Jerry Borrowman of Salt Lake City is one of the more progressive advisors in the field. Not only is he an outstanding insurance agent, but he is also the author of more than a dozen books of fiction, mostly focusing on the “Wild West.” That may be one of the reasons he is also a bit of a cowboy when it comes to exploring new ways to generate interest from existing clients.
“I decided to send invitations to my clients to my 59½ birthday party at a local restaurant. I thought maybe a half dozen would show up,” Jerry said. “Instead, the restaurant was packed. It was jammed. Everyone was intrigued about why I was celebrating 59½, and when I explained over dessert about the importance of individual retirement account planning, there was applause and laughter – and then, the serious ‘Hey, can I talk with you?’ discussions continued for the next week.”
There is no question that Congress must examine the massive debt with meaningful tax reform. The notion of a flat 2 percent tax on everything – from a gallon of milk to a new home – is far too simple and effective a solution for lawmakers. Estimates by various economists suggest that such a solution could cut the deficit within 15 years by effectively half. Such an effort doesn’t target merely those who start businesses and create wealth for others – it is a fair and flat tax. No, progressives say, just keep taxing the wealthy. That antibusiness sentiment will continue to slow our economic recovery.
Thus, the lens of Congress turns to our collective attempt to save for retirement. Over the last decades, policymakers told us that we needed to save for retirement, and the baby boomers listened. Now there will be multiple attempts to penalize them for making sacrifices while they raised children and bought homes.
Some proposals call for “exempting” the boomers who have more than $1 million in retirement accounts from accessing any of their Social Security funds. Please note that I don’t refer to this as an entitlement, because Social Security is not an entitlement – it is a contributory contract you and I made with the government. Our employer matched those contributions dollar for dollar. Prohibiting access to your funds will not only be challenged in the courts, but would likely cause boomers to throw eggs at town hall meetings when our congressmen visit our districts. I’ll be first in line.
So, back to Jerry Borrowman. Let’s say he was a good citizen and decided to be benevolent and wait until he was 69½ to access his annuity. The legislation in place when he made the contribution called for withdrawals at 59½. Personally, I think that he not only did the right thing. But his clients should, if circumstances are appropriate, be doing the same thing now, while they still can and before they are precluded from doing so. As marginal tax rates increase, the benefits of doing so will only become more challenging.
Many insurance agents are hesitant to provide specific withdrawal advice. David Littell, who leads The New York Life Center on Retirement Income at The American College, reminds me that his father, now in his 90s, has enjoyed a satisfying, quality retirement life not only because he had the foresight to save and the prudence to live within his means, but also because he took distributions as early as possible. If you have the opportunity, read some of the data about retirement income on his Retirement Center website at theamericancollege.edu.
David Walker, who led the Congressional Budget Office (CBO) and who is now a candidate for lieutenant governor in Connecticut, warned Congress repeatedly during his tenure that massive cuts will need to be made in a variety of programs now. Of course, his admonitions are provided in an atmosphere where no member of Congress wants to be held responsible for voting to ease Social Security benefits or IRA withdrawals. In fact, President Obama’s new program of myRAs seeks to create an entirely new platform of savings, specifically geared for younger workers who often avoid any retirement plan participation.
Your boomer clients face some hard choices. If they are prudent and moderately wealthy, they are playing roulette and hoping that someone else will foot the bill for the national debt. If they withdraw from their annuities as early as possible and then claim their Social Security benefits in their 60s, they are hoping that they will be grandfathered if any punitive changes are made.
No decisions will be made this year by a Congress that has proven itself to be inept at making the hard decisions that will bring us to the next level of economic security. But your clients cannot be frozen in time just because our representatives are out shaking hands and avoiding these topics.
It’s time to call your favorite restaurant, rent a room, and invite your best clients for salad, soup and a discussion about turning 59½. Isn’t it worth $10 a person to reconnect with clients you haven’t seen in years?