This month Jay connected with Steve Parrish, JD, RICP®, CLU®, ChFC®, AEP®, Co-Director of The Retirement Income Center at the American College of Financial Services. The pair discuss their similar paths in the industry, examine the ways life insurance can help retirement planning, settle a debate about a contentious question, and extol the benefits of kayaking.
JAY: Maybe once a year with this interview I like to include someone who has served as a mentor to me in one or more areas of my life insurance career. This is that interview and I am happy to finally get to feature you, Steve. You have had a 45-year career of providing technical advice on life insurance and retirement matters to the advisor community. It is probably fair to now call you a senior statesman when it comes to providing knowledge about strategies and techniques that producers and their centers of influence rely upon to help their clients.
You and I met in 1998 at my first AALU (now Finseca) Annual Meeting in Washington, DC. You led the Iowa delegation of AALU Members visiting the state’s U.S. Senators and Congressmen and I learned from observing you the delicate art of advocating for our industry. Then, for the next twenty years, we would meet each Spring and repeat the process.
Let’s start by hearing about your role and your work with the American College of Financial Services.
STEVE: Thanks Jay. I appreciate being called a “senior statesman” rather than an honorific suggesting I’m no longer in the business!
The American College is in many ways my encore career, and it’s been a blast. I serve two functions at the College. As Co-Director of the Center for Retirement Income, I help provide thought leadership for both financial service advisors and the consumers of those services. This includes writing for industry and consumer publications, being a resource for reporters, and speaking to major industry groups.
I also serve as an Adjunct Professor of Advanced Planning, teaching RICP®, CLU®, CFP® and ChFC®. And frankly, because of my long career in the insurance industry, I also am an internal resource to The American College on issues dealing with life and annuities in financial planning.
JAY: You and I had similar starts in the life insurance industry – going right from law school into the field. Talk about your upbringing, education and career path to this point.
STEVE: I got into this field because I needed a job to pay tuition for law school. While clerking in the law department of a life insurance company, a friend told me about how much more fun it was to be an “advanced underwriter.” So, I took that path while finishing law school.
I eventually tried my hand at using my skills in retail sales, being an early convert to financial planning. While I enjoyed the direct work with clients, I later went back to the Home Office, rising up the ranks in advanced markets. The guy who told me about all the fun of advanced markets was certainly spot on. All those years I was paid to help advisors help consumers with their finances, and no one was ever mad at me.
JAY: In my mind, it was a natural progression for you to focus on retirement matters with the American College following your own retirement from The Principal Financial Group. There are a lot of life insurance considerations in your work. When should advisors think about incorporating a life insurance solution into retirement planning?
STEVE: I’m passionate about the topic of how life insurance can help in retirement planning. I’m not saying this as some academic who is sitting in an ivory tower, but as a consumer who has seen how this product can provide a powerful “swiss-army knife” solution to various retirement needs. Here’s my story.
I paid in premiums for a high cash value whole life policy for over 30 years. One time during those years, we needed some cash to cover tuition for our son. A cash value loan was a quick way to get money and was easy to pay back. Having not died during those years, in my mid-60s, I was able to do a 1035 exchange into an SPIA on the lives of myself and my wife. This has provided us with a nice tax-advantaged income supplement for over seven years, and in addition to Social Security and a QLAC, it represents an income floor we will never outlive.
This policy provided death protection during my working years when we were raising our kids, as well as tax deferral during those high-income years, and now it provides an ongoing retirement income with the taxes being spread out over our life expectancies. Especially since I’m in my seventies but still working, this arrangement has been a particularly attractive way to lessen the tax hit of NII and IRMAA.
In retirement planning we’re constantly addressing risks. Life insurance not only addresses the risk of mortality, but also market risk, tax risk and, as my personal case shows, longevity risk. Specifically, anytime an advisor has a reasonably affluent client who is worried about taxes during their working years, income during their retirement years, and taxes and mortality in any year, life insurance should be a top-of-the-list planning consideration.
JAY: An area of major interest to you is studying how people who live in more than one state, like Snowbirds and a number of professionals, can keep their taxes down – either while continuing to work or in retirement. What are a few techniques that you have seen successfully applied to do this?
STEVE: As a Snowbirder myself, this topic has intrigued me. The primary financial driver for many is the state income tax savings that can be generated by living in jurisdictions such as Florida, Arizona and Texas. Yes, both state income and estate taxes can be avoided, but there is a highly choreographed approach that must be taken in order to establish residency in the targeted state. It’s not just a matter of “live in the state for six months and a day.”
And it’s not just a matter of addressing taxes. Financing, expense management, estate planning and healthcare must also be factored into the equation. What I’ve learned is that the key to making multiple residence planning work is technology. There are a plethora of tools available to make snow-birding not only financially viable, but also fun and easy to do. I’ve written a lot on this topic and invite advisors to work with their clients on this important life stage. Otherwise, the advisor risks having the client find a new advisor in their new state.
JAY: When you and I spoke a few weeks ago, we both chuckled at the length some advisors go to not refer to life insurance as an investment. Will you settle, once-and-for-all, this age-old question that has been debated in our industry: Is life insurance an investment?
STEVE: Because of an ugly combination of regulatory misunderstanding and industry abuses, referring to life insurance as an investment is as unforgivable as Harry Potter uttering the name “Voldemort”. Yet, that’s exactly what this product can do in the right situation – be a tax advantaged investment.
I realize that the states do not allow the term “investment” to be used in sales and solicitations of life insurance, but nonetheless life insurance can be an investment. If you accept the general definition that an investment is the action of investing money for profit or a material result, life insurance can fit the bill.
Cash value life insurance is not just a risk mitigation contract; it is a contract that offers an attractive after-tax return. But before we attack the anachronistic ways of state insurance departments, let’s look in the mirror and recognize the abuses that have led to this regrettable result. Showing incredibly overoptimistic illustrations, using euphemistic names to avoid calling it life insurance, and attacking other planning ideas has gotten us into this mess.
I strongly believe we must demonstrate the investment opportunities of life insurance by showing realistic numerical scenarios, telling personal stories, and making sure the client actually understands what we’re proposing. Maybe you can’t call it an investment, but you can certainly show them it is.
JAY: For more than 25 years, outside of talking about your family, the one subject that seems to make you incredibly happy is your passion for kayaking. You even have a foldable kayak that you can carry like a briefcase, allowing you to visit a lot of remote places. Outside of being a national educator on retirement matters, how do you spend your free time?
STEVE: Yes, my happy time is on the water. A kayak sits just above the water line, is self-propelled, and is incredibly quiet. I get about six miles to the candy bar, so I’d say it’s also cheap to operate.
As a lifelong devotee of working out, I’ve watched as various physical challenges make it harder to stay active; but that’s the key – to stay active. I don’t have an easy answer to this aspect of aging, but I know I would rather wear out than rust out! And even though I paddle on salt water, kayaking is keeping me from rusting out.
JAY: I am glad I used this interview as an excuse to catch up with you, Steve. You have made the life insurance industry better with your work and I am glad you are doing the same for the retirement field.
You have made it to the restaurant question. Nothing against your Summer home in Des Moines, but I am hoping you have picks to share from St. Augustine, FL! Without naming a steakhouse or a steak dish, tell me where I need to eat and what I should order there.
Steve: Would you believe that I participated in this interview just to have the right to tell you my recommendation?
St. Augustine is the oldest continuously occupied city in the U.S., and it’s sitting on the Atlantic Ocean. It’s all about seafood and, in my world, the perfect meal is centered around broiled flounder. Add in some Minorcan chowder and you’ve achieved nirvana. Let’s meet up at the St. Augustine Fish Camp and I’ll tell you more.
Since its inception, Life Insurance Strategies Group has solely focused on the individual high net worth life insurance market. We do not sell products. This allows us to offer unbiased, pragmatic advice. Visit us at www.lifeinsurancestrategiesgroup.com.