Products October 1, 2012

Tax Strategies, Annuities Paired to Generate Retirement Income

Golden Retirement LLC’s Savings2Income program (S21) aims to address the needs of Baby Boomers planning for retirement with a combination of tax strategies and annuities.
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Stock market volatility combined with record-low interest rates makes the retiree’s search for secure income challenging, according to Jerry Golden, president of Golden Retirement. The Savings2Income method was designed for Baby Boomers who are saving for or just entering retirement, Golden said. “S2I focuses on the underserved middle market and mass affluent, whose retirement savings have been hit hardest in the current economy,” he said.

The planning method uses proprietary software to calculate how best to accumulate guaranteed retirement income over time. The goal is to create dependable income to meet or exceed an investor’s essential expenses without incurring additional risk.

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The firm launched a website to explain the S2I planning method that includes case studies with examples of the impact on an investor’s full retirement savings and income situation. The site has a simple retirement calculator that takes into account an investor’s age, assets and risk tolerance to illustrate the advantages of the S2I planning method when applied to nonqualified savings, or what S2I terms personal retirement savings.

The plan offers five steps to:

 

  • Lower fees on all retirement savings;
  • Defer taxes on retirement savings for as long as possible;
  • Maximize Social Security benefits;
  • Build up guaranteed income over time; and
  • Convert savings to a steady stream of lifetime income.

 

During the accumulation phase of an S2I plan, retirement savings grow tax-deferred and benefit from low fees. As the retiree transitions from the saving-to-spending phase, the method converts savings into dependable, spendable after-tax income.

Golden explained that the initial amount of retirement income is set and then adjusted periodically, typically every five years, to meet any expected expenses. Budgets may have to be adjusted to reflect changing situations, but the S2I planning method is flexible and can address different scenarios.

The method frees retirement income from the constraints of market returns or interest rates during each payout period, because income is taxed when received and the balance of retirement savings continues to grow tax-deferred, according to Golden. “Retirement income is deposited directly into the individual’s checking account each month,” he said. After a “no worry age” (typically life expectancy) is reached, active investment management is no longer required and guaranteed income is paid to the investor for the rest of his or her life. 

The S2I planning method is available through Golden Retirement Advisors.

 

 

Compliance October 1, 2012

PANC 2012: The Future for Fiduciary Advisers

The Department of Labor’s (DOL’s) re-proposal of the definition of fiduciary is another indication that fiduciary responsibilities are increasing, and broker/dealers in particular could be impacted.
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The DOL’s proposal, if finalized, will expand the definition of fiduciary advice and cause many service providers under current practices to be fiduciary investment advisers. Following comments received after its initial proposal last year, the DOL’s Employee Benefits Security Administration (EBSA) withdrew its proposal from 2010 and announced it would solicit more information before creating a new one (see “EBSA to Re-Propose Definition of Fiduciary Rule”).  

More attention has also been given to fiduciary issues because of the 408(b)(2) fee disclosure regulation, requiring disclosure of both fiduciary status and compensation; Securities and Exchange Commission (SEC) activity for the Dodd-Frank fiduciary provision; and the Financial Industry Regulatory Authority (FINRA) “guidance” about best interests of investors.

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“I don’t think there’s any doubt that the big trend is a fiduciary trend,” Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath LLP, told attendees at the 2012 PLANADVISER National Conference.

Possible changes to the DOL’s re-proposed regulation involve IRAs; re-affirming prior guidance; “individualized” advice; arm’s length commercial transactions; and brokerage commissions. Reish said he predicts the DOL’s final regulation will say that those who give individualized advice are fiduciaries. In addition, he predicts the final rule will have exemptions from expanding fiduciary liability for companies that sell and service IRAs, but he also will not be surprised if the DOL expands examples of prohibited transactions for IRAs. In addition, he predicts the DOL will make it clear that brokerage commissions are prohibited transactions. “That’s an odd one because brokerage commissions have never been prohibited,” he pointed out.

 

In addition, if offering individualized advice continues to be a requirement for an entity to be considered a fiduciary, as Reish predicts, he stressed that it is difficult to create an asset allocation model that is not considered “individualized” to a person’s needs, which would result in fiduciary status.

Investment policy statements are another issue because Reish said he does not think IPS’s can be written without “recommendations,” which would fall under the proposed fiduciary definition. Reish said that upon an investigation, the DOL would first ask the broker/dealer if it makes recommendations for plans.

He cautioned that both the DOL and the SEC are increasing their activity, as recent court cases like USI Advisors (see “USI Advisors Settles DOL Suit Over Fees”) have underscored. “There is an increased level of activity,” he warned.

 

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