2022 EP0212 - Planning Matters Radio - Caring For Loved Ones

Music Playing He's a trusted smart investor pro.

He's the author of Understanding Your Investment Options, and he's a fiduciary financial investment and retirement planner serving clients throughout North Carolina. Peter Rachan, welcome to the show. Another fantastic adventure in the world of high finance and discussing your money, your investments and your retirement planning. Scott, so glad to be here and thank you for being part of the program. Well, if you want to talk to Peter Rachan, you can call him at 919-300-5886 or go to his website, www.rachanplanning.com.

That's www.richonplanning.com. Today, we're going to be talking about what really one of the most important, in many ways, the most important aspect of finance. It's the effect of caring for loved ones and how our finances can affect that. Right, Peter? You hit on it, Scott. Maybe the most important thing about our money. And as a guy, I would be fine living in a tent in the woods, eating tree bark. Like, really, you know, to me, I mean, That's pretty good to me.

Right. I mean, I think that us guys, we tended to have that attitude, but we still work hard and strive to earn money so that we can provide ourselves maybe a slightly more comfortable living, but truthfully provide that comfort and security and confidence to our family members, to our loved ones, to our spouses, to our children, to our grandchildren. I feel like I, my son's still young, he's 12, but I serve as the financial backbone.

I don't plan on supporting him forever, but if he ever needed to, I hope to be a place where he can come to for support. Certainly for my wife, I want to be able to provide that. And I'm even in the position where I am providing now my parents with some level of financial guidance and help and assistance. So, you know, I've heard that this sandwich generation is a real phenomenon. And when it's discussed, it usually seems like it's a little bit older than I am.

I'm 41. I hear it discussed a lot with the baby boomer generation, which I am the very young edge of Gen X, but I am seeing it. And it is a real phenomenon where we are more and more tasked with providing that financial support for family and loved ones. And at the root of it, Scott, isn't the ability to do so the number one most important thing and priority with our money? And it's not just doing it, it's knowing that you could do it if the situation came up and the type of confidence and security that that brings. Right, Peter? Yeah, the fear of the unknown emergency that's just around the next corner, just above the horizon.

Yeah, right. I mean, we want to be able to provide for the what ifs in life. What if the car breaks down?

What if the tree falls on the roof? What if somebody gets sick? What if we've got college expenses or we've got other things that come up? What if we want to buy a new home or new car like there are so many what ifs and then there's always like I can't think of another one. But what about the unknown? Right. What about that thing that's right around the corner that we don't know about? Those are those are the things that we want to be prepared for. And if we have a plan in place, if we have shot holes through that plan and it still works, if we go through the planning design and discussion as though Murphy's Law was going to be reality into the future, we can move through life with a pretty high level and degree of confidence with our money so that we can do the things that are actually really important to us is support that family, spend more time with them, create memories, have experiences, go on trips and have a fulfilling lifestyle.

Nine one nine three zero zero five eight eight six is the number if you want to talk to Peter Rishon himself. Now, Social Security, isn't that supposed to be that safety net that accounts for all these things? Is that what it was once supposed to be?

Is that still what it is now? Can you kind of take us through the Social Security situation? Well, it is supposed to be a safety net, but it's a very low threshold of safety, right? When you use a safety net, that's not the desired outcome. But trapeze artist is the one that I can quickly think of that uses a safety net falling into the net is not the goal, right?

They want to stay up on the trapeze. Well, relying on Social Security exclusively is not the goal. We want to establish a higher quality of life in retirement. Social Security was is has been was created as an anti poverty measure. The intention of Social Security is to keep the public and specifically disabled, elderly, retired individuals just above the poverty line. Well, the poverty line is exceedingly low. If you are qualifying at the poverty level, really, you've got some major, major quality of life issues. I'm sorry to say that, but it's true in an American society. What we consider poverty is just poor in other countries, but it's poverty here. And it it really is not a the high quality of life that most that would listen to a program like this are used to and accustomed to. Unfortunately, even with that fact, there are probably still a good number of listeners to this program or viewers of the podcast that don't have much of a supplemental plan to Social Security, because statistics show that about 40 percent of the American retired public relies solely on Social Security as their source of income, which either means that a lot of people are keeping expenses really, really low or that we have not done enough to save and prepare and build up some wealth to supplement Social Security.

And my thinking is that way more falls into Category B there. So Social Security is at best a piece of the pie, a part of the equation that you'll be looking at in your financial planning. Another thing that people talk about a lot, but I'm not sure how much people really understand is pensions.

Yeah, I feel like that was something that my grandparents or my parents talked about a lot. Well, I have my pension. I'll always have my pension. They can't take my pension. What is a pension and how relevant is that in today's financial world? Well, let me back up for a moment and say that both of these are part of today's conversation, caring for loved ones, because both of them have implications that ripple after our own lifetimes.

Right. Between a married couple, the choices and decisions that you make with Social Security will last not just for one person's lifetime, but for both people's lifetimes. And in some instances and qualities, even after both people are gone, impacts on the next generation. So both of these are very important for careful consideration with how we use money to care for our loved ones. And we tend to be, as humans, very short sighted in a lot of ways, especially when it comes to our money. Sometimes we make decisions with our money that have negative consequences by the end of the day, or it's hard to make a decision to know how to handle money that has implications toward the end of the month. But Social Security and pensions, these are lifetime decisions that we may make that decision at 62 or 65. We might not feel the ultimate impacts of that decision until 85, 92, or our spouse feels them after our lifetime. So, you know, there are plenty of decisions in life that I can remember that have lifetime implications that were good decisions. The opportunity to take a job that I jumped at and it worked out very well for me.

Going out on the first date with my wife, you know, a fantastic lifetime decision. But I also can think of a couple lifetime decisions or decisions that I made that were not so great decisions that impacted my life. Social Security is one of those. You don't want to look back when you're 80, 85 years old and say, wow, we really messed this one up.

We should have done that differently back at 62. So there's not necessarily an always right or an always wrong answer. There's kind of two schools of thought on Social Security in particular.

Take it at 62 or take it at 70. Neither one of those are universally right. Likewise, with pensions, which in essence are an annuity offered by your company. Social Security is an annuity that has forced enrollment through the government.

I laughed when Obamacare, the Affordable Care Act was was sort of first being discussed and people were like, the government can't force me to buy insurance. Yes, they can. They've been doing it since 1935 with Social Security. And, you know, that's kind of long history as well.

It's been proven that, yes, in fact, they can. But pensions and Social Security are annuities, a promise of lifetime payment offered through different entities. Now, an annuity can be through the government, Social Security, through a company in the form of a pension. You can buy your own private annuities. But at at the core, at the chassis, the the the goal and the outcome of an annuity is pretty similar. No matter which one you're going with or you're looking at or discussing is that they promise you a stable, secure income. And in the financial world, not much can be said to be guaranteed in the financial world as much as anything can be.

An annuity is a guaranteed form of lifetime income payments. So with a company, there are a couple of things that can disrupt that guarantee. One is if the company goes insolvent and you can turn to like Pam Panair pilots or or American pilots or United, there was one other that got renegotiated. You can look at some people who have worked for municipalities. I remember one county in California had to renegotiate pensions that were promised to workers, GM workers.

There have been railroad workers. I know Illinois was battling with its pension funding for a while. So if the underlying entity has problems, then there can be issues with that guarantee of lifetime payment.

The second one is your choices that you make. A lot of people see this high level of income and they jump at the highest one. Well, that, unfortunately, oftentimes leaves their spouse with no income if they predecease them and then leaves next generation beneficiaries no inheritance whatsoever from that pension.

And so you've got to weigh that carefully. Do you take the most income or do you take a reduced income to also cover your spouse's lifetime? Do you take the money in a lump sum in order to personally control it so that you can pass some on to beneficiaries or reach in and pull out of it in case of emergency or premature death? You know, if we get hit by that proverbial bus a month after receiving our first pension check, the rest of that money may go back to the company to pay workers who outlive regular life expectancies. So there's a lot of important decisions here when it comes to caring for your loved ones and making the best decisions to provide that financial support. When it comes to these two big things, the first part of our conversation, Social Security and pensions. Nine one nine three zero zero five eight eight six. It's just all the things we're talking about just underline how important it is to talk with someone who knows what they're talking about.

And Peter Rashan is one of those people again, nine one nine three zero zero five eight eight six. On the topic of Social Security, how important it is for the caring of our loved ones. When you hear about the government borrowing from the Social Security Fund or different things like that, what is happening? Is that something we should be concerned about?

What does that mean? So there was kind of like this little box that was overfunded for a long time. I mean, at its core, if you if you really want to break it down, Social Security is almost by definition the grandest Ponzi scheme ever created. What has happened is that current workers are paying into it while current retirees are pulling out of it. So they are literally using new investors money to pay off old investors.

It's kind of the definition of a Ponzi scheme, but it is a government backed one. And as long as there was money in the box, it was talked about as being well funded. There was this trust fund. Well, many, many years ago, they sort of changed the laws where they could use some of the money that was safely stored in that box for other purposes. And so that trust fund, the Social Security box of money that is set aside to pay each one of us out, because as I am working and paying into it, I have some reasonable expectation to one day also be able to collect on that. Well, that money is not just sitting there in my personal name. I kind of wish it was because I personally could probably go out and get a better rate of return and make better use of it.

But some people wouldn't. And so that's why this system was created to provide that kind of security for society, for our social welfare. But unfortunately, the government being the government, they have created ways that they can use that money in the meantime. Well, they tend to spend quicker than they collect and our debt and deficit and running tallies on just about every line item expense prove that they're not the most responsible handlers of money.

And the Social Security trust fund has been no exception. So, you know, we're probably going to see some changes there. And I think that there are a few things that have been done before to help solidify the system that will probably be repeated, but to a greater extent.

And then I fully expect that there will be some new things that are probably also discussed when it comes time to how do we make this system solvent. I don't think that it's going to go away. I think that the age that we will collect it will change again.

It's changed previously. I think that some of it will end up being taxed at a higher level. It used to be tax free and then they put in a couple of thresholds of income that caused it to be taxable. My young worker here in the office said, what is the Social Security tax that they're collecting?

And I talked to him a little bit about it. And he said, so I'll get that back in retirement. I said, yes, but it'll probably be taxed at that point. He said, wait, it's being taxed now.

I'm like, technically it's not. It's being withheld and held for you until a later date when they pay it back. They might tax it at that point in time. So it sure feels like it's being taxed.

I agree. But anyway, yeah, I think that it will probably we'll see another threshold of taxation on it. And then I think that the earnings limitation on on paying into Social Security, that's something that's relatively new. I think they'll probably address that there's a certain earnings amount.

It's about one hundred and thirty thousand dollars. If you make up to one hundred and thirty thousand dollars, you pay into Social Security with all of your income. If you make ten million dollars, you only pay into Social Security on the first hundred and thirty thousand or so.

And at some point in time, I think they probably address that because the evil rich need to pay in to Social Security for everybody's benefit. Right. Right.

Nine one nine three zero zero five eight eight six. Great clarity on what the type of thing that people get bandied around all the time. But thank you for that clarity on that topic. Yeah, there is no trust fund, basically, essentially. Bottom line, just to clarify that longer explanation to a much shorter one.

Right. So if we can't count on the government to take care of things, what can we do ourselves to maybe take control of our retirement situation? What about what about life insurance? Well, life insurance is a fantastic financial vehicle right there. There are a number of reasons why life insurance is important. We're talking today about caring for our loved ones.

That's number one on the list. Right. Life insurance is there to help protect the people that we love. A lot of times from the debts that we have accumulated or the loss of income that would occur if we were to die prematurely. And so that's at its core, that's life insurance purpose. However, when you talk about the loss of income that will occur when one spouse predeceases the other with Social Security or a pension, life insurance can be a great way to replace some of that income.

Right. It's not necessarily next generation beneficiaries that we're talking about exclusively here with life insurance. And there's a way that we seem to convince ourselves on the day that we retire that we no longer have a need for life insurance, especially if the kids are up and out of the house, off the family payroll, if the house is paid off. And then we look at our lump sum retirement accounts as the largest amount of money we've ever personally possessed during our lifetime. And we look at all those factors and say, I don't need life insurance anymore. Well, the truth in the bottom line is that retirement can be long and expensive. And that lump sum over the decades has a way of potentially diminishing and dwindling down. And so if you can give your spouse the ability to refill that bucket and go on living a fulfilled lifestyle after you're gone, wouldn't that allow you to spend more confidently and enjoy more time together?

A, that's a big one. And then B, what if there are extensive medical expenses, long term care requirements toward the end of life, even if you still have a sizable chunk of money that can be depleted really quickly. So life insurance can actually refill that bucket or it can be used instead of the assets to pay for some of those long term care expenses. So really, at any point in our life, if we've got a spouse, if we've got children, if we've got debt or if we are spending out of our retirement accounts, life insurance is a really, really valuable component and can help us to financially care for our loved ones. Caring for your loved ones, that's what it's all about here on Planning Matters Radio 9193005886 is the number to talk to Peter Rashad himself and maybe get your long term planning in order. What about these long term care expenses?

Is there a point you hear the term bandied about? Is there a point where someone truly is self-insured or is that kind of a myth or a misnomer? You know, if we're paying two hundred dollars a day for a nurse to come into our house for four hours and to tidy up, to take care of us, to cover basic needs that we have, that's fifty two thousand dollars a year on top of the regular expenses that we already had. And as you go up in the level of care that's required, that price tag goes up substantially.

A nursing home room is anywhere from seven to thirteen thousand dollars a month. And that's not necessarily a private room nor the highest level of care that is required. So these these expenses can be extensive and I use that term often, but not lightly. So in saying that, I'm sure if if you've got 10 million, 50 million dollars, you could probably reasonably say I've got the assets to be self-insured.

But here's the thing. The money is what's giving you that confidence. And for one half of one percent of the growth on that money per year. In other words, if you had 10 million dollars and you put it in a bank account and you were earning one percent on it per year, you take half of that and you can probably buy an appropriate amount of insurance that will cover and protect the 10 million dollars that is giving you that confidence. So, yes, there's a wealth level where you could probably say I'm self-insured, but people who can say that like to protect their money.

And so oftentimes it's a it's a it's a factor of leverage. Can I provide protection for a reasonable cost? That's what insurance is, right? If I've got a four hundred thousand dollar home, I don't stick four hundred thousand dollars in the bank and say I'm self-insured. No, I go out and buy the cheapest insurance that I can in order to leverage it to protect that asset. And that's what long term care insurance is really all about. And in fact, any form of insurance, that's what it does. You you try to pay a minimum cost to leverage that and protect a potential catastrophic event or an asset that you don't want to see decrease in value. So for not just the not just the financial standpoint, but also the kind of mental well-being and confidence standpoint, this long term care insurance sounds like a good idea at almost any level. If you can afford if you have enough money to afford not to have it, then you have enough money to afford to have it. And if you don't, then you really can't afford not to have it.

Yep, absolutely. You said it much more succinctly than I did. Nine one nine three zero zero five eight eight six is the number to talk to Peter Rishon. What happens as a financial planner? You talk with individuals, you talk with couples and you talk about risk tolerance philosophies. What do you what how do you deal with when one person maybe has a different saving, investing, planning, lifestyle philosophy than their partner? How do you deal with that discrepancy?

I am a fantastic financial planner, investment manager. Marriage counseling is a little bit more difficult. And I will let you know, like there has never been. I won't say never, but like I don't remember a time when I've had two people who were exactly in line and in sync with their investment philosophy and their risk tolerance. And so there is always a little bit of back and forth there.

I would prefer to do things this way and they would prefer to do things this way. And we have a discussion about that and find a reasonable place to meet in the middle. And, you know, a lot of disagreements occur about money.

So actually, I'll take that first statement back. You know, some of financial planning for couples is a little bit of marriage counseling. Money is one of the leading causes of divorce. So if you can have an intermediary there to help you work through some of those disagreements or places where your opinions on things are divergent, that may in fact partially be the role of a financial planner. Where I find that there's kind of the biggest discrepancy that causes the most problems pertaining to our conversation today about caring for your loved ones, though Scott is not necessarily in the risk tolerance, but in the attitude of that's my job.

I'll handle that. And I see this a lot with married couples more often than not. Like maybe older generation married couples where there is one person that handles the money in the household.

And I'm using air quotes for you folks just listening on on radio. They they handle the money. That's that's my job and my responsibility. And then the other person is completely in the dark about everything and doesn't know where the money comes from, where it goes, how to pay the bills, and then the person that handles it passes away or is no longer able to handle it. And things fall apart quickly. And so we really we have this this prevalent attitude that we're doing the other spouse a favor by doing that.

And really at the end of it, it's almost the exact opposite. We we really do no favors if our spouse and partner is in the dark about financial matters. Yeah. And and that other spouse that is quote in the dark, they may have requested this arrangement. I don't I don't want to hear about it. You take care of it. It's not necessarily it's but but then that comes back to potentially bite them. We talked about all these kind of cautionary tales and things like that when it comes to taking care of our loved ones. What about the other end of it, the legacy, leaving a lasting impact, leaving something that lasts longer than you do?

That's that's a kind of an aspiration or a goal for many of us. How is that in terms of prioritizing, in terms of planning, in terms of caring for our loved ones in the lasting legacy department as we kind of wrap up today? Yeah, well, I will first comment that if that is the desire of a spouse to to not handle.

I do not care. I do not like talking about handling the money. Maybe even more important to have a relationship with a trusted financial professional and one that they are comfortable with.

Even if you are completely comfortable handling the money and the investments, at least having a trustworthy relationship established for them to fall back on. You know, when when looking at legacy, it may not be the top priority for everyone to leave a bucket of money to the next generation. And in fact, 15 years ago in this profession, I heard that a lot more than I do today is that I want to make sure that I leave something behind to my kids. Today, it is if I have anything left behind, it's OK to go to my kids. And so it's not as big of a goal today as it was maybe a generation or a couple of decades ago. Why do you think that is?

What's the shift? I think people are worried about running out of money, just just wanting to make sure that they have enough. And then also kind of the attitude that, hey, I did a lot for my kids during the course of their lifetime. They had it pretty good. They are pretty lucky that that we were able to provide them with the life that they had.

And as a result, they're pretty well established on their own. So they don't need anything left behind. I'd rather enjoy my money. That's not a selfish sentiment in any way. I don't think that there's anything wrong with that. But here's the bottom line is, if you have a plan where you have reasonable confidence that your money will last as long as you need it to your lifetime and a day more.

Guess what? There is a even higher likelihood that it will last more than a day more and that you will be leaving something behind. And in which case you should prepare the assets and the children for that transition or whoever is going to be the recipient. Whether, you know, sometimes it's a church, a charity, an organization, some cause. And there are some great ways to leave that behind. But if it is children preparing them for the inheritance that they may receive, even if it's not a certainty. So I think having discussions about your values, about what it took to build up your wealth, about what you do with your money on a regular basis among families is important. You know, that's something that my mom taught me very young. She was a single parent teacher and making ends meet in the household was not always the easiest thing. And it's what gave me a lot of my perspective about money is we would sit down and balance the checkbook together.

And for me being a Dave Ramsey smart investor pro, I talk a lot about that in the company of my family. My son is 12 years old, but he is just opposed to debt or spending money. He say like he's got his birthday and Christmas money stashed away from the time he was six or seven years old. And he's like, the bank's not paying me much in interest, dad. And I'm like, I know he feels comfortable spending his gift cards, but he will not spend money. And he asks a lot if we have any debt or how much we owe on the house. It's like a concern to him because we've had those conversations. And as you get into later stages in life, I have conversations now with my mom about making sure that she has got her her boxes checked and everything squared away for making sure that she doesn't run out during her lifetime. And we talk a little bit about if there's anything left over. So I think that it's the values in the discussions rather than the value of the transition of actual dollar amounts that are important among families to leave the best and most lasting legacy. The Rashan family taking baby steps to a whole new level here.

That's great. And if you want to talk with Peter Rashan about these great retirement options. And if you want to really, if you just think maybe what would happen if something happened to me? What would happen if something happened to my loved one? What plan do we have in place? If you don't know, you really need to call 919-300-5886 to talk to a Dave Ramsey SmartVestor Pro in Peter Rashan. Peter, any lasting tips you want to take us out on as we talk about caring for our loved ones in this tumultuous financial world? I would say just a quick, quick checklist here.

Pre-planning on any kind of event is important. Discussions about budgeting and spending and expenses, bills, knowing where they are, where they need to be paid. Opening your mail is one of the foundational pieces for financial success.

In today's day and age, having access to accounts, including online usernames and passwords so that somebody can handle things. Having your legal documents in place, having your beneficiaries up to date. Those decisions with Social Security and pensions are important.

Life insurance. A lot goes into it, Scott. And we go over all of that in the optimized planning review and strategy session. And just I know we're out of time, so I appreciate the time today. Give me a call if you'd like to go through that.

919-300-5886. Thanks so much, Peter. And be sure to join us next time on Planning Matters Radio.

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 principle. Advisory services offered through Brooks' Own Capital Management, a registered investment advisor. Fiduciary 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.