For a guy that doesn’t sell life insurance, Ed Slott is one heck of a life insurance salesman.
He’ll be the first to tell you he’s a tax advisor, not an insurance guy. He does not directly sell life insurance or annuities. But that has never stopped him from being an outspoken advocate for the power of life insurance and its place in any sound financial plan.
“As a tax advisor, I have to constantly remind people that the single biggest benefit in the tax code is the tax exemption for life insurance. There’s no question that that’s the way to keep most of your money if not all of it protected from taxes forever,” says Slott, who sat down for an exclusive interview with Insurance Forums in late September.
While it is hard to find many more high-profile advocates for life insurance than Slott, he is, of course much more well known as an individual retirement account distribution expert. Slott was named “The Best Source for IRA Advice” by The Wall Street Journal and called “America’s IRA Expert” byMutual Funds Magazine. He is a professional speaker, best-selling author, and the creator of several public television specials, including the most recent, “Ed Slott’s Retirement Road Map!”
He established the IRA Leadership Program and Ed Slott’s Elite IRA Advisor Group to specifically help financial institutions and advisors, financial advisor firms and insurance companies become recognized leaders in the IRA marketplace. He regularly presents seminars on IRA distribution planning for financial advisor firms, mutual fund companies, brokerage firms, insurance professionals, financial planners, banks, CPAs, and attorneys all across the country.
Slott has no question been able to carve out a great niche as an IRA distribution expert as the country has transitioned in recent decades from pension plans to retirement accounts.
“The reason this is a big deal now is that you’re seeing the first wave of retirees with retirement accounts,” Slott says. “Before the birth of the 401(k) and the proliferation of IRAs and tax-deferred accounts, most people had pensions. They didn’t have to do any of this ‘retirement planning.’ They got their check and it was guaranteed for life.”
Once companies realized they could transfer the risk and the responsibility of investing from themselves to their employees, Slott says, they figured, “That’s a good deal for us,” and everybody switched to 401(k)s. A lot of that money also ended up in IRAs.
Slott says as people were weaned off pensions they were taught to save, but did so in tax-deferred accounts where they will in the future have to pay taxes, possibly at a much higher rate when they can afford it the least.
“Nobody wants to go into retirement with tax bill hanging over their head of an unknown amount, based on how much the government needs at that time,” Slott says. “Could you imagine if you went to a bank to get a loan on a mortgage, and the bank said, ‘don’t pay us anything on the loan yet – we’ll let you know when we need money – and how much we need – and then we’ll tell you what the rate is.’ Who would sign up for that? Because we all signed up for these tax-deferred accounts – IRAs. They sounded good at the time – you got a tax deduction up front – but most people didn’t realize that they’re going to pay for it and then some later. We don’t even know how much we’re going to pay.”
With all of that money subject to some future tax bill, Slott says it’s a mistake to do nothing, because it leaves you at the mercy of the government to determine how much your tax bill will be at a time when you are no longer working.
“I think there’s a better system, so that’s why you hear me talking about tax-free, Slott says. “My mantra, you might say, is the mission is to move your money from accounts that are forever taxed to accounts that are never taxed. And there are ways to do it like Roth IRAs, but life insurance is a also big way.”
Slott says life insurance is certainly a legitimate tax strategy, and it is being used effectively by insurance advisors with specialized knowledge who know how to make the transition from traditional IRAs and 401(k)s to a vehicle like life insurance that can take away the tax risk and the investment risk.
And to the Dave Ramseys and Suze Ormans of the world that rail against whole life and preach “buy term, invest the difference,” Slott says there’s a big problem with that strategy, particularly if you are a retiree or near-retiree with a tax-deferred retirement account.
“Now you’re up against the two biggest risks to your money – tax risk and investment risk (investment risk meaning stock market risk). Nobody wants those two nooses around their neck, especially going into retirement,” Slott says. “Insurance is the kind of product where you can eliminate the taxes and the investment risk. So to me, that is essential for anybody who wants to sleep at night. I don’t know of any other product that attacks both risks at once.”
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Stretch IRA on the chopping block
The stretch IRA – where an IRA can be passed on from generation to generation while beneficiaries enjoy tax-deferred and/or tax-free growth – still looks like it’s on the chopping block, Slott says, and that may well present another opportunity to employ life insurance. Proposals to eliminate the stretch IRA have come up several times, but were attached to bills that never went anywhere.
“The first tax bill that goes anywhere will probably have the elimination of the stretch IRA – replacing it with maybe a 5-year payout to beneficiaries. So that opens up opportunities again for life insurance. It is a great vehicle to use to replace the stretch IRA and make it even better,” Slott says.
If a client has a stretch IRA strategy in place intended for a beneficiary, Slott says that client might be better off paying taxes on it now at relatively low rates, and putting that money into a life insurance policy. “You can even put that in a trust for the beneficiaries where they could draw income for life, and it would be better for them than a stretch IRA because it would be tax-free income, and they wouldn’t have to worry about all these complicated IRA distribution rules,” Slott says.
Life insurance in a trust can also, of course, protect against the possibility of beneficiaries squandering away an inheritance.
“If they do away with the stretch IRA, the government as usual is going to shoot itself in the foot because it will be a catalyst to get the people to do the proper planning – the better planning – that they probably should have been doing all along,” Slott says. “Now when they know there’s no stretch IRA, they can create a better vehicle again using the tax benefits of life insurance.”
Satisfaction
Ed Slott is a busy guy. There are the consumer seminars, the advisor training sessions, creating television specials, writing books and more. So for a guy with so many irons in the fire, what is it he does that provides him with the greatest sense of satisfaction?
Turns out there are two things, which are interconnected: 1) When the “lights go on” and he changes the mindset about life insurance for consumers attending his seminars or watching his TV programs; and 2) hearing the success stories first-hand from members of his Elite IRA Advisor Group.
“Those are the things that satisfy me the most,” Slott says. “Because that’s really our business model – to connect consumers to competent, well-educated financial advisors. The consumer wins by having a better-educated advisor that’s less likely to make mistakes and knows the tax rules. And I like that the advisors are being rewarded for investing in their education. In my model the consumer wins and the advisor wins. And maybe the government loses. But that’s OK.”
Slott says he hears the success stories from advisors at every meeting, and loves seeing the growth of advisors in the elite group.
He relates a story about an advisor from a rural area near Minneapolis, who told him, “Ed, you’re always talking about the million-dollar IRAs and how to attract these. There’s nobody that lives within a hundred miles of me that has a million-dollar IRA. I’m in a small town. If I top two, three, hundred thousand, that’s a lot.” Not even two years later, Slott says, she came back and told him, “You know, there are a lot of people with million-dollar IRAs – I just wasn’t talking the right way – I didn’t have the confidence. Now all I talk about is million-dollar-plus IRAs and I’m attracting them because of my confidence level, because of my education, because of my demeanor – the way I present myself as confident.”
He’s convinced better education is the key to attracting higher-level clients because of the confidence that education breeds.
“I have another guy that just picked up a huge IRA – I don’t even know how many millions – double digits – and he only got it because he was able to communicate with the attorney who wasn’t sure about the IRA trust he was creating,” Slott says. “This advisor was the only one that could help him with the IRA trust provisions, and the advisor wasn’t even an attorney. But he knew the tax provisions and the attorney felt comfortable with him, and introduced him to this gigantic client because he had the knowledge. And the attorney needed him in that meeting.”
Loving life
Anyone familiar with Ed Slott and his philosophies knows he is a huge fan of eliminating future tax obligations, and he thinks life insurance agents really need to embrace its tax advantages.
“Life insurance is tax-free. It’s the single biggest benefit in the tax code, and it’s not going anywhere. It’s one of the oldest provisions in the tax code. You can really count on it, which is why I like it,” Slott says.
He says what’s magical about life insurance is how many problems it can solve. Which reminds him of another key benefit…
“I just realized, this whole interview, I never even talked about what people perceive to be the biggest benefit: the death benefit – which also is tax-free,” Slott says. “That’s just gravy. That’s how good this product is. Any plan that doesn’t have life insurance is missing an essential component,” he says. “I know it’s good for people. The only downside, I guess, is people’s perception of it. And that’s what I’m changing little by little through my TV programs, my consumer seminars, and our advisors out there explaining it better.”
It’s obvious he enjoys preaching the benefits of life insurance, and it’s no secret that life insurance can use all the good publicity it can get in an environment where life insurance ownership among Americans hovers near historic lows.
“I’m very passionate because I believe in our model, and everything we’re doing is good for people and it’s good for advisors,” Slott says. “And I love that everybody wins.”
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Ed Slott on life insurance as an asset class and planning tool:
There’s a lot of strategic planning that can go on involving life insurance. I think the reason so many people talk about life insurance as an expense is because they don’t see it as, No. 1, an asset class, and No. 2, a planning vehicle.
They see it as a sale and expense. But it’s not. It’s an investment. An expense is something like a big TV – you watch it for a few years and then it dies. There’s no long-term benefit. But with insurance, what I tell consumers is really all you are doing is taking your money from one pocket and putting it into another. But the other pocket you’re putting it into is tax-free. That’s a better pocket, because tax-free money always grows the fastest. It’s never eroded by current or future taxes.
It’s such an obvious planning vehicle to me. And I should be preaching to the choir when I’m talking to insurance agents. I don’t think they use it well enough or often enough in creating plans. But that’s because they may not be educated enough on the retirement tax rules and they don’t know how to make the transition from a 401k or IRA to an insurance policy in a complete plan. That’s what we teach in our programs. People that attend our programs tend to do much better in insurance sales and they have clients that believe they have a great financial plan and they understand that the plan eliminates the two biggest risks – the tax risk and the investment risk.
People want no taxes and guarantees. Anybody would sign up for that immediately if you explain it to them that way.
– Ed Slott
Ed Slott on the power of the educated advisor:
Education breeds confidence, which in turn leads to being comfortable working with higher-level clients, according to Slott.
This is why he says members of his Ed Slott Elite IRA Advisor Group tend to experience significant growth after becoming affiliated with the group. “There’s nothing that beats a highly educated advisor. Because once you’re educated, you have confidence. You understand the whole scenario, you’re up on the rules and you know very little will stump you – if anything,” Slott says.
“I’m convinced it’s the education that brings you the big accounts,” Slott adds. “And you’re not looked at as a salesman like some other advisors are looked at that don’t have the specialized training in the IRA and retirement area. Most advisors do not have that training.”
Slott says another thing that helps his advisors stand out is that his company is constantly feeding them strategies to help people keep the money they’ve already accumulated. Retirees want to have income for life, to have more of their money protected from taxes, and to be able to pass it on to loved ones. “They’re proactive planners,” he says of his advisors. “Remember, people in retirement are not that worried about investing any more. They just don’t want to lose money.”
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