Dwight and Mitchell share a quote of the week before discussing how to best manage your decumulation phase during retirement. Do you have a solid plan to receive the income you need during your golden years?
In 2023, we want you to be prepared, not scared!
Schedule a Free Consultation Here
Questions? Call Dwight Mejan today at (910) 235-0812
6.2.23: Audio automatically transcribed by Sonix
6.2.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Producer:
Welcome to Retire 360 with your host, Dwight Mejan. Dwight is a licensed fiduciary and financial advisor who always places your needs first. Dwight works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Dwight.
Dwight Mejan:
All right. We want to welcome everybody back to the Retire 360 show. My name is Dwight Mejan. I am your host. Alongside of me is Mitchell Keiser. And as always, Sam Davis, our executive producer, always hanging out there in the background, making sure it's getting done the right way. Appreciate you guys. Mitchell, how are you doing this week? Another week flying by.
Mitchell Keiser:
Oh, yeah. Time has been flying. Hope everybody's having a good summer. So far. We've had some not so great weather down here in low country, High country. It seems like they've been having some pretty good weather out there in the Boone Banner Elk area.
Dwight Mejan:
Yeah, we celebrated some Memorial Day with a lot of rain for sure. So but hey, I'm glad to have our listeners, our regular listeners with us. I know we got some new folks joining us in both locations. We are here broadcasting today live from our Southern Pines location, but we're also in the western part of the state. If you have questions on anything that we cover in today's show, a couple ways you can reach out to us. Always love hearing from our listeners. You can reach out to us. If you're in the western part of the state, reach out to us at (828) 278-7814. Again, that's (828) 278-7814. If you're in the central part of the state, you can call our office directly here at (910) 235-0812. We've got a great show planned today. We're going to dive right in here. But we're talking about maximizing your income sources during retirement. You know, income has been a a big part of really seems like the last week that we've been talking about. I know I've had a lot of meetings with folks who've done a great job. I've seen a great run of folks who have done an absolutely fabulous job of saving for retirement, but not exactly 100% sure how they're going to start the decumulation phase. So maybe a new term. We're going to talk a little bit about that today. But we're going to look at income sources and how to generate that income, how to maximize it. And we're going to talk about implementing strategies this summer to make the most of your golden years. But again, just welcome everybody to the show. If you want to catch up on our program, you can go to our YouTube channel, just type in Retire 360. You can find some past episodes of us there.
Dwight Mejan:
Also, you can go to anywhere you download podcasts and you can just type in Retire 360 as well there and download previous episodes as well. So welcome everybody back. Hey, if our listeners, if you want to get in touch with us, we always like to put something out there that would be helpful for those of you that have bonds in your portfolio, we want to get you a bond replacement strategy and we've got a free report on that as some alternative investments for the bonds that you have inside of your portfolio. So reach out to us today at one of those phone numbers I just gave you, and we'd like to show you how you can delete fees on as much as 40% of your portfolio. Just a little overview of today's show. We're going to get into the quote of the week. Mitchell's going to hop on that here in just a minute. We're going to talk about the number one fear of retirees and what you can do about it today. We're also going to talk about the biggest mistake that people make when planning for their retirement. We have a problem solver we're going to do today about an underperforming asset. So you want to stay tuned to that. We're going to help you find some opportunities to get out of that particular investment. I know a lot of our listeners probably own that particular product, or at least several of them do. And then we're going to talk about managing the Decumulation phase. You've heard of the accumulation phase, but the Decumulation phase and why this is so important for retirees. So with that, we're going to let Mitchell hop in here. He's going to give us the quote of the week.
Producer:
And now wholesome financial wisdom. It's time for the Quote of the Week.
Mitchell Keiser:
Yep. And that is brought to us by Tony Robbins. And that is working because you want to, not because you have to is financial freedom. You know, that reminded me of a quote. Dwight, have you ever heard the saying better to drive a or better to drive a Honda to the hills than a Lambo to the office?
Dwight Mejan:
And I've not heard that one.
Mitchell Keiser:
You know, I see that on Instagram. Might be like a millennial, a millennial saying, But yeah, there's a lot of truth to that. What's you what kind of lifestyle you want to live and what you're willing to do because of it. I know Dave Ramsey talks a lot about, um, you know, how to get yourself financially free, how to get yourself out of debt. And I think that's a great that's a great starting tool for a lot of people. I would say probably most of America would follow behind that plan pretty successfully.
Dwight Mejan:
Well, Sam really liked that quote because he drives a Honda. He just put that up on the on the message board here. I see. So kudos to Sam there in the background. He's paying attention. That's good. Tony Robbins, you know that quote working because you want to, not because you have to. That is financial freedom. I had a person in my office this week went through a just a series of some unfortunate situations with a marriage that dissolved and spent a lot of money in attorneys fees. But basically, he's in a position where they're really in a makeup period the next eight years, which is till their target retirement date. And they've got, you know, we got a plan together for them, but we realize there are people who are behind and it's never too late to step in and start, you know, consulting with someone. We'd love that to be us and see if we can put you on the right path to saving for retirement. But want something came to mind when you read Tony Robbins quote, He said, I don't know who said this, but they said, work is anything that you're doing when you'd rather be doing something else. And that's the difference between having a career and having a job. So that just came to mind when you were talking about that. But you go right ahead.
Mitchell Keiser:
No, that's good stuff. You know, we have a lot of people coming into our office that are already retired and they fear they they always tell us they fear of running out of money more than they fear death itself. And just this past week, I was reading a survey by AIG Life and Retirement. And when asked about planning for retirement, 59% of responders said that they also fear of running out of money more than death itself. So I just thought that was interesting. How much how often we hear that in our office and how they even published an article about it. So my question to you, Dwight, is what are the solutions for people that might be feeling this same way?
Dwight Mejan:
Yeah, it's a good question. Mitchell We get that question quite a bit is, you know, one of the things people often what you need to remember is that your, your guaranteed income sources in retirement are the most important thing. And the pension is kind of a dying, you know, asset and retirement. Most people today don't have pensions. They are their own pension. That's why they have a 401. K, But with Social Security on average, that's going to make up about 40% of a retiree's income in retirement. And, you know, we hear a lot of talk we've talked about it here in recent weeks about Social Security and whether it's going to be there and, you know, what you can count on. But when you're in retirement, most people need somewhere between 70 and 90% of your pre-retirement income just to maintain that same standard of living. So if you're making, let's say, 100 grand a year, you need somewhere between 70 and 90,000, you know, to live on comfortably in retirement just to maintain that same lifestyle. So one of the things we always look at is we look at income, what's going to produce income. You hear us talk about it a lot on the show. We like for a portion of that income, we like fixed indexed annuities. It's kind of a bond replacement strategy because the income that you could get from that product will be guaranteed throughout your lifetime.
Dwight Mejan:
So we like fixed indexed annuities. We're not big fans of variable annuities, but we do like the fixed index. We don't like the variables primarily because of the fees. And we're going to touch on that a little bit later in the program, but definitely need to consider how that fixed indexed annuity could come alongside Social Security and sometimes be anywhere from 60 to 80% of what you need in retirement. If you've done a good job saving to have that income be guaranteed. And that's one of the things we like about it. We talk about not withdrawing more than 4% of your assets each year. We call it the 4% rule. And there's a rule that's been around a long time and that's basically is something called Monte Carlo simulations. And what they did decades ago is they started looking at what is a safe percentage that we can pull out of primarily a securities based portfolio. So if you're in stocks and bonds and you want to go that route versus using some of that some of those assets in a fixed indexed annuity, the safe percentage to use is 4%. So if you withdraw more than that, you run a higher chance of running out of money. And that's one of the reasons we like people looking at the guaranteed source of income.
Dwight Mejan:
And we present both of those options to people. And it's amazing to me how many times people go for the guarantees and that means something. It should mean something to all of us, particularly with the volatility that we've been seeing in the market. And you don't want to take your golden years and just kind of throw it to the wind and gamble on your future. So the 4% rule, if you are going to go in a securities based portfolio, just make sure you're not taking out more than 4%. And then finally, one of the solutions, Mitchell, we always talk about this as well, is pay off the home. You know, a mortgage payment is going to consume a lot of that Social Security check. And we want to see people heading into retire. Retirement. Debt free as best as possible. A lot of people right now I know have refied and hopefully, you know, if you have a mortgage, you were able to do that in recent years and there's some pretty good rates out there. But still goes without saying. You want to get rid of that mortgage when you retire and that's going to help not have that fear of running out of money. So those would be some of the solutions to to that fear.
Mitchell Keiser:
And I actually wanted to talk about the biggest mistake people make when planning for their retirement. We hear all these people say, Oh, well, my whole life, you know, I just, you know, I maxed out my 401. K or I just, you know, I was saving X amount per month into my bank account and I've accumulated this big nest egg and that's what I'm going to live off of In retirement, I was taught to save as a child. We get these stories about how people were brought up in a savers mentality, which being a saver is a great thing, but you need to have a strategic plan behind the saving. Retirement is actually more about income than it is about building one nest egg. So I wanted to talk to you guys also about making the mistake of having thinking that you have more money saved for retirement than you actually do, let's just say for retirement you've accumulated. I'm going to go here on the high end and say $1 million. Most people think, well, I have $1 million in retirement to spend. No, you do not. Don't forget that those 401. Ks and IRAs that you all have and have worked so hard to save for, they're all tax deferred accounts. That doesn't mean that they're tax free. You owe the government taxes on those distributions and if you wait too long to take them, they'll tell you when you need to take them. The Secure Act 2.0 just released. If you guys have been listening to us for some time now, you know that that's at age 73, but they will force you at that point to start spending down on that money. But if you guys have $1 million, you're going to owe probably a third of that in taxes. So that leaves you to about 600,000 and some change that you have to actually live on.
Dwight Mejan:
And that age is going up to Mitchell. It's going up to 75 for people that will reach that age somewhere in the mid to 2000, you know, 30s, that's what's going to happen. So people, if given the opportunity we see this, people are going to wait or delay taking money out of those pre-tax accounts. And that may not always be and oftentimes is not the best strategy. So just be aware of, you know, this big tax bomb that we talk about. It's letting that deferred money continue to grow and grow and grow. And Mitchell, like you've been pointing out for the listeners, it's not really your money. You're going to be forced into taking those distributions. And that causes all kinds of other problems. When we talk about how much your Medicare premium is going to be and, you know, other taxation that's going to hit on that tax return.
Mitchell Keiser:
Well, like you just said. So when they do force you to take out those RMDs, the longer you wait to take that and the longer they push that back, the higher the amount is that you're going to be forced to take. If you looked at a chart, which we kind of go over in some of our classes, they show they show us how how much as you increase in age, how they basically force you to spend down that entire IRA because they're going to make sure that they get their money. So it's important that you factor that into your saving for income, your your lifestyle, the vacations that you want to go on, the cruises you want to do the golf you want to play. But also don't forget that you need to factor in your health care costs. We talked a little bit about how much health care can cost in retirement. The average person is going to spend about $300,000 in health care costs when they're retired. All of these things folks were just pointing out that you need to be working with trusted people. We're not telling you to work with us, but we're telling you that you need to do your research and you need to make sure that you are working with a firm that is helping you with your retirement plan, with your tax plan and with your insurance plan, because they all could just totally derail your retirement.
Mitchell Keiser:
Or you need to be prepared for the the what ifs, the unexpected. We just worked with a client. I was just working with a client this morning that had they got diagnosed with two forms of cancer, they weren't expecting that. That's if you're not prepared for it and you don't have the right type of insurance, that could drain your retirement pretty quick, a condition like that. So we're going to take a break. And when we come back, we're going to dive into how to be more tax efficient. But if you have any questions on anything we'd gone over thus far, you could give us a call at our home office here in Pinehurst, and that is (910) 235-0812. And if you're in. High country. You can give us a call as well at that same number. (910) 235-0812. We have an office up there as well, but we'd be happy to help out. But we will be right back after this break.
Producer:
Helping bring you one step closer to financial freedom. You're listening to Retire 360. Here's Dwight.
Producer:
Do you have the right insurance coverage? If the answer is no. You could be missing out on some big savings. I'm Matt McClure with the Retirement.Radio Network. Powered by a mirror life, not having a steady paycheck to rely on can get very stressful for retirees as monthly insurance costs accumulate. Experts say you should regularly review your insurance policies and consider reducing coverage on items you no longer need, such as a car you no longer drive. There are also plenty of ways to save on your coverage and still keep the protection. Consumer finance website wallethub recently released a video with some tips for retirees when it comes to shopping specifically for car insurance. First on the list, compare quotes. Frequently, older.
Frank Langos:
Drivers begin to see higher premiums around age 60 with more increases. At 70 and 80 years old, You may need to compare several quotes to find more affordable rates each time you pass one of these milestones.
Producer:
You can also consider policies intended specifically for retirees. For example.
Frank Langos:
Some companies may offer auto insurance with discounts and benefits tailored to AARP members.
Producer:
You may also be eligible for discounts on homeowners insurance or other types of policies, but you may need to ask your agent about them. So be proactive. Another option consider moving to a higher deductible plan that requires a smaller premium. As always, it depends on your unique situation and what is right for you. So are you paying too much for insurance coverage you don't need? That's a key question to consider. And it's one of the 23 retirement cost cutters for 2023 with the Retirement.Radio Network powered by a mirror Life. I'm Matt McClure.
Frank Langos:
To get your free copy of 23 cost cutters for 2023 call Dwight today at (910) 235-0812 Or visit Retire 360.
Producer:
Show.com you're listening to Retire 360 with Dwight. Now back to the show.
Dwight Mejan:
All right, folks, welcome back. I'm your host, Dwight Midgen. Next to me here is Mitchell Kiser. And we are talking right now about efficiency in your portfolio. And specifically we want to address three areas of efficiency. Is being fee efficient. What are you paying for the advice that you're getting, being market efficient and also being tax efficient? Got a little example I'm going to share with you on the tax efficiency side of something that just came out of a meeting this past week from a listener. But fee efficient, you know, we have to be careful to not pay fees on maybe on some of the traditional ways that many of our listeners are doing with their portfolio. You have maybe perhaps a 6040 portfolio where you're 60% in stocks and 40% in bonds. Well, all of that falls under the fee arrangement. So for example, if you have $1 million portfolio, I'll go back to the example that Mitchell gave and you have 600,000 of it in equities and 400,000 in bonds. That fee for that advice annually is $10,000, right? 1% of a million. So with that, we'd like to show you opportunities that you have to take some of that bond portion of the portfolio and look at some alternative strategies that eliminate that 400,000 being charged, that 1% fee that puts $4,000 back in your pocket.
Dwight Mejan:
So that's one way that you can do that. You know, fees ultimately are all part of you know, it's not what you make, it's what you keep. Right. And fees draw that down. So got to be careful with the fees. The next thing we want to talk about is being market efficient. And we want to eliminate basically risk by moving money out of the market and into some instruments that offer you market like gains without dealing with market risk. And there's lots of different options for that. We were just talking earlier about the fixed indexed annuity option. That's where you can actually keep some of those gains or all of those gains, I should say, not some of them, but when gains are credited in that particular product, imagine being able to hang on to those gains and not worry about losing them again. And that's unfortunately what happens with money that you have in the market, even though people say, well, it's just a loss on paper, nonetheless, you still have to make up that loss. So when the last big market downturn hit, I shouldn't say the last one, that was last year, but in zero eight, the average person, it took them about seven years just to get back what they lost. You know, whether it's on paper or not, they still lost money.
Dwight Mejan:
So just be aware of of that. And market efficiency is very, very critical. And then finally, tax efficiency. We want to help you as a listener of this program to divest the IRS. We know you have to pay your share of taxes. You know, render to Caesar what Caesar's. But many people are leaving Caesar a tip. And you don't have to do that. So have a tax plan and consider implementing a Roth strategy. Said I'd give you an example on this one. Had somebody in the office this past week who had a was able to do an inservice distribution. If you're not sure what that is, let me explain that to you a minute. When you're when you reach this kind of I call it the magical age of 59.5 when you're still working for your employer, about 60 to 70% of employers permit you to take that money that you've been accumulating and roll it out to an account. And you might wonder, well, why would I do that? Well, you have more investment choices. That's one of the reasons that you would do it. Sometimes your your cost is less expensive, the fees that we're talking about here. But there's a multitude of reasons why it could be better. But this particular individual recognized that they didn't have enough of a guaranteed income besides Social Security, after I'd met with them here in the office and I said, What if there was a way that we could guarantee somewhere between 70 and 75% of the needed income that you want in retirement? And we could do that on a guaranteed basis, he said, Well, I'd love to see it.
Dwight Mejan:
Well, we showed him that and he was very excited when he saw the plan because he said he had met with a couple other advisory firms and he said, no one showed me that option before. And he liked it enough that he took the steps to want to implement this. And what what additionally, what I showed him was with some of that money he's planning to do, it was about a $600,000 account and he's going to be converting about $40,000 a year at starting at age 63, early 60s and all the way through what we're estimating is age 75, he's going to be able to take 350,000 of that 600 and move it strategically into a Roth account. And just based on here's some numbers I know this is kind of hard to grasp if you're listening on the radio, but at an assumed rate of return of 7%, it's just an assumption that we're making because that's what his portfolio has been doing within the 401.
Dwight Mejan:
K is about 7%. That account will be converted between age 63 and 75. And this individual is in approximately the 22% tax bracket. So he'll pay an estimate somewhere in the neighborhood of about $110,000 in taxes over that timeframe from 63 to 75. That's why we're doing it strategically. We want to keep him in the bracket he's currently in. We don't want to, you know, jump him into a higher bracket, which is why we're managing this at about 40,000 a year. But as he continues to age into retirement as an example, if that portfolio continued to earn 7%, keep in mind, all this money would have paid he would have paid taxes on it if he were to pass away at age 85, his portfolio that he'd leave would be 1.55 million, 1 million, $550,000. And keep in mind, this was simply on a $350,000 conversion over that period of time, from 63 to 75. And he'll have paid taxes of 110. But now he's got tax free money and at 85 earning 7%, that portfolio would be worth 1,550,000 bucks. So great opportunity there to just look at building a tax efficient portfolio. Again, folks, it's not just about saving a large sum of money. Mitchell said it at the beginning of the show and we're continuing to talk about that point here.
Dwight Mejan:
It's great if you've done that, but how are you going to take income out of that portfolio? And more importantly, what's the tax implications? We don't know what tax rates are going to be in the future. We believe and I know a lot of our listeners believe that taxes are going to be going up, but that's all the more reason to find a strategy to start to have some of your retirement funds sitting in an account where you don't have to worry about if you're going to get taxed or not, because then you can start to manage that tax return in retirement. What I mean by that is you can manage it to the extent that you're working with an advisor and a fiduciary who can help you take income out, that's going to manage those tax brackets so that you're not needlessly paying and at the mercy of the IRS and whatever the tax code is. So when you have money that's in a tax free bucket, you can begin to blend that together with some of your other taxable money when you retire. So hope that makes sense. And Mitchell, I know you got some things you want to share about why people need a comprehensive retirement plan. So why don't you share with our listeners some things on that?
Mitchell Keiser:
Yeah, so a lot of people listen to us every week. They listen to other financial speakers and educators and they, you know, they've accumulated assets. They have different 401 seconds and they think, you know, what's the benefit or how do I know if I'm the person that needs to have a comprehensive retirement plan? Well, just a little bit ago, I talked about how you want to make sure that you're not just accumulating one big nest egg. You want to make sure that that nest egg has a purpose. You want to make sure that that nest egg isn't going to get clobbered in taxes by during your lifetime by the IRS. Or if you guys aren't familiar with how the law is, if you have a 401. K and you pass away and that goes to your beneficiaries, they have ten years to spend down that 401. K IRA. So if they're in their highest income earning years, that whole IRA is going to fall. On top of that, they're going to have to pay on their tax bracket and income tax on the IRA that you left them. So you want to make sure that you have a strategic plan on how to maximize your IRA and how you're receiving it. We also find there's a lot of people that have no clue about how their bonds work or even what bonds are. They just hear that they're a good thing and they bought them or they trusted somebody to put them in into those types of debt instruments.
Mitchell Keiser:
But in many cases, we find that people have about 40% of their portfolio in bonds and they have no idea how it works. So you want to make sure that your you have an understanding of how you're allocated, how your portfolio is set up for you. If you don't know when interest rates go up, bond prices go down. And when interest rates go down, bond prices go up. So how is that actively being churned in your account? Are you being clobbered with advisory fees? Are what's your bond portfolio doing versus your stocks mutual fund ETF portfolio? What I just said is totally foreign science. Maybe you should work with somebody that's going to explain that in terms that will help you understand. We also find that there's a lot of people that have no idea what they should do for their health care or they just did what their neighbor told them to do for your health care. There's not a one shoe fits all, just like your financial plan. There is so many different options that you can do with your health care. If you want a plan that has, you know, dental, there's plans for that. If you want a plan that has hearing protection or if you just want a plan that's, you know, don't want to go to the doctor bad and never pay a dime, you know, I'm comfortable paying a premium.
Mitchell Keiser:
There's a plan for that. If you really want to make sure that your plan has silver sneakers, you know, there's plans for that. There's so many different options that you can make sure that you're covered in your health care and there's not a one shoe fits all. And, you know, we hear a lot of people say that they hear that something is a bad plan or they hear that something else is, you know, a fantastic plan. And I'll tell you, a lot of times I can disagree with the person depending on their situation. So you also want to make sure that you're getting a health care and insurance analysis, too, so that way you're not, you know, dumping the bank into unnecessary insurance costs because we see that happen a lot as well. There was a this past year I probably saved somebody close to $20,000 a year in health care and insurance costs just because it was just a slight, slight adjustment in their plans. And I'll tell you folks, $20,000 for this couple. They weren't they weren't pulling in a couple hundred thousand dollars a year. They weren't even making I think their household income was less than 75,000. So $20,000 is a lifestyle adjustment. That's about two grand a month.
Dwight Mejan:
Where was that mostly coming from? Mitchell Was that was that like a lot of their drug costs that was involved in that as well? I'm sure people yeah.
Mitchell Keiser:
So so they didn't know that the plan that they had, the premiums that they were paying could be reduced. I mean, we chopped them, chopped them by about a fourth and then they were in a horrible drug plan. They didn't know that you should switch that every year. They didn't know how to go about changing that, to check it to see if they were in the best drug plan. They had doctors that didn't accept Medicare. They had, you know, so many different things that it's you know, they had nobody advocating for them. They didn't even know they needed help. We were there helping them with their retirement. And they said, hey, well, can you check us about this? I feel like I'm throwing a ton of money out. And we did. And I'm like, Yeah, we could definitely help you save some money there. So that's also something that you guys should just be aware of.
Dwight Mejan:
And Mitchell just want to put a plug in there too, for for the work that you do for people who call in and for our existing clients. Just as we're fiduciaries in the realm of the investment world, we're also fiduciaries in the realm of health care because, you know, we're independent. So we don't just get strapped down with 1 or 2 carriers. We're continually scouring here the whole state of North Carolina, and looking to see, you know, who's coming out with potentially a better plan and better is both price and benefits. So I think it's great that our listeners know that you do shop the marketplace. You're not captive, meaning you don't just work for one company. You're evaluating and educating our clients because here you do it almost on a daily basis. When you're taking calls on health care, you explain that to. People and know they appreciate that so.
Mitchell Keiser:
Yeah know appreciate that and that's it's very true you guys want to be making sure that you're working with somebody that you can trust and somebody that's not just working for one company. Because I'll tell you, I've seen people dump thousands and thousands and thousands of dollars because they were working with a captive agency and they said, Oh, well, my home and auto person did this. So I just went ahead and did that. Or because I got this at my employer, I just decided to do that and never have anybody look at it. I'm not saying those people are crooks. They're not crooks. They're probably great people, but it's worth getting a second opinion. And my last tip for you guys on why you should have a comprehensive plan of your whole financial situation is make sure that you understand how your money is going to be there for you when every day is Saturday. How are you going to pay for that? If you have if you're used to a certain lifestyle, make sure that you know that your money is going to be there for you and that you are if you're not retired and you're planning to retire, make sure that you are at the income level and that you've accumulated enough that you can retire without having to make a huge shift in your lifestyle because, hey, we haven't seen that happen too often, but we have seen some people come in here that they're like, woo hoo, you know, we're retiring and here's our 401 K's, and we're used to spending this much per year.
Mitchell Keiser:
And this is how much we've been drawing out of our 401. K. And you know, Dwight and I just look at one another and say, you know, we kind of give each other the look that, you know, if these people continue spending at this rate, they're going to be out of money in like three years. Right. You know, and there's that was you're probably thinking of the same case that I am, but that's an extreme case. But it does happen. People do run out of money in their lifetime. And it's it's horrible. Not a position you want to be in. So, yeah, definitely important to have somebody just look over your whole situation, make sure you can trust them and don't pay too much for it. I know for our consultations that we offer to people, we don't charge them for that. We give that out for free.
Mitchell Keiser:
And if we can add value to you, then we'll kind of point you to the direction that you can. I'll tell you, there's not too many cases, though, that that happens. So yeah, be happy to help anybody out. I want to turn gears here because a lot of people like to hear real life situations and how they can how we would fix it. So I'm going to do a problem solver here. So here's the problem. We have many people that own variable annuities and they don't understand exactly what that is. So their principal is at risk in the stock market and they're paying usually between 3 and 6% in fees. They're also paying an income rider just to have money paid back to them because usually they're sold on a basis that they will have guaranteed income. But, you know, we'll have people come in then. A year. We actually had somebody come in a couple months after entering in one of these and they say, well, hey, you know, I see my principles going down, but already locked into this annuity. Like, what do I do now? So, Dwight, I'm going to toss the baton off to you. How would you solve that? Yeah, no, thanks, Mitchell.
Dwight Mejan:
It's a fairly common occurrence. We see it on a fairly regular basis, that exact scenario that you described. And, you know, I think the key to what you said is the fees. It's one of the reasons we're not huge fans at all of variable annuities because the cost of those can get excessive and they really work against the returns. And obviously, the other part there is the principal is not protected. It's it's in the market. So we'd rather just see people in a, you know, good ETF or something that's got a good track record in it rather than being in the annuity. But if you're in one of these products that Mitchell just described, you have opportunities even if it's, you know, maybe after tax money, there's a section in the internal Revenue Code code called 1035 exchange, and that gives an individual the opportunity to exit and do a like to like transfer. Now, you say, well, wait a minute, why would I want to do a like to like transfer if I'm in something I want to get out of? Why do I why would I want to move it to another one? Well, it wouldn't be the same type of annuity. If you're in a variable annuity and you have not been happy either with the fees or the performance or the lackluster growth in that account, there may be opportunities for you to transfer that under this 1035 section of the Internal Revenue Code where you can exchange it out for perhaps an indexed annuity, where you will reduce the fees in what you're paying.
Dwight Mejan:
Sometimes you can get them down to too little or no fees at all. And many times, you know, people wonder, well, I'll take a penalty. I haven't been in this very long. There are some products out there that offer bonuses on the front end that could get you out of it and make you whole. And the good thing is, if you're, you know, wondering if this would be an opportunity or a fit for you. Companies have to you have to go through a suitability process where they basically look at, hey, is this suitable, first of all, for what you're trying to do? And then the other big thing is most carriers want you to be made whole without being taking a loss, moving into that other product. So there's opportunities to exchange that variable annuity into an indexed annuity and go into a product that has lower fees and basically insures your principal where you wouldn't suffer any losses. So we kind of equate it to Goldilocks and the three Bears comparison, a variable annuity, it's too hot. What do I mean by that? It's in the market. It's at risk and the fees are too heavy. A fixed annuity is often what we'd say is too cold. It's like a bank. Cd rates have come up a little bit better than they have over the years. But the problem with the fixed annuity, it's not beating inflation, it's just got low interest, lower interest rates on it, but a fixed indexed annuity, it's just right. And that's basically what we've been talking about.
Dwight Mejan:
Your principal is protected and when a gain is credited, when the markets are doing well and the index is performing well inside of that annuity, your gains will step up and they lock into the contract. So you never have to worry about suffering a loss to that contract. So if you're in one of those particular contracts, even if you're in a maybe an index one or you're not sure what type you have, but you're like, you know, this isn't doing what I was thinking it would do or hoping it would do, then I would encourage you just to reach out to us. You can call us at (910) 235-0812. We'll be happy to. We can set up a zoom call, we can meet you in person or you can reach out. If you're in the western part of the state, reach out to us at (828) 278-7814. Or you can go to Retire360Show.com and you can book a complimentary consultation with us there. We'll be happy to look at that for you and see if there might be perhaps a better fit that's available for you. So we're going to shift gears here again, Mitchell. We're going to jump into a segment here about retirement income gaps and how we can help fill some holes in your plan. So according to NHP Foundation, there was a study that they put out, 62% of baby boomers believe Social Security will provide at least half of their income during retirement. And. Mitchell, you're going to enlighten them a little bit more on..
Mitchell Keiser:
The answer for that. So your Social Security benefits alone are not going to be enough to maintain your standard of living. So we had talked about this on previous shows that in the year 2035, it is expected that the the trust fund that. Holds up. Social Security is going to be completely bankrupt at that point in time. They are only guaranteed to pay you 80% of whatever your Social Security is. So if you're living paycheck to paycheck on Social Security and you've managed to compete with the cost of inflation and how much that's just flown through the roof over these past couple of years, there is the chance that in years to come that they could significantly reduce the amount that you are going to be getting. I'm just going to give you guys some numbers, just so you know what that could look like. The average monthly benefit for somebody receiving Social Security is $1,542.22. It's about $18,000 annually. The max monthly benefit if you are 62, is $2,364 a month. And the max benefit if you are 70 is $4,194. So that's the max benefit that somebody could receive. Folks, that's not going to be enough to maintain your whole lifestyle. Health care costs are going to go up. Food costs are going to go up. Yes. You know, you guys just got an 8.7% increase in your Social Security this past year, which is awesome.
Mitchell Keiser:
We're happy that you guys were able to get that. Unfortunately, I think that you all would agree with me that 8.7% was not the inflation rate that we've been experiencing. It has been significantly higher. So if we continue to experience this inflation and if your Social Security is means tested within the next ten years, what are you going to do? How are you going to pick up the gap in that income? You guys need to make sure that you have a plan for that, because I'm not saying this to scare you. I'm saying this to just make sure that you guys are well informed of how your portfolio is going to pick up the slack if something like that happens and there are ways that you can allocate that, that you can protect yourself. You just have to make sure that it's set up right. And, you know, we hear a lot of people say, well, geez, Mitchell and Dwight, I've only accumulated, you know, X amount of dollars. I don't think this is enough. If you've accumulated anything substantial, it's enough. And you need to make sure that you have a plan for it so there's no amount too small
Dwight Mejan:
Absolutely. So want to take this next point, Mitchell, and ask you a question back then of the next point we're going to talk about. But I want to use my my father, my long gone father here as an example. My dad, when he retired from Pepsi-Cola, he had a pension from Pepsi. He spent 36 years working with them and said earlier at the beginning of the show, you know, pensions used to be very, very common. So with pension and Social Security, it was pretty easy for a lot of people to get 60, 80% of their needed income in retirement, particularly if they worked for the same company for a long time. That was pretty easy to do. But that's not very common today, that people have pensions. In fact, that ties in with the statistic that the foundation study just put out that said 76% of retirees say income stability is a top concern for their retirement. And naturally, you would think that would be the case with pensions going away. People just don't know how. How are they going to harvest money out of their savings? What's the best way to do that? Do we put money to cash every year, live off the cash, make it, you know, transfer it once a year? What if the market gets beat up pretty hard and I'm depending on the market to provide a certain amount of return and then I'm taking maybe that 4% rule out what do I do when the market's declining rapidly and I've got all my eggs in the in the market? And that's that's a concern and it should be a concern. So, Mitchell, what is a retirement income income gap? We talk about that a lot on this show, but maybe you can share with the listeners what is that retirement income gap?
Mitchell Keiser:
Yep, that's all over a lot of news articles, bank articles, Social Security articles, the retirement income gap. So what that is, is your core expenses. So your food, clothing, shelter, taxes, health care, any other needs that you could have, your discretionary expenses. So your discretionary expenses, they're the things that you don't need to do that you want to do, like eating out entertainment, your wants, essentially your guaranteed income is also included in your retirement, your retirement income gap. So your pension, like Dwight just said, your Social Security. What is it that you are going to have that's guaranteed for you for the rest of your life? If you just have a portfolio that you're planning to that you have invested in the stock market that you're planning to just diminish over the course of your life may not be the best plan. If you're planning on that running out, you want to make sure that. You've got a plan for everything and that you have a plan for the worst case scenario. Not that we're doomsday theorist or pessimist, but we're realists. And you know, we've seen a lot of terrible things happen and they do happen. So you have to be prepared for that. And that's that's what the retirement income gap is. It's all of those expenses. So you need to make sure that you have a plan in place for that retirement income gap.
Dwight Mejan:
And if our listeners, Mitchell, want to know a little bit more about what their income gap would be, we've got a sheet. We'd be happy If you reach out to us, we'll give you the contact information again for the show here in a little bit, but we'll send you that and you can kind of put that together. And if you need some help, just looking at the portfolio going, okay, how do I get more of my income guaranteed to fill this gap? We'll give you maybe a second opinion. Perhaps you work with an advisor. We'll give you an idea of how we would do that and just reach out to us when we give you that contact info. Stay tuned for that and we'll be glad to get that for you. Um, you know how to fill that retirement income gap. Number one, just make sure you're saving money during those high earning years. And folks, if you may be behind a little bit in retirement or maybe you're behind a lot and you're like, Man, don't I don't know if I'm ever going to be able to retire. I know we got people probably listening that feel that, you know, it's never too late and you never know if you if you're not in the world of finance and you don't really know if you'd have enough, you know, contact us. We'll run the numbers, we'll look at your income, we'll put you on a savings plan.
Dwight Mejan:
We'll look at some scenarios and show you what that retirement could look like. Okay. Review your monthly expenses for any extraneous payments that you have. That's another thing you need to do. This is a big one here. Consider delaying Social Security. I have a meeting after this radio program here with some clients, listeners of the show that are in their 60s done a great, great job saving for retirement. They've got a lot of pre-tax money, tax deferred accounts that are set aside, and we're going to talk to them about delaying her, believe it or not, her Social Security, she's had been the better breadwinner. And my recommendation to them is going to be him triggering his payment at 62 or 63. And we've got a couple different income plans that they can choose from. And we've laid out for them the pluses and the minuses of each one. It's going to be kind of up to them. But I think the one that they're going to pick is going to stand out pretty clear because the one that I think makes the most sense is the one that's going to be guaranteeing them 78% of their needed income in retirement. And on top of it, they're going to be doing some conversions into Roth accounts. And they've got, you know, money within some cash to cover the the conversion. So we're going to talk all about that with them today and we'll run that same scenario for you.
Dwight Mejan:
Hey, does it make sense to delay Social Security or should you take it now? A lot of that depends on a lot of different factors, which we don't have the time to go into here on today's show. We have talked about it and we'll be talking about it again. But also review your investment and withdrawal strategy. You know, what does that look like? We ask people that question all the time. When you retire, walk me through your investment and withdrawal strategy. What's that going to look like? And a lot of people have no clue. They don't know where that's coming from. And we we mentioned earlier in this program, we've been talking about consider investing some of that money into indexed annuities for an income stream that you can never outlive. So if we've said anything there that you want to talk to us about, I would just encourage you to reach out to us. If you're in the western part of the state, you can call us at (828) 278-7814. And if you're in the central part of North Carolina, you can call our office at (910) 235-0812 and reach out to us at Retire 360. Show.com in that website you'll find a link where you can book a time with us. We're going to take a quick break. And when we come back, we're going to finish up and we're going to talk about how to manage the Decumulation phase in your retirement. We'll be right back.
Producer:
Thanks for listening. To Retire 360, If you like what you're hearing, subscribe to our YouTube channel to watch videos from this program and other recent episodes.
Producer:
At 360 Capital Management. We know you've worked hard to earn your money and you've worked even harder to save it. When it comes to wealth management and planning for retirement, Dwight Mejan is passionate about helping people protect and grow their wealth. Visit Retire360Show.com to schedule your free consultation today it's a $1,500 value provided at no cost to you. Book yours now at Retire360Show.com. You're listening to Retire 360. Here's Dwight.
Dwight Mejan:
All right, folks, welcome back to Retire 360 show. We're glad that you're with us. Especially glad to have you joining us. If this is your first time, welcome to the show. Hey, we want to talk about in this last segment here, we want to talk about how to manage the Decumulation phase. It's not a term that gets thrown around a lot. Most people hear about the accumulation phase, which is, you know, the bigger part for most of us, although I should say the decumulation phase for many people is starting to surpass the accumulation phase because people are living longer and many people are have done a good job of saving and planning well for retirement. Kind of a crazy time period that we live in with the advances in medical technology is that people are living longer. And that's a great thing because people are in many cases are enjoying retirements as long or if not longer than their working years, but that for that to happen and to happen, well, you have to do a good job not only saving money, but for determining how you're going to harvest and take that money from the portfolio to live on for the rest of your life and enjoy a good quality life. So the decumulation is the process that you go through during retirement where you shift your focus from saving from the accumulation phase to using your assets to generate necessary income. And folks, that's really the goal, is to not have to touch your principal from the money that you have invested, where you're in what we call a smart risk portfolio.
Dwight Mejan:
You're in the market, but you don't really want to touch principal. You want to live off of earnings, whether it be dividends, whether it be interest. You want to live off income without seeing your principal drop. That's the ultimate goal. So saving for retirement, there's net cash contribution, there's a focus on asset growth and then there's long term investment horizon. That's the accumulation phase. The accumulation phase is spending from savings. That's the net cash drawdown. It's focus on return certainty. What can you count on? And shorter investment horizon. So the soaring number of baby boomers entering and approaching retirement is leading to a major shift in focus from accumulation and retirement savings to decumulation and retirement income. And the problem is this Most people approaching retirement today are uncertain how they're going to manage their retirement assets and generate that consistent income without leaving their money, without without outliving their money, which. Mitchell we talk about this a lot. We just shared with it on our listeners on today's show. That is the number one concern that retirees have. You know, I've been doing this almost 30 years and it'll be 30 years in August and that continue choose to be the number one concern is will I outlive my money? Will I have enough income to enjoy retirement? So Mitchell, you've got.
Mitchell Keiser:
A BlackRock survey this week, Dwight, that said about 36% of Americans were confident that they would have the income that they would need in retirement, only 36%, while 55% are concerned about outliving their savings in retirement without thoughtful, trusted guidance and planning, this could have direct consequences for the next generation seeking income to sustain a constant standard of living. So for retirees today, living longer in a historically low interest rate environment could lead to a gap between their current savings and how they're going to generate the income that they need to live. Most people that when they first started their accumulation phase, their working years, as you can say. In other words, interest rates were much higher. So the bond portfolios, everything was totally different and how they thought they were going to live off of the retirement interest and all of those things. I'm not saying that it's gone away and that, you know, it's toast, but things are different. So if you had a plan, you know, a long time ago or if you started working with somebody even, you know, even as long as ten years ago and you haven't adjusted your plan, we're in a totally different world than we were in ten years ago. And retirement plans. Financial plans. Totally different than they were ten years ago. I was also going to add, Dwight, when you were talking about accumulation versus accumulation, If you're in the accumulation phase, which is your working years, that means that you are reliant on your income.
Mitchell Keiser:
You and your family are reliant on your income to live. And if you guys don't have some form of term insurance up to your retirement date, you need to get some because somebody's retiring. Somebody is dependent on your income to live, and if something happens to you, you need to be preventative that they are going to have something in the case that you are not there to provide that income. We are not telling you to become insurance poor. We're just telling you to be prepared for. In the case of you getting your wings and flying out of your unexpectedly, I'll tell you, you know, for myself and for somebody that's a younger working individual, you can get term insurance for under $100. But, you know, is that a lot of money? I mean, yeah, it's not cheap, but for what you're going to get and the burden that you're going to save your family in the event of your loss, it's it's totally worth it. So, you know, it's not it's not an investment Insurance is never an investment. It's it is what it is. It's insurance. It's in the case of your absence. So I just wanted to throw that small plug in there because we don't talk a whole lot about insurance on the show, but it is a necessary piece of the overall planning portfolio.
Dwight Mejan:
Yeah, absolutely. Can't it takes both insurance, a thoughtful approach to insurance and it takes good investment strategies and a well-diversified portfolio to bring that all together. But Mitchell, on that point, you know, retirees need retirement income solutions that can provide spending confidence. That's a huge, huge thing when you get to your retirement years, is being confident in your plan. And we see people every week that just don't have the confidence either because they don't have the plan or they're not confident enough because they don't understand the plan that maybe somebody gave them. And, you know, for both essential spending needs and discretionary wants, that's what people need spending confidence for so they can enjoy the lifestyle. They've worked hard all those working years. You know, nobody wants to get to retirement and have to cut back their lifestyle because of some mistake or some something that was calculated wrong in their forecasting or their projections. And that's why we have been talking so much on today's show about the guarantees. But the Decumulation solution is this research from Stanford. Another research was put out by Stanford Center on Longevity. What they did was they looked at ways investors can potentially assess and combine a mixture of investments and insurance products against different retirement income goals.
Dwight Mejan:
So it's using that blend that we talk about quite a bit. And they evaluated systematic withdrawal plans for investment portfolios and annuities against the following criteria amount of income at assess of savings. They looked at pre and post retirement protection, inflation protection and lifetime guarantee. And one of the key findings from their research and I thought this was fascinating, was that from a purely financial perspective, annuities often provide higher yearly income as compared to systematically withdrawing from investment assets. Think about that using a guaranteed product, you know, like an annuity. Comparing it to systematically withdrawing money from your investment portfolio oftentimes was a higher yearly income. So we just leave you with that thought. And I know Mitchell, we got to wrap up today's show on that note, but maybe you can just share and then close off with today's show by sharing with our listeners about that upcoming event that we have taken place, taking place here in the central part of the State for Taxes class.
Mitchell Keiser:
So at the heart of what we do, we are educators. We work with the council of Financial Educators, which is also known as Coffee Coffee. But we teach classes in our community at community colleges or libraries. And this. So next Tuesday we are going to be teaching a class on taxes in retirement, and that is going to be in Pinehurst at the Sandhills Community College. So Tuesday, June 13th at 11 a.m., we are going to be teaching taxes and retirement at Sandhills Community College. If you guys are in high country up near Boone Blowing Rock Banner Elk, we are going to be teaching a class there very soon. Just be on standby for those dates. But if that is of interest to you, if you guys would like to come check us out here in Pinehurst, give us a call and we can save you a seat. And our office number to do that is (910) 235-0812. But that's all we have for this week. We thank you guys for tuning in and we look forward to seeing some of you guys in person at Sandhills. Y'all have a great week.
Producer:
Thanks for listening. To Retire 360, you deserve to work with an experienced and licensed expert who will strategically work to protect and grow your hard earned assets. To schedule your free no obligation consultation with Dwight visit Retire360Show.com or pick up the phone and call (910) 235-0812. That's (910) 235-0812. Investment Advisory Services offered through Brookstone Capital Management, LLC, BCM A Registered investment Advisor. Bcm and 360 Capital Management are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.
Producer:
Fixed annuities, including multi year guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity. Contract guarantees are backed by the financial strength and claims paying ability of the issuer.
Sonix is the world’s most advanced automated transcription, translation, and subtitling platform. Fast, accurate, and affordable.
Automatically convert your mp3 files to text (txt file), Microsoft Word (docx file), and SubRip Subtitle (srt file) in minutes.
Sonix has many features that you'd love including automated translation, automated subtitles, advanced search, share transcripts, and easily transcribe your Zoom meetings. Try Sonix for free today.