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The 5 Silent Retirement Killers (And How to Survive the Descent) | Future of Finance Ep. 22
26 Plays1 month ago
Climbing the mountain of retirement is hard—but the descent is where most people fall. Literally.
In this eye-opening episode of The Future of Finance, Marissa Wood sits down with Sam Payne, a financial advisor with 40+ years of experience, to uncover the five hidden threats that can destroy your retirement plan if you’re not prepared.
From taxes and inflation to sequence of returns and long-term care, this is not a scare tactic—it’s your survival guide for making your money last as long as you do.
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Transcript
Introduction to the Future of Finance Podcast
00:00:09
Speaker
Hi everyone, welcome to the Future of Finance podcast, where we break down investment strategies to help you live a better financial future. I'm your host, Marissa Wood, financial advisor and one of the owners of Union Financial Services. And now, our conversation today revolves around the fact that getting to retirement is the climb, but staying retired is the real danger.
00:00:33
Speaker
In fact, 80% of climbers actually die on the descent of Mount Everest. And today we're going to expose the five silent killers that are waiting for you on that descent.
Guest Introduction: Sam Payne
00:00:45
Speaker
And we're going to do that with an amazing guest, Sam Payne.
00:00:50
Speaker
Sam Payne is a financial advisor and business consultant based out of Temecula, California. And Sam has over 40 years of experience in the financial industry. So he's going to be a real special treat for us to have on this podcast today. So thank you, Sam, for joining us and welcome.
00:01:06
Speaker
Well, thank you for having me. I'm glad to be here. It's a pleasure. Yeah.
Retirement vs. Mount Everest Descent
00:01:10
Speaker
So when me and Sam were having a conversation about what we wanted to talk about on this episode, Sam had explained to me an amazing analogy of the climb of Mount Everest and how it really parallels the risks that we face in retirement. Sam, can you dive a little bit deeper into that?
00:01:29
Speaker
Sure, it's a great analogy between retirement and summiting Mount Everest. You see, a lot of people seem to think that when you go to climb Mount Everest, the goal is actually to summit Mount Everest. And really, that's not the goal. The goal is to summit Mount Everest and then safely get back home so you can revel in the memory, share the experience with your friends and family, and just remember the amazing task, the feat that you undertook. That return is the most important part of the of the travel, of the journey. And to me, there's a great parallel or analogy to be made between that summiting and returning home to retirement.
00:02:08
Speaker
A lot of people seem to think that retirement is the goal. And when they get to retirement, they're done. Well, we all know that is not the case, no different than climbing Mount Everest.
00:02:21
Speaker
There are still issues that have to be They still have to figure out how to deal with retirement, what to do once they get to retirement, live the retirement that they want in their retirement years. And so that analogy is pretty strong.
Hidden Risks in Retirement
00:02:34
Speaker
Yeah. And I mean, there really is those five silent killers that can destroy your entire retirement plan during that getting down the mountain, aka distribution phase. um But before we dive into each one, tell me what we mean by those silent killers. Yeah.
00:02:52
Speaker
Solid killers are the things that you don't know about that'll kill you And if we use the analogy, once again, going back to climbers, the death zone in Mount Everest is above 8,000 meters. What's that? About 25,000 feet. That's where 80% of the people die, as you as you say.
00:03:08
Speaker
And they die because they there are risks that are inherent in climbing Mount Everest that they don't necessarily see, don't necessarily recognize, and fall prey to without truly understanding.
00:03:22
Speaker
That is very similar to retirement and that when you get to retirement, there are specific risks to your retirement that you might not see, you might not recognize. You don't know that you're a candidate for the negative effects. And another analogy I like to draw is Go into your doctor's office. If you go to your doctor's office to see your doctor, you go to the waiting room, you check in, you sit in the waiting room, they call you back to one of the treatment rooms and the nurse or the attendant does something right off the bat.
00:03:51
Speaker
When you first sit down, what do they do? They take your blood pressure. They take your blood pressure, they take your oxygen, they just get your vital signs. And they do that because they're looking for the silent killers, the things we don't know about, we don't feel necessary, we don't know that we're susceptible to. And the number one silent killer that every medical professional will tell you about is heart disease or cardiovascular disease. You don't know that you are a candidate for that.
00:04:18
Speaker
But if you have consistent high blood pressure, if your oxygen rates are low, then there's a pretty good chance you are... a candidate for the negative consequences of heart attack. That's why every time the doctor used to go to see the doctor, they check that. They know what those silent killers are.
00:04:34
Speaker
We have silent killers that we've recognized in our risk management profile that every retiree is going to face. The question is, Are they candidates for the negative consequences of those risks or not? Yeah, I guess, you know, we are, as advisors, we are a lot like those preventative care physicians that need to identify those risks, monitor the vitals, and then plan accordingly or adjust that plan as those risks change. We are like both doctors and we go back to the Everest analogy. If you climb at Mount Everest, you are well advised to use a local guide, an expert, a tribesman called a Sherpa.
00:05:18
Speaker
And it's because for that specific analogy, those Sherpas understand the mountain. They understand the moves the mountain. They understand that they can wedge, they can judge and read the weather in the mountains.
00:05:31
Speaker
So you would be well advised to use one of them. And I believe most people do use a Sherpa to get up and down the mountain. When do you go to your doctor? It's wise to go to your doctor. When your doctor sees those those signals, those signs, those markers that you might be a candidate for one of their silent killers, the doctor knows the treatment, knows the course of action to take, just like the Sherpa knows. We kind of fill that role when it comes to retirement. We're risk managers in essence, really, in reality.
00:05:58
Speaker
Yeah, you can't go at it at your own. You need someone to advise you and hold your hand and help you through those potential risks that you might not even know lie on that descent. And that's really what our job is to do.
00:06:11
Speaker
Yes. Now we've kind of
Inflation and Retirement Security
00:06:13
Speaker
teed it up. so So tell me, Sam, what is that first silent killer that we need to prepare for? Or one of the first? Great question. There are five of them, as we talked about. but There are more...
00:06:26
Speaker
Risks we know that we will encounter in retirement, but we know that we will all be affected to some degree by these five risks. and The first one, of course, is inflation. The real risk that the cost of living your st lifestyle is going to cost more after-tax out-of-pocket dollars in the future than they cost today.
00:06:49
Speaker
And that's we've seen inflation evidenced over the last several years. Right now, it's running right what around 3.1 or percent, little bit higher than the Fed would like. But we've seen some high, high, high inflation in the not not too distant past.
00:07:05
Speaker
We don't know what future going to hold. We don't know what inflation is going to hit us with in the future. But what we do know, if we have excess inflation, we will have to spend more of our hard-earned dollars to maintain the same standard of living into the future.
00:07:20
Speaker
Yeah, I think inflation is... really at the top of all of our minds in the last couple years because we've seen insane inflation. So we understand that it's something we have to prepare for.
00:07:33
Speaker
Even 10 years ago, what $100 could buy you at the grocery store is not even close to what it can buy you today. And so that's something that I think we know is obvious. But the question is, how do we prepare for it?
00:07:47
Speaker
I think at the end of the day, you have to plan for it Any risk management is understanding what the risks are and then finding out ways. Can we eliminate the miss risk? Can we avoid the risk? Can we manage the risk or can we transfer the risk? So there are only four strategies you can do once you identify a risk when it comes to risk management. Yeah. And I mean, if you're not at least investing your money and and keeping up or keeping pace with inflation, you have no chance of of overcoming that risk. So we have to be invested. But without overexposing our money to the volatility in the market, there is that fine balance that we have to find.
00:08:25
Speaker
There is an incredibly fine balance. Yeah. The famous famous Benjamin Graham has a quote that I love, and I don't know if you know who Benjamin Graham is. i do not. You ever heard of a guy by the name of Warren Buffet?
00:08:38
Speaker
yeah Of course. Well, Benjamin Graham was his college professor, economics professor. professor They became very good friends. And Benjamin Graham wrote a book in the 1950s called The Value Investor. So he's been in the business or was in the business a long time, very well respected, very well known. He's got one quote that I especially appreciate and tend to live by. And that is, the essence of investment management is the management of risk, not the management of returns.
00:09:08
Speaker
You see, honestly, we can't manage the returns. that we're trying to get our clients, we can only manage the risk we take on in pursuit of those returns. Question is, does the client know that?
00:09:19
Speaker
That's interesting because everyone always wants to make the most potential returns with the least possible risk. Of course, that's human it's human nature. But how do we do that? Well, virtue the fact that you said the most return with the least possible risk, they at least have in their minds the fact that risk is there. And so it's managing that risk If you can manage the risk, the return will occur. You can have the same outcomes with substantially less risk over a long period of time. One will have substantially more fluctuation, but the net return, the net outcome is the same.
00:09:51
Speaker
Absolutely. Yeah, I mean, i i think that inflation conversation is so important to have with clients really of all ages, but especially in
Unexpected Tax Burdens in Retirement
00:10:00
Speaker
retirement. And the second one that, of course, we want to discuss is taxes. It's something that none of us like. We want to avoid them. We want to pay as few taxes as possible.
00:10:13
Speaker
But the fact of the matter is we're going to pay taxes. We're either going to pay them now or we're going to pay them later or we're going to pay them now and later. um Yes. And what I've found over the years is that retirees often think that their taxes will be lower in retirement.
00:10:30
Speaker
Is this actually the case? Sometimes yes, sometimes no. I have said it all depends. It depends on what that individual has done on their approach They're assent to retirement, preparing for retirement. If they saved very, very well in tax-deferred accounts, there's a pretty good chance they're going to have higher taxes and in in retirement. If they have their spending level is equal to or at a high level when they go to retirement, there's a pretty good chance they're going to have higher taxes.
00:11:05
Speaker
If they reduce their spending, some do, some don't. If they could reduce their spending, thereby reducing the income they need, then they oftentimes are in a lower tax bracket. There isn't a one-size-fits-all. That's why it's incredibly important to sit down with somebody like an advisor, like you or I, who can analyze what they're doing currently, what their budget is, what their income streams are going to be, and then give them a true picture of what their taxes are going to be in retirement.
00:11:31
Speaker
Yeah, I mean, because unfortunately, all of those tax-deferred accounts, such as the 401k, IRA, pensions, they're all going to be taxable in retirement. And we don't know exactly what the tax rate's going to be in the future. And so that that places a big question mark on what their true net income's going to be.
00:11:52
Speaker
Big question mark. And taxes, we we are at some of the lowest taxes in history. Taxes are going to go up for two reasons. The biggest reason is the debt. As a federal government, we have substantial debt. debt We talked earlier about inflation.
00:12:07
Speaker
And what's one of the biggest drivers of inflation? Cash into the system, which the Federal Reserve has done at the bequest of the federal government, which made the tax deficit or the the tax debt go up and the government debt go up substantially. We're close to, I think it's $39 trillion now. It's ridiculous how high it is because of the fact that we are at such high debt.
00:12:33
Speaker
If the wages and productivity in the United States doesn't generate more tax income, then they have to tax those that aren't paying wages, which would be retirees, any income over wages, corporate corporations, individuals who have 1099 income instead of W-2 income. So inflation and taxes are tied hand in hand.
00:12:57
Speaker
We're at low inflation. Because we had high inflation, we got high taxes, and that's probably gonna go up even more in the future. So what are some strategies that we can use today to make our plan more tax efficient for when we are in retirement?
Roth Conversions Explained
00:13:12
Speaker
I think the first thing you said is exactly right. is first First and foremost, number one is to sit down and actually have a plan. And that plan starts with a budget. It's amazing to me how many people don't live on a budget and in our economy.
00:13:27
Speaker
They spend whatever they want, and that's great if they've got it to spend. But you kind of need to know, we need to know what kind of income we need to generate when it gets to retirement. Because as you and I both know, retirement is all about income.
00:13:44
Speaker
Without income, there is no retirement. So how much income do we need to generate and where is it going to come from? So it starts with a plan. Number one, start with a plan. Second, of course, as you know, you use Roth IRAs.
00:13:56
Speaker
Roth IRAs, great tool for growing tax-free income into the future. I suggest you use a 401k to the extent that you need to. If you're in that high tax bracket, super high tax bracket, use the qualified dollars and then maybe do Roth conversions later when your income drops.
00:14:15
Speaker
There are substantial strategies we can we can undertake that we can help people with, but we can't do it if we don't sit down and plan it. Yeah, so for those that are listening to this and are not sure exactly what a Roth conversion is, or you heard about that option within your four ah one k plan or you know, outside of your 401k plan even, the Roth conversion is the process of taking those pre-tax dollars in your 401k or IRA and converting them into Roth dollars. And that process itself is a taxable event. So you will have to pay the taxes on the year that you convert.
00:14:50
Speaker
But once it's in that Roth, it is officially a tax-free asset for you. including all of the interest it earns. So Roth conversions can be an amazing planning tool if they're done right. We have to do them strategically, you know, based on what your income is that year, how much room we have left in your bracket. Yes, absolutely. Pushing the bracket is a great strategy. We don't know what the bracket is till we sit down and talk with somebody. And so It's hard for us to sit here and have a blanket statement that everybody should do this.
00:15:22
Speaker
There are some great strategies, some great tools and techniques that can be used if you sit down with somebody, an expert, who can put to work those specific tool strategies for you and your specific plan.
00:15:35
Speaker
Yeah, I mean, it's it's impossible to to eliminate taxes, of course, but there is ways to pay minimal taxes in retirement. It's something that I'm even doing for myself by having...
00:15:48
Speaker
accounts that are cash value life insurance, which will be tax free, Roth IRAs, which will be tax free. If majority of my income in retirement can be tax free, then I might not even have to pay taxes on my social security. And then I'm really in a good spot. And I think that's what we all strive to do. Pay as little in taxes as possible by paying tax on the seed now and not the harvest later.
00:16:13
Speaker
that's That's really the goal. And I would suggest anybody who is starting in their career, anybody who is in mid midlife in their career, if they are not maximizing the Roth contributions, they're probably missing a pretty good opportunity. I would agree with you 100% on that. When I started saving, we did not have Roths.
00:16:32
Speaker
Almost all of my money goes into Roths and has for years because i believe it's it's a strong, strong retirement tool that I can use and our clients can use.
Understanding Sequence of Returns
00:16:45
Speaker
Absolutely. So those are the first two silent killers, inflation and taxes. Now, this next one is one of the least understood risks. And I think you are going to shed some light on this and it's absolutely needed to be discussed. And that is the risk of sequence of returns. Can you explain sequence of returns in a way that will make sense to our listeners? Yeah, sequence of returns is is a complicated thing for some people to understand.
00:17:13
Speaker
Really, I try reference both market and sequence of returns. Sequence of returns is the sequence of the returns of the market. You'll have one year that is a 30% positive, next year 30% negative, next year 10% positive. The net outcome at the end of those three is different than if you had negative at beginning of the year and then positive and a positive.
00:17:37
Speaker
And so it's the it's how mathematically the returns affect your dollars. The market, the the risks of the markets imply or apply to a large market drawdown prior to or early in your retirement years.
00:17:55
Speaker
Both of those are substantial risks. There's a 15-year, what do they call it, the missing years, five years before retirement and 10 years after retirement, where you can absolutely be adversely affected by the market swings, whether it's sequence of returns or market returns. A good way to understand a sequence of returns is...
00:18:16
Speaker
If – well, a sequence of returns, the – you've got $100,000 that's in ball, and that $100,000 grows $200,000. Ball next year, $200,000 hit with 50% market decline. going back to $100,000. understanding that negative.
00:18:33
Speaker
it's going back two hundred thousand dollars so just understanding that the sequence of returns are can be negative Sequence of returns are spectacular when you're dollar cost averaging and growing your retirement assets.
00:18:49
Speaker
So when you're going up that mountain. Right. When you're going in up that mountain, you put $100 a month in is buying how many shares that that can get, which is great. Some months, a you know, $100 share, you buy 10 shares. It'll drop to another value. The the shares will go down. But when you go to liquidate,
00:19:07
Speaker
to reverse dollar cost averaging, that sequence of returns can adversely impact you so substantially. As positive as dollar cost averaging was as you were accumulating or growing, going up the mountain, it is just as dangerous, if not more dangerous, coming down the other side in the opposite direction.
00:19:24
Speaker
So just understanding that sequence of returns is a risk.
Market Downturns During Retirement
00:19:28
Speaker
Yeah, I mean, it it's so true. It's it's not... so detrimental and actually can be beneficial when you're in that saving accumulating phase because a down month in the market is is great when you're adding money, you're buying things on sale. And then all of a sudden when you're in that distribution phase, when you're pulling money out and you're experiencing a 20% real loss and you're compounding that with a 5% withdrawal, now your portfolio's down 25% and you're having that hole to dig out of and you're
00:19:59
Speaker
You almost can't dig out of it once you're in retirement. Yeah, and the simple math on that is if it's down 20% and you're holding a single stock, then you have to sell more shares to get to the same dollar amount.
00:20:11
Speaker
So when the market does come back, you have less shares that are impacted by the bounce in the market. Yeah, and those those early losses in a retirement in the first couple years can decimate a portfolio. I mean, we have examples where we can look at two brothers each doing the same thing in retirement. They started with the same balance. They took the same dollar withdrawals every year. One of them retired in 1990, one retired in The one that retired in is going to be out of money in like 12 years because of those losses in 2000, 2001, 2002, and then of course the big one in 08.
00:20:53
Speaker
It absolutely decimates a portfolio. The last five years, unfortunately, the American society, economic society, has been spoiled in that We've seen the S&P and p in the Dow. Yes, we had one year that has had a down down year, but for the last five or six years, we've had pretty much all positives.
00:21:14
Speaker
That is not sustainable. There will be a reversal. There will be another reversal in the market. The question is, when that happens, as a government, as a society, as an economic powerhouse, what do we have?
00:21:31
Speaker
to protect the citizens against the negative consequences of that downturn, recession, whatever you want to call it. There are a lot of articles out there right now that you can read that would question just how much success will be had in the future dealing with another downturn, how much it will protect us. I don't think we'll have the same protections we had in 2020 and 2008. Yeah, so we have to have a safety net to protect us from those drawdowns because they're going to happen. We we know they're going to happen. History doesn't necessarily repeat itself, but what do they say? It rhymes.
00:22:07
Speaker
Yes, it looks awful lot like it Yeah,
Mitigating Retirement Risks
00:22:09
Speaker
exactly. And so what are some investment vehicles that you use with your clients to help mitigate that risk? Well, I think couple things, as we've we've talked about buffered ETFs, buffered contracts, anything that's got a down ah a downside. Give me 30 seconds on buffered ETFs, because not a lot of people know about them. An exchange-trained fund where they go to a market and they negotiate with the market to participate in the upside of the market, yet still have a down a protected downside. Sometimes it's a zero floor, sometimes it's a... 10% floor, 9%, which means you can be protected the first 10% of loss or the first 20% or 30%, depending on the buffer.
00:22:50
Speaker
And at the end of the year, they look at the index, whatever it is the ETF is is basing it on. And if it's up, you have a specific rate of return. If it's down, you're protected.
00:23:01
Speaker
Those are great. they're they're Oftentimes they have more of a risk profile than we would like, but we certainly use those as I'm sure you do. We also use an alternative, which is an indexed annuity.
00:23:14
Speaker
Annuities are great tools, often misunderstood, unfortunately, but a great tool in that they provide a zero floor. Plus they've got tax deferred growth. We love that. We love both of those, protection and tax deferral. That's two risks that we're mitigating right there. And returns can be quite attractive in index annuities these days. They can be, depending on the index. Of course, the the market has done great.
00:23:41
Speaker
And 18% in the market's great. You might only get maybe 11% in an index. But that's a realized gain.
00:23:52
Speaker
In the market, any gain that you see is a paper gain unless you liquidate the position. And when you liquidate the position, whatever that position is, a stock, a bond, an ETF, a buffered ETF, once you liquidate the position and a non-qualified gain, it creates a taxable event. Mm-hmm.
00:24:11
Speaker
And then you got to put the money someplace where it's protected, where indexed annuities, annuities specifically, but indexed annuities, once that index grows and you have a gain, that gain is realized.
00:24:24
Speaker
It's locked in. can be lost regardless of what the market does. And it continues to be tax-deferred. So it's already tax-deferred. You don't have to pay taxes on the gain, not do you pull it out.
00:24:35
Speaker
And it's protected. Yeah, that annual reset index lock feature of an index annuity is something that I think it's so underrated. Not enough people are talking about how amazing that is that the interest you earned that year gets locked in at the end of the year.
00:24:53
Speaker
I kind of think i've been doing this a long time, and I kind of think that the financial market, the recipients, the clients, our clients are finally starting to wake up.
00:25:06
Speaker
to the value of annuities in general. There have been far too long, far too many voices speaking negatively about annuities in general. And the general public is starting to recognize that there is a place for annuities in a lot of people's portfolio. Not for everybody and not for all of your money, but absolutely an important part of your portfolio depending on what you're trying to accomplish.
00:25:32
Speaker
Absolutely. they They serve an amazing purpose in most of our clients' portfolios. um Now, there is one risk out of out of these five that kind of magnifies all of the other ones, and that's the risk of longevity.
Longevity as a Risk Multiplier
00:25:50
Speaker
I mean, the reality is with lifespans these days, retirement can be 30 plus years. And I don't think that's what we initially planned on it being. And so talk to me about how that longevity plays a factor into our financial plans. Longevity is a huge component, a huge risk, and it multiplies the effects of all the other risks like you said.
00:26:15
Speaker
Years ago, early 20s, early 2000s, I guess it was, I was part of a coaching program. And they were talking about – they said that the first – Dan Sullivan is the guy's name. He said the first person to live to 125 has been has been born Wow. And I thought, that's crazy. There's no way.
00:26:35
Speaker
I got a neighbor who this year, 2025, turned 107 years old. She is as healthy as a horse. The only issue she's got, she's got some hearing issues. Her mind is sharp as a tack. She gave up driving at 96.
00:26:51
Speaker
Wow. And she wrote a book at 94. Wow. And so I would bet you if you were to poll your audience, a good portion, a good percentage of that audience knows somebody who's over the year of 100.
00:27:05
Speaker
Wow. We are living substantially longer. When Social Security was first created in 1935, the average age was 58 57.
00:27:17
Speaker
Now we have people that are living well under their 105, 107, 110. It may well be that at the time, 25 years ago, the first person to live to 125 truly was alive. That may be the case. That creates a major problem when you're trying to live off of a sum of money.
00:27:36
Speaker
No wonder Social Security going broke. We're living too long. yeah were why Exactly. Yeah. How do you make your money last you if we know inflation's a factor and so you can't just live on Social Security? It's not going to keep up with cost of living to the full extent.
00:27:56
Speaker
And how do you make your money last you unless you have a pension? I mean, really? Yeah, great question. Now, most people don't have pensions. We both know... um Monte Carlo analysis where there are substantial studies that have been done that indicate if you pull a certain percentage from an asset, that ah brokerage account and adjust it for inflation, it will test and last a certain amount of time, 20 years, 30 years. And a Monte Carlo analysis ah is a great starting point.
00:28:27
Speaker
But what we add to that is is making sure we're in we're attempting to avoid large market drawdowns and incorporate some concept of insurance in that retirement plan. What is a pension?
00:28:41
Speaker
A company gives you a pension. What is that? You tell me. what where did How did they get the pension? Well, it's basically just a payment to you for as long as you live. I mean, I know there's the single option and then you take a smaller amount if you want some joint coverage for your spouse. But then after you pass, if you took the single or after your wife passes, if you took the joint, the money's then gone, unfortunately. But it's it protects you from that longevity fear. The point is the the company doesn't give you that money.
00:29:13
Speaker
The company doesn't send you the check. The company accumulates or sets aside dollars for you all the years you're working. And then when you retire, they take that lump sum and they give it to an insurance company.
00:29:24
Speaker
And they ask the insurance company to promise to give you an income for either as long as you're alive, but you talked about joint, or as long as you and your spouse are of lie alive. It all gets transferred to an insurance company.
00:29:38
Speaker
So that is ensuring the longevity. That is ensuring income to make sure that the risk of running out of money is transferred from the person receiving the money to the insurance company.
00:29:50
Speaker
And the insurance company uses a law of large numbers and mortality credits to make sure that they've got enough money to pay whoever's still alive as long as they are alive. That's how they overcome longevity.
00:30:03
Speaker
So really insurance companies are hedging their money by having some owners that live really, really long and some that die a little too soon and then also having some life insurance in their portfolio as well, right? Yeah, that's ah that's insurance risk transfer. It doesn't matter what kind of insurance you're talking about.
00:30:23
Speaker
That's what they do. Auto insurance it's a great example. They use the money from the people who drive safe and don't have accidents. to pay for those who are either hit by somebody or hit somebody and have accidents. Insurance companies do the same thing for people who don't live as long.
00:30:37
Speaker
That funds the people that live longer.
Lifetime Income Investments
00:30:41
Speaker
Yeah, I mean, income planning is probably one of the best parts of our job because a happy retirement, it's really not about assets. It's about having income to live on. And if we know that people are living longer, we need to prepare for a lot of years of income. No one knows exactly how long they're going to live. And so those income for life investments seem to really be attractive with a lot of our clients because, know,
00:31:11
Speaker
We don't know if they're going to live another 20 years, 30 years, 35. And we want to have that paycheck coming in, regardless of how long that is. How do you feel about lifetime income investments?
00:31:23
Speaker
I think it's a great concept. it's It's something that everybody who has jumped into retirement loves. I've got clients right now who are living off of income writers, partially.
00:31:34
Speaker
I don't think you can just live off annuities and income riders. I think you have to have some component in the and the market to try and keep up with inflation because a lot of times they won't. Neither will your own pension nor will social security.
00:31:46
Speaker
So you have to have some buffer against inflation, but having that guaranteed income going full well as long as you're alive, that income will continue. That creates an environment that allows you to enjoy the things around you substantially more. You're not getting up every morning looking at the market and seeing what the market's doing. Absolutely. Yeah, it's it's a great way to have that balanced portfolio, have some in the market, have some with an income stream, some protected. we we want to have that that diversification. Absolutely. Now, the last... risk factor or silent killer that we wanted to touch on today. And of course, I'm sure there's plenty more, but we just chose five. And that is healthcare costs and the unknowns that go along with that. Talk to me a little bit about this risk.
00:32:34
Speaker
It is the one that even advisors talk about a lot, but don't do anything about it. It is a major, major risk.
Healthcare Costs in Retirement
00:32:44
Speaker
to somebody's retirement plan. I think the last statistic I saw said that seven out of 10 individuals will require some type of extended care or long-term care. 70% of us, seven out of 10.
00:32:57
Speaker
So it's as important as the other four. It's just not talked about as much. So being able to, one, understand that potentially there's going be some additional costs that you're going to have to incur to help care for yourself or your spouse.
00:33:13
Speaker
And then identify where those funds are going to come from. If you don't have a plan, well, really, you've got a plan. It's just you're going to have to use assets that were earmarked for income to fill health care events, which then put your income in jeopardy.
00:33:32
Speaker
So what we try to do is is as as well as you, I know you sit down with your clients and you you ask the important questions. you know What's your tax bracket? How are your taxes doing? it but What are you saving to avoid taxes? what's your What's your risk tolerance? are you Are you in place in investments that match your risk tolerance? And then lastly is what are you doing to plan for the I wouldn't say unlikely, but the likely event of a catastrophic health care event that causes you to require additional funds to pay for care. Yeah, so if you don't earmark some of your portfolio for that, really your entire portfolio is going to be used for that.
00:34:15
Speaker
care cost. um And so there's a couple different routes that we can take with a client. We can look at a traditional long-term care plan. We can look at a hybrid life insurance plan. And then we can look at a hybrid annuity with long-term care features attached to it. um But the question is, you know, how does someone know which route is best for them?
00:34:37
Speaker
The only way to know is to sit down with somebody who can take all of those scenarios and into consideration with your specific risk tolerance, assets you've got saved, income you need, and course, health, health history, family history, longevity history. All that needs to come into play. And all four those, long-term care, hybrid long-term care, annuities with income riders that have long-term care issues, and life insurance with the celebrated benefits, those are all four Good strategies. Traditional long-term care, in my opinion, is the best buy you can get as long as you claim within the first year or two.
00:35:17
Speaker
You have an event. If you have to wait farther than that, then you're spending an awful lot of money on a maybe. If you're a year or two out from potentially needing care, you're probably not healthy enough to get approved.
00:35:30
Speaker
Yes, yes. That's the issue. That's why these hybrid policies exist. It's so hard to get approved for traditional long-term care. If you can, they're fantastic. And if you can, the chances are rates are going to go up. That's what's happened in the long-term care industry. When it came out, the insurance companies didn't feel people would retain their contracts.
00:35:51
Speaker
And the cost of care went through the roof. And so they had to increase premiums or decrease benefits. Long-term care is kind of a nasty thing right now, but there are still scenarios where long-term care actually makes sense. The key is to have somebody who can look at all of them and then give you their best guess is what's best for you on your on your specific scenario.
00:36:12
Speaker
Yeah, I mean, having anything in place is better than having nothing, even if it's just a rider we can add to an annuity to enhance your income, help you age in place at home with a little bit of extra money to to pay for that care that you need.
00:36:27
Speaker
That is better than nothing, absolutely. Absolutely. Now, Sam, if retirees or pre-retirees or any of our listeners could take one actionable insight from today's conversation, what should the first thing be or where should they start?
00:36:44
Speaker
In my opinion, I coach a lot of guys. I've done a lot of speaking. I think the number one thing is to sit down and recognize that you're marching headlong towards an uncertain future, this retirement.
00:36:58
Speaker
And anytime you're going to march headlong into anything, it's probably better to know what you're going to and then plan for it. So first and foremost, in my opinion, you ought to have a pretty good picture, pretty good image, a pretty good video that's playing in your mind of what you see yourself doing in your retirement, who you're going to be doing it with, where you're going to be doing it, and a pretty good idea of what income you're going to need to help sustain that lifestyle.
00:37:24
Speaker
Once you have that, I think it's time to go sit down with a professional. a retirement income professional, somebody who can work with you on your retirement, retirement income, share with them that information and let them put together a plan, a strategy to help you live the retirement of your dreams. If you don't do that,
00:37:43
Speaker
You're just going into the future and whatever happens, happens. And if that's your life, there are some people that are that way. They don't have a goal. Whatever happens, happens. If that's you, then keep doing what you're doing. But if you really have a goal of a specific lifestyle, a specific income you want to meet, things you want to go do, you want to travel, you want to spend time with your grandkids, come sit down with an advisor who can give you strategies specifically to help you accomplish that. Yeah, because having you know a brokerage account with a lot of stocks that you monitor and that have been doing well and accumulating nicely for you over the years or having your 401k and a lot of statements on a table, having those investments is great, but that's not a plan. We have to have an actual plan with the assets. you know I think a lot of people think it's just having the assets, but a plan has to go with that. And that usually does involve having an advisor involved in that conversation. Yes. I think the the key is is the strategies, investment products, allocations, and locations of your investments are different when you go to retire than they are when you're accumulating assets.
00:38:57
Speaker
It's different discipline. There are different strategies we have to undertake. there are different risks we have to address. We actually have to address them, not just hope, but address them. And maybe the advisor used to accumulate all those assets, maybe he doesn't have the skills necessary when it comes time to decumulate.
00:39:15
Speaker
It might be time to find somebody who's a specialist in getting you, they and I was used to beginning, getting you down the mountain, making sure you get home safe. That is a great way to round that out and really bring all of this together that we've touched on today. So for anyone listening, if you're approaching or if you're in retirement, it's a time for a review of that dissent strategy that you have.
Retirement Risk Analysis Offer
00:39:39
Speaker
And at Union Financial Services, we can provide you with a complimentary retirement risk analysis. All you have to do is go to union-financial.com, click schedule a meeting, or you can schedule a phone call, Zoom call, or in-person meeting, 30 minutes to an hour depending on your questions, always complimentary, and we can really take a look at what that dis distress dissent strategy looks like in your plan and what risks you could be facing and how we can plan for them before they happen.
00:40:10
Speaker
We'd be happy to do that for anyone that's listening or tuning into this episode. i wanted to take the time to thank Sam Payne for coming on and sharing some much needed knowledge and amazing tips about these silent killers that we all face. Thank you, Sam.
00:40:29
Speaker
You're welcome. it's good to be with you, Marissa. Absolutely. It's always a pleasure to speak with you about how we can help our clients and brainstorm ideas together. You've been a mentor to me since I entered the industry, and I'm sure you'll continue to do so. Awesome.
00:40:44
Speaker
you All right. So thank you to everyone that is listening to this episode of The Future of Finance. Please, if you enjoyed this type of content, like, comment, comment. Share it with friends or family that you think could benefit from that. It really does help us to continue to put out this content to you when we have some feedback from you.
00:41:03
Speaker
For everyone else, I'm Marissa Wood from Union Financial Services. we look forward to helping you live a better financial future.
00:41:12
Speaker
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