflation - The only way to beat inflation is to out pace it from a return bases. Life insurance allow you to create wealth for your family by using 'penny's to purchase dollars'.
- Reduction in Benefits - Today's life insurance comes with 'living benefits'. These living benefits allows you to use the death benefit while you are alive to cover critical illness and/or long-term care. Many of these riders come at no cost.
- Volatility - Everyone knows the best time to buy and investment is after a market correction. If you have cash value in a product that does not lose money (See our blog Selling IUL), then after a market correction, you can borrow money from you life policy to take advantage of investment opportunities. If you use this strategy, it is important that you repay the loan after 1 year has past (1 year so that you can get capital gains treatment on your investment).
- Longevity - Outside of pensions from your employer, annuities are the only way you can get guaranteed income for life! These annuities can be purchased for immediate income (SPIA's), or purchased today for income in the future (deferred annuity).
Advisors Resource Company has the experience and expertise to help you with the use of life insurance to mitigate your clients risks. Our Leverage Life Process will give you the tools and confidence to bring these solutions to your clients.