BSMG Blog: Protecting the Future of Families and Businesses

A Retirement Planning “Side-Fund” Advisors Can’t Ignore

Posted by BSMG on 18 Jan 2016

While most clients have spent many years preparing FOR retirement, most have not given nearly as much thought and effort into how to BE retired. More importantly, many wealth managers aren’t advising their clients about their post-retirement risks and the strategies available to lessen them.


For many clients, their retirement may last for as long as, or longer than they actually worked and most clients don’t know that when they choose to retire can make all the difference, depending on the market at that time. With that thought in mind, how can advisors better prepare their clients for post-retirement when their assets are being used up and slowly diminishing over time? What can advisors do to plan for and mitigate the risks of unforeseen and unfavorable market conditions that may affect how quickly a retirement portfolio is used up?

While there’s no “retirement crystal ball” to tell a client exactly when to retire based on what will happen in the market, there are several strategies that can be implemented to help smooth over any potential bumps in the road and protect a client’s retirement savings from market losses.

Think you have a portfolio diversification strategy pretty down pat without life insurance?  You could be missing the opportunity to offer a retirement “side-fund” that could potentially provide an increase of 500% to your AUM.

Related: 10 Reasons Why Life Insurance is a Viable Asset Class

During the retirement accumulation phase, the time the client has until retirement is one of their greatest allies. The greater the time horizon, the less likely that market volatility will have a negative impact on their assets that are earmarked for retirement.As their retirement date gets closer, they have less recovery time to rebound from a down market cycle. By diversifying the client’s retirement income sources, the more options the client will have to take income from multiple sources, depending on market conditions. This could help reduce the chances that if they retire and their portfolio is down, they could potentially severely deplete or even exhaust their entire retirement portfolio simply due to bad timing or poor returns. Having the ability to draw from different income sources may allow the client to continue to have their retirement income stream uninterrupted while potentially allowing for a part of their portfolio to recover subject to the underlying investment performance.

While Dividend Paying Stocks, Bonds, and even annuities have become the traditional retirement income sources to supplement Social Security and Pensions, one option that has been often overlooked is Life Insurance. While not a choice for everyone, using a Life Insurance Policy as part of your client’s overall retirement plan may be able to significantly reduce the impact of poor market conditions on the client’s portfolio and raise the chances of a successful retirement.

Life Insurance as part of a retirement planning strategy is a win-win for advisors and their clients. The client can enjoy the benefits of having tax-free death benefit protection for their family while they are still in the earning phase of their careers while also offering some income flexibility via tax-free access to the cash value once the client has retired and is ready to begin drawing down on some of their portfolio.

Once a client begins to take RMDs or payments from their retirement accounts, the cash value of the Life Insurance Policy can be supplemented in when necessary (in a down year in the market) to avoid unnecessary losses from retirement funds that lie within market accounts. In turn, the advisor maintains more AUM than they would have if they had never advised their client to purchase the life insurance policy.

What would you rather manage, a portfolio with 56% decline or a 280% increase?

Smooth Sailing - Wout Life Insurance

Smooth Sailing - With Life Insurance

Learn more about this approach today…

Topics: Life Insurance, Retirement Income

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