In today’s age of low interest rates, increased regulations and market volatility, it may seem hopeless if you are an adviser focusing on retirement planning. As if the global economy wasn’t enough, most people don’t have the luxury of defined benefit plans and more than half of Americans haven’t saved enough for retirement. At our firm and through my Million Dollar Round Table membership, I have learned how to educate and motivate individuals and families about the realities retirees face.

A majority of our clients come to us for retirement income planning and started referring their children to us. Their children are often in their 30s and bring their own set of challenges. Many of them are Gen Xers who have underfunded their retirement as a result of trying to “keep up with the Joneses” throughout their lives. They come to us with the mentality that retirement planning is something they will not need to worry about until they are their parents’ age. They couldn’t be more wrong. 

In President Obama’s State of the Union Address, he highlighted two major tax changes he wants to see go through the houses. Both of these changes called for higher taxation on savings. I would venture to guess when our clients’ children retire income taxes will be higher than they were for their parents. We have found an innovative way to help this generation with the accumulation aspect of retirement planning while removing the issue of taxes.

We recently helped a client looking for help with retirement accumulation because he maxed out his 401(k) and savings vehicles. We explained if tax rates didn’t go up, which we believed they would, and if all things remained steady, he would need a return on his tax deferred accounts (401(k)/IRA) of more than 13% to match what we had put together. We asked if he believed he would be able to get that type of return after fees, which can run well over 2%.

Now, most logical people will come to the realization pretty quickly that an equity-driven portfolio spanning 20 to 30 years will not have those types of annual returns. The million dollar question is: What was this alternative investment? Life insurance. 

We utilized a second-to-die life insurance policy on his parents, a universal life with a no lapse guarantee. We ran the numbers and assumed his mother would be the last parent living. For a 25-year period the numbers were just staggering. The policy would return 8.4% annually. The beauty of all this is the policy is owned and paid for by the son, so there aren’t any estate issues with the parents. Other than asking if the parents were comfortable with the medical underwriting, this case sold itself. 

With low interest rates, a debt-to-GDP ratio not seen in this country since World War II and a global financial crisis, the world banks have their work cut out for them. Financial repression is real for fixed income investors. The last 40-year bull market run on bonds has come to an end; rates can’t go lower and at some point the Federal Reserve is going to raise them. As such, it’s time to start thinking outside the box and considering life insurance and fixed indexed annuities as alternative investments or sub investment classes within fixed income for retirement plans. 

Rousseaux, ChFC, CIMA, RICP, is the founder and president of Everest Wealth Management, Inc.

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