20 Planning Matters Radio - Richon Planning

If you fail to plan, plan to fail.

How do you want your future to look? We want you to plan for success. Welcome to Planning Matters Radio. Peter Rochon here.

And I'm Amber Rochon. We welcome you into Planning Matters Radio. Rochon Planning is your local financial retirement investment advisory firm. We are a fiduciary firm. I am a local Dave Ramsey SmartVestor Pro and today on the program talking about money, finance and all of the challenges that we face trying to build for and achieve financial security and stability. I help to protect assets, identify opportunities and make sure to protect your paycheck into and throughout retirement. And my lovely wife Amber helps to protect that paycheck during your working career. I'll focus more on the supplemental insurance, health insurance and life insurance as well as 401k. And so combined we try to and strive to protect your paycheck through all walks of life and there are many challenges to protecting that paycheck. What if you're injured? What if you're sick?

What if you have an accident? What if in retirement there are market corrections or you're spending through your money too quickly? How do you make sure that you can rest assured and be confident in your financial situation and your lifestyle? How can you make sure that those that are dependent upon you are also confident and comfortable in their lifestyles? That's mainly what we do at Rishon Planning. We've been practicing for a combined about 25 years. If we do not have the product that suits you and or your family's needs, we have the relationships with people who can assist you. If you would like to give us a call, we can offer a complimentary portfolio financial review. We'd be happy to do that for you. Just give us a ring at 800-338-5944.

That's 800-338-5944. Amber, you know what I see is one of the biggest challenges to building and maintaining financial success and confidence? What's that, Peter? Procrastination and apathy. Too many people not paying enough attention or not caring to pay attention to their financial situation. Folks, you don't have to spend a great deal of time doing this. You don't have to be a full-time financial planning professional, but it does deserve some time and attention. Maybe 30 minutes a month would be ample time to make sure that your plan is on track, that your investment portfolio is doing what it should, that it reflects your values and your goals. Yet, Amber, we have a retirement crisis in America and you know why?

Because not enough people spend that much time on it. I think most people get three extra dollars in their paycheck and they've got a Gucci bag. Buy a cup of coffee.

They've got a Gucci bag on their side and they're pushing their shopping cart ready to put 10 more things in the cart. Look, guys, it's super important that you focus on where you're going to be when you cannot earn a paycheck anymore. And I get it. I mean, making ends meet is tough. I grew up in a single parent household.

My mom was a teacher, so it's tough sometimes to make ends meet. But you also need to take your planning and your financial future seriously. Now, no one can take it with you, so don't not live today and save every penny and not do anything that makes life worth living and fulfilling all of your life because I've seen both sides of this. I've seen plenty of people that were scared to spend any money and then they pass away with a pile of it and their kids blow it in about 16 months. But I've also seen plenty of people who haven't taken the small amount of time and dedicated it to just making sure they're on track, to setting up ways to automatically save a couple dollars a month toward retirement and then we get to retirement age and we're not able to retire or we don't want to be forced into lowering our standard of living, changing our comfort level in retirement just because we haven't been serious enough, haven't taken the time to dedicate a minimal amount of that time and to take a few dollars and put them away towards our financial future.

I know there's a ton of people out there like that. I'm sure there's quite a few people too who have not even reached the point to where they're thinking about retirement. They're still worried about if they get hurt or sick on the job and they can't pay their bills.

If you guys are in a situation where you get hurt and you cannot work, we have the products for you. You know when you should start thinking about retirement? When's that? The day that you earn your first dollar. The day that you earn your very first dollar, you should start putting some of it away for the future. Now again, bills are bills.

They are real. They are due today and that cup of coffee and that nice flat screen TV and the kids need this and that seems to pop up higher priorities, more immediate needs, but we really have to focus on putting something away towards retirement. Studies are showing we do have a retirement crisis. The majority of Americans would change their standard of living if they missed just one paycheck.

If they were out of work for one month, it could spell financial hardship. Retirement is 30 years or more of unemployment. How are you going to make that money that you've saved last for 30 years, especially if you haven't even taken saving that money very seriously? We do have plans.

We can set them up for you. We can talk to you about how to establish IRAs or Roth IRAs or brokerage accounts where you can invest for more immediate purchases, but you can grow your money over time. We can help you analyze your company 401K, make sure that you're taking advantage of the match, but just make sure that you've got some savings going so that when we get to retirement, we can make something of it and we can protect our standard of living.

How much do we need or how much should we or I be saving for retirement? Dave Ramsey says that after you've gone through the baby steps one, two, and three, baby step one is have $1,000 in the bank. That's your emergency account. Baby step two is handle any and all debts that you have except for your house.

Do them in order smallest to largest. That's the debt snowball. That's really what Dave is maybe most famous for, his debt snowball process. Step three is fully fund your emergency account.

Now we're really building up some cash and that cash purpose is to avoid emergencies and avoid going back into debt. Step four is beginning to save for retirement and invest. Dave suggests that you save 15% of your income of every dollar that you make and dedicate that toward retirement.

I've heard pay yourself first, pay yourself the first 10%, but do some quick math here. Most people's careers is about 30 years. 30 years, if we're saving 10% of the money that we've made, by the time we retire, we've saved a whopping three years worth of income. Let's say we got fantastic returns over that 30-year period and we doubled, we quadrupled, we've now got 12 years worth of income. Again, retirement can last 30 years, 30 years plus. In fact, one of the flaws that the financial experts are seeing in the way that retirement plans are designed is that they traditionally have only been designed for 30 years and many people are living longer than 30 years in retirement. Our retirement can be as long, some cases longer, than our working career.

Stepping that up from the 10% to the 15% really gives us just a little bit more juice. Now, how much should we have for retirement? That's completely an individual type of question because some people would be absolutely fine having saved only 100,000 or 200,000 for retirement. Some people need a million or two million.

It all depends on your budget and how much your expenses are. I remember a day pretty early in my career, I was excited because I was going out to meet a cardiologist. He was working at a local hospital. I had a conversation with him on the phone and I was pretty excited because everything that we talked about, I understood that he had some sizable assets. When I got to meet him, we started to talk about what he envisioned retirement to be about and what his budget was. He was spending about $400,000 to $500,000 a year and he had less than a million saved. He wanted to retire in just about five years and I broke the news to him that in my opinion, he needed to make a lot more progress or cut down substantially on what he was spending.

He did not agree with me and that same day, I also had an appointment with a deli manager at a grocery store chain. This deli manager, the conversation, he didn't have nearly as much saved but when I had that same conversation with the deli manager about what he envisioned retirement to be about and what his expenses were, he was going to be more than fine with the amount that he saved because his social security alone was going to replace enough income for him to maintain his expenses and his standard of living. The moral of the story is there is not an earmarked, arbitrary amount of money that says you're ready to retire.

It could vary widely. It could be $100,000, it could be $200,000, it could be that you've got a million and a half dollars saved and you're not ready to retire. Similarly, your age doesn't tell you if you're ready to retire. I saw a recent stat that 9% of workers planned to retire before the age of 60. Something like 23% planned to retire at age 65 which is Medicare age. That's probably the reason why that one's substantially higher but more than 38% of those polled said that they didn't plan on retiring until age 70 or that they never planned on retiring at all.

Let's back up just for a second. I know that you said that there's no arbitrary amount of what I need, $100,000, a $200,000 amount for me to be able to retire, but let's break that down for a second. Let's just say, and I'm sure I'm saying this because I know there's tons of listeners out there that have not started for retirement or have not started saving for retirement that are making $40,000 a year, $50,000 a year, $60,000 a year. Let's break that down. $100,000, I've saved for myself.

I'm feeling proud of myself. I've got $100,000 in the bank. If I'm only spending $20,000 a year, does that set me up properly for retirement? No, because quick math on that, if you're spending 20 and you've got 100, you've got five years worth of income there. It boils down to budget.

Let's break this down. What should we be doing and how do we know if we're making progress? Your first step is if you've got a 401k with a match on it, you absolutely should be contributing to that. Whatever the match is, that's an instant return on your money. There's no other place where you can get that kind of guaranteed return investing money. If they match 100% dollar for dollar up to 5% of your salary, you should be contributing 5% of your salary because that's 10% automatically of your salary each year that gets saved. You are getting a 100% return on that investment. Even if they only match 50%, you put in $10, they give you five.

There's no other place that you can go and you can get that kind of guaranteed return where $10 is going to turn into 15 for you. So we contribute to our 401ks. That's for folks who have the ability to do so and have the match and have the match. Do I have another option for myself if I'm in that middle income tax bracket to be able to start saving without a 401k?

Sure, absolutely. And even with a 401k, you can save on your own independently, but not in a bank though, right? No, absolutely in a bank.

If you want the 1%, right? Or in an investment vehicle that's got the opportunity for more growth, but your IRAs or your Roth IRAs are the second place that you would go. And it depends on your tax situation.

If you need a tax break today or if you believe taxes are going to go up in the future. And some people are saying that I don't have a Roth IRA. I don't have a 401k. It's an individual account.

You set that up for yourself. So when you work for a company and they offer a 401k, you are a participant in a plan. And if they offer it to the CEO or the janitor, they have to offer it to you. But you are a participant in that plan. If you are saving on your own, you're the owner of that account. The difference is that the company has already set up the account for you. If you want to save independently, you have to set that account up and then you can begin contributing to it and you can decide what investments to invest in. But for my folks out there who have their money in a banking account, pick up the phone, give us a call.

800-338-5944. Your banks are giving you a very small percentage of return. You want to take a different look at some different options for that money that you're saving.

Yeah. In fact, excess cash in the bank is losing purchasing power. So if I did have $100,000 sitting in the bank, I am pretty secure with that, right? It's safe. I can get to it when I need.

It's liquid. But I'm earning 1% on it. And then at the end of the year, I get a tax. I get a 1099 and have to pay tax on that 1% that I earned.

So I'm really earning less than the stated interest rate. And money is a terrible multitasker. Well, inflation is real, right? So the cost of goods, the cost of living goes up every year. So historically, inflation has averaged 3%, which means that my $100,000 just lost 2%. And I think that people would feel differently about keeping their money in the bank if they had to write a check for that loss of purchasing power.

I call it losing money safely or lazy money. And so if you've got excess cash over and above your emergency account sitting around, you really need those dollars to work for you. Your dollars are your employees. And you need them to work for you to create an income to live in retirement or to grow that income base for your retirement.

And so we can set that up for you. I can help you decide and select the investments to take advantage of in your 401k or outside the 401k if you want to get some savings going. There are options there as well. And 401k, by the way, is not the only kind of plan like that.

There are lots of them. If the military has the TSP, nurses, hospital workers have the 403b, higher income individuals have some options as well. If you own a company, you're the single employee owner, and you're bringing in a substantial income.

I had an example. A gentleman came in the other day. He was earning like $900,000 a year. He was looking for a way to save money.

And we opened up what's called a 412e3 for him. He can put away up to $225,000 a year into this plan earmarked specifically for retirement, defer and delay paying the taxes on it, because he's under probably the correct assumption he's going to be in a significantly lower tax bracket in retirement. Now I don't make that assumption with everyone, but when you're talking about someone earning close to a million dollars a year, once they retire, they're probably going to live off of substantially less than that. So there's plenty of ways to structure the plan under which you save. But the bottom line is you need to be saving. And then the second part of your question was how much do we need once we get to retirement or to know that we are prepared for retirement? I do some quick back of the napkin math on that. And it does involve the budget.

Nobody loves that word. So let's simplify the budget. Just look on your bank statements.

How much are you spending? And I like to ask people to bring their last 10 to 12 months worth of bank statements. Let's look at the front cover. We don't have to dig through every penny, every expenditure, every time you've stopped for gas or a cup of coffee. Just on the front cover, you've got four numbers, your beginning balance, your credits, your debits, your ending balance.

The debits is what I'm concerned with. That's how much you're spending. That's how much it takes for you to support your lifestyle. Let's figure out what that average is out over the course of about a year.

And that should tell us what you need to maintain your lifestyle on a month to month basis. Take that number, subtract any sources of income that your money, that your investments don't have to generate for you. So Social Security, and if you've got a pension, subtract that. What's left is called your income gap. Your income gap is the amount that your personal savings are going to have to generate for you.

Multiply that by 12 to get the year's worth of income gap. And then multiply that by about 25, because retirement can be a long time. And then multiply that by your tax rate if you have deferred paying taxes, because taxes don't go away in retirement.

That gives you the approximate retirement number. And this is an exercise I go through with everyone who is asking me, am I ready to retire? Whether it's 10 years out, 15 years out, or you're planning on retiring in two years, this exercise is going to indicate how prepared are you, or if we need to maybe adjust those goals. Here at Rashaan Planning, our goal is to help protect people through all walks of life. And Peter, you do an excellent job of helping people get to and reach their retirement goals. What would you say the most important thing is when planning for retirement? That you do the work. My job is basically to create the plan, but I can't force you to abide by it, right?

I can basically create a checklist, timeline, action items, recommendations for what people should be doing, but the responsibility for that is on our own shoulders these days. And that's not the case a generation ago. If you look back at retirees in the late 70s and the early 80s, most of them had pensions from a company that promised to support them for the rest of their years throughout retirement. Companies stopped doing that.

They're all in big trouble now. They realized how much of a burden that was, how much responsibility that involved financially. And they said that it didn't make sense for their business's bottom line. And so they came up with a 401K. They cut pensions down and they told people, hey, start saving for yourselves. The problem is that not enough people started saving for themselves. And so the responsibility of it is really the hardest part. People have to take this serious. They have to be proactive. I'm sure there are a lot of people out there that are saying that I cannot afford a financial advisor.

What would you say to those people? Well, if you can't afford these type of things today, how is it going to be when you don't have a paycheck, right? The cost for the financial advisor is negligible.

It's minimal. I'm talking about the cost of actually saving that money that people need to focus on. My services basically pay for themselves. I can be compensated in one of three ways.

There are three different compensation models for financial advisors. There's fee only. They charge for their time and their expertise. It's up to you to enact those recommendations.

You have to manage the recommendations that I send to you. There's fee based. That is, I am helping you on an ongoing basis, monitor, manage, rebalance, implement the planning. And based on the amount that has been invested, that's how I make my compensation as a percentage of that balance. And that fee should be justified by an increase in your performance, right?

So again, it's paying for itself. And that incentivizes you to do better because when you do better, you make more money. We both want you to make more money because when you make more money, the advisor makes more money.

And we're paid a lot more on the last way, right? Which is where the company pays us. So commission based. You know, there's, there's this stigma of moral superiority in the financial world of making fees versus making commissions. And I think that it's somewhat misplaced because there's nothing wrong with making a commission off of a sale if you stand behind it and you provide ongoing service. Now I get it that some financial advisors make a sale and then ride off into the sunset and you never see one. We do not do that at Rashaan Planning. But that's problematic to me. If somebody is making a large amount off of a sale and then does not provide the service after the fact that they got compensated for, that is an inherent problem.

Yes. Bottom line here is yes, we can make compensation off of the third style, commission based. If there is a product out there, and the most common example of this is like life insurance or annuities, I don't manage life insurance. I just have access to the companies that do. And so if somebody needs life insurance, I go out and I shop all the companies and I find the best one. That company is going to compensate me and pay me for finding a suitable client that needs their product. And yes, there's one claim, death. Right.

And we are monitoring that on an ongoing basis. Can we find a cheaper policy during your lifetime? Can we find one that provides better benefits? Can we maintain the same cost and increase the death benefit? I'm sure there are a lot of people out there that are holding a traditional life insurance policy, whether it be term insurance, which means it ends at a particular time period that you've selected 10 years, 20 years, 30 years. That is a way to get a lower premium, a lower cost to you. Or a second way that you can pick up is a whole life insurance policy over a period of time.

Usually it taps out at a hundred, which you owe no more premiums on that. But if you're holding one of those two policies, it may be a better benefit for you if we take a look at that. Because these days what I know what Peter and I are concerned with, I'm 37 years old, he's 38 years old. What if one of us was tapped out? You know, Peter is the higher income earner in our family. What if he got sick with a terminal disease?

What would we do? We have tons of life insurance policies that could actually help you pay for those medical expenses that you have. Yeah, even long term care. A lot of the newer types of life insurance policies actually offer, they call it a bucket of money concept. The insurance company knows they're on the hook for a bucket of money with 100% certainty you are going to pass away at some point in time, there's going to be a death benefit.

The company understands that. But what if you get sick before you pass away? They still know that they are eventually on the hook for that money and they will allow you to use it during the course of your lifetime. They will advance that death benefit to you to pay for those care costs. So a lot of the newer styles of life insurance for the same costs that people are paying for that old one include that additional benefit.

And some people have already built up that cash value and could pay off such a policy and never have premiums again. I talk a lot about my grandparents on the show. I love them dearly. They raised me, they're the love of my life. And both of them have unfortunately passed away. And, you know, they owned a very successful heating and air conditioner company my entire life. And as I watched them get older, they both got sick with terminal illnesses at the same time, one with kidney failure and the other with colon cancer.

And, you know, with that successful business and the lump sum money that they had squirreled away, which I call their legacy, that they should have been able to leave for their children, was burnt up. You know, they want all of your money before they will pick up and offer Medicaid. And I know most people want to go on Medicaid.

No, no. And most people are thinking, oh, whenever I turn 65, all my medical expenses are taken care of. You know, I have Medicare and it's all good.

But to be honest with you, that's not the case at all. They depleted every single last dollar that my grandparents had squirreled away. And, you know, then then they got the care that they needed. And some people say, well, if that happens to me, if I don't have a good quality of life, I'm going to take a long walk off of a short pier. Well, you know, the nursing home has locks on the doors and they're intended to keep the residents in and alive and paying. So it's not as easy as you think when that quality of life unless you live in Oregon.

No, I mean, it's just not realistic. Plus, your loved ones don't want to make that decision. And so a financially responsible person is going to put in place safeguards and mechanisms where they can remain financially independent, even if they become care dependent. And that is a part of the life insurance that I think is overlooked a lot of times.

Now, we were talking about compensation, right? Let's go back to that for a moment, because when you purchase that life insurance policy, when you purchase an annuity, there is a commission that's generated. And in the financial world, especially I think on the annuity side, there is a stigma that that is somehow a less in genuous way to make money internally in the financial industry. There is a conflict there between fee based advisors or fee only advisors and then commission based sales.

And they look at each other as evil or less than. If I could take two identical people, same situation, and in one case, they've got $100,000 will say, I can protect their money, I can give them a lifetime of guaranteed income. And I am compensated not out of their pocket, but from the company that offers those guarantees. And then on the other hand, I could take that other person's same $100,000 and put it at risk in the market, give them no guarantees. And over the same time period, I make more money except I take it out of their account rather than the company paying me. I just don't see where there is one that is better than the other.

And I know that that is not how it's viewed, but do the math. And oftentimes the fee based advisor is making more money. That's not the problem to me. The problem is in the service that they provide.

Are you getting what you are paying for? And we explain how we make money before any transactions are made. We explain the process, we explain the pros, the cons, the benefits, the disadvantages, what you should expect to get out of that transaction. And we're very straightforward with that. But in my opinion, there is no one approach to planning that is better than another all the time. It is very situational.

It is very specific. What do you need in your plan? Do you need to build and grow money? Fantastic. That's probably some kind of investment based management. You've got time on your side. You want to turn $1 into two and hopefully into four eventually.

Fantastic. The stock market and investing in equities is probably the best route to go. On the other hand, if you've already built up an amount and you're not going to plan on working any longer and you need to replace that paycheck, the uncertainty and the volatility of the market is not just uncertainty and volatility in the market.

It's uncertainty and volatility in your lifestyle. And so maybe then the approach is not the best to ride out the market. At that point in time, the safety, the guarantees, the predictability of lifetime income probably does play a valuable role in your comprehensive planning.

And again, this is all part of protecting your paycheck through all walks of life is you've got to understand all of the tools out there and when and how each one is appropriate. That's where the value of paying for a financial professional really pays off. Costs shouldn't be an objection. It shouldn't be prohibitive to you. And that's why we offer the initial meeting on a complimentary basis.

In about an hour's time, we'll help you answer and address straightforward your questions and we'll help you understand where you're at and what possible options that you have to make more progress or to achieve your goals. And if it's not for you, it's not for you. If we're not the right fit, then we're not the right fit.

You're under no obligation. We sit down with you. We have that conversation. And I've got my new book, Understanding Your Investment Options, that if you do want to know what choices you have and the pros and cons of each and when and how they're appropriate, this book goes a long way in helping you get that understanding. Give us a call.

Love to hear from you. Again, first 10 callers to the program along with that complimentary review and that consultation. We'll offer you a copy of the book, Understanding Your Investment Options. Call now, 800-338-5944.

That's 800-338-5944. Always a pleasure having you along with us. We'd love to hear from you. Again, this is Amber Rachan and Peter Rachan. From our family to yours, we look forward to hearing from you soon or talking with you next week.

Happy Easter, everybody. Look forward to talking to you soon. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal.

Advisory services offered through Brookstone Capital Management, a registered investment advisor. Annuity guarantees are based solely on the financial strength and claims paying ability of the issuing company. Withdrawals of growth from annuities may be taxable as ordinary income in the year it is taken. Individuals should review contracts for specific details of the product's features and costs. Early withdrawals may subject the owner to penalties, fees or taxes. Piduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.