In Part I of this feature earlier this week, my discussion with two of the best retirement planning producers in the business, Gregory B. Gagne, ChFC, and Wayne D. Minich, CLU, ChFC centered on how they came to specialize in retirement planning, advice for those who want to enter this space, and how they educate their clients and prospects about how much they need for a secure retirement and motivate them to plan appropriately.
In Part 2, Gagne, who is managing member of Affinity Investment Group, LLC, in Exeter, N.H., and Minich, CLU, ChFC, president of Applied Financial Concepts, Inc., and Wayne D. Minich & Co., Inc., in Richfield, Ohio, will cover how they combat media annuity criticism, integrating the issue of Social Security benefits in retirement planning discussions, and primary concerns and reasons for optimism in the retirement planning market.
‘Guaranteed income needs to be a portion of the overall plan’
If you sell annuities, no doubt you’re aware that consumers continue to hear and read strong criticism of annuities, often criticism centered on their complexity. I asked Mr. Gagne and Mr. Minich how they combat that criticism in their own retirement planning discussions.
Mr. Gagne said, “I start by talking with them about all the ‘drawbacks,’ and then, after we have got all the problems related to annuities on the table, I change gears and refocus. You can run out of assets, but you can never run out of income when you do an annuity. Guaranteed income needs to be a portion of the overall plan. For some this is via defined benefit and Social Security, and for others it may include the need for an income floor created by an annuity income stream. This then enables the advisor to optimize a portfolio and takes much of the risk of sequence of returns issues right off the table.”
Mr. Minich focuses on the annuity’s utility. “We explain that, like anything else, an annuity is a tool. By properly educating how, if appropriate, an annuity fits with the client’s plan, including the extra costs, the client typically understands why the annuity is a piece of their planning puzzle. We also want to address what negative information they may have read or heard about annuities in order to offer a counterpoint to that opinion.”
‘Social Security is the best annuity out there’
Mr. Gagne raised the issue of Social Security, and we wanted to explore that a little deeper. Some advisors these days have begun to integrate Social Security planning into their retirement planning discussions, whereas only a few years ago it seemed like most advisors would tell their clients that they had to assume that their Social Security benefits would not be there for them.
I asked how they personally handle the whole issue of Social Security benefits in their retirement planning discussions, and whether they use specific tools to assist in that regard.
Mr. Minich told me, “As part of our process, we do two iterations for the client’s retirement: First, we make a projection showing Social Security as it may be, based upon current calculations. And second, we make a projection totally eliminating Social Security.
“By doing this, we help the client understand the worst possible position, or worst-case scenario, the best possible position, and the likelihood that if Social Security benefits are in some way altered by the government, he or she will probably be somewhere in the middle.
“For example, quantifying the elimination of Social Security may show the value of that benefit is between $600,000 and $750,000. If the client wants to be most conservative, the planning should target accumulation of the additional funds that will be needed for total Social Security replacement.
“And as for a tool we use – the above numbers are calculated by our firm’s planning software.”
Likewise for Mr. Gagne, the Social Security issue is crucial. “This area is complex,” he told me, ”but one that any advisor who wants to get into this area of planning needs to understand. There are numerous strategies on collecting benefits that can significantly strengthen the client’s lifetime cash flow plan. Social Security is the best annuity out there, and it comes with cost-of-living adjustments. For most folks, but not all, deferring the benefit to full retirement age is a better option for longevity planning than taking it at age 62. It also reduces investment performance stress on the portfolio as more income is produced via the Social Security income stream. I do not currently use any software; we actually manually design the cash flow models to review the optimal claiming options per client.”
‘The largest issue we face…’
Because both of these advisors have such deep experience in retirement planning, I asked them to share their thoughts on the both the challenges and opportunities in that market. More specifically, I asked them share their primary concern, and what they are most optimistic about.
“The largest issue we face,” Mr. Gagne said, “is the amount of funds actually required to maintain lifestyle through retirement, which for many will be 35 to 40 years. Some folks will draw for as long as they saved, and they expect to draw 4 to 5 times more per year than what they put in. Couple that with a long-term care event and the finances can literally be wiped out. Planning for longevity and long-term care are the two big topics.”
On the flip side, Mr. Gagne said, “I am optimistic that the industry will continue to innovate and create solutions that will help these clients stay independent for life.”
Mr. Minich summed up his biggest concern this way, “My biggest concern is, irrespective of how much income an individual makes, there are those whose lifestyles cause them to spend as much or more than they earn, without saving. Those are the people who realize, often too late, that they should have started saving earlier.
“My optimism,” he continued, “lies in the fact that we have the ability, using our processes, to help those who want to be helped reach their goals. We recognize also that we cannot help everyone.”
True, but there are so many people to help in the retirement planning area that any serious advisor ought to be encouraged.
For more from this exclusive interview, read Part I
- Breaking into the retirement planning market
- Educating and motivating clients about the need to plan
Gregory B. Gagne, ChFC, is the founder and managing member of Affinity Investment Group, LLC, an investment advisory firm based in Exeter, N.H., offering wealth management and distribution planning services for retirees or those planning to retire. He is past President of NAIFA-New Hampshire, and was awarded the Distinguished Financial Advisor of the Year award from NAIFA-N.H. in 2008. Greg is a 15-year qualifier for MDRT, with eight Court of the Table and six Top of the Table qualifications.
Wayne D. Minich, CLU, ChFC, is the founder of Applied Financial Concepts, Inc., and Wayne D. Minich & Co., Inc., in Richfield, Ohio, and has been in the financial planning industry for 43 years. He has been an active Million Dollar Round Table (MDRT) member for 39 years, and has earned 15 Court of the Table and five Top of the Table qualifications. Wayne is also a member of the Forum 400, Cleveland Estate Planning Council, Richfield Chamber of Commerce, Business Enterprise Institute’s Network of Exit Planning Professionals, and National and Cleveland Chapters of Society of Financial Service Professionals.
Charles K. Hirsch, CLU, is contributing editor of Insurance Forums. He is also the president of Hirsch Communications Consulting, LLC, a communications consulting operation in Florissant, Mo. For many years, Chuck was the editor and publisher of Life Insurance Selling magazine and wrote the monthly column, What’s Going On in the Life Insurance Business. From 1999 to 2008, he was the publisher of several of the leading industry magazines in the life insurance, property/casualty insurance, and mortgage markets. These days, Chuck’s firm specializes in the development and execution of many kinds of communication strategies, particularly in the financial services business.