When building a house there needs to be a lot of care and attention put on making sure the foundation will hold up for years to come. The same care and attention should go into your retirement foundation, to make sure you are financially secure for years to come.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA®) and Certified Financial Planner™ professional (CFP). 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 Palante Wealth Advisors.
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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 J. Medina: Everybody welcome back to Make It Last. I’m your host, Victor Medina.
I’m so glad you could join us this Wednesday morning at 11 o’clock with another fine addition of a show that helps you plan for your retirement. We help to keep your legal ducks in a row, your financial next egg secure.
It’s the only show run by somebody who is not only a practicing attorney but a certified financial planner and somebody that focuses in the retirement planning sphere ‑‑ that’s me.
Welcome, I’m so excited for today’s show. We’re going to talk to you about how to build your own retirement foundation.
Before we go into that, a couple of things. If you are listening to this live on the radio, one of the things I want to let you know is in fact, if you’re interested in listening to this on your smartphone, we actually simulcast this as a podcast.
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Definitely subscribe if you don’t think that you can catch us every Wednesday at 11 o’clock for this power hour that we’ve got for you. In that way, you’ll be sure not to miss any of the exciting episodes.
Listen, I want to talk to you about how to build your own retirement foundation. We know when we go to build a home, a ton of planning goes in to building that. The same care and planning should take place when it comes to building a plan for your retirement. Specifically, what your retirement financial house is going to look like.
If you ask any builder…I have the experience where I bought an older home. I bought a home that was built in 1878. It’s celebrated 140 years. When I went to go buy that home, it didn’t look great. [laughs]
The finishes on the interior were vintage 1960, which is to say that there was plenty of wood paneling. It seem to like the prior owners must have had stock in a wallpaper company because there was wallpaper everywhere and not the prettiest of it.
When I went to go buy the house because it had largely been ignored by the general public, it was on the market for a year‑and‑a‑half. Nobody would walk in and buy it. In fact, I remember I walked in to this house with my wife. We walked out.
I said to her, “Listen. If they gave me that house at $200,000 less so that I could se all $200,000, if they gave that to me in cash to redo this house, I still wouldn’t buy it.” That’s how [laughs] much work it needed in order to fix it.
When I went to go buy it a year later, it had reduced down in price. It was definitely more affordable.
It was going to be a project, but I brought the builder in with me. One of the questions that I had is, “Look. I’m going to get a home inspection. The truth of the matter is it doesn’t matter what the home inspection says because the seller’s not going to fix anything. Just tell me this. What kind of money pit am I buying? What am I getting myself into?” We walked through the house.
One of the things that he said to me was, “Look. It doesn’t look good, but the bones are great. In fact, this home did something that I can’t believe somebody paid to do in the 1960s. What they did is they lifted the home up. They put jacks all around the house, and they lifted it up. They threaded steel I‑beams down the center of the house.
“Now these steel I‑beams are about 18 inches across. They look like they would only be used to build a skyscraper. That’s how wide and thick these steel I‑beams are.”
He said, “Not only did they thread the steel I‑beams, but then they went in and they dug out the basement,” because it was an old stone basement from 1871, “and re‑poured the floor and the walls.”
I said, “Well, what did that do?” He said, “When they lowered that house, it was on the most rock‑solid foundation that you could ever hope to create. Now it wouldn’t have been rock‑solid way back in 1871. In fact, if they didn’t fix this in the 1960s, I would have imagined to seeing things sag. There’d be risks of floors moving. You might have had all kinds of issues going on there.
“Because they shored up the foundation, it means this house is not going anywhere. It’s not going anywhere next year. It’s not going anywhere in your lifetime. It’s probably not going anywhere in your kids’ lifetime because of the amount of care and attention that they placed on that foundation.”
When it comes down to your retirement, we want to be thinking about your foundation. By the way, we can’t create this by guesswork. We can’t create it by guesswork.
The first thing that you’re going to do if you build an old home, or if you’re doing work on an old home like we did on ours, is you get a blueprint. You get drawings. These drawings lay out exactly what you want the house to look like.
You can say, “I want to be in a safe comfortable home. I want it to look nice. I want it to be warm. I want to protect us from the elements.” It takes that idea, and it turns into a set of detailed measurements and steps needed to make that idea come to life. The blueprint for a home should be carried over into your financial life.
When someone’s building a plan for their retirement, it should have a detailed blueprint that they can refer to at any time, and that will tell them what exactly needs to have in order to create a retirement for themselves, that is everything that matches their idea.
Unfortunately, most people have this blueprint in their head. It is not really even a blueprint. It’s like a drawing on the back of a napkin. That’s all that they’ve got. The problem is that, unless people have these blueprint or these drawings well‑documented and drawn‑out…
When we did this for my house, I was so impressed, because the architect included things in there that were more about than just walls. There were drawings, how far all of the jack’s studs were going to be for the walls, lintels. There were all the elements in there because a professional had put that together.
We want the drawings. If we don’t have great drawings, your financial house may not stand up. It’s the last thing that we won’t want to happen because you spent all this time, all these dreams in there.
After that, if you’re building a new house, the next step is to lay the foundation, because that’s the base on which everything is built. The foundation is not pretty or sexy.
It’s not the finishes on the wall, it’s not the look how we did the turnover here, look at the moldings, look at the expensive stove that I put in, these are just the cabinets I want. It’s all what seen on the outside. The foundation is not often seen. It is boring. Looks like walls, but it’s important. It’s so important.
The strength of the concrete. The concrete looks the same, whether you’re staring at something that can hold 5,000 pounds or 20,000 pounds. It looks the same. There’s a great difference in the strength of that. Today, I want to stress the importance of building a foundation in order to keep your house in order.
If you’re interested in learning more about what we’re all about when we do this, I’m going to encourage you to give us a call. Schedule a complimentary consultation, because it will give you an opportunity to take a look at your specific stuff and create the foundation from the materials that we’ve got.
You can do that by calling the office at 609‑818‑0068. Again, it’s 609‑818‑0068.
If you don’t know where to start, don’t stress out. That’s my job. My job is to help people like you, each day, build their financial house from the ground up. I want you to enjoy retirement and not stress little things.
I want you to live in the house and say, “Check out my awesome stove, checkup the way these cabinets open and close. I got the soft close, so that way it doesn’t slam when I put in there.”
Then you’re resting on a great foundation. I want to make sure that you’ve got all of that setup the right way.
I just want to touch on one more element on the difference between the exciting stuff and what’s not. So much of what goes into building your retirement is about the exciting things like your investments, like what is your portfolio in.
That’s the stuff that’s on the TV. You’ve got people hitting buttons on the show, and screaming at what you should buy and sell. In which stocks you’re going to invest in there that you’re going to take over and hit a home run. That can really be the exciting stuff.
I want you have some excitement. That’s OK, but that’s not really the basis on which your foundation is going to be built. It’s not going to determine what’s going to be successful or not.
When we talk about foundation, we’re not talking about a bank of dollars that just sits there and doesn’t do anything. In my world, the foundation really focuses around the idea of income because income is the thing that helps you not worry about running out of money in retirement.
That’s one of the biggest fears of people in retirement across the country. The fear, by the way, has been growing over the years because fixed pensions, the reward for having spend a lifetime working for a company, the way that company is going to take care of you ‑‑ we call it the defined benefit plan ‑‑ they’re going away.
According to the US Department of Labor, only about 14 percent of workers have a defined benefit pension plan. Now, the burden is on the shoulders of the retirees themselves. They can no longer depend on their employer to take care of them.
While many of them will have the absolute maximum that you can get in Social Security, that government check is not going to take care of them either. Instead, they’ve got to look at what they have saved in a 401(k), or an IRA, or in a savings brokerage plan that they had put aside over their lifetime of working. They’ve got to generate income from that.
They have to generate safety in income from that. It’s not a simple task for the average person that doesn’t work for a living in the financial industry because the majority of people would just look at those dollars and say, “Well, I’m just going to take out of there whatever I need. If I need additional $2,000 per month, I’ll just go to that account and I’ll take $2,000 per month.”
That strategy tends not to work out in a lot of circumstances. I’m not telling you that it absolutely won’t work out. I really hope that you’re one of the lucky ones, that if that’s what you do, it works out for you. Once you start to stress test some of these strategies for retirement, those strategy where you just take out what you need tends to fail more often than it succeeds.
That’s why you want to seek help and work with a retirement professional who can help you with your retirement income strategy. Again, what we’re calling the foundation of your plan. Without a set income plan in place, without a way of knowing how you’re going to generate the income that you need to live, you can’t build and set up the other pieces of your retirement strategy.
You can’t plan around what you’re going to believe in as an inheritance because you can’t rely on that. You can’t plan for how you’re going to take care of long‑term care expenses. You can’t even get through groceries on that. You don’t have a plan to get through what your day‑to‑day living costs are.
It’s important to think about the cash flow associated with an income plan as being the foundation. We need to solve for that first before we start building the walls and the roof of the house.
There are essentially three building blocks. Now that we know the foundation is your income strategy, you need to set it up properly. Income can be generated many different ways.
It’s not going to be something that you want to set up last minute. You want to plan for this with as much time as possible so that once you hit that retirement button, you know exactly how you’re going to be compensated every month. You know where that money is going to be coming in.
This is one of those things that even if you’re inter‑retirement but you don’t have a strategy yet, you might have lost some of the power of preplanning, but by going through the process of putting the plan together, you will definitely put yourself in a better position than having no plan at all.
There are three key building blocks to your income plan and what it should provide you in your retirement. I want to go over each one of those. Before I do, I want to let you know about something that’s coming up.
If you have concerns about how to make sure that your estate plan is properly set up and how to make sure that your legal plan is taking care of the costs of aging, and what will happen if you need home healthcare, if you need a assisted living facility, I have two upcoming seminars I want to talk to you about.
They’re absolutely free. They’re going to be hosted here on‑site at my office. What we’re going to do is we’re going to bring in people on Thursday, February 7th at 1:00 PM, and on Tuesday, February 12th at 6:00 PM.
We have one in the afternoon on Thursday, February 7th. That’s at 1:00 PM. Then, the next Tuesday, on February 12th at 6:00 PM, we’re going to have the other session. These are limited. We’re actually coming up to maximum capacity on the Thursday one.
We have a little bit more space on the Tuesday one in the evening. If you’re interested in attending, what you have to do is you have to call the office. You call us at (609) 818‑0068 and tell whoever answers the phone you want to be registered for one of those two upcoming seminars.
The thing about it is that, first of all, they’re absolutely free, no obligation. It’s all about learning there. One of the things that you’ll get is you’ll get an opportunity to get one of the copies of one of the books that I’ve published for your reference as a gift. We give them away for anybody that attends at the seminar.
We’ve got three of those out there. I’ve published three. One’s “Make It Last ‑‑ How To Get, and Keep, Your Legal Ducks in a Row.” That’s just for foundational estate planning. Then we have “Make It Last ‑‑ Ensuring Your Nest Egg Is Around as Long As You Are.” That’s for retirement planning.
Then we have “Make It Last ‑‑ Protecting Your Family From the Costs of Aging.” The goal there, any of those, is for you to have a reference guide as you march through the rest of your time here just to make sure that you know how to do that planning. Those books will allow you do that. The educational workshop on February 7th and February 12th will help you do that as well.
Victor: If you’re interested in that do us a favor, give us a call at (609) 818‑0068. Let us know which of the two seminars you want. Whether it’s Thursday, February 7th at 1:00 PM, or it’s the next Tuesday, February 12th at 6:00 PM.
You’re welcome to bring a friend as well. Just let us know that you came to us through from the radio show.
I’m going to take a quick break. When I come back, I’m going to talk about the three building blocks that your income plan should provide you in retirement. We’ll go over each one of those when we come back from this quick break.
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Victor: Hey, everybody. Welcome back to Make It Last. Today, we’re talking about basically building your retirement foundation.
When we just broke from the last segment, I was talking about three building blocks that your income plan should provide you in retirement.
The first building block is a set of guarantees. Like I said before, income is important because it covers your expenses. Since most people are going to retire without a significant pension to rely on, like my parents. I’ve talked about them before.
They were both school teachers. They retired with a very significant pension because they spent 35 years in a public school district. They worked during the heyday of what those retirement benefits look like. They made 70 percent of their best three years. That’s lifetime income for them.
It’s important because this income’s got to cover your expenses. These are expenses that you can avoid, like your housing expense, your food, utilities, healthcare. Just those necessary things. The most logical way to cover things that you can’t avoid is with a set of guaranteed income sources.
There are three primary ones. The first one, which is the one that most people know about and that most people get, is Social Security. That’s a foundational source of income for just about everybody. The biggest challenge with Social Security is deciding when you’re going to take it.
Typically, you’re eligible to draw on this when you turn age 62. Most people are tempted to do so, but taking Social Security early is only going to reduce benefits. If you’re working still, then taking Social Security while you’re working will even further reduce it, as you have the offset.
It’s important to weigh your entire retirement strategy before making the decision on when to draw Social Security because if you delay on Social Security, past your full retirement age ‑‑ for everyone that’s going to be a little bit different ‑‑ it’s going to be based on your birth year. It’s going to be somewhere between 66 and 67. That was when you reached your full retirement age, your FRA.
If you delay every year after that until age 70, you actually get an eight percent increase in your Social Security benefit for life. Look, I’m pretty good at doing investments, but I can’t guarantee you eight percent increase if you just wait a year. There isn’t an investment in the world that can do that.
Because the increase in benefit’s so strong, you really want to weigh when you take social security within the context of all of the rest of your retirement strategy because it’s going to vastly affect it. Now, there’s only one thing that affects whether waiting for Social Security was a bad move, and that’s if you die early.
There is a straight‑line calculation that basically says if you die before a certain age, then you didn’t get as much money as if you had claimed early. I know a lot of people have a pessimistic view about how long they’re going to live. Just as many of you have a very optimistic view. The research supports the optimists here.
The increase in advances on medical care makes it more likely now that you’re going to live longer than you thought you were going to live and probably live longer than the last generation. For that reason, planning on a longer life is probably a smarter thing absent any other information.
Anyway, three primary sources of guaranteed income. The first one is social security. The second one are pensions. As I mentioned before, only 14 percent of companies have got a defined benefit pension plan today. If you are lucky enough to be one of these people, you should be jumping up and down with happiness.
You will likely have the option of either taking a lump sum or a stream of income when you retire from your company. That’s something you want to think about very carefully before deciding because in taking the option for the lump sum, you’re going to have the ability to manipulate that money different ways. It doesn’t all have to go to income.
It may all not need to go to income to cover your baseline expenses. You can use a portion of it towards a guaranteed income. In the other component of it, you can invest for other things that you might need or have a different strategy for that. A lump sum’s going to give you that opportunity.
The other thing is that the stream of income when you retire from the company typically has a couple of different options along the way. You may be able to get a benefit that pays your spouse after you die. You might have an opportunity to essentially have a percentage of it go on to your spouse when you die or have some form of a lump sum benefit.
Just as much for that, you’re also going to potentially pick an option that will die when you do. That when you die, there’s no more money afterwards.
As I said, it’s really important to make sure that you’re selecting the right option retirement. Again, here comes the pitch for a very strong retirement planning professional.
Because somebody who understands how to constitute these different options is going to give you better advice than somebody who’s not as experienced. Definitely, this is probably the only time you’re going to do it unless you did it for a spouse or a parent or whatever else.
If you’re not super practiced in this area, working with a professional would give you opportunity to do a little bit better with some of the options. I’m just thinking about a client meeting that I had recently where we were going over the options on the lump sum benefit, and it got confusing.
There was a guaranteed amount. There was a graded amount that might increase over time, but it wasn’t guaranteed. There was an amount where 75 percent went to the spouse, then only two‑thirds going to the spouse.
Then, what if they wanted guaranteed for a period of time, like 10 years or 15 years? You start looking all that and your eyes start to roll in the back of your head because there’s so many different options.
Working together, we’re able to cut through that and arrive knowing more about their family situation. Like in this case, they had a scenario where one of the spouses was unhealthy, but it was their money. Going with a full benefit continuing on after that sick spouse passed away was going to work out better for them than having any reduction. That was specific to them.
You really want to think about that when you are making these decisions because, again, there’s going to be no cookie‑cutter way of doing it. Back to three different primary sources of guaranteed income, Social Security, pensions, and then the last ones are annuities.
A fixed‑income annuity is essentially a contract with an insurance company that in return for a portion of your upfront investments, generally, some form of a lump sum, you get guarantees. These guarantees are subject to the claims paying ability of the issuing insurance company.
What that phrase means, because it’s a very common phrase when we talk about the guarantees of insurances, basically it says this, the guarantees that are in there, where somebody says you are going to guarantee this, we’re going to pay this to you for life. That’s going to be based on the ability of the insurance company to stay behind that claim.
What do you have to look at in making that determination? You got to look at your financial strength. What do they have in assets on hand? What is their rating? You can shortcut the technical investigation of the company by going with one of the ratings.
Here, you want to be careful, because a lot of the ratings are misleading. What I mean by misleading is that they might have 20 ratings that they have ‑‑ 20 different levels, and 10 of them say A, in some format, A minus, A minus minus, AA, A plus plus. You’re going to look at it and you’re going to get confused.
If you didn’t know that about the ratings, you just look and say, “Hey, it’s an A minus,” and not realize that it’s actually 50 percent on the way down to the last rating that they have.
We want to be able to understand what the rating is, but also understand what the rating is when the context of the total ratings that that rating system uses. That’s how we’re going to understand a little bit more about the company.
That’s a good metric. You’re going to rely, hopefully, on the experience of the profession that you’re working with. Say, “Look, I’m going to talk to you a little bit about the way this company is operating in the past, what my experience has been with them.
I have you understand that this is what their situation looks like, this is what their financial situation looks like. If they’re going to be offering you guarantees, they’re essentially guarantees that you’re comfortable accepting.
That those representations are there. The fixed income annuity is this contract that you set up with an insurance company then in return for the upfront amount, they’re going to guarantee to pay you a set amount of income for the rest of your life or, this is important, a set period.
Again, just like when I was counseling with my client about their pension options, some of these annuities can be set up to pay your surviving spouse. Again, depending on the company and the type of the annuity.
It’s important because a lot of people, when they think about an annuity, think about the kind of annuity that pays the money that you don’t get back from what you’d give them back to the insurance company.
They keep the extra. You have a chance of losing it. There are definitely some annuities that are like that, but there are also some annuities that have some guarantees about how long they’re going to pay.
They might say, “Look, we’re gonna pay you a set amount for a minimum of 10, 15, or 20 years.” If you die tomorrow, your beneficiaries will get the rest of the 20 years that you set up.
That’s called the period certain. That’s the technical term. It’s a way of making sure that you still can’t outlive your money because they’ll guarantee to pay it for the rest of your life. If you happen to die early, there is a set amount that you’ll be guaranteed to get because of the period that you’ve set up.
Going back, we’ve got essentially three building blocks. Building block number one guarantees to get a retirement plan to succeed. This is going to be on income, so we’re good for guarantees. The second one is growth potential to meet your long‑term needs.
Once you’ve solved for the income streams that you know are going to come in consistently every month, then you can start to add some investments to provide growth potential. These investments are there to help keep up with inflation through the years.
You know that if you retire and you’ve got 30 years to go, the cost of a gallon of milk on the day that you retire is not going to be the cost of a gallon of milk 30 years from now.
If all you do is just set up this guaranteed income while it is giving you great peace of mind to know that that money is always going to be there, you also want to plan around the fact that that money is not going to be as powerful in the future.
When you think about retirement, you want to think about enjoying it and doing the things that you want to do. Beyond your fixed income needs and keeping up with inflation, you’re probably going to want some discretionary expenses planned for, your vacations, your hobbies, things that you enjoy but aren’t there in your need.
It might be a smart strategy to start to pay for these discretionary expenses from investments that are geared towards growth. The growth‑related investments can include things like stocks, bonds, mutual funds ‑‑ which is basically a basket of stocks, or bonds, or stocks and bonds ‑‑ index funds, which is kind of the same thing and other investments that you can find in the stock market.
There are a few that I don’t love. I don’t love real estate investment trusts. I don’t like unit investment trusts. I don’t like variable annuities. Maybe sometime in the future, I can spend an entire show telling you why I don’t like them, but I’m not going to put them in categories with things that we’re going to recommend.
Typically, the trade‑off is too great off of that. What’s important here is that if there are investments that are going to be linked to the stock market, there are going to be investments that are going to fluctuate in value. They have the potential to drop and then drop when you least expect or want it to drop.
You want to make sure that these investments are not a staple of your retirement income strategy. They’re there to keep up with inflation over the long‑term and to pay for your discretionary expenses.
Victor: What we’re going to do here is we’re going to take a quick break. I’m going to cover the third building block for how you create a retirement foundation. Then after that, we’re going to wrap up with you understanding how to put all this stuff together.
We’ll be back right after this quick break. Stick with us.
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Victor: Everybody, welcome back to Make It Last Today, we’re talking about building your retirement foundation. Retirement foundation, I’m thinking it’s got to be built up of three essential building blocks. The first building block is to get guarantees as a way to help your retirement plan succeed.
We talked about guarantees around your income because that’s going to be that floor to give you your necessary expenses. The next building block is a growth potential that’s there to meet your long‑term care needs, not only about inflation long‑term care but also your discretionary expenses. That’s the second building block.
The third building block is the flexibility to refine your plan over time. Here’s the thing. Nobody wants to set up an irrevocable plan. That is putting way too much pressure on knowing every potential outcome that’s going to happen over the course of your retirement and then navigating through it with the click of a button or with the signature of a pen.
I’m reminded of a “Star Wars” line where they’re plotting a course using the hyperdrive. They got to spend time to let the computer figure out how to make it through because when they’re going faster than the speed of light, some things get in the way, something like dust [inaudible 33:25] , as they like to say.
Life is going to throw you curve balls that you can’t avoid. You want to be able to adjust for these curve balls. You want a plan that has got a built‑in flexibility. Let’s say that you’ve been retired for five years and you get an inheritance.
What are you going to do about that? What does that mean for your plan? If you have everything so set up that you’ve got no flexibility, you don’t know what to do with this extra money. It’s not incorporated into that.
Maybe your parents are going to move in because you love them, and you want to support them in the time of your need. If you’re retiring in your 60s, you might have parents in their 80s. Bringing them in, that’s going to change your retirement plan.
You might need to think about buying a bigger home, or adding on to your existing home, or worrying about how to renovate a portion of the home so that your aging parents can live on one level or so that they don’t slip and fall in the shower. You can have them need a caretaker so that you’re not responsible for them all the time.
Those are all elements of things that might change. Whatever the unexpected event is and whenever it might happen, you need a plan that helps you adjust along the way.
In order to do this, you can’t put all your eggs in one basket. You can’t put all of your money, your retirement savings, into one investment and hope that it provides the world for you in every scenario. It’s important to diversify so you can have the flexibility when you need it.
Diversification takes on different facets. One of them is going to be on product choice.
You’re not going to want 100 percent stock mutual funds. You’re not going to want 100 percent of your money in a fixed annuity. You’re not going to want all of your money sitting in CDs. You want to diversify your product choice.
The other thing that you want to diversify is your time horizons for these investments. As part of what you’re doing, you’re going to want to make sure that you avoid having all of this money sitting in an account that’s meant to mature 10 years from now or longer.
If you do that, if you essentially have all that there, then you run the risk that if something happens along the way and you need the money sooner, it won’t be there when you need it. It won’t be there when you need it.
You want to diversify as to your time horizon, your product choice. Then you want some sort of a standard diversification too. You want to diversify in your different investments sectors, your mix in equity and bonds.
You want all of these choices out there because you want to understand, “OK. Look it. If it goes over here, this is what I’m going to pull from. If it goes over here, this is what I’m going to pull from.
“If I have this other event, I’ve taken care of it this way.” Your diversity in that is one of the ways that you attain that flexibility. Those are the big building blocks. We want guarantees. We want growth potential. Then we want flexibility going forward on it. There are going to be other keys to a successful foundation. One of them is to know your expenses.
Here’s the thing. Old rule of thumb says that you’re going to need between 70 and 80 percent of your per‑retirement income when you retire.
If you were making $100,000 dollars during your working years, you’re going to need approximately $70,000 to $80,000 to live in retirement. That was the old way of thinking.
I guess that’s true if you plan on living a very frugal lifestyle in retirement. That’s likely not the case because, when you retire, every day becomes Saturday. [laughs] You’re not going to work on a daily basis. So much of our non‑spending time is built around the idea that you’re going to be in work instead of spending.
Now that every day is Saturday, you can spend time going shopping and spending time doing things that cost money. If every day is a vacation day, you have the opportunity to spend money on those days. I think that it’s safer. The way we do this is we recommend that you should expect to need the same if not more money coming in as you did while you were working.
It’s likely going to be the case that you will spend at least as much, if not more. As simple as it sounds, you want to know your expenses.
Take an hour or two out of your day. By the way, this is one of the chapters in my book about insuring your nest egg is around as long as you are. You can find that on Amazon or you can come to our seminar, February 7th and 12th and use that, get that copy, if you want that book.
Take an hour or two out of your day to calculate the must‑have expenses for retirements like we were talking about. Your housing, your food, your utilities, your healthcare and put those together. Those are going to be your must‑dos.
By the way, this reminds me of, if you ever visited Disney World, if you stay on the property, they’ve got a channel that tells you what to do when you visit Disney World. What they’re doing is giving you a little bit of guidance, especially if you’ve never been there.
The woman who hosts that talks about the Disney must‑dos. Those are the attractions that you absolutely have to visit if you’re going to be going to Disney World. Now, we’re talking about your expense must‑dos. These are your necessary expenses.
Then you want to calculate discretionary expenses. Those are things that you don’t absolutely need but you would like to do. Start to put those aside so you can plan around those. You may not know them with specificity and that’s OK. You might not know exactly how much something’s going to cost.
Here’s the thing. By making sure that you’re thinking about it a little bit, by making sure that you are at least putting a line item on there, you’ll have a better chance of actually accomplishing them, rather than forgetting about it and hoping and wishing that it works out when you need it.
Another foundation, one of them is knowing your expenses. Another thing that you ought to consider is protection from pitfalls. A solid foundation should have solutions for any kind of pitfalls that can derail your retirement. Your retiree shouldn’t be worrying until they’re in their 80s to plan for nursing home and long‑term care expenses.
That’s something that needs to be thought of ahead of time. Imagine, how expensive do you think long‑term care or policies are or legal planning is, when you’re waiting for the 11th hour in order to plan for this? They’re much more expensive.
You are older, you are riskier for that. If you had a strategy that took time to mature as many of our legal strategies do ‑‑ we have great legal strategies to protect assets in the case of long‑term care ‑‑ here’s the thing about them, they take five years to mature.
It’s going to take me five years to protect that money because of the ways the rules are set up. If you wait until you’re in mid‑’80s to start doing this planning, you’re not going to get great bang for your buck. It’s just not going to happen.
The same thing is true if you’re starting to plan for income need. If you are relying on your spouse, if you’re heavily dependent on your spouse’s income, when you retire, you absolutely need to have a plan for what happens if that spouse dies before you do.
I don’t know what that plan’s going to look like. That could include life insurance. That could include having money set aside to draw from or convert over.
I don’t know what it’s going to be for you, but you definitely want a plan for that. You want a plan for your long‑term care expenses. You want a plan for what happens if you need income with a surviving spouse.
Life insurance is not a bad play at all. I see life insurance has got two major roles in your life. Provide liquidity when you need it, give me a check of freely accessible dollars when I need it, or as income replacement.
Those are the two uses in my world for life insurance. It’s not an investment, it’s not for retirement, it’s not for tax‑free loans. Don’t believe any of that crap.
It does have a role in income replacement. If we’re there to generate a bank of dollars that we can use to replace income from a deceased spouse, that’s good use for life insurance in my world.
Same thing with providing liquidity. If all of your money’s tied up in real estate holding, and you need something to give you spending money until you can liquidate that, or a way of supporting that real estate holdings, life insurance is great for that. Whatever your situation is, it’s important to plan for those pitfalls that can derail your retirement.
Next thing, there’s among those other keys to a successful foundation, mitigating taxes and dealing with taxes. For most people, taxes are going to be the largest expense over their lifetime and certainly in retirement.
Taxes are unavoidable. Unless you wanted to file during the government shutdown, in which case you got a couple weeks off, but they’re back at work. They want their money. There are some tax favorite strategies and ways to reduce taxes in retirement.
Another chapter in the book that I wrote was about proactively managing your income taxes. Too many of us are sitting here in January dealing with our taxes just the way they are, having done nothing proactively to manage that the year before. Well, guess what? Don’t beat yourself up.
Everyone’s telling you there’s nothing you could do about taxes. I’m telling you, you should be thinking about your taxes now. Think about your 2019 tax bill in 2019. In order to mitigate your taxes in retirement, you’re going to want to get the ball rolling with discussing with them with your financial adviser.
A good financial advisor ‑‑ somebody who specializes in retirement ‑‑ should be able to help bring a tax professional to the table that can implement tax strategies for your retirement plan. A great financial adviser is going to be able to do that on their own.
One of the benefits of working with somebody like me, who’s got both a law background as a practicing attorney as well as a financial background, is I can bring to the table tax strategies that a financial advisor can’t talk to you about. They’ve got to carry out their way out of it. I can’t help you with that. You got to bring somebody else into it.
As a lawyer, I can tell you very clearly about what to do with your taxes. That’s what my law degree helps me be able to do ‑‑ represent you in front of the IRS, file your taxes for you, if you wanted me to.
A great financial advisor, a great retirement planning specialist is going to be able to bring to the table tax strategies that will help you in retirement. Just like taking care of your long‑term care expenses and your income needs, the sooner you do that, the better it’s going to be, overall. The better result you’re going to be able to achieve. You’ve got to build for that early.
The final one that we’re going to include in terms of other successful strategies is estate and legacy planning. You’ve spent a lifetime accumulating assets so that you can retire. There’s basically three things that you can do with those assets ‑‑ you can lose them, you can spend them, or you can give them away.
[inaudible 45:18] estate plan that ensures that your assets are passed onto your loved ones in the most tax efficient matter. That’s going to be super powerful for you. You’re going to want to think about that from multiple avenues.
You’re going to want to think about it from the avenue of tax savings. You’re going to want to think about it from protections against divorce and creditors.
A lot of the clients that I see, when we’re setting up foundational estate planning documents, part of their goal is to make sure that what they leave behind doesn’t go to that no‑good son‑in‑law. Or make sure that, if their daughter gets divorced in the future, that money doesn’t go in a divorce, or they want to make sure that what they leave behind goes to the next generation on a bloodline.
It’s going to go to their daughter and to their grandkids as well. When you create this foundation for your retirement that helps you enjoy your golden years, you more likely than not don’t want it to go waste when you walk out on life.
You want to make sure that, if you’ve spent all this time setting up your retirement and you’ve been successful at it and there’s something there, there’s that next layer to make sure that what you leave behind has been done with some smart legacy‑planning as well. It helps you provide your loved ones with a foundation that can help you build up your financial house from the ground up.
At the end of it, what you’re looking for is you’re looking for the ability to feel safe and comfortable in your retirement financial house. This retirement foundation is a plan for you in retirement. What it does is it gives you your blueprint instructions on what to do to set everything up, how to react in different circumstances.
What it means is that, at the end of the day, you’re going to have the security, comfort, and the peace of mind that comes from knowing that you’re safe and secure, that you’re well taken care of. That no matter what the circumstances are, you are going to be well‑protected. You do that by putting that house in place.
Look, there’s a winter storm coming. There’s going to be a bunch of them coming in there. That’s going to be like what’s going to be coming against your retirement.
There’s a storm coming. There’s wind. There’s rain. Did we set up the foundation the right way, or is the house going to blow away? For you, you want to be thinking about this in your own life.
Is your financial house in order? Do you need help creating a foundation that will support you? Look. If the answer is yes, then we’re here to help. Give us a call.
You can call us at 609‑818‑0068. Schedule a complimentary consultation. In that first meeting we’ll start to go through, “What do you need in your retirement home in order to be safe and secure?”
Then we can work together on how we’re going to create a foundation to do that because we want the end result. We want to be sitting down in our kitchen, good cup of tea. We want it to be safe and comfortable, warm.
We want no cares. For many of us that’s going to look a different way. It’s going to be providing for kids after we’re gone.
Maybe you got a special‑needs kid in your life, and you have to plan for that. Maybe you’ve got income needs. Maybe you got travel desires. I don’t know what it is.
For you, it’s going to be a little different. Everyone’s home is a little different. We’ve all walked into each other’s house. We know, “Ah, I wouldn’t hang that painting there.” We know that it’s going to be different for everyone.
What we need is the foundation that is specific to you. If you’re interested in learning more, as I said, look. You can give us a call. We can do 609‑818‑0068. You can schedule a complimentary consultation. If you want to just come in and know more about us, see the way that we operate, see what we talk about, I’ve got great opportunity for you.
We have that seminar and workshop that’s coming up in February. That’s going to be on February 7th at 1:00 PM and February 12th at 6:00 PM. They’re right here at our office on our campus here.
You’re going to be able to come in and spend an hour with us learning about how to get your estate‑planning house in order. How do you get those ducks in a row?
How do you plan for the costs of aging? They’re coming. They’re going to hit you. How are you going to plan for that? If you’re interested in learning more about that, I got a free workshop for you. Here’s the thing. Light refreshments served. You’re not getting a full dinner out of this. I got coffee and cookies.
You will get an opportunity to select one of the books that I have written as our free thank‑you gift. All you got to do is register. You can just call the 609‑818‑0068. You want to get registered for one of those two seminars. Again, that’s February 7th that Thursday at 1:00 PM or Tuesday, February 12th at 6:00 PM. We can definitely work you in.
As I said, that Thursday one’s almost filled. The Tuesday one at 6:00 PM has still got space, so you should call us if you’re interested. Look, to sum up, we’re trying to get your financial foundation in order, that house of your foundation in order. I can only let you know what it’s like for different clients along the way.
I’m not going to use anybody’s specific name, but I’ve had the opportunity to work with a lot of people. I see the difference in the people that have things well‑set‑up versus the people that went scrambling.
In December, we had a massive market correction. All I’ve been doing is reviewing statements. I see $20,000 loss in December, $50,000 loss in December. Then I ask them.
I’m like, “What does that mean? What does that mean for your retirement?”
For the people that aren’t working with this yet, they don’t have an answer. They don’t. They don’t know what it means. They don’t how it’s going to affect that they haven’t been given those blueprints. For the people that are working with this, they almost always universally have one answer.
It’s like, “What does it mean that the market had a downturn in December?” Universally, their answer is, “It means nothing.”
I go, “What do you mean it means nothing? You lost this money or whatever else. You had account then in there. What does it mean it means nothing?”
They say, “The reason it means nothing because you’ve put together a plan for us that took that into consideration. That was one of the pitfalls that was coming, but you already took care of the guaranteed income that we needed. You already have the growth potential in place. You have all of these elements that we know that we need for a solid foundation. I don’t have a worry.
“I don’t have a worry about what’s going on. For that reason it means nothing.” That’s a place that you want to be getting to. You want to get to that place in retirement where you feel totally comfortable, totally secure, totally happy with all of the pieces that are in your life in your retirement.
No matter what’s going on, whether there’s a rainstorm, whether there’s a snowstorm, whether it’s a 90‑degree day, or it’s just nice out and you get sit on your porch. No matter what happens, you have that opportunity to enjoy your retirement, feel comfortable, and safe and secure in what you’re doing. The first step’s to get that foundation in place.
Again, thanks for joining us. If you want to learn more about other topics, all you have to do is go to our podcast. Go to Apple iTunes. Look for Make It Last
Go to Spotify. Search for Make It Last. Look at all the prior episodes. You can totally go back in the show history and find topics that you’re interested in. We do a little something different every week.
Find one that you find interest in. Definitely go and listen to that, but those are available. By the way, if you like this show…
Man 1: …and you like the podcast, one of the best things that you can do is go over to Apple iTunes and rate it highly. It would be fantastic if you could just leave us a nice review because it will give us the opportunity to climb up the ranks of the podcast world in retirement. Anyway, that’s it for me today.
We’re going to catch you next week on Make It Last where we help you keep your legal ducks in a row and your financial nest egg secure. Catch you next week. Bye‑bye.
Announcer: Investing involves risk, including the potential loss of principle, any references to protection, safety, or a lifetime income, generally refer to a fixed insurance products. Never securities or investments. Insurance guarantees are backed by the financial strength and claims‑paying abilities of the issuing carrier.
This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions nor should it be construed as advice designed to meet the particular needs of an individual situation.
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