3 reasons why the budget bill is a retirement income ripoffArticle added by Kevin Startt on January 14, 2016

Kevin Startt

Kennesaw, GA

Joined: August 08, 2013

My Company

It used to be you knew you were a Republican if you thought the only honorable revolution in the history of mankind was the American Revolution. You knew you were a Democrat because you thought the only good revolution is the one you are going to lead. Well, the revolution to establish a fiduciary standard for financial advisors is coming to head at the same time again when the country finds itself at the crossroads of another increase in the debt ceiling. This time two strange bedfellows, U.S. Senator, Elizabeth Warren and Speaker of the House, Paul Ryan, find themselves squeezing revenue from the same advisor faucet but with different motives.

Senator Warren, wants to choke the dog-and-pony-diner insurance advisor pitches touting various products at plate-licking boutiques like Ruth Chris Steakhouse. As a supervisor at a major broker-dealer, I once had a retirement income advisor drop his securities license because commissions on products had dropped to the point where he was not getting the same Social Security sales sizzle from steaks at Longhorn that he had gotten at Ruth Chris. I told him to just try Ruth’s, skip Chris and accepted his resignation.

After a recent request about the nature of these alleged kickbacks, Warren testified that 13 of 15 leading insurance companies said they did provide kickbacks to advisors through trips, marketing, etc. Never mind the fact that the first and second sources of contributions for Warren over the last 5 years, according to OpenSecrets.org were retirement advocates and trial lawyers. Personally speaking, there is a conflict of interest I have seen from the inside of these organizations and outside as an advisor for over 36 years. That being said, some of the marketing and sales incentives should be in the delete box of every advisor.

However, educational workshops do overlook the hundreds of advisors nationwide who are truly trying to help their clients wade through the 75,000 page IRS tax code or Social Security morass.

There’s an old Proverb that says when cat and mouse agree the grocer is ruined. The extent of impact on middle-income retirees is estimated to be in the hundreds of millions by the insurance industry which justify that the middle-income retiree would face a dearth of retirement planning advice as advisors quit or move to other markets if the cat’s (Warren) proposal is enacted.
Right now legislators, the Department of Labor and the Securities and Exchange Commission, are debating this issue for the third time in the last 10 years. Ironically, the most popular educational topic has been Social Security and how to increase or optimize retirement income. Insurance advisors have been working overtime to provide simple solutions to the retiring public on the complex topic of how to utilize the Social Security and tax code wisely to maximize their Social Security income by as much as 6-8 percent annually, according to the Wall Street Journal.

The mouse, Speaker Ryan, is sending a budget bill to the Senate that ends lucrative Social Security maneuvers talked about by advisors at many of these workshops. The termination of these tactics could put an end to the Ruth Chris bandwagon on Social Security planning advice workshops. As an example, if the bill is signed by the president, a married man who first claims Social Security at his full retirement age might have a choice to pick one of two retirement benefits:
  • One based on his own earnings record
  • or a spousal benefit based on half of his spouse’s full benefit.
At full retirement age, let’s say 66 for someone born between 1943 and 1954. He would have the option under current law to file a restricted application to claim only the spousal benefit. If he or she did that, he then could switch at some future date to his own earned benefit, which would have grown larger by 6-8 percent annually thanks to his delay in collecting it.

This file-and-suspend strategy has cost the government peanuts or considerably less than 1 percent of the current Social Security deficit, according to the Wall Street Journal. In the future, however, as boomers become more aware of these strategies, sources say this number would balloon and blow up the deficit. The Journal contends that most of the benefits would accrue to the top 40 percent of wage earners, according to Boston College Center for Policy Research.

It is strange that the bedfellows of Ryan and Warren seem to reaping revenue with across the aisle rhetoric and rapport on the backs of the same middle class that attends these educational workshops and stands to benefit from advice that the government created in the code to begin with.

As comedian, Lucille Ball once said, “the secret of staying young is to live honestly, eat slowly and lie about your age.” It looks like the secret of staying young is avoiding Ruth Chris financial seminars, and eating quickly before the next middle class tax boondoggle is busted.
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