The idea of investing separately into three time-specific buckets is simple. Known in the financial world as liability-driven investing, or LDI, the 3-Bucket Approach focuses not on maximizing total asset returns, but on addressing future liabilities, including home mortgage and living expenses, college tuition, healthcare expenses, and—the biggie—retirement income. By assigning a “bucket” to three unique time horizons and identifying expected (and unexpected) liabilities for each, you can use this approach to focus on ensuring the right amount of cash flow when you need it.
As an Estate Planning Attorney or Investment Advisor, you know low cost is an important key to growing and protecting investment assets over the long term. But what about life insurance costs? For many, the cost of insurance (COI) is a neglected piece of the nancial management puzzle, especially for high-net-worth (HNW) clients. But data show that the superior life expectancy of high earning, high asset individuals can be used to your clients’ advantage to negotiate lower costs with the carrier and, ultimately, significantly increase the performance of fixed life insurance policies.
Downward pressure from low new money interest rates have caused portfolio yields and dividend interest rates at life insurance companies to decline. As a result, many mutual insurance companies with sizeable blocks of participating whole life insurance liabilities have shifted their portfolios in the direction of riskier, less liquid assets in search of higher yields to support their dividend payments to policyholders.
David Buckwald and Jeffrey Dattolo examine the current climate of low interest rates, squeezed profits and longer life span which have created a “perfect storm” for life insurance firms and their policyholders.