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```					Let the Press Help You Motivate Your Clients to Help Themselves
“The Incredible Shrinking Nest Egg: Paltry stock returns, lower home values dim the view for retirement” Right on the front page, the USA Today had a chart showing “diminishing returns.” The chart is for a 45-year old who makes \$50,000 a year (with a 4% pay increase each year) and who currently has \$100,000 in a retirement account. The chart/example assumes the client will contribute 8% of his/her salary every year until hitting the age of 65 (typical retirement age). To download a PDF of the front page with pictures and read the article (that you might want to forward to your clients), please click here. The chart shows, through a financial forecast, how much wealth should be in the client’s account if the money earns 10%, 8%, or 6% annually. The numbers given are as follows, when the client reaches age 65: -\$878,862 assuming a 10% rate of return (gross) -\$652,445 assuming an 8% rate of return (gross) -\$486,310 assuming a 6% rate of return (gross) What jumps into your mind when you see the above “forecasted” numbers?
(FYI, the numbers listed in the article are wrong. I double checked them with my excel spreadsheet and the numbers should have been \$1.115 million, \$800,930 and \$577,656 (but that’s not too relevant for what I’m trying to get across in this newsletter).

After reading the article, a few things came to my mind: 1) If clients assume, like many have in the past, that the stock market will earn them a gross rate of return of 10%, they are in really big trouble when they reach the age of 65. Why? If you remember my newsletters on the Maximizer, you’ll recall that the average mutual fund investor (depending on the time frame chosen) earned between 2.7%-3.1% over a rolling 20 year time frame looking backwards. To read that newsletter, please click here. If you use a 3.1% gross rate of return and apply that to the above example, the client would have an account balance of \$364,064. It is my opinion that millions of Americans have forecasted incorrectly what they will need for retirement and continue to forecast incorrectly as for many the “gross” rate of return in their retirement accounts will actually be much lower than what they assumed/planned for. -If clients are invested in mutual funds, the average expense is in excess of 1.5% a year. -If clients are in a 401(k) plan, many plans will have a wrap fee of .5-1% a year. -Money in the stock market is NOT protected from downturns in the stock market. Therefore, millions of Americans are at risk to downturns which could, for many, be devastating if the downturns happen at, near, or in retirement. 2) Opportunity to help clients who really need help. The above means that millions of Americans are not being given quality advice for how to help them protect themselves and grow the largest retirement nest egg.

How can we help clients?
A) We can sit down with them and have a meaningful discussion as the client needs to determine if their past forecasting is too “optimistic.” We also need to determine if clients are in the best wealth building tools to help them mitigate risk and give them the best opportunity for growth (tax-favorable if possible). B) Part of that discussion will be whether it makes sense for a client to continue to contribute to a qualified plan and if so, which kind and in what wealth building tools? As you may have read in my newsletter comparing Roth 401(k) plans to traditional tax-deferred plans, nearly every client will be better off financially if they fund Roth 401(k) plans. The problem with the way most clients invest in Roth 401(k) plans is that the money is invested in mutual funds (expensive and lack consistent results).

The 7% guaranteed return FIA/EIA with a guaranteed income benefit

Returning 140% of what the S&P 500 returns
Because many of the new financial forecasts say the stock market will slow down over the next 10-20 years, it might be in a client’s best interest to use an EIUL insurance policy that credits 140% of what the S&P 500 returns as a wealth building tool. If a client’s money is in mutual funds when the stock market returns 5%, the net annual return will most likely be less than 4% after fees in a retirement plan. If a client’s money is in an EIUL (Revolutionary Life) that credits 140% of what the S&P 500 returns, the policy will credit the client with a 7% return when the S&P 500 returns 5%.

Using this type of tax favorable and protective wealth building tool should be strongly considered as one of a client’s retirement/wealth building tools.

Summary thoughts
Clients are professionals at “doing nothing” and it is our job to motivate them as best we can. Sometimes using simple articles from the newspaper can go a long way towards waking a client up and getting them to focus on the very important job of planning “correctly” for retirement. If you have not tried this motivational tactic to help your clients help themselves, I strongly recommend it.

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 views: 61 posted: 7/12/2008 language: English pages: 3