Dwight and Mitchell explain why a tactical approach could be a good idea for managing your retirement savings. Plus, what are the biggest costs for retirees today? We explain what they are and how you can be prepared for your golden years.
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8.18.23: Audio automatically transcribed by Sonix
8.18.23: 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 Mejan.
Dwight Mejan:
Well, folks, welcome back. Good to have you back. I am your host, Dwight Mejan. Along with me is Mitchell Keiser. And we're bringing you the retired 360 show brought to you by 360 Capital Management. And we are glad that you've taken some time to join us. It's Mitchell. It's good to be back, isn't it? We had some much needed time away here, didn't we? Yeah. Good to be back.
Mitchell Keiser:
I will say, if you guys are down here in low country, we're about dying of humidity. I think it's like a hundred degrees with like a 85% humidity. But glad to be back on the show.
Dwight Mejan:
Well, hey, our speaking of that, our hearts go out to all the residents in in Maui. Just a terrible, terrible disaster. We've all been watching footage of that and it's astronomical the the devastation that's there. But you're also seeing the goodness of mankind and seeing people come together now, which usually is something that these crises have a tendency to do is bring people together. But we just want to keep the folks in Lanai and that entire area in our thoughts and prayers. Yeah, the the devastation we're starting to see some of the the numbers come out, nearly $6 billion in damages there. So we'll have a long, long road ahead of them in that area. So we just want to extend our heartfelt sympathies and grateful for the organizations that are on the ground there right now and bringing relief and bringing some comfort to some hurting people. And unfortunately, the the the death toll is going to looks like continue to rise there. But yeah, you know what?
Mitchell Keiser:
I did just want to add to that. I saw on some news source that this is the biggest wildfire or the most deadly wildfire in US history.
Dwight Mejan:
Yeah, you know, we we saw some footage may have seen it. But just interesting to see buildings like churches that were unscathed in the midst of just black ash all around it. And I'm sure there's going to be some other, you know, great stories that do rise out of the ashes, no pun intended there, but big, big devastation there. But hey, we we've got a job to do here today. And but we did want to start by sending condolences to that area and we'll keep them in our thoughts and prayers. But we do have a show planned for today. We're going to talk about a tactical approach to your retirement and is your income plan accounting for Social Security shortfalls? So we're going to get into that. But we want to take you through a few things. First, just real quickly, who I am again, I'm your host, Dwight Meghan, and we are with 360 Capital Management. We have offices here in Moore County and out in the western part of the state and Avery and Watauga County. So we just want to welcome all of our listeners to the program. Thanks for taking time out of your day to be with us. This show is very simple. I say it all the time. We want to help you win with your money. And retirement, for many people is creeping up on you and you have some important decisions to make. And it's just an honor that we consider that you allow us to help with that. We had a fabulous turnout to one of our best. It is our best workshop that we do on taxes in retirement, which I think we had classrooms full one evening this past week, and then the next morning I think there was one chair open in that. So that just continues to be a topic that people are interested in as well. It should be, right?
Mitchell Keiser:
We yeah, we do taxes and retirement about every month. So we are in Moore County, Lee County. We also teach classes out in Avery and Watauga County. We have an office there as well. We get the confusion a lot that, Oh, these folks are from the mountains or Oh, these folks are from Moore County. We are in both. We do teach classes in both. If you guys are in the Avery and Watauga County and you're interested in coming out to to one of our taxes and retirement seminars, we are going to be at the Watauga County Library there in downtown Boone on September 21st. We have a morning class and an evening class. If that is something that you guys are interested in attending, it is crucial that you guys do call us so that way we can make sure that you do have a seat. A lot of our classes, as Dwight said, they fill up and it's not uncommon for us to not have a seat. We do. We do what we can, but it's best if you guys could just give us a call. Our the best number to reach us at. If you guys are interested in that Boone event is (828) 278-7814. Again that phone number is (828) 278-7814. And we will be talking about taxes and retirement and that is on September 21st, which by the way, is peace Day. So hopefully you. You can get some peace while talking about your taxes.
Dwight Mejan:
Well, good luck on that one. Right? But, hey, you know, we want to help folks responsibly grow their wealth. And part of growing wealth is making sure you're not giving it away on the back end. You know, we joke a lot, Mitchell, and we tell people this in our event, that great book that was written long ago said, you know, render to Caesar what's his. So we're not in these classes talking about doing things illegal. We're showing people tax strategies. That's part of financial planning. It's part of wealth management because at the end of the day, it's not always what you make, it's what you can keep. And, you know, it was very had somebody in yesterday who came to one of our classes that we gave them a six year plan. This person is 64 years old. So before they start having to take required minimum distributions, they're in a plan right now without having taken a 30 minute visit to our office. They wouldn't have seen a plan under current tax laws that was going to reduce their taxes by doing nothing and just heading into retirement at the mercy of the tax code. Their tax plan now is going to enable them to reduce taxes if rates don't change to 10% from where they're headed right now if they didn't do anything. So just a great opportunity there and we could talk on and on. But Mitchell gave some dates and I think he'll have a chance to give those to you one more time. But we got a show to hop into here. But you want to check us out? We're on Facebook, Instagram, Retire360Show.com. And hey, we're glad you're taking some time to join us here. Today's show, we're going to talk about the quote of the week.
Dwight Mejan:
Mitchell's going to get to that and then we're going to get into our your retirement savings being tactically managed. We're going to talk a little bit about the difference between a strategically managed portfolio and a tactically managed portfolio. Explain those differences. I'm going to get into a little bit about expense ratio, why that matters and why many of you who maybe are looking or wondering, hey, could I afford professional management? Many of you might be able to hire a professional manager by just the reduction of that one expense ratio. So stay tuned for that. That may be the very thing that you tuned in today for to here. We're going to talk about how Social Security cuts could affect retirees. And then if we have some time, we'll get to this week in history. But Mitchell, why don't you start out and before Mitchell hop in there to do that, you know, if you are retired, as they say, every Saturdays, every day is Saturday in retirement. Right. We have a free informational report for our listeners that explains how annuities you hear us talk about those sometimes can help you maintain a relaxed lifestyle and peace of mind during your golden years. So if you'd like that, just reach out to us. We don't have to worry about stock tickers. When you retire. This free report is is yours. Just reach out to our office. We'll be happy to get that in your hands if you schedule a complimentary meeting with us. We'll also put that report in your hands and it'll help you get started on building a strong plan that fits your retirement needs and your income needs as well. So, Mitchell, take us into the quote of the week, if you would.
Producer:
And now Folsom Financial Wisdom. It's time for the Quote of the Week.
Mitchell Keiser:
Financial wisdom this week is brought to us by Daniel Kahneman. He was an economist and psychologist and the winner of the 2002 Nobel Peace Prize. And this quote is Money doesn't buy you happiness, but a lack of money certainly buys you misery. And, you know, I will say I think that goes along with one of the sayings that we have here at our firm, and that's money buys you choices. And if you don't have money, you don't have choices. And that's true. You know, pre retirement years, post retirement years, you're kind of at the mercy of whatever you've saved and you're hoping that it doesn't run out on you. So you want to strategically and tactically plan for that, which I think you're going to dive in here next. But it's good stuff.
Dwight Mejan:
Yeah, very good. Mitchell We we do say that quite a bit here because time, you know, is something we can't get back. And certainly in the business world. But I would argue in the personal world as well, you know, time. Time is money and money does represent choices. And I just want to encourage all of you listening right now is continue in retirement to make decisions and anchor those decisions to core values. We see a lot of folks who kind of get crippled in making important financial decisions because they made one in their past. I don't want to put my psychologist cap on here, but a lot of people don't grieve losses that they faced in their past properly. I speak from personal experience on that because I had some coaching with a psychotherapist on that. And I won't go into my personal journey on this show, but very important to grieve properly. And once we can do that, we can begin to make decisions that thrust our lives forward into the realm of bliss and joy and happiness the things all of us are searching for. But unfortunately, a lot of people struggle making decisions and they don't know why. They have good intentions. They go to workshops, things like that. When it comes to trying to understand finances. But they don't they don't implement the things that they learn or make decisions around. So anyway, took that cap off here. So we're going to jump back in here and we're going to jump right in here about your retirement savings and whether or not they're being tactically managed.
Dwight Mejan:
You may think that you're being strategic with your retirement plan, but let's take a look at the difference between that and a tactical approach in retirement. So what is a strategic asset allocation and what's a tactical asset allocation? So we're just going to break that down for you a minute here. So our strategic asset allocation is one that has basically a hands off approach. This is more of a person who buys positions in a portfolio and they hold them and they don't really change it very often. Okay. This would be an example of somebody, for example, who maybe purchased bonds, maybe you're self-directing and hopefully you didn't have an advisor that did this and didn't reach out to you last year. But if you went into 2022 holding a heavy portfolio in bonds, you might still be trying to recover. Likely are your losses from 2022 was the worst year that we faced in the bond market. So if you're buying and holding, that might work for a long term approach. But if you're in retirement or looking for some strategic ways to generate income, this strategic approach may not be the best. And we'll get into that here in a minute. But this is good for generally a long term time horizon, and this tends to be better for investors who are more emotional in nature, where they, you know, they just can't handle, you know, all the bumps and the the things that happen, the ups and downs in the market, they just kind of invest it and forget about it.
Dwight Mejan:
This tends to work well as well for newer investors. So if we shift gears for a minute and we look at now a tactical asset allocation on what's the difference tactical as opposed to the strategic where it was hands off, the tactical asset allocation is more actively managing a portfolio. This involves more frequent types of trading. This is good for short term or medium term time horizon. It requires a strong degree, degree of control over impulse trading. Okay. And it also demands more investing experience. Okay. And you know, there's a blend of this that is typically pretty good. But we're going to give you here right now seven reasons to consider a Tactical Approach for your Retirement Savings. I'm going to let Mitchell start us off with the right one. And we're not saying here, you know, to go maybe all the way on tactical. There's a blend there that does, you know, you want to be diversified and there's a blend of the two of those that I think is a. Good idea, but we tend to find a lot of people, particularly a lot of do it yourselfers. They either try to get tactical and they don't have the knowledge to be able to make the trades at the right time versus the professionals that do it or people that just go all in strategically and they never make changes to the portfolio. And that's not good either. So Mitchell, what's the first reason of those seven for considering more of a tactical approach? Yeah.
Mitchell Keiser:
So first reason we want to go over with you guys is the increased protection from market declines. Tactical management allows for the adjustments of the allocation to reduce your exposure to volatility. So because it's actively managed, people are going to be tracking the cycle and they're going to be able to more with a more educated guess of what the markets are going to do and adjust your portfolio accordingly. I will say with that, as they continue to change all of those things and something that's important to realize is if you guys are going to do the tactical route versus the strategic route is to make sure that you understand how the fees are paid out from the advisory firm because though it's, Oh, that's perfect, they're going to increase my protection from the market going down because they're constantly placing all these trades will make sure that they're not charging you per trade. Make sure that you're, you know, working with an account. Like I know that I'll speak for our firm because I don't want to speak for another firm, but we have like a flat fee. So if you want your portfolio traded every month on the first of the month and you want it to be rotated, it doesn't matter. You're still going to be paying the same fee no matter what. There's also ways that you could pay a fee where you pay like a large lump sum payment. A lot of times people that are going on that type of approach, it's more of a strategic asset allocation type of path that they would choose to go on. However, we do see sometimes that people say, Oh, well, that's what my advisor does, but I want him to actively do it. So they have them place all these trades and then, you know, their portfolio is going to get gobbled down by fees. So it is important. I just wanted to add your first point there, Dwight, that you want to make sure that you're understanding how what the fees are coming out within the portfolio and what the broker dealer or investment advisor fees are.
Dwight Mejan:
Yeah, a great point, Mitchell. It's very, very important for the listeners to understand how they're charged inside the account, particularly if it's being managed somewhere. And you described exactly the way that we do it here at our firm. But second thing about considering a tactical approach for your retirement savings is just the topic of emotions. You know, we talk about avoiding emotional investing that could really wreak havoc on a portfolio. And we've had we've seen some people I know I can think of two here in the last six, eight weeks of people who came in that were self directing. Nothing wrong with that. If you're doing that, if you're successful with it. But that were, you know, managing and making decisions on their own they were subscribing to Motley Fool nothing against that organization whatsoever. But and some of these people had taken some time to really do some due diligence, but came in here to our office, discouraged and basically waving the right white flag and saying, I need to turn this over to somebody. And one of them in particular, emotion was getting in the way of, you know, the right decisions to make. So behavioral biases can certainly impact investment decisions that can happen, especially during times of market volatility. We've certainly seen enough of that. And a tactically managed portfolio that's guided by a well defined strategy. This will help retirees stay disciplined and avoid making impulsive decisions. So that would be number two.
Mitchell Keiser:
Number three point we want you guys to remember is receive the income that you need. Retirees often rely on their investment portfolios, which is not a bad thing to provide them a steady stream of income. The tactical management form, if you choose to go that strategy, an advisor can ensure that you're currently invested in things that are going to pay you out that amount. And if they see, you know, current news says that this basket of funds maybe isn't going to be doing that well in the future, they can switch that up to something else. Or I know that there's bond strategies, there's replacement bond strategies and there's bond plus derivative strategies. There's a whole bunch of different things that they can do to ensure that you hit your income spot and a lot of that too, which is why tactical is better. Like some of the things that I had just mentioned. Um, it is over the head of the average consumer, which mean it should be because financial services is a professional field. So that's probably not something that most people are well versed in. So again, kind of just highlights some of the importance of working with somebody. But if not, that is just another pro of why you may want to consider that tactic.
Dwight Mejan:
Absolutely. Their next one is avoid the number one fear that retirees have, which is, of course, many of you know this running out of money. Retirees, oftentimes, they need their their investments to last several decades if they live long enough. A well managed portfolio is going to strike that ideal balance between generating income and allowing for growth to ensure that the portfolio remains sustainable through retirement. And that's one of the big dangers that we see is particularly a retiree that is dependent on that 4% rule of taking 4% of the investments that they've saved, which is a good rule of thumb to use. But if you need that income and it's not being tactically managed for a better portion of that income need and it's just sitting there and something, you know, in the macroeconomic world is impacting that stream of income, There's no way to make changes to that if you don't know, you know, the tactical strategies to use. So particularly if you're using an income portfolio strategy, we believe that the tactical side of managing that is is more critical than just being on the strategic side. So keep that one in mind as well. Mitchell You have something about inflation you want to talk about next. Yeah.
Mitchell Keiser:
So inflation is something that, you know, we're all worried about. The past couple of years have been some of the highest inflation that we've had For some of us like me ever, for others of us, it could have been, you know, over the course of their career. But a tactically managed portfolio can track inflation. And when inflation starts to rise, you can adjust your portfolio to make sure that they do capture not not just the game, but it can also keep up with inflation. There's yeah, many ways that they could go about doing that. I mean, there are, you know, the big 500 stocks that you could tie your games to, that's more of like an index type of strategy. There are companies that also, you know, you can change that up to be in a utility basket. So just things like that are ways that they'd go about doing it. But what's important for the listeners to know is that the tactical way can adjust their portfolio to make sure that their portfolio takes off with inflation. And then on the flip side of that, when deflation starts to occur, you can adjust your portfolio to make sure that your whole portfolio doesn't deflate along with the things that are on the down cycle.
Dwight Mejan:
Yeah. Yep, absolutely. Good. Good point there, Mitchell. Um, the next one here, the sixth one about considering a tactically managed portfolio is managing risk over time as an individual approaches retirement or they're already retired, they often have a reduced ability to recover from significant investment losses. And, you know, we always talk about on this show the rule of 100, which if you take your age and subtract it from 100, that's the amount of or the percentage of your portfolio that could sustain a calculated risk. Okay. So your age is really representing the amount of money that is in a fixed principal protected account and you subtract it from 100, and that's the amount that over time you're shifting more and more to principal safety. So what a tactically managed portfolio does is it helps mitigate risk by adjusting investment allocations, what you're invested in based on current market conditions. That's the key word there is based on what's going on currently in the in the economy and based on the overall market. And it takes into account other potential risks that, you know, that you may not see. So, Mitch, I'm going to put you on the spot here a minute. Um, you know, if a portfolio loses 30%, I just want to see if our listeners really understand this because a lot of you haven't recovered yet from the losses that you incurred in 2022. So let's just say your portfolio was down. I met somebody here this week whose portfolio was down about 30%. And within minutes of coming into my office, they said, you know, I'm seeing what the market's doing this year in terms of some of the recovery. But when I calculate and compute where my recovery is at, it's not even close to that. So my question was, if you're and I say it to you, Mitchell, if if a portfolio is down 30%, how much does somebody have to earn to just break even on that amount? You got to boast I know.
Mitchell Keiser:
It's over 30%. So I would say let me just say 38%.
Dwight Mejan:
Yeah, add five to that a person. If you're down 30% with your portfolio, you have to earn 43%. Just if you're not driving, don't do this if you're driving. But you know, take a calculator, take a 100 grand, you lose 30% of it. You're down to 72. Get that 70,000 back up to 100. You need to earn 43% return. So you just just to recoup that. And folks, if you're, you know, in that retirement red zone where you're getting close to retirement, you can't afford that risk. So here's a question I put to you as a listener. If you're in a strategical managed portfolio. Okay. And hope you you might not even know if you are okay. But if your portfolio is strategic in nature and you're getting close to retirement, can you you know, can you afford if there's another big dip in the in the market, could you afford to retire if that happens? Okay. And just leave you with that question because you need to understand what type of risk that you're taking. Mitchell Share with them the last of the seven here that we're talking about. Why to consider if you're not having some assets strategically managed I'm sorry, tactically managed, why that's important. Yeah.
Mitchell Keiser:
So you can design a portfolio with you in mind, you being the listener. Everybody has a different financial goal, a different risk tolerance and a different need. I'll tell you to our listeners. So I'm currently studying for my securities law exam and I know there's a section within the Securities Law Code that says that you cannot make as an advisor, you cannot make a blanket statement to all of your all of your clients. So couldn't say, Oh, you know, you all need to invest in X, Y, Z stock. That's illegal. You can't do it. And an advisor could lose their license because not two people have the same situation. So you could look at, Oh, well, I saw this portfolio worked on this website for these people, so I think I'm going to mimic that. Now that could be helpful for you in your situation. However, you're going to have a lot of different factors from whoever that was or whatever that was. That's not tailored to your exact situation. A tactically managed portfolio takes all the little details into mind what your income needs are. Do you have a spouse? Are they going to need your income? Do you have beneficiaries? Do you want your beneficiaries to receive income? Sometimes people do.
Mitchell Keiser:
Sometimes people don't. Sometimes people could care less if their beneficiaries get anything. Sometimes there are no beneficiaries. There's all of those decisions Factor into making one concrete plan that's important with a tactical portfolio. Again, it's also important with working with an advisor, somebody that can help tailor something to you if that's something, if anything, that we just touched on. There is of interest to any of our listeners. I do invite you all to call us. We could give you, I guess, a couple tips, tricks, ways that maybe you could set yourself up for success in retirement or maybe you guys are retired and you realize that you need some help or you need some adjustments, or perhaps you do work with somebody and you're not 100% sold on the advice that you're being given. If that is the case, give us a call. If you guys are in the Moore County area, you can call us at (910) 235-0812. And if you guys are in the Boone area, you could call us at (828) 278-7814. We are going to take a quick break. And when we come back, we're going to talk about expense ratios and why they matter
Producer:
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Producer:
You're listening to Retire 360 with Dwight Mejan. Now back to the show.
Dwight Mejan:
All right. Hey, welcome back to the Retire 360 show. I'm your host, Dwight Mejan. Mitchell Kiser here along with me. We're going to get into a topic here that is very important. If you don't know what it is, I'm going to explain it to you and tell you what we can do to help you find out. If you don't know what it is and what you're paying, how we can help you get that for you. The topic here is the expense ratio of your portfolio. And why does that matter? Okay. The expense ratio is basically the cost. It's not your advisory fee. It's basically the management side cost, particularly let's say, for example, you own a lot of mutual funds in your portfolio. Mutual funds carry management fees, management costs. Somebody's got to run that fund. Somebody's making decisions. We're just talked about in our last segment, the tactical side of investing. There's a tactical manager, if you will, that's kind of got the point. Chair and deciding what companies are make up this mutual fund and which companies get kicked out, so to speak, if they're getting if they're getting sold. So the expense ratio is the cost or those management fees, plus there's advertising costs, all kinds of other expenses that go into that portfolio and those funds that you own. So the way you derive that expense ratio is you take the expense fees and divide it by the total investment in the fund.
Dwight Mejan:
So if you're wondering, you know, how much am I paying in fees on my retirement savings, you need to ask yourself that question. Okay. Because many people don't know. And this is this is a charge that's over and above. If you have a flat fee, for example, and you're in a fee based plan with an advisor, those fees can range all across the board. You could be paying, for example, three quarters of a percent. Someone else who has a similar portfolio with a different advisor, you know, right next door or up the road could be paying double that. They could be paying, you know, one and a half, 2%, maybe, maybe more. So it's very important you not only understand the advisory fee, but the management fee as well. So, um, Mitchell, you've, you see people who meet with us that discover some things, you know, throughout what we call that discovery process. And this is one of those statistics we always run for somebody who has a complimentary meeting in our office, we're going to run their investments using those little ticker symbols that are on their statements, and we're going to sit down with them. We're going to explain that. What are some of the things that people discover in that process?
Mitchell Keiser:
Yeah, you know, I would say in the discovery process, Dwight, to answer that. But I'm also going to add, because we do get quite a few calls, people that listen to the radio and they call in just asking random questions. So I'm going to kind of blend that together. A lot of times people want to know how much they're paying in their management fees and they're like, Holy cow. Like, I didn't realize that, you know, I knew I was paying my advisor 1%, but I didn't realize that the firm that they worked for or that they worked through was also getting 1%. You know, that's kind of like one of those, like, hidden, you know, embedded things that sometimes people don't realize. Another would be they didn't know that their old advisor. Was he even charging them that to begin with? So maybe, you know, they knew about one fee, but or maybe they didn't even know about that fee at all. I'm sorry. Um, on the assets that they had or with that, they didn't know how much the, the funds were within the portfolio and how much their expense charge was. And you just touched on that a little bit. But sometimes people can be just dumbfounded at Well, I knew I was paying my advisor, you know, a percent, but I didn't realize that the mutual funds that he put me in were also taking out, you know, a percent and a half per year out of the portfolio. So overall, their fees could be two, three, 4%. And, you know, our listeners are thinking, holy cow, that's high. That's those people must be stupid. Sometimes that stuff can be very embedded within a portfolio because the expense charges can be on date funds, mutual funds, bonds, assets, similar to that.
Mitchell Keiser:
Um, so it's just, yeah, something that you guys need to be aware of and it's something that we do with all of our clients is a morningstar report, kind of just dissects what all of those fees are and it just kind of puts it all out there in black and white as far as like what is somebody paying and how much. So if you guys are concerned about fees, which if you're not, you should be, that's something to make sure that you're paying close attention to. I will just maybe stick up for I'm not just, you know, dumping on advisors here, saying that, you know, everybody's misinformed because that's not always the case, too. But something else that I would say is equally important in the fee side is that your advisor is explaining things to you in a way that you understand, because sometimes, you know, we've had people come in and they said, Well, I had no idea that my advisor was charging me this much money. I will say I don't think all advisors are crooks. There's a good chance that they did break down the fees. But it is important to make sure that you understand exactly what that is and how that works. There is no stupid question when you sit down and meet with your financial advisor and there's just like, there's no dumb question for you to ask your doctor. You guys need to know you're not experts in the field, so you need to make sure that you're well informed and that above all of the other things that your advisor or the person that's helping you is educating you. Because at the beginning of all of this, when you guys look at your portfolio, you need to make sure you're educated on it.
Dwight Mejan:
Yeah, 100%. Mitchell It's at the end of the day, it's, you know, it's our listeners, it's your money and you want to be sensitive to the not just what you're making side, which is important, but you got to look at what's coming out. And there's a lot that goes into different types of fees. But the expense ratio, I will tell you, we have new clients that have asked to come in and have us take on that privilege of of managing the the future direction of their financial plan. And many of them came in on the discovery of learning that what they were paying in those management fees and we were showing them funds, you know, with past performance, which we can't predict the future by. But when you take a, you know, a five or a seven or a ten year period track record of performance on funds that have lower expenses, you know, and this is, I will just say, a plug here to a specific type of product that we use. We like to use ETFs, exchange traded funds, much, much lower cost in terms of management fees. They tend to be, you know, on average anywhere from, you know, 0.08 to, you know, 0.2 would be high on an ETF, 0.2, we're talking about 2/10 of 1% versus many mutual funds climb well above that into the 1.25% range. So just imagine a $1 million portfolio and you don't see it coming out of your statement.
Dwight Mejan:
But, you know, at the end of the year, you know, you're paying well over ten grand just in management costs. If that's the situation, 10 to $12,000 if you're in mutual funds that have that expense versus exchange traded funds that are significantly less than that. So not against mutual funds. If they've got good fund managers, good track records. But we have to look at at the end of the day, what is you know, what is that fund netting, you know, over a period of time. So. All right. Well, let's take a moment here and just we'll shift gears here again, Mitchell, with our audience. And let's talk for a moment about Social Security. We continue to always get questions. We had questions this week at our taxes and retirement workshop that we did from the audience about Social Security and what's, you know, what's going to happen there as far as, you know, the likelihood that they receive their full retirement benefit. We talk about strategies a lot of times delaying to 70. People have a valid concern. You know, if I delay to 70. What's to say that, you know, they're going to cut my benefits, whereas I just get them right now. You know, maybe I'm not as likely to get a reduction because they're going to you know, they're going to see me as somebody if I delay, I'm going to have a higher payment and it may not get that higher payment.
Dwight Mejan:
All valid concerns, All valid questions. We don't have inroads into the Social Security Administration, what they're going to do. We've heard things just like many of our listeners have. But let's talk about the facts for just a moment, because this is a fact. Okay. What we're going to be talking about here. Social Security is on track to cut benefits in the year 2033. That's only ten years from now. That's when the trust fund reserves are forecasted to be depleted and that reduction could be substantial, according to a new analysis. And folks would encourage all of our listeners if you have not created an account to go to SSA. That's Sam, Sam, Apple, ssa.gov and go in there and you can log in and create a user ID and you could see the projections of your Social Security payments at your full retirement age. And then what, what it would be if you took it earlier or if you delayed all the way up to 70. But you'll you'll do some reading on there and you'll see if you go deep enough into that into your report, particularly towards the tail end of the report that you can generate a PDF copy of it talks about the fact that Social Security will still be able to pay $780 per thousand of your full retirement benefit.
Dwight Mejan:
Okay. So that's basically preparing people for the possibility that Social Security is going to see cuts. All right. So unless the program is shored up before 2033. Here's what the report came out to say here recently, and I'll tell you where it came from. It came from a nonpartisan committee for a responsible federal budget. And what they said is the typical newly retired dual earner couple, both earning income, earning a wage, paying into Social Security, will see their Social Security checks reduced by $17,400 per year, or $1,450 per month, according to this report. Okay. A newly retired couple with one earner would see a cut of $13,100, the report said. So the analysis the analysis, which is based on current dollars, it doesn't forecast the impact on newly retired single earners. But the Social Security Administration has estimated that benefits will be cut by 23% in 2033 unless the program is strengthened. Now, folks, what do you think? The only ways to strengthen the program are right? We can do what We can raise taxes, and that's probably one of the likely outcomes. We talk about that at our workshop. At taxes and Retirement, we show some charts. One of the things I talk about in that class I'll just share with people is if you were in the 24% tax bracket or you are in the 24% federal bracket right now, let's just say you're a listener, you're married, filing joint.
Dwight Mejan:
You don't have to go back too far in recent history. You go back to the Kennedy era in the 60s that same bracket, if you adjust the thresholds downward, you were in the 56% bracket back then. And it's hard for many people today, particularly if you're retired, you know, you were probably working then it's hard to imagine, you know, 56% bracket on your retirement income or on your current earnings. But if we return to something like that, it's going to change the way a lot of folks live in retirement. So, you know, we don't have time to go into it here, but we talk about in our workshop and with folks who have complimentary sessions with us in our office, we show people if you do nothing and you're not getting tax advice from your advisor right now about ways to move money strategically into buckets of where you can hold assets that will be tax free in retirement. And they're not doing forecasting to say, hey, if you just, you know, keep investing and saving like you're doing and then just take money out at the mercy of the tax code in this rule called required minimum distributions, which many people are familiar with who are listening right now, Here's what you can anticipate paying and what bracket you'll be in.
Dwight Mejan:
I think there's a better way to do that. And for many people who are listening to this, did you know there's a way to pick the tax bracket that you want to be in when you retire? There is a way to do that. And you could say, hey, I'm at this bracket right now. How do I get to that bracket when I retire and what do I need to do to make that happen? If those aren't conversations that are happening in the conference room at your current advisor or you're a self-directed investor and you're just have no clue on the tax side of how do I do that? And you know, what's the best strategy to make that happen? Then I'm going to encourage you to, you know, pick up the phone, give us a call. We'll be glad to do a complimentary meeting with you. If you're in the mountains, call us at (828) 278-7814. If you're in the Moore County area listening, reach out to us at (910) 235-0812 or you can go to Retire360Show.com if you missed that, just type in retire 360 show and you can go to one of the platforms YouTube, you can relisten to this and pick up, you know, our contact information. Folks, we're passionate about this, about helping you keep more of your hard earned money. We don't want to see you give it needlessly to the government.
Dwight Mejan:
And this is why, you know, this is why we do this show. We're here to help you in this area. We want to help you have strategies. You may have done a great job saving for your retirement. Congratulations, if that's you. But the work is just getting started. Because if you've got a big bucket of money that you've saved, you are a target for this administration as far as a reduction goes in your benefits. And there are some things you could be doing now to improve your situation so that you can live the retirement lifestyle that you've dreamed and that you've envisioned. So look, look forward to, you know, taking some calls and walking some of you through the strategies that we put our clients through. And we're coming on that season right now. Mitchell Where we start. Lamenting in the fall some of the strategies that many of our clients didn't have were they previously, whoever they were working with, they didn't have those strategies. And this is the season where we, you know, spend a lot of time with our existing clients and we prepare for year end tax planning. And that's one of the things that we'd love to talk with you about. So with that, we're going to take another quick break. And when we come back, we'll finish up the rest of today's show. So we'll be right back with you.
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 1000 hundred dollars value provided at no cost to you. Book yours now at Retire360Show.com. You're listening to Retire 360.
Dwight Mejan:
All right. Well, we are back. Mitchell and I. I'm your host, Dwight Mejan, and we got this last segment today. We want to talk about expenses. You know, we've been talking about expenses on today's show. We've been talking about expense ratio. And we want to talk next about the biggest expenses for retirees today. Some of your biggest expenses in retirement may not surprise you because you pay you pay them already. But it's a combination of your current budget items and these new expenses that people find difficult to balance in retirement. So, Mitchell, why don't you just jump right in here and talk about the first big expense that we need to plan for?
Mitchell Keiser:
Yeah. So the biggest expense and this is my sweet spot here at our firm because I handle all of our clients Medicare, health care. The biggest expense in retirement is health care. So over the spending categories in your retirement, you are most likely to spend the most amount of money on health care, especially when you consider long term care needs. A lot of times we'll have people come in here and they'll say, Oh, well, I'm in, you know, such good health. I don't take any medications. I'm already 70 years old. While you're leaving a little piece of the puzzle out, if you're in great health, you've got great longevity, you know, yada, yada, yada. Well, what happens when you're in your late 80s? Because the longer you wait, the longer you live, the more likely that you're going to need that type of care. And this isn't a scare tactic here, but, you know, the longer you live, the memory starts to go. And I used to work in a in memory care administration. And I'll tell you, you know, there's just things pop out of nowhere that are the unexpected. Remember, in that dementia home, there was doctors, lawyers, professors. I mean, there's no there's no formula that can guarantee that you will not need long term care.
Mitchell Keiser:
It's an expense that everybody needs to prepare that they may potentially need. I will say I thought it was interesting and this article from AARP, they were talking about how these expenses are less often for men. And this is just a statistic here. The less often for men, because men tend to die first and their spouse tends to take care of them in those last years. So they don't need to go into long term care because they they're living less and their spouse is able to pick up the slack for them or help them with their adls, their activities of daily living. Health care costs are going to be the largest for that second spouse. So the statistically speaking, the wife or the the surviving spouse, as they increase in retirement years by themselves, they're not going to have somebody to take care of them. And they are more likely women are more likely to live longer. So eventually, odds are, I think they have. What do we say the other week, Dwight? Is it a 1 in 3 or a 1 in 2 chance that they'll need some form of long term care?
Dwight Mejan:
Yeah, it's 1 in 2 50%.
Mitchell Keiser:
So just important to keep in mind. Now switching gears, kind of talking about the stock market here and inflation. So inflation rises fast, is going to rise faster in health care than any other industry. So health care costs are projected to climb about 5% annually over the next 30 years, and that's about twice the rate of other expenses. I know we track health care pretty closely. If you guys are sitting in the sidelines with any funds, it might be something you want to look at. You want to make sure that you are adequately insured on the Medicare side, that you all the benefits that you need now and that you could need in the future. Included in that plan, if you do not have long term care as a part of your portfolio, it is not too late. You definitely want to look into that unless you already have some terminal illness. It's something you need to consider.
Dwight Mejan:
So, well, Mitchell, you're the guy for that for sure. I know our phones going to start ringing quite a bit here as we get into that enrollment season. And I know a lot of people who you help with that area, that contact our office, appreciate the work that you do with that. And I know they talk to friends and family and that's where it's at. So get with somebody that you trust and lots of options out there. I also will say, Mitchell, I don't think you mentioned this, but that health care is the biggest opportunity that our listeners have for or saving money in expenses and retirement. There's huge opportunities there to cut costs even within some of the plans that you that you have. So, you know, reach out to us and reach out to Mitchell. He'll be glad to guide you properly.
Mitchell Keiser:
I'll just I'll tell you a quick just sidebar on that. Saving people's money. We remember last year during this enrollment season, I think this was the best story that I had from last year. Somebody was just totally lost. And you know how much all their drugs cost, what they were paying for health care, yada yada, yada. He was put on a superior plan that offered him more benefits than he currently was on and he saved. Get ready for this. He saved $15,000. Remember that over the course of a year. So he was living on less than his Social Security was like. Don't even think he got $2,000. So he multiplied his monthly income by 50%. He got a 50% pay increase just by adjusting his health care. So maybe you guys aren't living that thin. But $15,000, folks, that's a lot of money. You need to be informed on what's going on in the health care side because it's it could change how you live.
Dwight Mejan:
It's fun to see retirees do cartwheels leaving our office, isn't it? Yeah, it was fun. But hey, number two, as far as expenses go, fitness and wellness. I know we're big on those two items here in our office, Mitchell, you and I. But people who invest in health and wellness typically have lower medical costs. This could be anything from gym memberships, yoga classes, stationary bikes, good quality shoes. My wife and I were just talking about good quality shoes when we were out West last week. And just the importance of, you know, sometimes you do get what you pay for, right? We're huge proponents of, you know, eating. You know, we we pay a little more for our grocery bill. But my wife and I being she's a nurse, we just believe that, you know, eating good food, let's face it, we all know this. Eating healthier costs, more money. It it flat out does. And if you start eating, you know, in the organic aisles, it can cost a lot more money. And our belief in that is, you know, you spend it on the front end or you spend it at the doctor's office. So, you know, health, nutrition, exercise, very important because, yeah.
Mitchell Keiser:
Now I can give you a statistic off the top of my head, but I have seen statistics on active seniors and seniors that stay active, you know, after they retire. And it's so significant how people that continue to exercise and use fitness facilities, how much their health care costs are down. And now I'm not telling people to eat unhealthy, but even people that didn't eat healthy saw significant increases in the quality of their health as they continued into retirement. Just because they routinely exercise, you know, walk, put in some cardio fitness training, that stuff is huge. And if you think your excuse is going to be, well, I can't afford one of those gym memberships, your insurance should cover it. Silversneakers is offered through almost every insurance provider. If you aren't getting silversneakers, you definitely need to call us because could probably save you $60 a month just on that. Because I know almost every plan we've got offers silversneakers which overrides the premium on any gym membership.
Dwight Mejan:
Yeah. So heard it had a doctor a couple decades ago. He told me. He said Dwight shop the outer aisles. When you go to the grocery store don't go to those inner aisles. That's all the process stuff. So he was right on the money but and hey, just a shout out plug here to our local farmers as well. Don't get out and support those local farmers and those farm stands. It's not only helping your local economy, but it's helping people that we truly care about and want to continue to support as those local farmers. So, Mitchell, what's number three expenses?
Mitchell Keiser:
Yep. So number three, expenses, the loved taxes. Um, we ask everybody in the beginning of every class if they think that taxes are going to go up or down. If you're listening, think you're probably thinking the same thing. Everybody says taxes are going up as the federal government looks for ways to reduce our federal deficit, which keeps going up, by the way, that will likely result in higher taxes. The government's best option for increasing revenue are to increase taxes or cut spending. What do you think they're going to do? Do you think they're going to cut their spending and their salaries, or do you think they're just going to increase taxes on the middle class? Um, I think we all know the answer to that. Unfortunately, you guys are looking if you're watching our podcast or our YouTube video, we put up an image of marginal tax rates in the United States. And yeah, it's, it's good stuff, folks. I recommend you hop on there and take a look.
Dwight Mejan:
Well, Mitchell, on that same thing what we talk about in our class and then we're gonna have to wrap this up and we'll finish these items on next week's show. But people have an adMejan and we all agree that taxes are going to be increasing. However, very few people, and I would say few less than maybe 5% have a tax implementation or a strategy in place that's going to combat the anticipated higher tax rate. So very important, folks, when you're planning to don't leave taxes until it's too late, because as we always say, when when do we most often find out that we've made a mistake and it costs us something in our taxes. Right. We find it out in March or April, we get a call from the tax office, we go there, we open this envelope, we can't even wait to get home. We're opening it in the car because we want to see the final damage and we open it and we're like, oh, my goodness. I can't tell you the number of people that we have that come to a seminar specifically because they got fed up with something that that hit them in taxes and they're like, I need to figure this out. Okay? And it's equally as important as having a solid investment plan. And an income plan is you've got to have that tax plan in place, folks. It's there's a lot of moving parts in retirement, and it's very important that you work with a fiduciary. Our firm is independent. We're holistic. We look at the entire picture. We're not just looking at how do we invest your money, We're looking at an income plan strategy.
Dwight Mejan:
We're looking at your estate legacy plan. We're looking looking at the tax plan. We're looking at the health care plan as well. So that's the holistic nature of what you should be looking for. And if you don't have that or you're not getting all of those, maybe it's time just to kick the tires somewhere else and just start to look to say, hey, are we missing anything here? Okay. And in 30, 35, 40 minutes, we'll be able to do that. If you want to take us up on that offer to have a complimentary session with you, we can do that by Zoom. You can come to our office, folks. Hey, there's no pressure whatsoever, okay? Our nature is to educate. That's what a fiduciary is going to do. They're not going to press you into anything. They're going to send you home to think about things and leave it up to you to call back if you want to have another meeting. So we're going to pick up next week where we left off. I'm sorry. Sorry. We ran out of time on this week's show, but we'll pick up where we left off today and we'll recap the items that we just covered. But thanks for tuning in with us today. We're glad that you took time to be with us. Mitchell I'll let you sign us off real quick here. We got just a couple seconds left. Um, anything else you want to say? You got some dates you want to give them?
Mitchell Keiser:
Yeah. No, It was a pleasure chatting with you folks. And just a reminder, if you guys are in the Avery or Watauga County, we are going to have that taxes and retirement class at the Watauga County Library there in downtown Boone. If that is something that you guys are interested in, it is crucial that you guys give us a call that is going to be on Thursday, September 21st. But our room typically does fill up and we are at max capacity because that room is probably only holds about 30 people. So if that is something that you're interested in, give us a call so I can reserve you a seat. And the best number for you to call us at is (828) 278-7814. Again, that phone number is (828) 278-7814. But look forward to chatting with you guys next week and we hope you have a blessed one.
Dwight Mejan:
Thanks everybody.
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.
Producer:
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.
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