Estate Planning is Dead — Long Live Retirement Planning!

Social SecurityMy Comments: While these comments were directed toward advisors like me, they are representative of something that happens to many of us over time. What we are trained to do, and from which we earn a living, changes and we become irrelevant.

An example happened in Detroit, once the heart of American car manufacturing. And don’t forget the 1800’s when making buggy whips and horse drawn wagons was a noble skill.

For financial advisors, today the required skill is helping people understand the financial dynamics of retirement. Typically, once your retire, you are no longer working for money, and instead, money has to work for you. The trick is to have some and get good help to make it work properly. That’s where we come in and relieve your stress.

Blog added by Nicholas Paleveda MBA J.D. LL.M on July 17, 2013

Estate planning

In the year 1981, estate planning and second-to-die life insurance was in its infancy. The Economic Recovery Tax Act (ERTA) allowed an unlimited marital deduction between husband and wife for estate taxes. The first $175,000 was exempt from taxes, and life insurance in an irrevocable insurance trust would escape the 70 percent federal estate tax. Clients lined up to purchase second-to-die life insurance, as it could escape the federal estate tax, federal gift tax and federal income tax. Life insurance companies started offering second-to-die policies. Insurance agents did well in selling second-to-die policies and became estate planners.

The demise of estate planning

Then came the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2001. The estate tax exemption rose to 3.5 million and was eliminated in 2010. The number of estate tax returns fell from 50,000 in 2001 to 1,760 in 2011. Second-to-die? Who needs it?

Then came the American Taxpayer Relief Act in 2012. Today the exemption amount is $5,250,000. With a married couple it is $10,500,000. Life insurance trusts are dead for most Americans.

Long live retirement planning!

But what about income taxes? Payroll taxes begin at dollar one and amount to 15.3 percent of income when you add the employer and employee contribution. Obamacare taxes are 3.8 percent, and federal income taxes rise to 39.6 percent on single filers over $400,000. Pension plans are being set up using life insurance products to minimize income taxes. Life insurance is also used as a supplemental retirement plan. Annuity products are used as they are tax-favored.

If you are a producer today, you must know about the retirement planning industry. Baby boomers — who have not saved enough for retirement — are turning age 65 at a rate of 10,000 people per day. Retirement planning and insurance products used for retirement are totally different then ones used for estate planning. It is now time to become involved with the new wave of retirement planning.