The Role of Insurance in Financial Planning - A Conversation with Todd Taylor (Ep.81)

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Welcome to the new retirement podcast. In today's episode, we're welcoming Todd Taylor, the newly appointed head of Life Insurance Solutions at New York Life. And we're going to go through Todd's journey through the company, how he got started as an actuary and got trained in that and the various roles that he's taken on across insurance and annuities and corporate finance. So he's a fellow in the Society of Actuaries. So we're going to talk about what that means and how that relates to his work. We're going to dive into how insurance is used in the course of retirement planning and financial planning and where we think the future of insurance and financial planning is going. So with that, Todd, welcome to our show. It's great to have you join us.

Thank you. I'm sure we've scared off half the listeners by mentioning I'm an actuary, so I appreciate the introduction and hopefully some folks stay on.

I think a lot of our audiences, they're, and we call them power planners, but they're financial planning enthusiasts. Many of them have their own spreadsheets. And, you know, they're, they're pretty, they're pretty quantitative. So I'm sure they'll looking forward to hearing your perspective. So, yeah, I would love to just get, you know, a couple minutes on your background, kind of like, you know, where you grew up and how you got into, you know, the insurance business and became an actuary. And like, what, what you found that, what you found interesting about it.

So, yeah, so I work at New York Life in midtown Manhattan at our sort of our home office. I grew up in New York, although about as far away from here as you possibly could go up. I grew up in a town in the Finger Lakes in upstate New York of roughly 1800 people. And we didn't have a traffic light, so it's a long ways away from the largest city in the US and as a kid, and I think all throughout high school and early into college, I always had an interest in statistics, math, economy. And I went to college as a liberal arts major, not really sure exactly what I wanted to do and discovered this thing on actuarial science, actually in a course handbook, which still existed at the time. There was a flip book, and I found this thing about being an actuary. So started taking a handful of exams in this arena and discovered that the primary employer of actuaries are insurance companies. And so sooner or later ended up at an insurance company. So that's kind of the background on how this all came to Pass.

Can you define what it is to be an actuary and what in particular about that you found fascinating as a young person?

Yeah, well, look, I think the simplest and most straightforward definition is actuaries quantify risk. Now, I think the more mathematical answer to this is actuaries analyze probabilistic events. So the classic example of this, I work for a life insurance company. The distribution of how long people live is inherently probabilistic. There's a probability that someone will die in any given year. Very hard to quantify the likelihood of me or you, like when exactly we're going to live to. But you can look at this in a grand scale across a whole bunch of people. You get the law of large numbers and it becomes relatively straightforward to figure it out. So actuators fundamentally look at risks like that and often multivariate risks trying to put together, such as building a retirement plan when you've got a whole bunch of different variables going on. And basically what, what's the likelihood of a given outcome? What's the likelihood of a bad outcome? What happens if you do this? So actuaries do that with pricing insurance policies, they do that with setting reserves for insurance policies. But fundamentally it is a probabilistic kind of risk assessment.

I mean, I imagine as we're getting more data about ourselves and people are wearing these fitness trackers and kind of sharing more about themselves. I know like when I'm driving, if you're driving your car around, you can kind of share if you, you know, like your driving habits and that'll affect your insurance. Is the science of being an actuary changing really quickly now? Like, are we getting more precise about predicting things?

Yeah, absolutely. And I think that's a, it's a great call out. I mean, fundamentally, as with, you know, actuarial science or data science more broadly, the more data and information you can throw at the problem, the more precise you can become. So I think the showing up of wearables and of things that basically give insurance companies a better read on your risk, improve our ability to more precisely price a product. And that's shown up in health insurance, it's shown up in car insurance, it's shown up in life insurance. There's all these new applications of that which are fundamentally just more variable so we can look at to try to make a prediction.

I know that if you are a, you fly private planes, your insurance is through your life insurance goes up a ton. And I know as a homeowner in California that lives in the WUI wildland urban interface, my Home insurance is up a lot, but is there like a, you know, a part of this that, I mean, I could see with AI and data that we might get to this world where people are making scarily accurate predictions about individuals that we might not actually, that might make people uncomfortable. Like, what if you're like, oh, I can, I think I bumped into some tech firm and they're like, actually we can predict within like a very tight time window how long you might live. Which I thought was like, I don't know if I'd want to know that. Yeah, absolutely.

And you're on the spot. The emergence of technology in this space in the last few years has raised certainly lots of questions for how the insurance model evolves. You're right. If someone could predict with certainty how long they're going to live, they've got a natural advantage over the insurance company on kind of blowing up some of our historical approaches. There's also a fair amount of regulation in this space. We go to a lot of pains to make sure that while we are assessing risk, we're not doing it in a way that is biased against productive classes and the like. And with AI you've got to be careful on how you do that in a reasonable way. And so this is absolutely, as you're highlighting kind of an emerging kind of world around the way our industry moves forward with more technology, different technology.

I think one of the counterintuitive things that is out there is you can be less healthy. And you know, we kind of, I think default is like, oh, you're less healthy. Your long term care and cost of like life is going to be more expensive as you age. But the reality is it might be less because you might die way younger or, you know, I think we might be heading to though this unhappy medium where you're unhealthy but we're able to keep you alive for a long time and therefore it's expensive. And you know, do you see that kind of stuff manifesting itself?

Absolutely. And I think one of the conclusions is this is a health. I mean the amount of stuff that is written on health and lifespan and all these topics is immensely complicated because it's not a univariate problem. Everything interacts. There's this famous example that in general body mass index is uncorrelated with longevity. But of course, if you actually look at people who are 80, it's the opposite. You know, older people actually there's an advantage to having more body mass in terms of surviving some of the late in life events and so what that shows is that's multivariate. It's not, it's not purely like, you know, one thing drives this and that's where all the complexity comes in terms of, you know, just the industries around keeping people healthy and healthcare.

It's super fascinating. I mean it definitely feels like we're ahead of this world where we're going to get so much more precise about predicting these things and that's going to affect the pricing of insurance. But how people plan and how they think about their future and just how they use their time, especially if you had this sense of I have less time on the planet, then you might dramatically change how long you work or how fast you spend your money and stuff like that.

That's right, yeah, absolutely.

Okay, cool. So I would love to get a little bit about before we jump into the next section, just more about, you know, you're, you know, kind of like looks like a fast rising person at New York Life and you know, a little bit more about New York Life, what attracted you to the company and also just like what a day in life is like for you having kind of risen to the ranks in this company.

New York Life is 175 + year old insurance company. We're a mutual insurance company, which basically means we're owned by our policyholders. So we are not publicly traded, we have no shareholders. You can think of the simplest example of this is if you buy a whole life insurance contract and we can get into what that means, you're effectively participating in the success of the company. So to the extent that our assumptions on how long the population will live or how we invest change, the people who own the company, those policyholders participate up or down in that performance and get that performance via dividends. And so to your question of how I ended up here and perhaps why I've stayed at this company for a long time, I think that structure aligns very well not only with the interests of the people who are actually buying the insurance. There's no other source of where the money can go. It benefits the policyholders. It also leads us to take a very long term view. So we write fundamentally life insurance and annuity and long term care contracts which we're taking in premiums today for a promise that might not pay out for 20 or 30 or 40 or 50 years. So our customers expect that we will be around and make good on those promises. And as a result we take a really long term view. And not having shareholders and quarterly earnings to be too worried about really has been A reason I've enjoyed spending time with this company because it doesn't mean, it means we don't make lurches back and forth in terms of strategy. We have this mission to be here for our policyholders and we intend to be there. And I think for an employee that benefits us in terms of being able to know long term direction isn't changing a lot. And it tends to hold on to employees. We have long tenured employees. It builds a culture around trying to do the right thing in the long run.

Who are some of the other big mutual companies? So I know Vanguard as an investment manager is a mutualized company and that was actually really good for the investors there because it helped to align them with fund fees and stuff like that. And I think is Northwestern Mutual Fund. I guess there are mutual. Any other big ones that are out there.

Yeah. And the comparison to Vanguard is a good one. I think that, you know, it's fundamentally different industries but you know, same sort of structure. Yes. Northwestern, Guardian, MassMutual, those are the other big mutual insurance companies.

Got it. Now what do your customers look like and why do they come to New York? I mean, and I'll tell you, my orientation here is, you know, I'm a kind of a diy. Like a lot of our audiences, like they're mostly in focus on investing. I mean I think they, they use insurance, I use insurance. May I have term life insurance and I have homeowners insurance. I, you know, I think there's a lot of questions folks have about like okay, whole life insurance seems like it's overly complex and high fees and like, so there's an era. And I just want to be upfront. Like there's a lot of skepticism, but I am also, I've met people that are like super into their insurance structure, policy and you know, and I'd be curious what your customers look like and why they invest and like what the benefit is for them.

Yeah, absolutely. So I think the other thing I would share about the company is that we in some ways are a little bit unique here where we are absolutely an insurance company and that we manufacture life insurance, manufacture annuities, manufacture long term care, disability insurance, et cetera. But we also are very much a financial advice company. So we have a career agent and advisor, field force. We have 12,000 career agents in nearly every little town in every state across the country. And so our business model in some ways is both, we are both providing financial advice and we tend to operate in a much more middle market orientation than much of the Rest of the kind of financial advice industry like our agents operate in a lot of these small towns. They deal with folks providing policies that are on the small lower end of a lot of where the insurance industry is. So we're both like an advice company, but we're also a manufacturer. And I think as a result our customers, we have just across our life insurance and annuity customers, we have over 5 million, you know, enforce customers in the United States. They run the, you know, they run the spectrum of every, you know, walk of life from, you know, young people to very old people, depending on the products and the solutions. And we also, as I mentioned, we tend to focus on, you know, we tend to focus on the middle market with a skew affluent in some, in some marketplaces. I'll also add, we've the company has over the last 15 years spent a lot of time in what we refer to as cultural markets, so underrepresented groups. Part of this idea of trying to provide advice across the entire United States means we've made a lot of investment in a number of ethnic minorities as agents and as markets we want to go after. We've had a lot of success there providing advice and providing solutions that are often underserved in most models.

Got it. So, I mean, do you feel like that's a better. I know that we do a lot of work in the RIA space, which is kind of mass affluent. Plus, I mean, there's definitely wealth concentration in this country. So I think one of the things we, you know, you hear is that, hey, the kind of traditional, well, the, the RIA advisor, the cfp, you know, they'll, you know, they're taking a fiduciary commitment and they're saying, okay, I'm going to serve. And they generally there aren't that many of them and they serve the higher end of the market. And then there's like the suitability standard which is available to, you know, insurance agents and so forth. And they, you know, they're out there serving kind of the middle market. Is that kind of the way it remains or is there like us. Is there, are there some folks that do both that are both that are also like CFPs or whatever in your, in your field force?

Yeah, and the answer is both. And I think it's a, you know, with, with 12,000 sort of individual models across the country, we have a lot of variation. So we are absolutely. We have an RIA. We have roughly a thousand of our agents are IARs. They operate as fiduciaries and investment advisors. We have a whole bunch of other of our agents who are operating as registered representatives. They're offering insurance and investment solutions. And then we have some that are purely what you consider to be an insurance agent. They're basically just providing insurance solutions and others are offering the more full suite. I will say that I think the trajectory you're raising there is absolutely something that's on our mind as New York Life. Again, we view product manufacturing as part of what we do, but also providing financial advice. And the company has increasingly focused on growing more and more of investment advisors, those who can offer true holistic advice and guidance across a range of solutions. And I think a lot of the trends you're seeing across the industry are the way that we're going as well.

Right. Does, does New York Life do anything at, you know, I know most of this is kind of like across advice in general is like a one to one motion. Do you do anything that's like one to many where you're going in and servicing a bunch of folks maybe inside of a company or other groups?

Yeah, I mean the answer in many cases, as you'll hear me say, is like, you know, it varies across our system. But yeah, one of the, give you a good example, one of the places we've had a lot of success is, you know, there's a tremendous number of small businesses across the country. If you have a hundred or 200 or 500 person business, you've got benefit brokers, you've got folks coming in to offer you a whole range of employee benefits. If you, if you don't and you have five employees or you have seven or you have 15, there's often a lot of. It's tough for, you know, for a business owner who stood up a business three or four years ago and basically is the general manager and does payroll and does like three other things to actually go figure out how to offer disability insurance and a 401k health insurance, etc. To their employees. And so we found a fair amount of success offering what we refer to as business solutions in the kind of ultra small market, small business market. And again, that doesn't make an awful lot of economic sense for some, but we're able to come in because we're distributing through individual agents and make the model work for us and provide access and solutions in an area that has been otherwise might be underserved.

Okay, cool, that's interesting. Now it's great to get kind of some insight into the overall company and just for a quick. So you have 12,000 agents. And then on top of that, what's the rest of the organization look like? Are there another 5,000 people helping support those folks?

Yeah, no, I think in terms of corporate employees now, this is across the. These are not all supporting our agents and advisors, but we have roughly 15,000, I believe is the number of employees across the country. But a portion of those are really supporting the training, the development, the education of those agents. And we really do. We, the vast majority of our agents and advisors were hired by New York Life, trained by New York Life, and built up in our system. And we still have a major infrastructure. So a lot of those employees really are helping provide that training and that advice to get those folks ready.

Got it. Cool. Oh, it's great to get. Get the insight. So. Well, let's shift gears. I'm curious to just talk about how people, you know, use insurance or how you see them using insurance as part of financial planning in general and how you see that that aligns. I mean, I, I think, you know, one of the things we talked about in the email is like, hey, you know, helping people. Some of the behavioral finance issues they run into, it's like, you know, a lot of folks, and we see this, there's a lot of data that people that build up money, they're really good savers and they have a really hard time spending it and they just keep saving money even in retirement. And you retire with a million and a half bucks and you die with $3 million and you haven't really burned it down. You haven't really used it very well. Do you have any thoughts on that?

Yeah, absolutely. I think the more that is written on this in the last couple years, I think is something was intuitive to lots of folks who are actually in retirement is becoming more widely known to those who are actually practitioners of retirement planning. And I think you hit the nail on the head. As a little aside, I ran the annuity business at New York Life before I moved over to life insurance. And so my early time in this industry was trying to figure out what are optimal retirement spending plans. If you reach 65 and you want to draw down strategy, and in what situations can an annuity aid that plan? Like, when does an annuity make sense to add to a portfolio? So, by the way, when I found your site and your tools, I was like, this is awesome. This is cool stuff. And I've been playing around with your site because I'm just kind of a nerd on this stuff. But the lesson for me was I had spent all this time trying to figure out what's the theoretical optimal strategy if you're going to systematically withdraw at 4%, what's the best mix of different asset classes and annuities and everything else to build the right plan. And I can. We're not going to bore the audience here. I could spend another half an hour explaining, like, when the annuity makes sense in that and when it doesn't. But what was really interesting for me is we did a survey with our marketing team. We wanted to kind of demonstrate, you know, people don't really know what a safe withdrawal rate is. And we wanted to use that from a marketing lens to say, hey, you probably should think about, like talking to an advisor and maybe considering an annuity because you might run out of money. And we assumed everyone wasn't going to know what a safe withdrawal rate was, and they didn't. No one had any idea what safe withdrawal rate was or most people didn't. But what we also found, which was fascinating, is we then threw another question in, which is, for those of you in retirement, what are you actually spending down at? And the answer was, almost uniformly, they're not. Now, we've done this subsequently and we found that something like 15% of the population actually systematically withdraw. And I think that is such an important point for how we think about doing retirement planning. One of the implications of it is exactly as you're saying. I think because of all the uncertainty around retirement planning like this. Bill Sharp, a Nobel laureate, said, this is the hardest problem in finance. So if Bill Sharp can't figure this out, who is my grandmother or your relatives to figure out this problem? Complex problem. And I think in the face of all that complexity exactly as you describe, people have taken a conservative approach. They've basically said, don't spend more than it could take in. Live off the guaranteed sources of income. And that works. You won't run out of money spending less than you take in, but what you will result in is a whole bunch of leftover money that you're going to end up giving to your heirs, which, by the way, is about the last goal of most people in retirement. So it's a behavioral problem, but I think it's really important topic that we've got to think more about how to get people to confidently be able to spend down their savings.

It's actually really Good. We had 20% of our company, which is like 10 people, earlier today, talking about withdrawal rates. We're building some stuff because we are dealing with this for our users. There's Data that only 15% of people are actually systematically drawing it down is fascinating. And I, I, It's a, it's great insight. You know, I know a lot from, like, the, the financial independence world. Like, you know, that's a whole world of people that are like, save and accumulate a ton until I'm like, 40 years old, and then, you know, assume a safe withdrawal rate of 4%, right? That, like, hey, I can, if I keep my money fully invested and it makes, you know, 6% or, you know, and then 4%, like, you know, on a, on a real basis, I can take that money out, live on it. I will never take down my principle, and I can go in perpetuity. They're the ones that are actively thinking about it. Some of them actually do it. But, like, the actual number of people do it is pretty small. But, yeah, no, actually letting people say, oh, yeah, take advantage of this money and use it, you know, and what's, what's so interesting is the government does make you use it. Like, you, you hit RMDs at 70 and a half, and it's like, you got to start taking it down. And then as, you know, as people live longer, that number ramps hard. You can end up taking out big chunks of money. Like, and, you know, some people end up having more income in retirement than they ever had. I've met people like that as well than they had working. And then they have to take it, but maybe they can. They take it. It's tax. Then they're like, I still will save it back into another.

Well, they actually spend it or just move it to a different account.

Yeah, yeah, it's pretty interesting. So what have you seen? Are you, like, have you had success convincing people that, okay, that's actually interest. You should consider using annuity because actually, you'll spend the money so you'll actually enjoy yourself. Is that the argument?

This is where I think this gets interesting. And look, I'm not an advisor myself, and I give a lot of credit to the people who actually have to have the conversations, or those of us as actual retirees who have to figure out, have the own confidence to do this. I had this funny conversation again, challenging my own thinking on what's optimal with reality. I had this conversation with my grandmother before she passed away, and I had asked her some question around, what's your retirement strategy? Of course, she looked at me like, I have three heads. Why is my grandson asking these questions? But she used that phrase. She's basically like, I just don't spend more than I take in, which again works. It's brilliant, but it results in leaving something left over. So we actually changed a lot of the ways we thought about positioning annuities. Again, fundamentally an annuity. We're the leading seller of plain old basic. Put in a lump sum of money, get a stream of income for life, nothing else associated with it. Very basic products, we'd positioned those products for years on. You need this because you don't know how long you're going to live. And if you happen to live to 100 and you plan to 85, you're going to run out of money. I can't find any instances in the actual press about anyone actually running out of money. And I think we came to this conclusion that people simply won't, they won't systematically withdraw themselves down to $0. So we tried reframing this and this is where the data is really interesting. There's been a lot of research in this area that the presence of guaranteed or systematic sources of income, if you hold all else constant, if you hold age, wealth, gender, whatever, people who have pension income, if they have annuity income. Interesting. Long term care is a really powerful one. The presence of knowing, hey, if you have some kind of long term care event later in life, the presence of that insurance gets you to spend more. So ebri, the Employee Benefit Research Institute, did a study on this and basically showed those who own long term care and those who don't. If you run a regression, the long term care people spend 50% more, which is a wild statement. Just the presence of the insurance, not whether it pays off or not. So we're taking that same kind of lens on the annuity. The answer to a retirement plan is never the annuity is the answer. It's a small sliver in some plans, but if you can demonstrate, hey, I can take this $100,000 and turn it into $7,000 a year for life. People are very unlikely to spend the $100,000, but the data shows they're very likely to spend the seven that it turns into. And that's just a behavioral sort of trick. But our early positioning of this seems to be, you know, seems to be working.

Yeah, makes sense. I think that there's, I think the idea of like going to someone with the intention of saying, hey, you know, this is what the data shows. You're less likely to spend this money and enjoy it because you're going to, you are individually hedging your own single life, you know, versus everybody else's life. And so we Thus over save. And here's where you're likely to end up. You're going to end up with 3 million bucks in the bank, and it's all going to go to your heirs. Great. You've taken care of them, but you're not going to, like, you know, you're not going to really fully enjoy your life. I think that framing, and also with regard to time as well, is like. I mean, we had also one. I would love to get your EBRI research after this, and I will send you a podcast read with this guy, Glenn Nakamoto, who's one of our members. And he went around, he's like, this guy is, like, very smart. Former government, you know, dude, I think he was in the CIA. So anyway, he ran all the math. This guy is very smart. And it's like, look, I actually think I want to buy a series of spias, you know, single premium, immediate annuities to fund my life. Like, he was, you know, doing income laddering, so Social Security, I think he had some government pension. He's like, and I want to have these spias. And he runs around, he talks to five reas, like, I would like to do this. And they all came back and was like, let's do it with bond ladders. Let's, you know, we're going to do it all these different ways, but where the annuity is, like, a bad idea. And he's like, no, I actually have modeled this, like, a thousand ways, and I'm pretty smart. And I was like, I think it's a good idea. But he couldn't get anyone to, like, say, it's actually a good idea. So he went off and did it. And we have a podcast with them, and actually I'm doing another one with him because, you know, he's like. Now that he's, like, a few years into it and, like, what's actually happening, we're gonna. What's he actually spending? You know, we're gonna do a podcast on that.

But, yeah, no, I mean, it is a funny thing. I mean, so we. We've been selling spias for a long time. And, you know, I fully believe in the value of the product, but it is true that if the entire market was academics and professors, we would have a. You know, our market share would be materially larger. Like, the people who, you know, do the modeling on these things come to the conclusion that they're fantastic products. There is the, you know, illiquid nature of them, which is, of course, how you create the mortality pool to be Able to provide the benefit that, you know, scares a bunch of folks off. And I, you know, I get it. It's a, it's another behavioral thing.

I think it's also interesting that different ways you can use insurance. So, you know, there's longevity insurance, which I think is actually a really interesting idea. It's like, okay, hey, you know what, I'm going to buy an annuity that kicks in when I'm 85, when I'm maybe not likely to be alive. And it's relatively cheap to buy and therefore I can spend more money now. Like, have you seen any data? Do people do that and does that work or is it just better to just say, you know, screw it, I'll just buy, I'm going to buy an annuity that kicks in it at 65 and just whatever and just with a chunk of my money and just enjoy it?

Yeah. Well, I will say, I think the most pure academic response is exactly what you describe. Bond ladder from 65 to 85 and then the risk element, you know, outsourced to the insurance company by that long deferred, deferred income annuity. In practice professors buy that and nobody else does because they can't get over the deferral. I will do that, I will do that when I get to retirement. But it's a big behavioral leap to say, yeah, for 100,000 I can get 60,000 a year at 85, but I get nothing if I die in the middle. And people have a hard time with that. I will say, I think the, the point you made a minute ago is really important. The fundamental point of insurance is you're taking a risk that is idiosyncratic and very hard for you to hedge yourself. And you're transferring that to insurance company. A risk that is low probability and high impact. Like, you know, homeowner's insurance is a good example of this. So I bought a house a couple years ago when my, you know, I have two little kids, we moved out of the, moved out of the city and I bought homeowners insurance. Now my mortgage probably requires it, but I would have anyway. And the reason for that is I don't want to have to pull the entire value of my house in cash in case the house burns down because I'd like to use that cash for something else. And it's really the same thing with longevity. Yes, you can self insure your own longevity, but then you've got a bond ladder to like 95 or 100 or just not spend down the money which is in practice, what people to. But there's a cost to that. The rate you can spend when you've got an annuity as part of your overall plan. By taking a lot of that risk off the table, the benefit you get is not necessarily that you'll beat the insurance company and live to 100. It's that you are able to spend more upfront. And so that's that. When does insurance provide value? It's those things that are very hard for you to hedge yourself. And until to your point earlier, until someone comes up with a tool that says, I know you're going to live to 92, in the absence of that, all of us are left pretty much blind as to our own longevity in the same way we're blind to whether our house burns down. So it's the same. It gets to the sort of fundamental value of insurance.

I think this discussion of reframing this is really interesting. And I also know that for a lot of our users, they care about tax efficiency. One thing that we see a lot of folks doing is, you know, for many folks, especially cohorts that are retiring now, they've spent like a long decade saving in the 401k and they're like, okay, great, I've built this big 401k asset pool of money. But they're like, oh, and I got RMDs. And then they're like, oh, can I move money into a Roth? So we see people doing that and we built tools to make that easy. I think the, you know, another thing I've, I've heard. But even though I'm sure no better than I like you can do qualified QLACs, right? Qualified longevity contracts and stuff like that. There's ways you can efficiently move money into different vehicles and satisfy the RMDs. But I would love your take on. And I also think there's plays around using life insurance around your estate. Are there any color on those? Kind of like two use cases.

Sure. So we can start with QLACs. That's the. Which is qualified longevity annuity contract. It's basically what you described before. So use the example of someone who is 68 or 70 years old. Qualified money about to approach needing to take out money for RMDs. You can take a portion and there's rules around this. It's a percentage and there's a dollar limit. But call it $100,000 if you've got a million dollars saved, you can buy this longevity product, qualified Longevity annuity contract, that basically says you give up that $100,000, you're going to get a stream of income starting when you're 85. It'll be something in the order of magnitude of like 60, 70, $80,000 per year at that point. And you've deferred all the RMD is on that the full 15 or 17 years or whatever. So essentially you can just eliminate the need to take RMDs on that chunk of money and you basically get an extra 15 or 17 years of tax deferral in addition to the mortality pooling benefit of this creating that higher income stream. So it's a way to basically avoid RMDs or defer RMDs on a portion of your money. And it's essentially just a government incentive to do what again, academics say you should do in the first place, which is to create that stream of income.

Does it have to be a deferred annuity 85, or can you do this younger?

No, you can do it younger. I mean, you basically, I forget exactly the, I can give you exactly the rules on how to defer it, but generally like the most value you get is for a longer period of deferrals.

And is it really those kinds of numbers? I mean, that seems like tremendous at 7 years old. If I were to pop 100 grand in and you're saying 50 or 15 years later. And granted, you're right, I guess you're expected longevity. You know, this right at that time is like very low. Or if you make it that time though, you're, it's longer. I mean, you have real risk here. If people start putting like, okay, I'm 70. People in my family live to 100. I want to fire this up at 60 or at 85 and like get big chunks of cash for 15 years. You could get upside down on that.

That's right. And this is why insurance companies, we want a whole bunch of people putting in, you know, $50,000. We don't like the people who are putting in, you know, millions of dollars worry us. And so, and frankly, the qlock is only, you know, it's because it's a, a tax benefit. There are limits. You can't put in millions of dollars into the thing. But you're right. I mean, it is always a lopsided or a volatile debt. But that's the reality is that some people will not make it to that income phase. But again, I would argue this is part of the thing on insurance. I'm not rooting for my homeowner's insurance to pay off I'm not hoping for a good return with farmers. That would be my house burns down.

Right.

This is the same thing. The value of it is that I can spend more in the interim, whether or not I actually have that benefit or not. Unless I intended that for my heirs, I'm better off because I can spend more in the interim. So we can get you some actual quotes of the mechanics of it. But it's something in that neighborhood.

Yeah, it's interesting. I mean, I think that like the tax efficiency there and then there's also like, I don't know this but you know, are there ways that you can use like life insurance in your estate to. It became less of a problem when the estate tax limit went up. But I think the state the estate tax limit is coming back down. Right. I should look this up. Exactly.

That's right, yes. I mean absent. Who knows exactly what Congress is going to do in the course of the next 18 months. But the Tax Cut and Jobs act tax changes are to expire at the end of next year and it will materially lower the estate tax. So the uses of life insurance around or a couple of them around kind of estate planning, life insurance, death benefits are generally tax free. So they provide a couple of benefits. One simple use of them is generally life insurance gets to the beneficiary faster and avoids probate. You can use it, you know, if you loved one passes away, you can use it to pay off some of the expenses that come, funeral costs, et cetera, right around a death of a loved one. And you don't have to worry about the whole probate process. The other thing is for complex estates, in the event that someone's got a whole bunch of illiquid assets, a business, a farm, et cetera, and they want to split it, it's a little difficult to divvy up, you know, like, you know, prized possessions or something. So you can use life insurance to divvy up an estate, you know, because you two different beneficiaries. Okay, but to your point on the the most classic example for around estate planning is you can put life insurance in an irrevocable trust, which essentially holds the life insurance benefit outside of the estate, makes it tax free, and also enables beneficiaries to pay off some of the estate taxes in the event that they are above those limits, which are generally somewhere in the neighborhood of 12 or 15 million dollars today. But if there is no action from Congress could go down as low as 5 or 6 million dollars. So there's a number of strategies there. But generally it's a death tax free death benefit enabling someone to structure an estate most optimally.

I'm curious once this thing, if it comes back down to like 6, $7 million, I'm curious what I should know this, what it actually is, what's it taxed at? It also depends on.

There's also by state, there's same variations as well. Yeah, well, I mean I think with all of the wealth accumulation in the United States and the reality that in many cases we're building disparities in wealth across the country, there's an awful lot more people who will be in that camp of having estates that are plus over 5 million than we're over 15 million. So this will become a much more relevant point for a much larger number of people.

And the effect this changes solve the U.S. debt problem. Four trillion. Moving over. Let's looks like it's taxed at 18 to 40%. So got to pay attention. Okay, that's super interesting. The last bit, I'd just like to talk, you know, get your take on, you know, so you're sitting here, right? You're, you're got this really long term perspective, right? Lots of customers thinking about how do I hedge their risks for decades, right. 30, 40, 50 years. The world is changing super fast. We're living longer. AI is here, lots of data out there, regulation is changing. What are some of the big things that you think about running a big chunk of New York life, about how the world could change and what it means for your firm?

Yeah, absolutely. I think you raised some great questions earlier in the discussion on the emerging world of technology. I think we've thought a lot of that technology internally on how do we improve the customer and advisor experience of our actual products. Using AI to make servicing experiences better, to make the value of our products more compelling. And that actually is probably very similar across lots of industries. We can improve the way we do customer service today in the same way that if you were calling in to get your cell phone billed, you could do that. So there's a whole world around. As an advice company, we want to make sure that our customers are benefiting from technology and data investments. There absolutely are the items that you raised around just the way that we assess risk and we've got to improve the ways that we underwrite risk, the way that we think about pooling risk and two points you raised. The ways that consumers may have information that we don't is an important piece. And again, our whole business model is predicated on taking a Whole bunch of similar sized, well diversified risks and providing value in that way. We've got to make sure we continue to be well diversified in that world. The other thing I would add is very much to the conversation on providing more holistic advice. Our company and me personally are big believers in the idea that increasingly consumers, if they want to work with an advisor, and I think there's a lot of value in doing so, want to have a wholesome conversation. You know, I, as a consumer, don't want to go to one person for one financial product and another and another and another. They want people to be able to provide more holistic advice. And so we've invested a lot in, you know, our training, our development, the business model for our agents and advisors to be able to offer solutions across the spectrum and really move from offering individual products to being offered comprehensive advice. And from my standpoint, much in line with this conversation on when does an annuity make sense in a portfolio? I have a fundamental belief that doing insurance and investments together actually produces better outcomes for a client than doing each individually. Use that example of retirement planning. The presence of an annuity, or where it makes sense for a consumer, takes away some risk by risk pooling in a way that lets you actually take more investment risk and can show that the combination of doing the two things together produces a better outcome for the client. And I think that example holds across a number of financial needs. Unfortunately, today in most cases, people are getting their investment advice over here and they may go buy their insurance products over here. And I think in the future, future the best advisors will be able to do that together and the clients will actually get, and consumers will get a better outcome. So as a big picture theme, that's something we're kind of, we're focused on as a company.

Yeah, I think that's great. I mean, it's, it's so funny that like insure. So I think this comes down to incentives. You know, it's. It's like back to the story about the ria. It's like, okay, the ria, you know, they're a fiduciary, but their incentive, they're paid on from many of them, your total lifetime savings. And so it's better for you to have more investments that they're managing. And they don't want to see you take 200 grand out of that and throw it into annuity, you know, or something that they're not managing. And that affects their behavior, even though, you know, they're basically not, you know, they're supposed to be looking at it totally holistically. And then the other side of it, I would say that like in the insurance world it's like, hey, the history is a lot of these folks are sales motivated, you know, they're paid on commission, they're selling products. And you know, the, even though the heart of it is math, like, and making, you know, diversified set of, you know, risk adjusted decisions for lots of people, you know, bringing that together where it's like, okay, let's, you know, there's a place for insurance, right? There's a tax efficiency place, there's a behavioral, you know, mutual risk mutualization place for it alongside your own internal investing. And you have to kind of decide how much do you want guaranteed for income? How will that affect your behavior? How much do you want to try to gear for your heirs? Are there really, are there more clever ways you could do that kind of stuff from a tax efficiency perspective? But being able to frame this whole thing from a place of education, you know, and like I'm approaching you holistically, I'm not here like, yeah, I mean, yes, this is how I make money, let's be transparent about that. But explaining why this product could be helpful for you and then doing it at scale. What's interesting is you guys have scale. You have 12,000 people out there, you know, reaching people in different ways and in a personal way, which is an important part of this. But yeah, I think this world is going to come together.

It's very well said. And I think, you know, to all the folks who, you know, have reasons to doubt the, you know, the motivations of different times of financial advice models, I think, you know, some of it's on the advice industry to sort of to clean up some of that and demonstrate the value again, I believe fundamentally that the math, and you have a website that demonstrates this, the math here will show that there's a lot of value in doing this kind of planning comprehensively with both solutions together. There's tax efficiency, there's mortality, but just each side impacts the other. And if you do them together, you get better outcomes. But I totally understand the point that, you know, the motivations need to be, we need to, we need to clean up some of the motivations to make sure that we've been able to provide, we can show the math that makes total sense. And so people have trust and confidence that, you know, it is just a math, as you said.

Yeah, well, that's the next generation of how this evolves. And also it's doing it at Scale so that you can, you know, serve a wider population, not just people that the rap on a lot of wealth managers, they serve people that already have money. It's like, okay, great, you've done a good job piling up your one to two million bucks. Good job. We're going to take great care of you. But for the person that's like getting started and they've got 5,000 bucks and how am I going to grow this and getting educated so they can turn into that person, you're kind of on your own.

That's right. And I think the more we have wealth and income disparity in this country, we've got to find a way to provide for people who want it. Financial advice for a wider swath of population, not just Those who An AUM based model will make financial sense if you have $100,000. The AUM model for an advisor makes zero sense. We need to find a way to still provide advice to those folks.

All right, well, look, Todd, this was great. I mean, any final thoughts you want to share with our audience in terms of like books you're reading or sites you love or kind of like, you know, where things are going?

I would say this. I'm a big reader on a tremendous amount of stuff around retirement planning. I find the topic exciting and I think there's great research being done out there. I will say, I think my personal view on the direction for our industry and how to do decumulation planning, which again, people have called the hardest problem finance, is we increasingly have to focus on how do people actually behave. There's all these esoteric arguments about is 4% right or is it 3.8 or 4.5? And again, to my example earlier, I don't think it actually matters because if people are actually spending down at one, it's irrelevant whether it's four or four and a half. And the world of behavioral finance has improved economics materially in all kinds of different domains. This is a great domain. Let's look at the way that people are actually behaving in retirement and figure out what our optimal strategy is, given all the biases that we all have. And so I think this is an area as we look out five and 10 years into financial advice specific to retirement. But more broadly, this is an area that I think will vastly improve the way that we deliver advice as an industry.

Yeah, I think one of the things that really is going to happen is we're going to start valuing time very differently, especially as people get older and you start seeing Folks get sick or whatnot. I think people. Then it becomes very real and visceral for you. But I, I think as we get a better view of, like, you know, a lot of people are like, I'm hedging the fact that I'll be 95. You know, I want to have money when I'm 95. But, you know, you know, from 85 to 95, you know, you're probably not cranking all over Europe. I mean, maybe you are if you're on the, you got to really look at, like, what's your health span and like, your, you know, the human capital. You have to enjoy your money and be thoughtful about that. You know, if the reality is from 90 to 95, you're going to be kind of chilling at home. And this is, the data does show this, like, people, they, they spend 1% less per year, you know, so. And like, we've, you know, you, you retire at 65. At 85, you're, you're spending 25% less than you, than you were at 65. I mean, you just don't need as much money, so.

That's right. I think that's absolutely right. The research on that is really compelling. That, you know, spending smile idea that, that you spending declines. And for some, there's a shock late in life. But I do think this idea of Michael Finka, who's an academic, the kind of retirement income place, has this line that says there's only two options with what you do with your money. You spend it or you leave it to somebody else. He has this line, there's no third option. So you're right. It's a complex problem, and I think people have an inherent conservatism to make sure they're prepared for some event, and I think that's wise. But you're right, like, we have to be thoughtful about can you actually spend it at 85? And is there a better way to protect from your, you know, your roof collapsing when you're 90 than just like sitting on a pile of cash at the corner? So it's a great topic. I think in one, we'll get better on as an industry as we go forward.

All right, well, with that, you know, Todd, appreciate your time and, you know, we'll definitely put a link to your bio and to New York life and, you know, appreciate your sharing your insights about kind of how your actuarial background has informed your thinking and your career. And I thought this was a great conversation. I think our audience will get a.

Lot out of it.

And for folks that are listening, you know, all reviews of this podcast are welcome. Or if you want to check out our website@newretirement.com and build a financial plan, you can see for yourself what tens of thousands of other people are doing. And, you know, thanks everyone for your time, and we'll hope to see you at the next episode. All right. Thanks, Todd, for coming on.

Thank you. Appreciate it.