Typically this show covers retirement planning, which means the key demographic doesn’t include people with minor children. However, planning for these families is super important and many of our retiree and pre-retiree listeners have young grandchildren. So, this show is for them, and their (grand)kids.
Also, a discussion on “retirement income failure”, and what it really means.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
For more information, visit Medina Law Group or Private Client Capital Group.
Click the below to read the full transcript…
Announcer: Welcome to “Make It Last,” helping you keep your legal ducks in a row and your nest egg secure, with your host Victor Medina, an estate planning and elder law attorney, and certified financial planner.
Victor Medina: Hey, everybody. Welcome back to Make It Last. I’m Victor Medina. I am an estate planning and elder law attorney, and a certified financial planner. Now, I am a retirement income certified professional. Dangerous. I’m dangerous, [laughs] watch out.
Welcome back to the show. I am so happy that you joined us. It is an unusual show for me today in large part because I’ve got my son downstairs as I’m recording this. It is the beginning of his preschool and they don’t have early drop off yet.
It means that I’ve got him downstairs, watching Netflix, and who knows what’s going to happen. He could come bursting in here at any moment and drop his dulcet tones on our show, in any event.
I’m excited also because our contract has been renewed with the radio show. If you are listening on WCTC 1450 AM, I will be on here for at least another half a year. Contract negotiations were pretty tough.
I said, “I’d like to continue.” They said, “We’d like you to continue.” That was the end of the contract negotiations. [laughs] Guess, it wasn’t that difficult after all. I am excited. I’m having a lot of fun doing the radio show and I hope you’re having a lot of fun listening to it.
I do my very best here to really share the knowledge that I’ve gained over years of experience as I’ve gone ahead and worked with clients, helped them put their plans in place, and get in a better spot than where I found them. That’s happened a few thousand times by now.
Part of what I’m trying to do with this show is really share all of that knowledge with you because I just literally can’t see everyone. Even if you were really interested in working with us, there’s a limited number of people that I can see on an annual basis, or in fact over the course of my entire career.
It does make good sense to spread this information around and let people know how they can just improve their financial and legal planning lives. This has been a lot of fun and will continue to be a lot of fun.
If you like what you’re hearing, we do appreciate you being a listener. You can go ahead and subscribe to the podcast by going to iTunes and searching for Make It Last. You’ll see a little blue box that says, “Make It Last with Victor Medina.” Subscribe on there.
In fact, if you could leave a positive review, that would be great too because Apple does tend to rank these shows based on the number of people who like other shows. It could be an interesting way of getting new listeners if they search for the retirement planning stuff, in any event.
This show ‑‑ I am excited ‑‑ we’re going to talk about a continuation of a topic that we did last week.
Last week, we talked a little bit about retirement income planning. I shared with you three different strategies. If you missed that show, I’d urge you to go back to episode 23, which we aired on September 16th. It happened to be my son’s birthday.
If you listened to that, you’ll hear about three different strategies. You’ll hear about retirement income flooring ‑‑ like putting a floor on something ‑‑ bucketing, using buckets, or systematic withdrawals. We’d go into detail about that, but I wanted to take the next step in the show.
In the next two segments, we’re going to talk a little bit about retirement failure. What it means? How it’s defined? What you can do to avoid it?
I’m going to share with you a couple of those topics. Before I do, we’re going to take this first segment, talk a little bit about something that doesn’t go to the core demographic that listens to retirement planning.
I know that many of you are grandparents. You’ve got children who have got minor children. It reminded me of the planning that those individuals need to do. I’m going to touch it briefly. With the help of my mom, who’s going to go ahead and watch my young kids, I had the opportunity to review my estate plan.
With their help, my wife and I are actually going to get away for a small vacation. We’re going to travel. We’re going to travel out of the country. We’re going to leave the kids with my mom. There’s two different areas of that planning that you need to pay attention to if you’re the parent of minor children.
Many of you don’t know that I actually started my career focusing on planning for parents with minor children. I had this great little marketing approach. I would rent out one of those birthday rooms, packages. The one that I used to go to was Westmont’s or The Little Gym.
What I would do is I would rent out a party. I would encourage parents to bring their kids. The kids could go play with the staff, doing gymnastics or whatever else. I would give a presentation in the other room.
Afterwards, we would do little pizza and cake, which was part of the package that they would give you. If they wanted to come and see me, they would come and see me.
I spent a lot of time giving those types of seminars on Saturday afternoons and Sunday afternoons, encouraging parents to come think about proactive planning for themselves. The truth of the matter is that once you start having kids, you become responsible to somebody else.
A good responsible parent thinks about what happens if they’re not around. There’s two different areas that you need to think about with that planning. One of them has to do with managing the children while you’re not around. This isn’t like a formal guardianship. You’re not going away anywhere.
You do need to establish some medical powers of attorney so that if the kids get injured, the people that you’ve left them with can make health care decisions for them in your absence. You could be out of commission because you’re in another country and unreachable, and it’s an emergency situation.
You could be out of commission because you were in a car accident and you passed away or became incapacitated. The kids still need health care decisions made for them, emergency decisions about what to do and what not to do. You need to think about that planning.
It’s important to not have a legal hiccup when it comes to who can make health care decisions for your children. A medical power of attorney is important as is a grant of a temporary legal guardianship.
You might appoint somebody to be a temporary legal guardian. We use terms like children’s protection plan or kids protection plan in our practice. It encompasses that first set of documents. The next thing you got to think about is long‑term guardianship.
Now, I see I’m coming up on a break here. What I’m going to do here is I’m going to call in audible. I’m going to come back from this break and continue the discussion on planning for parents with minor children.
Victor: That will be in the segment. I will leave the retirement income failure discussion for the last segment. Stick with us. This is a good topic. Everyone knows somebody who’s got minor kids. Especially if you’re a grandparent, this is an episode to share with them.
When we come back, I’m going to talk a little bit more about how to do planning for parents with minor children. We’ll wrap up with the retirement income failure or retirement planning failure, how to avoid and what to do?
Stick with us. We’ll come back on Make It Last.
Victor: Welcome back to Make It Last. We’re talking about planning for parents of minor children. In the first segment, I spent some time talking to you about how to deal with what I would call incapacity planning. It’s not really long‑term planning.
This would be what would happen if you got into a car accident and somebody needed to make health care decisions for your children. You think about a medical power of attorney or some form of a grant of temporary short‑term guardianship.
There’s documents are usually included in a package that I put together for my clients called A Kid’s Protection Plan or A Children’s Protection Plan depending on what I’m [laughs] feeling like in the meeting.
The idea is that we try to help put together the paperwork that would protect any interruption or legal process in dealing with parents of minor kids on a short‑term basis.
This came about because as I mentioned in the other segment, I’m going to go on vacation with my wife, one of these rare vacations that we get without the children. I want my mom to be able to make health care decisions for our kids while we’re gone.
It’s important to arm her with the legal documents in order to get that done. Now, that’s on the short‑term basis. When you think about planning for parents of minor children, you want to think about the long‑term as well.
Another component of that is in putting together guardianship documents. Now, some people believe that guardianship is something that they control based on what they put in their will.
It’s often eye‑opening in the meetings that I have for me to explain to clients, “No, in fact, it’s not that that governs it.” Now, you can indicate your wishes about what you want to have happen.
At the end of the day, it is a judge that looks at the situation, and makes decisions in the best interest of the child. It is up to them, that judge, to make that decision. Now, it’s important for you to list out guardians because there is some deference that is paid to what the choices of the parents are. It’s not controlling.
I want to think about a few things to tilt the odds in our favor. A couple things that come to mind, first is a short‑term guardianship. A long‑term guardianship proceeding is something that’s done over months. You’ve passed away, and then there’s this court action, and the guardian is appointed.
People are notified. People have the opportunity to participate. We’re going to go through some of the detail of that. The idea is that it takes a while. You need to have some short‑term guardianship lined up.
We often provide this nomination of short‑term guardians as a way to smooth over the period in time in which the police show up at your house but you’re not there. There’s an 18‑year‑old babysitter. They’re not going to leave the kids with the 18‑year‑old babysitter or the 16‑year‑old babysitter.
You want something that keeps the kids with the family. This grant of a short‑term guardianship is an important step on that. Now, the next step on that is to think about long‑term guardianship. With long‑term guardianship, it’s a different discussion. You want to think both about naming somebody in the affirmative.
“I want this person.” You also want to think about excluding people. Now, it may not always be the person that you think that the judge is going to decide. In my situation, we’ve got two different siblings on each side of the family. They’re in different stages of their lives.
Back when I first did this planning, I had one sibling that was not very well for long in life. [laughs] She just started out, had a job. It was a good job, but didn’t have a family. If you compared her with another sibling that might have petitioned for guardianship, that sibling was married with kids, established, big house.
If you were to judge without any other instructions about what you wanted to have happen, you would look at the two. You might grant guardianship over my kids to the one that was better established, when that was going to be counter to our wishes.
Now, our plan is actually not that. I use that story fairly regularly in seminars. At the time, it was accurate. We’ve updated our planning. The people that we would give guardianship to are a little bit different.
They’re still not the people that you would commonly think of being the right folks. It’s important for a judge to hear that about who we want. That’s naming them in the affirmative. The other thing that you have to think about is naming people in the negative.
One of the things that we recommend is that if there’s somebody that is in your life that might come out of the woodwork to help with guardianship, or raise their hand, you might want to exclude that person from guardianship. That’s done on a separate document, into a confidential exclusion that only sees the light of day if those people raise their hands after you’re gone.
It gives me, the lawyer, the opportunity to rush in and say, “No, no, no. My client’s thought about that. In fact, they don’t want this person for these reasons.” We list those reasons out.
The confidential exclusion goes to two different kinds of people. They are the well‑meaning but hard‑headed folks. [laughs] You know who they are in your life. They mean well.
They’re just not going to understand that you don’t want them to be your child’s guardian. Well‑meaning but hard‑headed. They should go on the confidential exclusion list.
The next folks that should go on the confidential exclusion list are the cockroaches that come out of the woodwork when there’s a little bit of money. If you’ve done good planning, probably one of the things that you have is some decent term life insurance.
It’s the inexpensive kind. It’s for catastrophic planning. You might have $1, $2, $3‑million worth of life insurance that’s being left for the benefit of your children.
Well, with that much money at play and the ability to manage that much money, you could expect that there would be people interested in watching over your kids, if they can get access to that money.
Those folks we want to put on the confidential exclusion list. You know who they are. I’m looking at you. Yes, you. You know who they are. Put them on the list. Take them out of the running by putting them on the confidential exclusion list.
Now, those are the guardians. Often, we recommend separating out the decisions about the kids from the decisions about the money. As you’ve grown to learn and appreciate, we’re big on trusts in our law firm.
We think that they are the best planning tool for our clients. We use them even for parents of minor children who may not have a ton of assets but who might come into assets because this life insurance might pay out for the benefit of their kids.
In that scenario, I don’t want the money going directly to the kids. If you name your kids as your contingent life insurance beneficiaries, and they are minors, that money does not get paid out to them.
It gets paid out to a court‑managed trust. Many of my clients don’t want anything to do with that. They would prefer a private management of those monies.
We are able to do that if we were to pay them into the trust, and then we select who’s in charge of the trust. If you have somebody who might be great with the kids and be a great guardian, they might not be the right person to hold on to the money.
In fact, you might want some separation between those folks. You may want them to not be with their hand on the spigot, turning on and off the flow of money.
Now, I’ve got some families that are very close. They’re very happy to have the same person do those jobs. I counsel best I can. Let them know what the risks are. If they make a decision to do that, fine. That’s OK.
More often than not, the clients that we have, they will separate them out. They’ll separate out those responsibilities. It’s not a bad thing to do. You name an independent trustee who’s going to watch over that money.
By the way, they probably will watch over that money longer than they’re going to need a guardian. I don’t know any family that thinks that their child is the right person to manage and inherit, that’s at 18 years old, of a couple million dollars.
You might extend that out a little bit longer to age 25, age 30. Still keep that trustee going even though there is no legal need for guardianship. They’re over the age of 18.
We think about protections on the line from that, about divorce, credit, or protection. We can talk about those in future shows. It took a little different turn today.
We spent a little bit more time on planning for parents of minor children. If you’re listening to this because it’s a retirement show, and you’ve got grandkids, you have children who have minor children, share this show with them.
Encourage them to evaluate their estate plan based on the ability to not have any interruption about who can manage the kids if they’re incapacitated or if they’re away on vacation.
Victor: Also, this catastrophic planning to make sure that if they die young and early and leave these kids behind, we’ve done the right planning to name guardians and to name trustees over that money going forward.
Now when we come back, what I promised you at the beginning of the show we’ll get to, which is retirement planning failure ‑‑ how it’s defined, and how to avoid it? Stick with me when we come back on Make It Last. Thanks.
Victor: Hey, everybody, welcome back to Make It Last. We’ve been talking about how to do planning for parents of minor children. When I opened the show, I teased you about being able to cover retirement failure, how to define it, what it means, and how to avoid it.
Now, we’re finally going to get to it in the show. Thanks for sticking with us. When people think about retirement, academics really, when they think about failure, the discussion about failure can be confusing because there are three different levels of failure.
One level has to do with a loss of a market‑funded standard of living. The next one has to do with the standard of living below a floor. There’s bankruptcy. When you think about failure in there, there’s three degrees.
When retirement planners, like me, talk about success on planning, most of the time we’re talking about success as to maintaining a market‑funded standard of living.
Now, a market‑funded standard of living means that the performance of your retirement assets, whether or not you have guaranteed income in the form of an annuity or where your pensions come in, or Social Security.
Put aside the actual strategy, which we talked about the last time. Regardless of what strategy you’re using, that your assets keep up to a standard of living. Now, if you think about this in terms of the flooring strategy that we talked about last week, the flooring strategy had a mandatory expense component and a discretionary expense component.
The idea there is that you would be meeting both of these if you are at your market‑funded standard of living. If you fall below that, if there’s a failure below that, there is some form of a minimum standard of living or a floor.
The standard of living ‑‑ I keep using that term. Maybe, I ought to define it. The standard of living is the level of wealth, comfort, material goods, necessities available to your socio‑economic class in your area. By geographic area, it changes.
It’s this minimal of necessities that are essential to maintaining you in your customary status or circumstances. Those standard of livings are each discreet.
They’re independent in a sense that you cannot meet one and still meet the standard floor. While that might technically be a failure in terms of your retirement planning, it’s not a failure that is catastrophic.
When retirement writers and researchers, the academics, use the term standard of living in a way that it refers to their planning, they’re using it in a little more specific way, which is the cost of purchasing those comforts and material goods.
You might say that a household that has adequate retirement assets to fund a $50,000 annual standard of living. What they mean is that household can enjoy whatever standard of living 50,000 of years can purchase.
When you lose the standard of living, you fall below these various levels. We use the term flooring or floor. That’s the amount of safe income available. If you lose the floor on there, that floor can be filled with assets and financial products, investment strategies, with little to no market risk.
You’re looking at fixed index annuities with no writer fees, preferably, treasury inflation protected bond letters or securities, Social Security benefits. If you combine those together, those are ways of putting together a floor.
The theory is that the retiree will be able to maintain some standard of living, that is the floor in the event that there’s a disastrous investment result in the portfolio that’s meant to be the discretionary side.
Now, this is easy to visualize because nearly all Americans are eligible for Social Security benefits. It means that almost everyone has some amount of a floor, but that level of floor can vary greatly.
Wealthier households are able to build up a floor that completely protects their standard of living, regardless of investment results while other floors may only have Social Security benefits and very little other resources.
The higher your floor, the less that market losses will harm your standard of living. The way to think about is your floor is your insurance. The more wealth that you have, the more insurance you can afford.
If you lose a standard of living below the floor on that, that’s a failure in your planning but not one sufficient to trigger a bankruptcy. Remember, we talked about three, a loss of market‑funded standard of living, a loss of a floor standard of living, and then you have your bankruptcy level.
In your failures, if you fall below the standard of living, that’s the floor, there’s a deterioration that is just shy of bankruptcy. You can have that happen a couple of ways.
For instance, your pension plan might fail. Your assets weren’t sufficiently protected in the floor scenario. You used the systematic withdrawal method rather than securing the floor with guarantees, like Social Security, or fixed index annuities, or something similar.
If you had your investments fail you and your strategy fail you, that could cause you to fall underneath it. The next reason you might fall underneath it is you can have unexpected expenses. Think about this as a strategy. You created a floor, but that was to a certain level of expenses.
If you create that floor, that doesn’t guarantee that your expenses will always be at that level. You can do things to change that. Maybe, you moved to a more expensive area. The other way to do it is you move to a less expensive area. That’s a way to lower what those expenses are.
The real ruin, obviously, is bankruptcy. That’s when you have a complete portfolio depletion. There’s some assets that are protected in there. Generally, retirement accounts that are protected by ERISA are judgment proof for the individual.
Some states protect annuities that are owned by a resident of that state. You have to check the bankruptcy laws in your state to figure out which is which.
Those are three different areas that you can have failures. Now, I promise you that we would lead to how to protect them. The way that you protect them is by putting a strategy in place to guarantee those floors and to guarantee the expenses in there.
When you start to fix your expenses, let’s say you get rid of your home and mortgage expense, or you cover long‑term care expense, or you fund health insurance.
Once you fix those expenses and then get an investment strategy that meets those guarantees on it and you’re looking at Social Security, pension, fixed index annuities, bond letters, things like that, then you will help avoid that.
Again, the more wealth you have, the more you can get your floor up to the market‑funded level of standard of living and not just the bottom floor for a standard of living.
We went through that pretty quickly. I think that the lesson to take out of this is, A, there are more academic strategies involved beyond just to take money out of the account. You’ve got to think about it a little bit more. B, working with somebody that focuses in that area will help increase your level of success.
You want to be with somebody that can think about retirement income and retirement planning, failures and successes as the deliberate aim of their practice, what they do because they’re going to have more of these strategies available. They’re going to have a little bit more of that education that’s available.
Great show for this week. Thanks so much for tuning in. If you liked what you heard, rate it highly on iTunes. Share it with your friends.
This has been a great episode to share if you’ve got parents with minor children somewhere in your life, like you’ve got grandkids or you’ve got people that you know that could benefit from listening to this.
I want to thank you all for joining us. We’re going to be around as I announced earlier. We’re going to keep this going.
Victor: We can’t wait to talk to you again next Saturday where we’re going to help you keep your legal ducks in a row and your financial nest egg secure. This has been Make It Last with Victor Medina. See you next Saturday.
Announcer: The foregoing content reflects the opinions of Medina Law Group, LLC and Private Client Capital Group, LLC, and is subject to change at any time without notice.
The content provided herein is for informational purposes only and should not be used or construed as investment or legal advice or a recommendation regarding the purchase or sale of any security or to follow any legal strategy.
There is no guarantee that the strategies, statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment.
Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. All investing involve risk, including the potential for loss of principal.
There’s no guarantee that any investment plan or strategy will be successful. We recommend that you consult with a professional dedicated to your needs.
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