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Shares: Going Deep on FIAs and RILAs
In this episode of our Shares podcast, host Michael Finke, PhD, CFP® speaks with Bobby Samuelson, an expert on annuity products, for a deep dive on their practical uses in financial planning and the ins and outs of how they can be used to benefit your clients.
Bobby Samuelson is the executive editor of The Life Product Review, one of the industry’s best sources for independent and objective life insurance product intelligence. He regularly presents at major industry events and has been quoted in The Wall Street Journal. He is also the President and CEO of Life Innovators, an independent product development firm helping life insurers create and implement unique life insurance and annuity products. Previously, Samuelson was the senior vice president and head of product development and pricing for life insurance and annuities at Brighthouse Financial, formerly MetLife US Retail. Prior to joining MetLife in 2013, he published The Life Product Review and was an independent consultant to life insurers, distributors, and advisors. He is the third generation of his family to work in the life insurance industry.
Any views or opinions expressed in this podcast are the hosts’ and guests' own and do not necessarily represent those of The American College of Financial Services.
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FinServe Ambassador Supports Fellow Women Working in Wealth
Welsh is a 17-year veteran of Sequoia Financial Group, a growing RIA firm based in Akron, Ohio. Founded in 1991, the practice has seen explosive growth over the last several years and currently features 14 offices in eight states, as well as $18.3 billion in AUM as of 3/31/2024. She says her time with Sequoia has been an incredible journey – not least of which is because financial services wasn’t the life she had originally planned for herself.
“I didn’t know I wanted to go into finance at first: I double-majored in that and dance in college,” she said. “I’d also never been to Ohio before I come to Sequoia, which I did because my cost of living math as a dancer wasn’t really adding up. I had initially been in the Midwest for college, but after interviewing back east and deciding I loved this company, I moved and have been here ever since.”
Welsh described her company’s driving belief to be the idea that planning and investment strategy inform one another to create a foundation that enriches the lives of clients. She also explains that her current position as a senior vice president and leader of the group’s wealth planning department wasn’t something she had planned either.
“Originally I was on the advisor track with Sequoia, working directly with clients and doing typical advisor work – but a year or so into my time with the firm, the country went through a massive market crash,” she said. “All our clients, no matter how well-off, seemed to want to work on their wealth plan or put one in place if they didn’t have it. It was an all-hands-on-deck situation, and some of us junior advisors were called on to help the planning team. I was one of them, and I found I had a real passion for it.”
Specializing for Success
As the market recovered, Sequoia’s leaders decided to dedicate more employees to their technical planning endeavors – and that included Welsh. She rededicated herself to professional development, seeking additional learning opportunities to get the expertise she needed to succeed. The College and its specialized knowledge offerings, she says, were a huge help.
“My initial contact with The College was through my master’s degree, the Master of Science in Financial Planning (MSFP) – then the MSFS,” she said. “I was looking to build my technical depth of knowledge on the planning side and looked at many options, including an MBA, but I didn’t think they were deep enough. The strength of The College’s curriculum is what drew me to it, and it’s what allowed me to expand my opportunities and accelerate my career through that knowledge.”
“The strength of The College’s curriculum is what drew me to it, and it’s what allowed me to expand my opportunities and accelerate my career through that knowledge.”
Welsh also went through The College’s CFP® Certification Education Program to attain her CFP® mark, along with the Accredited Estate Planner® (AEP®) Program to specialize further in retirement and estate planning areas. Like many advisors in the business, she sees retirement planning as the next vital frontier for professionals looking to expand their knowledge.
“Everyone wants something different out of retirement. For some clients it’s about financial independence – how much can they spend safely, or before they run out of money?” she said. “For high-net-worth clients it’s about how they can transfer their assets to future generations in the most efficient way possible. The people I work with are asking about taxes especially, and how things will change as of 2026 with Roth conversions, charitable distributions, and other things. No one can know everything, so the power of specialization is that your business can have a much larger impact on clients the more team members who can help.”
“No one can know everything, so the power of specialization is that your business can have a much larger impact on clients the more team members who can help.”
When considering her plans for the future, Welsh says she remains dedicated to lifelong learning and is interested in pursuing the Chartered Special Needs Consultant® (ChSNC®) designation, which would provide her with an in-depth understanding of the financial planning challenges those caring for individuals with special needs face.
“Sequoia recently acquired a firm that specializes in working with caregivers, and it’s helped us realize it’s not such a niche focus: special needs or similar areas like aging issues or disabilities can affect any client, regardless of net worth or occupation – and all of these issues tie into retirement planning,” she said.
Being a Woman Working in Wealth
Welsh says she remains a champion of this kind of professional development, as does her firm: ongoing learning is at the core of Sequoia’s business model and her own beliefs as a financial professional. However, she has also looked outside the company for further opportunities – especially when it comes to networking with other women in financial services. For her efforts in mentoring, supporting, and advocating for women in the profession, Welsh was honored with the American College Center for Women in Financial Services’ Women Working in Wealth Award.
“I was part of the Women Working in Wealth Summit when we walked down Wall Street together,” she said. “We all took pictures with the famous “Fearless Girl” statue, including me, and at the time I didn’t think much of it. Later on, though, I had several male colleagues tell me they showed my picture to their young daughters to prove to them that financial services could be a place for them to succeed.”
Welsh described recent industry trends that have, in her view, greatly benefited women: the trend away from commission-only models that remove barriers to entry or to staying in the industry for women, who are traditionally the caregivers to their families; companies setting aside more time for their female employees to take maternity leave; and the growing popularity of hybrid work models that allow for the juggling of personal and professional responsibilities. She recognizes, however, that there are still challenges to overcome, including a lack of visibility and confidence that many women face.
“If you’re not physically in front of your leaders regularly due to hybrid work or other reasons, are they overlooking you more?” she said. “Financial services is still a highly male-dominated industry – most of the faces of the business are men, and not even 25% of CFP® professionals are women.”
To combat these issues, Welsh suggests young women and especially advisors find opportunities to build their confidence in professional settings – and calls on their senior leaders to offer those opportunities more readily.
“Think about how you’re introducing a junior member of your team in a meeting: build them up, or maybe spend a little extra time having a prep call or post-call to talk about results of a meeting,” she said.
Welsh also advised financial services leaders to avoid falling into the stereotypical thinking that women aren’t interested in finance, especially when it comes to working with female clients or families.
“Planning is a process, not an event. We need to be prepared to serve clients’ changing needs, and that means continuously enhancing our knowledge.”
“If you’re working with a couple and the woman isn’t at the meeting, there’s probably a good reason for that,” she said. “If both partners are there, make sure you engage both of them equally as much as you can. Most statistics say women live longer than men, and there’s an increasing rate of divorce among older adults, so there are more and more times when women are in control of the money. Not all women want to work with women, of course, but having a depth and diversity of talent available is important and something the industry needs to take seriously.”
Welsh also advised financial professionals working with women to try to avoid jargon in conversations and elevate their clients’ knowledge without talking down to them. She says explaining financial terms in ways that are more digestible and encouraging clients to ask questions removes a discomfort about asking them – and empowers better decision-making. First and foremost, she says lifelong learning is the key to being successful.
“Planning is a process, not an event,” she said. “As financial professionals, we know the economic and legislative landscape is always changing; we can’t just give clients a written plan and tell them they’re good to go. Things around them will change, and their circumstances will change. We need to be prepared to serve their changing needs, and that means continuously enhancing our knowledge.”
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Planning for a Longer (and More Expensive) Retirement
How long is retirement going to last?
Underestimating life expectancy is a problem for all older Americans, but especially for higher-income Americans, who have made significant gains in longevity after the age of 65. A longer retirement is a more expensive retirement, and financial planners need to understand how long their clients are likely to live and develop strategies for funding longer lifestyles.
Most people have a vague idea of how long they are likely to live in retirement. It’s common to think of the age our parents or grandparents died when estimating our own longevity. In reality, longevity after the age of 65 increased by about a year every decade in the 20th century, and higher-income Americans can expect to spend significantly more years in retirement.
According to the Social Security Administration mortality tables, half of American men who have reached age 65 will live to at least age 85 and half of women will live to at least age 88. Respondents to the 2023 Retirement Income Literacy Study were asked how long an average 65-year-old man could expect to live. Only 27% selected the correct answer (20 years), 32% thought the average man would live to age 80 (15 more years), 23% believed only 10 more years, just 6% thought an average man would live to age 90, and 12% indicated that they didn’t know.
Respondents’ Expected Longevity of a 65-Year-Old Man
Figure 1
Most Respondents* underestimate or don't know the expected longevity of a 65-year-old man, which is about 20 years (age 85).
In other words, 55% of respondents underestimated retirement longevity and an additional 12% didn’t know. Just a third of respondents (33%) had an accurate or optimistic idea of retirement longevity.
Those who had an unrealistically low expectation of retirement longevity were far more likely to indicate they plan to claim Social Security income benefits before the age of 65. Why is this important? Social Security is the only inflation-adjusted income source most retirees have. Claiming early reduces a retiree’s income for his lifetime and weakens an important source of guaranteed income for workers, many of whom no longer receive employer pensions.
While 42% of those who believed that retirement for a 65-year-old man would only last 10 years expected to claim before age 65, only 33% of those with an accurate estimate of expected longevity planned to claim Social Security early and only 26% of those who overestimated longevity planned to claim before age 65.
Percentage Planning to Claim Social Security Before Age 65 by Longevity Expectations
Figure 2
Respondents* who plan to claim Social Security before age 65 are more likely to underestimate the life expectancy of a 65-year-old man. Those who accurately estimate or overestimate a man’s life expectancy (age 85 or higher) are less likely to plan to take Social Security before age 65.
When people are asked “What is the maximum age you would plan for your savings to last in retirement before you run out of money?,” 54% more of those who had an accurate or optimistic idea of expected longevity chose a maximum planning horizon into their 90s compared to those who underestimated longevity.
Percentage Planning for Spending Into Their 90s by Longevity Expectations
Figure 3
Respondents* who plan for their spending to last into their 90s before running out of money are more likely to provide accurate estimates of the life expectancy of a 65-year-old man.
Financial Planning Clients Live Longer
The survey respondents who thought that a 65-year-old man could expect to live 25 years in retirement weren’t wrong for higher-income men. Men and women whose incomes are high enough to work with a financial advisor have made significant gains in retirement longevity in recent decades. Stanford economist Raj Chetty and his co-authors1 found that life expectancy among Americans in the top 5% of income increased 2.34 years for men and 2.91 years for women between 2001 and 2014, compared to just 0.32 years for men and 0.04 years for women in the bottom 5%.
The improvement in longevity among higher-earning Americans is largely due to differences in health-related behaviors. The most notable difference is in rates of smoking, which dropped significantly for higher-income men and women in the United States. Higher-income Americans are also more likely to exercise, eat better diets, and have access to higher-quality healthcare.
Longevity is subject to the laws of statistics. This means that the number of years you’ll spend in retirement looks like a bell curve with a left tail of unlucky retirees and a right tail of those who live into their 90s and beyond. You’re probably going to live longer than your parents. This means that the entire bell curve needs to be pushed a few more years to the right. It also means that today’s healthy retiree will have to fund more years of spending on average, and more than a few will be around into their late 90s and 100s.
To better understand the difference in the probability of the types of higher-earning individuals (who are more likely to be financial planning clients) being alive at various ages, consider the following table that compares average Americans using the 2017 Social Security Administration mortality table and the 2012 Society of Actuaries annuity mortality table adjusted for expected improvement to the present day. Annuity buyers tend to live longer because they are in the group of higher-income, healthier Americans who have accumulated enough savings to buy a lifetime income.
Probability of Being Alive at Various Ages for 62-Year-Olds
Table 1
Americans who buy annuities tend to live significantly longer than Americans overall. For example, a healthy male is twice as likely (8%) as the average male (4%) to live to age 100.
It’s obvious from Table 1 that healthier, higher-income retirees need to plan for a longer retirement than the average American. A healthy 62-year-old man is 65% more likely to be alive at age 90 than the average American. One-third of healthy 62-year-old women can expect to live to the age of 95, and half of healthy couples will have one spouse who lives longer than 95 years.
The percentages from Table 1 can also be seen as failure rates. If financial advisors create spending plans in which their clients’ money lasts to the age of 90, then half of healthy men, 56% of healthy women, and 78% of healthy couples will outlive their savings.
The traditional failure rate methodology in financial planning considers a withdrawal rate safe if the money lasts to the age of 95. For a healthy couple retiring today, this yardstick can’t be considered safe if half of them will have at least one spouse who lives beyond the age of 95. Even if the money lasts to the age of 100, one in five healthy couples will outlive their savings.
For a healthy couple retiring today, this yardstick [of making money last through age 95] can’t be considered safe if half of them will have at least one spouse who lives beyond the age of 95. Even if the money lasts to the age of 100, one in five healthy couples will outlive their savings.
A Long Life is More Expensive
An easy way to see how much more money a retiree needs to save to fund a longer retirement is to estimate the cost of creating a base of income that lasts to various ages using safe investments. Returns on financial assets are generally variable, but it is possible to buy Treasury bonds that will mature and provide a future income that isn’t subject to investment risk.
Figure 4 compares the cost of buying a safe income using Treasury bonds to the age at which a healthy man, woman, and couple has a 20% chance of outliving their savings (i.e., 80% probability of success) using yields on April 12, 2024. For example, an average 65-year-old man has a 20% chance of reaching the age of 93 years. The cost of funding $20,000 of income from Treasury bonds at today’s yields will be $315,578. A healthy man has a 20% chance of living to the age of 96 years. It will cost him $332,455 today to buy the same $20,000 of income to an age at which he has a 20% chance of “failure.”
The Cost of Funding $20,000 Treasury Bond Income*
Figure 4
As Figure 4 shows, the cost of income is higher for healthy men, women, and couples who need to plan to fund more years of spending in retirement. This means that healthier and wealthier individuals will have to save more to fund the same lifestyle with an 80% probability of success.
Healthy Americans will have to save more to fund more years of spending in retirement.
Figure 5 shows the cost of funding $20,000 of inflation-protected income using Treasury Inflation Protected Securities (TIPS). TIPS are more expensive because the amount of income received is expected to rise in the future by the rate of inflation. It would cost a healthy woman $475,288 to buy $20,000 of inflation-protected income with an 80% probability of success, but only $339,813 to buy $20,000 of nominal income each year. Inflation-adjusted income is even more valuable when a retiree can expect to live longer.
The Cost of Funding $20,000 Inflation-Protected Income*
Figure 5
Average male, female, and couple life expectancies based on the 2017 Social Security Administration mortality table. Healthy male, female, and couple life expectancies based on the 2012 Society of Actuaries annuity mortality table. *Cost estimates to achieve an 80% probability of success for a 65-year-old are based on TIPS yields on April 12, 2024.
Although inflation-protected income is more expensive, it can also be more valuable—particularly for healthy Americans who will have to fund longer retirements.
Implications for Planning
Today’s financial planning clients, who are generally healthier and wealthier than the average American, can expect to live significantly longer than their parents, and longer than the average American. Research from the Retirement Income Literacy Study shows that most Americans ages 50 to 75 underestimate the number of years an average retiree will live. Clients of financial advisors are slightly more likely (31%) than unadvised respondents (24%) to correctly answer the longevity literacy question, but 62% either still underestimate or don’t know average longevity.
Advisors can help clients establish a more appropriate planning horizon and make better choices through longevity education. This is especially importance since survey data suggest that individuals who are less longevity-literate are more likely to claim Social Security early and less likely to plan for income into their 90s.
A longer retirement is a more expensive retirement.
Improvements in longevity have several important planning implications:
- A longer retirement is a more expensive retirement. Being longevity literate means recognizing that today’s planning time horizons for healthy clients will extend into their 90s, and for couples even longer. While a longer retirement is good news, funding more years of spending creates a need for creative planning strategies that help retirees get the most out of their saving.
- Research shows that strategies such as tax-efficient distribution planning—in which advisors pay attention to spending down the least tax-efficient assets first and the most tax-efficient assets last, while taking advantage of opportunities to manage tax brackets and using strategic Roth conversions —can extend the life of a portfolio by as much as 20%.
- The higher value of inflation-protected income for healthier clients, and in particular healthier women, means that delayed Social Security claiming is almost always going to provide more retirement wealth than claiming early. Claiming strategies that focus on the expected longevity of a lower-earning spouse can provide an added boost by providing a larger lifetime spousal benefit. For healthy retirees, delayed claiming can reduce the cost of funding a retirement lifestyle by tens or even hundreds of thousands of dollars.
- Finally, retirees can also reduce the cost of funding an income goal by considering the value of transferring the risk of not knowing how long they will need to fund an income goal to an institution. Annuities allow a retiree to spend as if they will live to about an average longevity, freeing up more dollars to spend earlier in retirement and protecting against the risk of living beyond their planning horizon.
The Retirement Income Literacy Study provides actionable insights into older Americans’ financial literacy on 12 retirement topics, including longevity planning.
More From The College:
Get specialized retirement planning knowledge with our RICP® Program.
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2024-2025: A Critical Window for Retirement and Estate Planning
When the closing bell rang at the end of 2023, surging stock market values left retirement accounts bulging. But supersized IRA balances are not necessarily good news.
In a recent webcast The American College of Financial Services held exclusively on its subscription-based learning platform Knowledge Hub+, IRA expert and professor of practice Ed Slott, CPA explained that a sizable IRA is little more than a ticking tax time bomb primed to explode in years to come. That’s because through the required minimum distributions (RMDs) mechanism, IRAs create a stream of taxable income – and the bigger the IRA, the bigger the income stream and its associated tax bill.
“In 2023, we had the highest end-of-year stock values of all time. Prepare your clients for larger RMDs and keep in mind that these may get taxed more heavily in the future,” Slott said. “A large IRA balance is just tax waiting to happen. I always tell consumers: your IRA is an IOU to the IRS.”
“A large IRA balance is just tax waiting to happen. I always tell consumers: your IRA is an IOU to the IRS.”
–Ed Slott, CPA
The 2017 Tax Cuts and Jobs Act (TCJA) cut tax rates to historic lows (see Figure 1); however, these favorable rates are scheduled to expire on December 31, 2025, and Slott argued that – against the backdrop of rapidly rising government debt – we’ll likely see rising tax rates soon. That means individuals taking RMDs can expect rising tax bills, and for those with bulging IRA balances, the tax bite could be particularly painful.
Figure 1: Top Federal Income Tax Rates: A Century Snapshot
Further complicating matters, SECURE Act provisions requiring heirs to empty inherited IRAs over 10 years mean those inheriting today’s large accounts may face onerous annual tax liabilities post-2025. This is especially true for heirs who may be in their highest earning years as they’re required to empty their inherited IRAs.
“In the aftermath of the SECURE Act, IRAs are a horrible wealth transfer and estate planning vehicle,” Slott said. “The whole balance of the inherited IRA is going to be taxed in a shorter window and heirs may only have two years left at today's favorable tax rates.”
“In the aftermath of the SECURE Act, IRAs are a horrible wealth transfer and estate planning vehicle.”
–Ed Slott, CPA
IRAs: A Poor Vehicle for Estate Planning
With tax rates poised to rise, tax-deferred vehicles like IRAs are looking increasingly unattractive, particularly for clients who wish to use their retirement savings accounts to benefit their heirs. Advisors must urgently find new ways to structure estates that deliver larger inheritances with lower taxes.
Fortunately, Slott had some good news for those seeking to implement fresh strategies.
Due to the combined impacts of the TCJA and inflation, 2024 and 2025 offer clients a unique opportunity to pay lower taxes as they restructure their estates. Not only are tax rates low by historical standards, but rising inflation has also inflated tax brackets. This means clients can pay lower rates on larger amounts of income (see Figure 2).
Figure 2: 2024 Tax Rates: Joint vs Single Filing
Marginal Tax Rates |
Married Filing Jointly |
Single |
|---|---|---|
10% |
$0–$23,200 |
$0–$11,600 |
12% |
$23,201–$94,300 |
$11,601–$47,150 |
22% |
$94,301–$201,050 |
$47,151–$100,525 |
24% |
$201,051–$383,900 |
$100,526–$191,950 |
32% |
$383,901–$487,450 |
$191,951–$243,725 |
35% |
$487,451–$731,200 |
$243,726–$609,350 |
37% |
Over $731,200 |
Over $609,350 |
Knowledge Hub+. Ed Slott’s Top Retirement Tax Planning Opportunities for 2024. April 2024.
“Look how much income can come out at 22%, or 24%,” Slott said. “Hundreds of thousands of dollars of taxable income can be withdrawn at these unbelievably low rates, and this is only going to go on for two more years.”
“Hundreds of thousands of dollars of taxable income can be withdrawn at these unbelievably low rates, and this is only going to go on for two more years.”
–Ed Slott, CPA
All of this makes 2024-2025 an opportune time to explore the possibility of restructuring your clients’ estates by migrating assets from tax-deferred vehicles like IRAs to tax-free vehicles such as Roth IRAs or life insurance products.
The idea, Slott says, is to pursue an aggressive, proactive IRA withdrawal strategy focused on reducing the balances held in tax deferred accounts and migrating assets to tax-free options. Instead of simply taking the RMD, clients would withdraw greater amounts and convert the proceeds into Roth IRAs, life insurance, or other vehicles depending on their needs.
Slott acknowledged clients may balk at the idea of taking large distributions and paying the associated tax bills; however, he also pointed out balances held in IRAs are inevitably going to be taxed – the only question is when and at what rate. By choosing to take bigger distributions and pay tax now, when tax rates are low and tax brackets are generous, clients can protect themselves against future tax increases. And by transferring assets to instruments like Roth IRAs or life insurance, clients can create wealth transfer vehicles that enable them to pass on larger inheritances tax-free.
Slott warned that this strategy isn’t necessarily right for every client; charitably inclined clients, for example, may find it preferable to use their IRAs as a vehicle for charitable giving either through qualified charitable distributions (QCDs) or charitable remainder trusts (CRTs). Very high net worth clients, on the other hand, may wish to avail themselves of today’s generous gifting allowances to transfer assets to heirs before their passing.
Advisors should also consider the specific circumstances of each client – clients who may need funds in the short term might not be suitable candidates for a Roth conversion, for example.
“The retirement savings tax rules are the most complex in all the tax code,” said Slott. “They affect almost every client you have. And the laws are not only complex, but they are also unforgiving. We've seen mistakes that have cost clients a fortune and cost advisors their clients. Don't let it happen to you. Be proactive. Learn what your clients need you to know to help them protect and preserve their retirement savings.”
“Retirement savings tax rules are complex and unforgiving. We’ve seen mistakes that have cost clients a fortune and cost advisors their clients. Don’t let it happen to you.”–Ed Slott, CPA
When it comes to retirement tax planning, there are many twists and turns. Want to learn more? Enroll now in Ed Slott & Company's IRA Success, an e-learning experience that helps financial professionals understand the complexities of IRA distribution planning and qualifies for up to 27.5 CE credit hours. You can also find content from Ed Slott, CPA on Knowledge Hub+, now available exclusively to members of The College’s Professional Recertification Program – and coming soon to the general public!
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Shares: What AI Knows About Retirement Income
In this episode of our Shares podcast, host Chet Bennetts, CFP®, ChFC®, CLU®, RICP®, CLF® speaks with Eric Ludwig, PhD, CFP® about their shared experience working extensively with AI platforms such as ChatGPT. They’ll revisit key takeaways from The College’s 2023 Retirement Income Literacy Study and how it relates to AI use in financial services, as well as how the emerging science of “prompt engineering” can help.
Eric Ludwig, PhD, CFP® is an accomplished retirement income planning expert, assistant professor of retirement income, and Retirement Income Certified Professional® (RICP®) Program director at The American College of Financial Services. As director of The College’s Center for Retirement Income, he is passionate about developing research and innovative solutions that help investors achieve financial security and personal fulfillment – two essential components of overall retirement wellbeing. Ludwig’s over 10 years of experience as CEO and wealth manager at Stockbridge Private Wealth Management bring a practical and dynamic perspective to academia. As a nationally recognized writer and researcher in behavioral finance and retirement planning, Ludwig has presented peer-reviewed research at the American Council of Consumer Interests (ACCI), AFCPE® Symposium, and CFP Board Academic Research Colloquium. He is on the editorial advisory board of the Journal of Financial Planning.
Any views or opinions expressed in this podcast are the hosts’ and guests' own and do not necessarily represent those of The American College of Financial Services.