Helping younger clients to save for retirement

By Chris Conklin

Insurance Insight Group


If you ask anyone who is approaching their sixties and furiously trying to build retirement savings from scratch, chances are they will agree with the sentiment, "I wish I had started saving for retirement earlier."

The importance of starting early is seen in this numerical example. Suppose that you put away $10,000 per year for retirement on each of your 30th through 39th birthdays -- a total retirement savings contribution of $100,000 -- and then stopped saving. Suppose that in contrast, your neighbor puts away $10,000 per year on each of his 40th through 64th birthdays -- a total contribution of $250,000. Who will have more money accumulated for retirement at age 65?

The answer -- if the money is growing at any interest rate of 5.8 percent or higher -- is that the person who saved $100,000 in his thirties will have more money than the person who saved $250,000 starting just 10 years later.

So, for your clients, starting earlier is better.

Picking the right product in which to stash your retirement savings is also a decision that can have quite a bit of impact on your clients' future prosperity. Thus, you want to make an appropriate recommendation.

Suppose that you typically recommend fixed indexed annuities to your older clients who want to protect and grow their retirement savings. That is often a great recommendation, as fixed indexed annuities are very attractive financial products that provide wonderful safety of principal with market index-based interest crediting. They are relatively easy to understand, and anyone can qualify for them, regardless of health.

But, for your younger clients, both you and they would often be better served if you instead recommended fixed indexed universal life insurance.

Fixed indexed universal life insurance offers the same protection from market risk as fixed indexed annuities. The insurance carrier bears the market risk, crediting your clients' cash values with an interest rate based on increases in a market index, with protection from market index decreases

But for younger clients, fixed indexed universal life insurance offers four key advantages over fixed indexed annuities.
    1. Death benefit protection: Your younger clients need to save for retirement, but they also need to protect their families in the event of premature death. While either an annuity or a life insurance plan can provide the retirement fund accumulation that your younger clients need, only a life insurance plan can provide for that retirement fund to become more fully funded for the surviving spouse if there was a premature death.

    2. High caps and low cost of insurance charges: Older clients sometimes shy away from life insurance plans because the cost of insurance charges may seem too high. But for younger clients, these charges are usually quite low. Also, consider the fact that fixed indexed universal life typically offers considerably higher index participation than annuities. For example, some carriers that offer both types of products may have annuity caps in the 6 percent range, while the caps on their indexed life plans are in the 12 percent range. Younger clients can get the advantage of these higher caps while paying relatively low cost of insurance charges.

    3. Protection from future tax rate increases: Annuities offer tax deferral, which can often be a wonderful tax planning feature. But if your clients think that tax rates are going up, they may be more interested in avoiding taxes altogether. When you take income from an annuity, you will be taxed. When you die with an annuity, your beneficiaries will be taxed. With a life insurance plan, however, your clients can escape taxes. If the plan is properly structured with premiums under the seven-pay limit, your clients can create tax-free cash flow in retirement using policy loans that are ultimately repaid by a portion of the death benefit. And the entire death benefit is paid free of income taxes.

    4. Lower initial lump sums: Your younger clients typically have different premium patterns than your older clients. Your older clients often have large lump sums to put into an annuity. Your younger clients typically do not, but they are capable of putting a monthly or annual amount into a plan that you recommend. So, your younger clients are capable of funding a premium pattern that works very well in a life insurance plan. Additionally, since life insurance plans pay considerably higher agent commissions in this type of funding scenario, the fixed indexed universal life sale is more rewarding for you, as well.
So, you can see that for your younger clients, fixed indexed universal life is a win for both you and your clients. They get the death benefit protection they need, higher caps with low cost of insurance charges, and protection from future tax rate increases, all with the premium pattern they prefer. You get a considerably higher commission.

Win-win propositions build better client relationships. With your younger clients, fixed indexed universal life insurance can provide those winning propositions.

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