2021 EP0213 PLANNING MATTERS - PROTECTING YOUR SPOUSE

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Hi everyone, welcome to the show. Today we're here with Peter Rochon of Rochon Planning. He's a master registered financial consultant and fiduciary advisor. He's also the author of a great informative book, Understanding Your Investment Options. Yes, he'll say sometimes it might put you to sleep, but it does have a lot of useful information in it that if you're trying to understand some of the terms and information we're sharing with you here on the show, it will help you obviously understand and better be able to grasp what we're trying to get across here and tell you.

The cure for insomnia it is, it is. Although it's important information, and if you're interested in understanding and advancing your financial progress, I think it's a great starting point. A little biased. Great, of course.

You should be biased. You wrote it, right? Today we'll be discussing the three biggest expenses in retirement and how you can plan to control them, and also with it being Valentine's Day and with it being right around the corner, what better time to examine what we do for our loved ones, particularly for this show from a financial perspective? Yeah, yeah. What a good gift for Valentine's Day.

Exactly. The gift of a financial plan and financial security. And maybe you could wrap it all up nicely and put it in a box of chocolates and give it to them and say, look, honey, this is what I did for you today. Look, at the end of the day, Valentine's Day is about showing your loved ones that you care for them, that you love them, that you value them. Truthfully, providing them some financial confidence regardless of conditions, that is a gift of love and caring. And while it might not be appreciated like that box of chocolates or a night at a nice restaurant. Well, that's in the short term. That's appreciated, but this could be appreciated in the long term. Yep, yep.

Throw this on top. I also made an appointment for us to get a financial plan put together and take care of those nagging legal documents that we've been meaning to take care of, those kind of things. So yeah, protecting your spouse. I mean, Valentine's Day is I guess as good a time as any to talk about this, but there are a lot of spousal issues when it comes to your money. And a lot of times, Kim, in a household, we all naturally sort of have our yin and yang where the spouse takes care of different things, right? And I love when somebody says that, hey, I'm in charge of taking care of the finances for my household.

But I also always think of the downside of that. Let's make sure that the other person knows what's going on so you're not so in charge that you leave them in the dark. And I've heard many stories of that, especially with, I guess, people my parents' age and maybe even older, that the one person or usually the man in the house would handle the finances, he passes away and the wife doesn't know where anything is or where the accounts are or how to get access to the money. And it's kind of a sad situation. So yeah, you both should know. I actually see the opposite just as much where the woman knows where the bills are, knows how to pay them, knows where the accounts are. And the guy would be completely in the dark.

I see both sides of it. But again, it's best to work together and know all those accounts, where they are and whose names are on them as well. And it's important in the partnership, but it's also very valuable to have a third party in that partnership. And that is who is the third party resource that we can go to and turn to for help and assistance. And having that trusted advisor can provide a lot of reassurance there. So we are that resource for a lot of couples.

When something happens to Joe or when something happens to Jane, I'm coming to you, Peter. Right. And you could be the mediator too when they come in together to say, yeah, maybe we should do it this way and here's why. Or maybe we shouldn't do it that way.

Here's why. So what are some of the things that you can do to help protect your spouse in the fortunate time of possibly your death? Yeah, that. But death is not the worst of all possible outcomes. To have the most uplifting conversation here ever.

On Valentine's Day. It's a very terrible time, obviously, to lose a spouse. But incapacitation, long term care, these risks are real. The Department of Health and Human Services statistics show that seven in 10 of us at some point in our life are going to need assistance, are going to need extended medical help and care. And about one in 10 of us actually have addressed this risk. So that's one thing. You know, just get your legal documents in order.

Make sure you have your will, your power of health care, your power of attorney, your medical directive so that when or if that time comes that you're gone or that you cannot make decisions that you've said and put in writing who is allowed to write checks on your behalf or make medical decisions on your behalf. Another one is in our decision making. So we tend to be very short-sighted. And when we get to that age where Social Security is right in front of us, oh boy, oh boy, we can't wait to go out and get it. However, by claiming collecting Social Security early, it can leave a surviving spouse with significantly less income. Because a lot of people don't realize this, but one person only gets one benefit.

Period. So if you've got a couple, a married couple and there's two Social Security incomes in the household and then one person passes away, so does one of the Social Security benefits. So what does this mean? Well, this means anywhere from a one-third reduction in income to a one-half reduction in income. And oh, by the way, that surviving spouse also simultaneously bumps up in tax brackets because they go from married filing jointly to single head of household.

So it's like a double whammy. And guess when this affects us? Like in our 80s, 85, but guess when we make the decision that determines it at 62 or 65. You know, or even younger if you're getting ready for that, to retire and get that going.

So yeah, you've got to be careful with what age you choose to start. And it's not the job of the folks down at the Social Security Administration office to provide this guidance. They do not provide advice. It's actually against their job description. They are there to help you file the paperwork on the day you show up, not tell you if it's the best day to show up because they are not advisors. They don't know the rest of your financial situation. And of course, you am an advisor, an advisor. You can help somebody out there that's wondering, when should I start collecting Social Security?

Should I do it at 67, 70? We run the we run the calculators. I do a Social Security report and analysis. I can't tell you the best time to claim unless you can tell me the day you're not going to be here anymore. No one has done that yet. And I don't think anybody should be able to do that.

But I can talk with you about optimal strategies. If we believe this, then we should do that. If we're going to do this at the base of it all with Social Security, there's kind of two schools of thought. One, get it while the getting's good. Get it as soon as you can get it at 62. The other is wait all the way until 70 because that's your maximum benefit.

Neither one of those is always right. Oh, that's interesting. That's good to know. The right decision is to take Social Security when you need an additional consistent income. Use it to protect your personal assets as much as possible.

That's great to know. And something similar to Social Security that you have to make that decision early is your if you qualify for a pension. Yeah, because there's several decisions you need. There are several options you can choose when you leave that retire from that company. And again, that highest amount of income looks so attractive, but it only lasts for one lifetime. And so by taking that highest income, you might not be protecting your spouse. Now we do help with strategies to maximize that income. We call it pension maximization. Sometimes it makes sense to take the higher strategy because sometimes we can make up for the difference with some life insurance.

And that will be part of a comprehensive plan. Not everybody says, oh, well, yeah, I definitely need life insurance when I retire. In fact, most people say I don't because they've got the biggest amount of money that they've ever had personally. They are leaving their paycheck, so they're not trying to replace that. The kids are grown, college is paid for, the house might be paid for. We could probably pretty easily say, I don't need life insurance anymore and justifiably so. But I'll tell you that retirement can be long and it can be expensive.

And over those many years, we've got the tendency to spend down that asset that gave us that confidence. And so what I see is a lot of times people have a much more fulfilled happy content retirement, knowing that they've given their spouse the opportunity to refill the bucket, so to speak, that gave them that confidence on the day that they retire. And that they'll still be taken care of even after. And if you've taken the maximum pension, if you've chosen to take Social Security in a way that doesn't leave your spouse the highest survivor benefit, life insurance can be a very valuable part of your financial plan then. And life insurance can also, these days, double for long-term care protection.

A lot of people don't realize that. Life insurance used to actually be about death. These days, life insurance is actually more about the protection that it can provide during your life as well as after your life. You can advance yourself the death benefit for long-term care in many cases. And this may not just be for your spouse either.

There could be a child that you're still taking care of that need, will need that money going forward or a parent, right? There's other other loved ones other than your significant other. I love my mom. She, she is a saint. I hope that she never goes anywhere or nothing, but guess what? Something eventually, the chances of her living forever are nil. So I actually talked to her about purchasing life insurance for her. A, she's probably going to pass away around the time of my retirement and I know what the benefit is going to be with life insurance rather than investing all of my money in a 401k where I don't necessarily know what the benefit is. You know, it could be good.

It could go down. I don't know, but also, and more importantly, it will provide me the ability to fund the long-term care for her. Should she need it?

Right? Cause she's, so you can use life insurance for long-term for long-term care. Should my mom need care that life insurance death benefit, I can actually pull it out during her lifetime and help to pay for that long-term care cost because I'm not capable of doing that job.

I'm going to have to hire someone to do it. Right. And then there's some people too that like, like the long-term care insurance as well because there are long-term care expenses. So you could also look into long-term insurance, but that's something you need to decide early on. I actually like the life insurance long-term care combo.

Oh, okay. Because one way or another, you get a benefit from the dollars that you've spent on it, right? The, the thing that people didn't really love about long-term care insurance is that it was use it or lose it. Also, the price was not guaranteed. It could go up in, in, I had a lot of clients that had long-term care insurance for 15 years and then suddenly got a letter, Hey, Mr. And Mrs. Jones, we're raising your rates by double. Do you want to keep your coverage or not?

And they couldn't afford it. And you know, so the, the linked benefits with the life insurance slash long-term care, you know what your price is, you know what your benefit is. It actually helped the insurance industry as much as it did the client because the life insurance industry knew what their liability was going to be, right? Care costs more than they originally thought. More people are needing it than they originally anticipated and they're needing it for a longer time. Cause people are living longer now too. Or are we dying slower? Are we living longer or are we dying slower? There's a different way of dying slower. So when you think about the question of long-term care, a lot of times we're dying slower. We've lived a long fulfilled lifetime. It's just taking us a lot longer to go away.

And medical, um, I guess medical treatments have come a long way that they're able to help you live longer. And the locks on the doors at the long-term care facility are to prevent people from leaving. So they want to keep you in there and paying for as long as possible. So yeah, you know, again, the most uplifting conversation ever here today on the, but again, we're talking, you know, to show your loved ones how you care for them. It's not always buy a box of chocolates. It's addressed these issues, address these issues and um, make sure that they're cared for when you're no longer with us here. And we talked a little bit about the investments in the retirement accounts and in the market. And a lot of times one person is handling that and the other person isn't. So just be sure that you're considering that, that other person's feelings. Do, do they feel the same way that are they as comfortable as risk with the risk as you are?

You know, those are, those are things to sort of consider often between two people, even in the same households, there's very different feelings about the amount of risk that they want to take. So, and disabilities happen throughout lifetime, right? If, if my income was to suffer because I was in an accident or had some type of disability, I know my wife would change situations. So I took out some disability insurance, accident insurance, disability insurance.

When you get down to it, marriage is a partnership, right? Well, and disability, your chances of becoming disabled early in your life is probably way higher than it is that you die early in your life. So yes, having that disability insurance in place. I always think too, like if you have it in place and maybe nothing will happen to you because you're prepared for it. You know, when you're prepared for things, lots of times they don't happen. Murphy's law though, if you don't, they do.

Exactly, exactly. So, um, you know, after you have all of these things taken care of, maybe we talk about leaving a legacy behind. That's another thing that people do for their loved ones and those they care about.

Lots of different ways to do that, but there are better ways to do it than others. And so you want to leave that legacy in the most efficient manner possible. Uh, you also want to have instructions of what to do if something happens to me. That involves pre-planning, that involves talking about the social security and pensions like we have, that involves beneficiary designations on your bank accounts and brokerage accounts. That involves knowing how to pay the bills, knowing where the assets are to pay those bills, your documents, you know, where are the important legal documents? Children, I don't want to divulge all of my personal business to you, but at least you know where the documents are.

Where to find them. Exactly. Please have those conversations. You have to prepare the money for the people, but you also have to prepare the people for the money, right? If you've got a million dollar, $2 million net worth and you suddenly drop that on little Johnny at 21 years old, um, is he really ready for that responsibility? It's funny you say that too, or even knowing your, your kids in general, like I know I have one that's a saver and one that's a spender to make sure that he only gets his money and she gets hers so that, and they don't get it all at the same time because just like you said, I'm afraid that he'll just blow it and it'll be gone.

I've seen some real creative ways to control that too. If you care about that, if you've got one child that's a spendthrift or maybe you don't fully trust their judgment, um, or maybe they're married to the wrong person that, uh, the in-law could become the outlaw very quickly. You know, there are ways to structure the legal protections around the money to, to have control over those even after you're gone. And a will, a simple will or a simple beneficiary designation tells the world who you want your money to go to after you're gone. But once it's in their hands, it's theirs to blow and it is completely up.

Yeah. Certain types of trusts, and I'm not an attorney, but I know where this is utilized. Certain types of trusts allow you to continue to have some element of control over what happens to the money. So that's good to know. And between your advice and maybe meeting with an attorney that does know how to set up these avenues of giving, uh, leaving your legacy. That's great to know. I know the other thing I don't know that we touched on it is making sure that all your accounts have the correct beneficiary on them as well.

That's a huge thing. Uh, especially in today's world where we've got a second and third marriages and mixed families, uh, make sure those things are up to date. I have seen horror stories heard even worse, uh, about where, you know, that just has not been updated and the money did not go to the correct person. I've, uh, I had a lawyer that, um, came in and we did an interview for a podcast I did called Dashtown and that was about our local community and, and it just highlighted local business owners, but he gave a story of a guy that passed away and then his two different wives showed up and, uh, this, this made big news there. That was his case study in law school for why it was necessary to update those legal documents. So anyway, and if you need help doing all this, you know, Peter's here with Sean planning helps people like you and they help savers investors better determine their outcome and make their goals their reality. You can reach out at nine one nine three hundred five eight eight six or find them online at rishon planning.com.

It's spelled like rich on planning. And now we're going to get into the three biggest retirement expenses and how to plan to control them. Yeah, let's do this.

I know we don't have a whole lot of time, so let's, uh, let's jump through them. Okay. All right. So basically adding up the costs. Retirement's kind of expensive. Yes. Right. That's why we need to save and invest and grow our money aggressively.

But guess what? If you don't identify the expenses that you're going to have in retirement, it can be even costlier because by identifying them, you can begin to control them. So number one on the list is our largest known expense. And this may surprise you, but even debt free people have a pretty large debt that they've built up typically right inside their retirement balance.

It's the debt to the IRS, the unpaid taxes. Taxes are our largest expense in retirement. Our largest known expense in retirement, probably going to be taxes. Our largest potential expense, probably going to be healthcare. And we talked a little bit about healthcare, but the health view services study in 2017, so this is actually even a few years old, said a healthy 65 year old couple entering retirement can expect to spend $321,000 on Medicare premiums alone. Medicare premiums alone. That's not the care over the course of retirement.

And if you add in copays, deductible, hearing, vision, dental, that figure on average is about $404,000 and then longterm care can be an additional $6,000 to $7,000 per month starting in addition to the regular expenses that you already have. So the largest potential expense is healthcare. You've got to think through that one carefully. And then inflation is the silent thief.

That's the one that eats away at your purchasing power without you even realizing it. And all three of those things you need to plan for carefully and we do that in what we call the optimized retirement plan. It is a specific written plan for generating retirement income and it also helps you minimize the taxes that you'll pay, addresses the cost of care, and then talks about how to keep up purchasing power and fight off inflation.

That sounds great and I think this would be a great gift for any loved one that you have to make sure this is all in place and set up so you can leave a good legacy and they remember you fondly when you're no longer here with us. But again, if you like what you hear and you need a plan and would like to have somebody in your corner helping you look at all these accounts and figuring out what to do going forward, give Peter a call at 919-300-5886 and you can reach out and get that free, there's a pop up, I think you said Peter, right, that pops up on MichonPlanning.com and fill that out too. And you get the free book. The free book.

Understanding Your Investment Options. Hey Kim, quick math problem for you. Oh boy. Okay, so 2 times 3 times 7 times 10 times 52 times 20 equals 436,800. Now what is that? Forty-six. Four hundred and thirty-six thousand eight hundred dollars.

Dollars in this case. That's my retirement cost. That's 2 people a day eating 3 meals a day, 7 days a week, for an average cost of 10 dollars a meal, 52 weeks a year for 20 years.

Food costs alone could be 436,800 dollars in retirement. You got a plan. When you start adding it all up and then you want to go on vacation, yeah, really everything adds up quickly and having a plan in place will definitely help you get through those retirement years so you can enjoy them and be happy and give more gifts to your loved ones for Valentine's Day. The plan is confidence. Having the plan in place is confidence throughout retirement.

Confidence is quality of life. Let's just get a plan in place. I don't know, you know, if we're all going to be in the same place when we get that plan, but at least you've got more confidence with where you are. And you have someone to go to if you just can't figure something out or you just want somebody on your team, on your side to say, yeah, you're doing the right thing here and you're going to leave a great legacy and be able to afford your retirement.

Yep. Well, Kim, I appreciate you being on the program and doing a great job and thinking of these issues and encouraging people to kind of question what they're doing with their money and think about some important aspects and issues. But that's what we're here for. You know, we help people with that. And if you'd like to give us a call, 919-300-5886, 919-358-86, or jump online, richonplanning.com.

Always a pleasure. They say timing is everything, but any broker or investment professional that wants to keep their license will flatly tell you that it's impossible to accurately time the market. Hmm. So doesn't this conflict make it virtually impossible to know when it's the right time to retire? That is, at least if your retirement plan is based on investments and the theory of asset allocation. Asset allocation was a theory that aimed to diversify your investments across different asset classes like stocks, bonds, or real estate, for example, based on the theory that different asset classes behave differently depending on economic and market conditions. The theory goes that when stocks rise, bonds will fall and vice versa. So you should own a little bit of each.

Sounds great in theory. The problem is, as we all found out too painfully when virtually all asset classes lost, this theory is not always true. In fact, this financial model is also known as the Modern Portfolio Theory and it's 65 years old. Not so modern anymore.

The world certainly has changed in 65 years. Maybe it's time for this theory to retire too. The real problem is that if your plan is like most people's and based on asset allocation alone, your retirement is completely a blind attempt to hope to correctly time the market. So if virtually every financial advisor will tell you that it's impossible to time the market with a single investment, why are they so willing to try to time the market when your very retirement depends on it? You see, with asset allocation, if you are in retirement, withdrawing from your savings to live and suffer large losses, especially early on in the first several years, it can be devastating. But we can't time or tell when those bad years might be right around the corner. Can you see how under the old way timing is everything? And is good timing, or sheer luck, something you want to base your lifetime financial security on?

You do have a choice. A plan based not on speculation but on certainty, one that addresses retirement's greatest risks, provides an income that cannot be outlived and potentially can offset inflation. In short, it's a plan that removes doubt and worry and replaces it with peace of mind and confidence. Income allocation is a retirement plan. Income allocation creates a predictable, measurable and sustainable income stream to replace your paycheck that will not fluctuate and is guaranteed to last through your retirement. Income allocation eliminates longevity risk, the possibility of outliving your money, because the income is guaranteed for your lifetime, like a personal pension. It eliminates sequence of returns risk and the chance that timing doesn't work in your favor, because you'll have sufficient income to cover your lifestyle needs without being forced to depend on a volatile market. It eliminates withdrawal rate risk, because you have a plan that guarantees you will not run out of income. Income allocation protects you from a major stock market correction in a way that asset allocation simply cannot.

So ask yourself this simple question. Is trusting my retirement to a 65-year-old theory, one that has already proven to fail and in fact predicts failure for up to 50% of the people following it because it is completely based on luck and timing, really your best choice? If you'd like to consider other options, then let's discuss. Contact Rashawn Planning today at 919-300-5886 or email us at info at rich on planning to request a free copy of the book Retirement Planning for Geniuses or to schedule a personal meeting with one of our retirement advisors. You do have a choice on how you choose to retire. Instead of hoping to time the market, shouldn't retirement be about enjoying the time of your life? Let Rashawn Planning show you a better way. Thanks for watching.