Fixing the Fractured Financial Foundations of Americans

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Industry Commentary By Harry Stout

We all read and hear the daily reports of the perilous state of the financial affairs of most Americans. After two decades of offshore exporting of jobs, the Great Recession, technological innovation replacing many jobs, extreme market volatility, falling home values and now record-low interest rates, the financial state of the average American has taken a series of vicious broadside hits. We see reports that most American households have little savings to cover current needs and almost nothing saved for their retirement.

We need to educate and tell the story of what a strong financial foundation does for a family and how by using the benefits of life insurance and annuity products this foundation can be built to last.

Seven Basic Principles of Building a Strong Financial Foundation

Based on more than 25 years in the business and my experience as a senior executive serving the financial markets, here are the seven key principles that I think we should be teaching clients:

1. Save on a systematic basis. At this point in our professional lives we have seen the importance of systematic savings plans. It is amazing what can be accumulated with a small amount put away each pay period or by using money received from special occasions. Individuals need to start their financial foundations by using available annuity, 401(k), IRA or other tax-qualified plans as basic savings tools. A little put away today can grow to a reasonable sum as retirement rears its head.

2. Use time to your advantage. Using the time value of money and taking advantage of the power of compounding are concepts that are based on putting money to work over an extended time horizon. Your clients normally can’t save for 30 years of retirement in three years. Individuals need to create a plan and the discipline to fund retirement over the years despite setbacks and unexpected life events. Life insurance and annuity products are designed to make this principle a reality.

3. Protect against the loss of employment income and premature death. A basic concept in financial planning is to protect your downside risks. For most people these risks are the loss of their income and/or life. Protections for these risks can be purchased today at the most affordable rates in decades with life insurance and disability products.

4. Feed your retirement savings. Life expectancies continue to increase. When our scientific community discovers the cure for cancer we will all have the chance to live to be 100. Can your clients save enough to have assets that last that long? To have a retirement of over 30 years, savings need to be fed often and on an ongoing basis. Adopting a private retirement savings plan, as early in life as possible, is a must. The US government will likely not have the resources to be the medical and longevity insurer of last resort for all of us. We are seeing these stresses today in the financial difficulties that the Medicare and Social Security programs are acknowledging.

5. Invest in your health and wellness. Having basic health insurance coverage and performing basic physical and mental self-care are essential to a strong financial foundation. Just over a third of Americans have basic dental insurance coverage in this day and age.

6. Live below your means. This is the hardest principle for most people. Distinguishing between what we need and what we want is one of the keys to building a strong foundation. Controlling spending to get just what is needed takes discipline but will pay major dividends over a lifetime.

7. Use debt carefully. During his or her lifetime, your client will need to use debt for a mortgage or a car loan or to obtain an education. Using debt wisely is key, but to have repayment amounts with unreasonable levels or that require borrowing of next week’s pay to cover this week’s bills is self-destructive.

Key Benefits of Life Insurance and Annuity Products and Service

Our industry has forgotten to present the key benefits of its products and services, along with the explanation of how these products can provide the bricks necessary to build a strong and lasting financial foundation. The key benefits we need to emphasize are:

The advantage of tax deferral or legal tax avoidance. By established public policy, almost all life industry products have the benefit of either tax deferral on accumulation or full or partial tax avoidance on benefit payments. These advantages are powerful and provide significant consumer benefit. When was the last time you highlighted the tax-free nature of death benefits?

The power of guarantees. Our industry offers guaranteed minimum interest rates, death benefits and income payments that cannot be outlived. Where else on the financial services landscape can your clients go to get these benefits in a financial product?

The backing of government regulation. The life insurance industry is regulated based on a state-based system backed by national standards. In addition, the industry’s products are backstopped by a system of state-based guaranty funds to further support the guarantees within products sold.

The quality of advice. We have over 500,000 licensed and active financial professionals available to provide advice, counsel and knowledge to help consumers build their foundations. An overwhelming number of these professionals provide excellent quality advice and counsel to their clients.

Product flexibility. The industry has produced new and innovative products to meet evolving client financial and lifestyle needs. From indexed annuities and life insurance to hybrid life and annuity products to the newest generation of immediate and deferred annuities, products have been developed to be as flexible as possible to meet the changing needs of Americans. These innovative solutions are there for the asking. These products, properly explained and sold, are the bricks to be used in building the financial foundations clients need for the long term.

Summary and Conclusions

We are sitting with the greatest selection of solutions we have ever had as an industry at a time when Americans need our advice and counsel more than ever. It’s time to redouble our efforts and to focus on education and knowledge sharing. The impact on our country could be incredibly significant. We can rebuild the financial foundations of America’s households and put them on a track for long-term prosperity.

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