Distribution Planning

What is Distribution Planning?

• Distribution Planning is being Pro-Active.

• There are three stages of activity: 

1. Inactive:  Leaving the barn door open, letting the animals out of the barn. 
2. Re-Active:  Closing the door after the animals have left the barn.
3. Pro Active:  Keeping the door shut until you want to let the animals out of the barn.

Not long ago my son pointed out an article in a trade journal saying that the new step in financial planning was "Distribution Planning."  My son said, "Dad, you've been doing this for the last 10 years."

What is Distribution Planning?
It is the integration of qualified assets, such as:  I.R.A.'s, pensions and profit sharing plans that are coordinated with Non Qualified, such as:  Life Insurance, real estate, securities, etc. which are purchased with after tax dollars.

All of life is based upon intergration.  Without this, assets resemble pieces of a puzzle laying on the table but forming no picture or clarity.

When I purchase clothes, I make sure the sport court, tie, and pants compliment and go together.  Distribution planning makes sure that all of your ASSETS, both qualified and non qualified compliment each other.

My experience is that the majority of people that I work with have purchased products without any thought as to whether they fit in with the rest of their assets.  Having over 30+ years of experience in the financial industry, it is essential to make sure your assets work and compliment each other.

Economic Conditions that Effect the Market

•  “For everyone examining the root of the tree, there are a thousand hacking at the branches.”  Henry David Thoreau

• The threat of Euro Collapses.  – While the US Economic conditions have little effect on Europe – Europe’s economic conditions affect our economy greatly.

• Over 15 Trillion in US Debt.

• Banking scandal.

• While the ignorant compete the wise cooperate.  Our elected leaders continue to be void of compromise.

• Threat of war looms with North Korea and Iran.

• Uneven distribution of wealth.

• Worldwide rising up of people to take back their government.

• Occupy protests not limited to “Arab Spring.”

• Corruption of Wall Street – the backbone of capitalism.

• Foreign Trade Deficit.

• Ongoing threat of terrorism.

• The ongoing “Hate of Americans by those whose political affiliation or religious differences.”

• Congressional corruption (7% approval rating).

• S&P lower US Bond rating.

• Removal of most of the above and the market can progress in a prudent and realistic manner.  Without the above being addressed, the investment arena resembles a roller coaster in which large investors play the market as skillfully as a concert violinist.

Distribution Strategy

Planning your distribution strategy is as important as planning for retirement.
 
 Suppose you had an orchard with various fruit bearing trees and they were your only source of food supply.  If they all ripen at the same time, it would be a disaster as you could not eat all of the fruit at the same time without running out of food for the future.

Typically physicians and dentists have more than one source of income for retirement:  Social Security, Partial Employment, Qualified Plans, Real Estate, Sale of Practice and after tax dollar investments.
 

 
 

• Between now and retirement we will more than likely see a change in capital gains as our deficit keeps increasing (opinion only).

• Tax planning is between you and your tax adviser.

• There are a myriad of distribution possibilities.  They can be determined as your current situation changes.

• Dividends on stocks are taxable as ordinary income as declared unless they are inside of a qualified plan.

• There are typically no closing costs, brokerage fees, or yearly administration fees for Life Insurance.

• Keep in mind that if retirement distribution starts before age 59 1/2 with qualified assets, you will be subject to a 10% tax penalty from the IRS.  If distribution is needed prior to age 59 1/2, use non qualified assets first to avoid age restriction and IRS early distribution penalty.

• Many retirement plans are disrupted by investments going "south" just prior to distribution.

• The closer one gets to retirement, the more the emphasis should be on asset safety and retention no high risk investments. 

Addressing your Retirement Plan: Pre Tax Vs. After Tax Dollar Savings

• Keep in mind that the original premise of putting money in a pre-tax qualified retirement was:  You put money away that you don't need as a young person while you are in a high tax bracket, and take money out as an older person when you are in a lower tax bracket.

 

• Most retirement plans negate this principle.  Recently an Arizona Orthodontist said,  "Why should I put money away pre-tax in my 45% tax bracket and take it out in the same bracket at retirement?  A Thinker!!!

Plan for Your Retirement and Distribution

Distribution Planning Addresses the Following:

• All income producing assets are used as to time and amount of distribution.
• Recognizes the time scenario on qualified plan distributions (age 59 1/2 to 70 1/2).
• Which assets should stay in the "oven and cook (increase in value)" and which assets should be taken out of the "oven and served now."
• Qualified Retirement Plans have an 11 year window (age 59 1/2 t0 70 1/2) whereas Non Qualified assets, which are purchased with after tax dollars, do not have a restriction.
• Recently a trade a trade journal crossed my desk and said, "The the future of retirement planning will emphasize Asset Distribution," a procedure my firm has addressed for over a decade.
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Retirement Plans Should Address the Following:

• Qualified Retirement Vehicle:
• Is my tax bracket at time of retirement distribution lower than when I made my contributions?
• Am I aware that I can outlive distributions from Qualified Plans?
•  Does my taxable income put me into a higher or lower tax bracket than I am in now?
• After Tax Dollar Vehicles:
• Am I utilizing tax deferred and tax preferred distribution?
• Business Owners and Practices:
• Does my retirement plan address the sale of my practice?
•  Does my retirement plan address terms of practice sale?
• Does my retirement plan address whether a tax qualified plan is better than after tax investment vehicles?
• Does my retirement plan address future estate taxes?
• Does my retirement plan address the possibility of an employment contract at sale of practice?
• Does my retirement plan address where I will live?  Keeping current residence or scaling down?
• Does my retirement plan address abrupt or gradual retirement?
• Does my retirement plan address all sources to be used for income at time of retirement?
• Does my retirement plan address the possibility of early retirement.
• Does my retirement plan address working longer and slowing down sooner?
• Is my plan understandable to ourselves and our loved ones?
• Am I utilizing all that the IRS will give me?
• Has "Time Sequence" for distribution been addressed?
• Do I need long term care?  (Asset protection)
• Does my plan address the possibility of "Rising Taxes?"

Do you have a retirement plan or a retirement vehicle?

Why Insurance Companies and the Industry Agents Excel Against the Competition

Russ Allen Prince, one of the country’s leading authorities on working with the wealthy, says in his book, “Winning the war for the Wealthy:, about life insurance agents; talented insurance agents are the dominate financial professionals in the upscale market.  Other top financial and legal professionals also work with upscale clients, doing an exceptional job and prospering, but when they are compared with the very best producers in the insurance industry, the insurance agents dominate.

Without questions, there are sensational stock brokers, attorneys, accountants and bankers, but the “best of the best” among these professionals are no match for the “best of the best” of the insurance industry.

This conclusion is based on more than a decade of empirical research on the upscale markets and the distribution systems of professional and financial services to these markets.  There is no group of professionals more gifted, dedicated, client –focused, and innovated than high end insurance agents.  Pirates of Manhattan Barry James Dyke

“It’s good enough for bankers… according to government disclosures, federal reserve chairman Ben Bernanke has a majority of his liquid wealth, between one million and two million, invested in fixed and variable annuities, which are contracts issued exclusively by Life Insurance companies that promise guaranteed rates of interest.”  Medical Economics: June 19, 2009