Every news item out of Washington seems to include details of a new or expanded tax. And generally, American savers have come to expect rising taxes in the years ahead. At your next seminar or workshop, ask the audience how many people think taxes are going up in the future; nearly everyone will raise their hands.
Yet while savers understand we’ve entered a rising tax environment, surprisingly few of them have used that knowledge to change how they save for retirement.
They continue to defer taxes on all or most of their retirement assets, seemingly failing to connect that higher taxes in the future means they’ll owe more in taxes on those funds and have less money set aside for retirement.
So how can we, as advisors, help our clients overcome this disconnect?
The financial services industry is built to help clients face new risks. In fact, if you ask most advisors why their clients do business with them, part of that answer is: “I help my clients mitigate risk.” We help savers reduce uncertainty to make retirement more predictable and successful.
How do we do that? Simple. We use a process:
- Identify the risk.
- Quantify that risk.
- Build a plan to mitigate that risk.
It started with the market. Savers wanted – and needed – the power of the stock market to grow their funds. It was a simple formula: Put money aside, invest it the stock market, and watch it grow. Until it didn’t. During market downturns, savers learned about risk. The advisor community learned to identify that risk by creating and using fancy terms like alpha and beta. The industry helped create tools like monte carlo simulations to quantify that risk for clients. Finally, advisors would use those tools to build asset allocation models to mitigate market risk.
This focus on accumulating wealth was the primary focus of our industry until a few things happened: the dot com bubble burst, followed shortly thereafter by the financial crisis. Suddenly, savers were reaching retirement age with depleted assets and no plan to generate income. And that problem was compounded by the reality that retirees were living longer than ever.
Advisors learned to Identify that Income Risk as Longevity Risk. Suddenly, it wasn’t enough to just accumulate funds; savers needed a plan to make those funds last a lifetime. This led to the boom in annuities and guaranteed income riders, the perfect solution to provide a guaranteed check clients couldn’t outlive. In the 2000s, advisors who became experts in income planning flourished. And shortly thereafter, most advisors across the industry were using annuities to offset income risk.
Today, the headlines are all about taxes. And advisors who understand Tax Risk today are the ones who will flourish as leaders in the next wave of the financial industry’s development.
We can apply the same financial planning process we used to address market and income risks: Help clients identify their tax risk, quantify it in dollars and cents, and then find tools to reduce that risk.
Stonewood can help do all three.
Our prospecting and marketing materials help you uncover the tax risk of your clients by changing the way you communicate the risks of retirement. Whether you’re hosting a seminar or workshop, talking to a TV or radio audience, or meeting with prospects one-on-one, we have tools to educate your audience on the risk of rising taxes – and why it’s critical to address that risk now.
Next, our client report software helps you quantify tax risk for your clients. Most people who sit across the desk from us have been programed to save in tax-deferred vehicles. It’s the default savings approach in America. So shake them up: Show them the cost of tax deferral by calculating their total taxes in retirement. Help them make educated decisions about the tax status of their retirement assets going forward. I promise, you’ll watch their jaws drop – and you’ll be thanked as the first advisor who’s helped them understand this pressing retirement risk.
And finally, Stonewood will train you on building client plans to mitigate the risk of rising taxes in retirement – particularly using the tax benefits of life insurance to offset tax risk.
The results for your clients? A complete retirement approach that addresses their complete retirement risks:
- Market risk mitigated.
- Income risk mitigated.
- And now tax risk mitigated, too.