One estate planning attorney’s lesson in retirement/wealth replacement helped him overcome major losses in the stock market and increase his post–retirement income by 35 percent.
When I walked in the door with my client and his CPA, I couldn’t help but wonder, what am I doing here? So many times before, financial planners from around the country had approached my clients, claiming wonderful strategies that would increase their net worth. I was generally “underwhelmed,” to say the least. Here we go again, I thought, another salesman trying to sell a client financial products that would only increase the financial planner’s retirement. I wanted to run, not walk, back to my office, where I was swamped with tax and estate planning cases, and messages from clients who wanted immediate legal advice.
But then it happened.
As I listened to the financial strategies presented to my client, something clicked. Could this guy be on to something? As he proceeded to unveil what he called an innovative wealth replacement strategy, I must admit I became intrigued. As I began to understand what he was proposing, I soon realized the impact this concept could have on many of my high-net-worth clients…CPAs… and even me. Little did I know then, that this meeting would change my life forever, and increase my retirement income by 35 percent.
Shortly after that meeting, I found myself returning to this financial planner’s office, spending several more hours trying to understand why this retirement approach was so powerful and different than anything else I ever knew. It certainly was contrary to what I, as an estate planning attorney, believed, practiced, or advised my clients for 30 years. After all, retirement planning and wealth management, protection, and preservation belonged to financial advisors, certainly not attorneys.
So what exactly happened that day?
To my surprise, I learned a life-changing retirement strategy that has since benefited many of my clients and friends. In fact, it made such an impact, that at age 59, I made a major change to my retirement plan that will: 1) effectively replace the 30 percent I lost during the Enron, WorldCom, and Tyco scandals and the stock market nose dives of this new Millennium-with minimum risk; 2) allow me to actually spend part of my investment principal instead of living on only the interest, as many of us do, in our senior years; 3) increase my retirement savings, simultaneously; 4) erase the fear that many of us have, that my money will run out before I die; and 5) offer a sizable, tax-free, guaranteed death benefit to pass along to my wife and children.
Simply put, this wealth replacement strategy is a twist on an old, conservative financial vehicle that has been around for many years that: 1) protects financially from premature death; 2) provides liquidity to pay for estate and inheritance taxes; 3) funds children’s educations and buy/sell agreements; and 4) replaces the large, supplemental retirement benefits corporations and banks give to senior level executives.
The concept is guaranteed whole or permanent life insurance. When linked with three or more other retirement investment strategies, this tool will serve as an economical, wealth replacement strategy that will provide me with three key benefits while I am alive: flexibility, financial freedom, and peace of mind. In addition, whole life insurance provides cash value, which will grow, over time, tax-free.
My philosophy before hearing this strategy was the popular “buy term and invest the difference.” However, this concept did not work for me, since I didn’t save and invest the difference. I spent it. In fact, many pre-retirees and retirees will suffer from that common advice since most do not invest the difference. In addition, term life often expires before retirement. As far as I’m concerned, the lessons I learned in changing my thinking and adopting this plan is one that CPAs should consider for themselves and for their higher-net-worth baby boomer clients as they try to recover from their stock market disappointments and face the following reality: Will Social Security, my 401k and my investments be enough for post retirement?
LIVING LONGER: CAN WE AFFORD IT?
Before we take a closer look at this concept, consider the following statistics from a 2005 U.S. Census Bureau report, which was commissioned by the National Institute on Aging:
* The population of Americans over the age of 65 is expected to double by the year 2030, to an estimated 72 million. I hasten to think what that will mean for the level of Social Security benefits available in 24 years.
* The fastest-growing group of Americans is the elderly, aged 85, and older. That means we’re living longer-making running out of money a major concern of retirees.
* The wealthiest fifth of U.S. seniors had a net worth of only $328,432, excluding home equity. This means an annual income of little more than $16,000 for those who preserve their principal and earn a net gain of at least five percent annually.
* Fourteen-million senior U.S. citizens reported disabilities, largely connected to heart disease, arthritis, and other chronic and debilitating conditions. Such conditions, of course, can drain retirement income substantially-and that’s not even considering illnesses that require long-term nursing or other assisted-living care.
Add to that, volatility of the future stock market and interest rates, which can negatively affect conservative mutual funds and even the most conservative of municipal and other lower-risk bonds; inflation threats, the financial impact of war, ever-changing tax increases, especially for higher-net-worth individuals, the disappearance of employee pensions and even the unforeseen maintenance expenses for vehicles, homes, and other assets.