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April 14, 2022 10:40 am
The market's reaction to current events grabs daily headlines. If your plan is long-term and only has money exposed to the market that you are comfortable taking some risk with and seeing fluctuate, then volatility is just a natural part of the long-term investor experience, and could potentially represent an opportunity for those properly positioned. On the other hand, there may be a time that even seasoned investors who understand this ignore the risks of the market when they shouldn’t. Listen this week as Peter Richon walks you through the concerns you may have for retirement and savings looking out for your best interest
Plan planning matters.
You welcome once again to planning matters radio show where we explore the personal-finance issues of the day you have a little fun doing it. My guest is always as pure Sean use a Ramsey trust of smart investor Pro and the founder of Sean planning Peter looking to the program. Always a pleasure's gotten today. We have a lot on our plate as far as what to talk about with our money with our finances and how to make sure that despite some may be challenges headwinds to put it mildly. We are still doing the things that we need to do with our money to make progress and to strive toward our goals. Now if you want to talk directly to Peter Sean you can call them at 919-300-5886 or go to his website www.rochonplanning.com that's www.richenplanning.com market instability theater where we we seen it before, will see it again. Were seeing some right now. The question I have for you is, is what's more important, the things that are actually happening in our world, or the way that people feel about the things that are happening in our world. Or is there even a difference. Well, I think, feeling and action are a little different right. We can feel the way that we want to feel about things and when we hear what's going on when we look at the news they actually are trying to pull those emotions out right. If it bleeds it leads. Unfortunately, with the news is the headlines are are always meant to invoke emotion and reaction. Because then we'll stick around and watch them a little bit more and they can get paid by serving us advertisements during the midst of their their headlines so the motion is one part of it. However, the actions that ensue are another, and unfortunately without a plan in place, and without fully understanding how our actions impact our financial progress long term. A lot of people make their decisions based on emotion and emotions are valid. Emotions are important. Emotions are fantastic but emotions often lead to mistakes. We previously discussed that just because we see market volatility. It doesn't mean that we should stop or derail or detract from our financial progress that we should act out of fear. Fear is again a valid emotion in certain circumstances it can help to prevent damage or harm or save our lives, but at the same time. Fear should not be in the driver's seat of making financial decisions. There's an institution called dowel bar Tao bar does an annual study and report on the difference between the market returns and then the returns that the average investor actually achieves there's always a significant difference. The average investor is always on the wrong side of that difference and time after time. Tao bar attributes that to investors make emotional decisions about their money that something that we need to have a plan so that we have a behavioral psychological routine and pattern with our money that helps us to ensure we don't make knee-jerk emotional reactions and that we continue to take the steps needed to make the progress that is required to meet goals that we want to make sure that we're not ruled by our own fear and emotions, but the does the knowledge that other people are likely to have those same fear emotions is that something we can use to our advantage or something to be aware of it it can in fact there some other kind of sayings about the market that that tipped the hat to that premise. Bion room or sell on news is the one that comes to my mind when you say that in this does not work all the time. This is not a scientific proven strategy.
But when we hear rumors of certain things, the market tends to react and often times when those events actually happen. The market goes the other way as like as things are sort of thought about is the emotion behind them are building. We either get euphoric or we have fear and that's sort of reflected in the market and then when it actually happens. The market realizes hey.
It wasn't as good or as bad as people thought and and so it it sort of comes back to par and and then continues along its course and and so yeah that's sort of baked in there that if we are no cognizant of this reality that we could make some decisions on that. But more importantly, Scott, is that we need to have the practical foundations in place. We need to have the fundamental steps and characteristics of a plan to help us actually just to avoid the emotion of it all together because as I said that's not scientific proven.
It doesn't happen every time, and if we somehow fool ourselves into believing that we are smarter than the market, then more often times we are wrong. There's a couple other sayings it's it's that if you wait for the market to behave rationally, you will go broke right. The market always seems to be a little irrational and and and then there's the efficient market theory, which says that everything that could be known or that is known is already priced into the market.
So when were hearing these rumors when we think something may be happening were starting to see headlines that has actually already been included into the inherent prices of the market so as not to be smarter than the market and beat the market and less were neo-Martha Stewart or one of these elected officials that somehow is still allowed to trade their own stocks when they can make policy altering decisions which I we could do a whole show on why that shouldn't be allowed but unless we got that insider information by the way, for regular citizens is illegal, then the efficient market theory basically says you don't know anything that the market doesn't already know, and is not already baked into the prices right right and if if I somehow find out this information likely everyone else Artie knew about it in the first place so how insider Haley is it and if not, and if you act on it. Technically that is illegal, that is, insider trading right so you can't win either way. Either way, 919-300-5886 is the number so we could be reactive emotional things like that when when in regards to market instability. I've heard you say many times before. It's better to be proactive now it's easy to say that what can someone do to be proactive well bumps in the road are to be expected.
So if we set off on our course expecting some headwinds expecting some detours, some some things that we need to work our way through than when they occur.
We are better prepared for them and again I'm gonna take this back to the fundamentals of psychological behavioral patterns.
The let's just look at like a Roth IRA. For example, the limit for me I'm under 50 is $6000 a year to get into my Roth IRA if I am of the behavioral routine pattern of putting $500 a month into my Roth IRA on a certain day of the month every month and end that happens like clockwork.
Then when headwinds come along. I am likely going to continue that pattern of behavior and make sure that I still fund my Roth on the other hand, if I am of the behavior where I'm not doing that on a regular basis. I'm actually just saving up my money and and when I get $6000.
I'm going to make sure to contribute to my Roth IRA if if a if a downturn in the market occurs. I may actually say oh, emotionally. I don't want to put my money in all that once when it's a bad time when the market might go down and I'm actually likely not to follow through on that investment. I also have not taken advantage of dollar cost averaging, and so ugh again to to beep up proactive planner means to set in place. Some of these failsafes where our behavior actually prevents us from making emotional reactions and part of my job as an advisor is to make sure that people stay on that course because emotion Israel.
So when things happen like Russia and Ukraine and and and inflation, and supply chain and and interest rates are going to rise in the market all of a sudden is an correction territory and could be heading for worse. And that's the news of the day that's that's driving the headlines and investors call me and say hey what should I do about this if we've got a proactive plan set in place. A lot of times my responses stay the course you're taking advantage of these situations, they should be something that concerns you, because eventually this too shall pass. And if you continue with the plan you will benefit and take advantage of what other people are fearful of 919300586 is the number to talk to Peter shot himself.
He's the creator of the optimize retirement plan.
Retirement is kind of the in many ways the finish line. Of course we hope to enjoy retirement for many years. What happens if retirement comes at an unexpected time or in an unexpected way than perhaps what our plan had written stone, God laughs at your best laid intentions. I've heard that right. If you want to hear God laugh, tell him what your plans are, essentially, and life is what happens to plans. Unfortunately, this pandemic we saw a lot of this, but it's not just the pandemic study show that up to 60% of retired Americans did not retire of their own accord or were of their own predetermined timeline. They were tired unexpectedly accident injury, sickness, illness, company furloughs, layoffs, you know during the pandemic. A lot of workers were told to go home and then invited not to return these things happen. Actually, during the pandemic. A lot of workers went home to to work and then realized they enjoyed being at home and changed their previously intended retirement so there's a lot that could go into an unexpected retirement of the realities we need to be prepared ahead of time as much as possible. You're planning for retirement should theoretically begin on the very first day of her working career now often doesn't right when you're 14 1/2 got your workers permit to show up to your first job because you're hungry to earn some money. You don't often time.
Start saving for retirement right away, but it should happen as early as possible and you should begin formulating a plan for eventually not having to work as early as possible to write and I don't think anybody not most people plan on retiring at like 25, but at 25 is a great time to say hey you, I don't want to work forever. How can I make sure that every day that I do set my alarm clock wake up early show up to work put in my sweat equity. I am working towards the eventual goal of not having to show up to work when I don't want to, any longer, or can't, you are far ahead of the curve and then if an unexpected retirement does come about early, then you are in that much better shape to do so here's another part of that Scott is more and more retirements, not meaning what it traditionally has meant in the past that unites kicking back completely sitting on the La-Z-Boy drinking lemonade and doing nothing else with your day just isn't that attractive to a lot of the people that I am talking to. I heard this fantastic term rewire meant I do I don't I don't intend on retirement. I want rewire meant I want to do less of what I have to do and more of what I want to do.
I think that's what a lot of people are striving for is a lot of people's 6570+ who were still earning a little bit of income but it's on their own terms and you know if we've got that backup plan going along the way.
A four building toward that sometimes those hobbies that we have those things that we actually like and enjoyed today's entrepreneurial world, we can actually create an income from those things and maybe just shift and transition a little earlier than we may once have thought possible when you're planning why I had a friend whose family they always set their clocks five minutes fast so they would never be late for anything it would drive me crazy. Ms. television shows all these things, but they were used to. It now you talk about being prepared for retirement before the need might come up. Should people be shook people kind of set that clock a couple years early and be ready to retire or is that kinda built into the plan that would be happening in the first place. I love that idea. I mean ardent guy. I have done the same thing with my clocks. It didn't work effectively for me like you and and the radio work: I'm sure that could be problematic, however, I like the analogy there because yeah if you set your your mental earmark that hey I want to retire at 65 years old. Let's put a plan together that says 60 yeah sure you're in better shape me working longer.
I'm never going to tell anybody as bad for from a financial perspective, but we also have to balance quality of life. So let's say that we intended to retire at 65. We set the plan up that we could retire at 60 hey between that that doughnut hole interim 60 to 65. It's in your hands.
Do you ensure way continuing to work you want to keep doing this or not. And often times, if you've got the confidence that you don't have to work if you don't want to all of a sudden showing up to work is more palatable.
We tend to enjoy those days at work a little bit more knowing that if if we wanted to we could walk out the door and and be okay 919300586 is the number to talk to Peter Sean directly.
Maybe talk to about that optimize retirement plan running out of money is kind of the ultimate nightmare not just in a in our lives, but especially for someone on a fixed income in retirement. What how does this end up happening and what happens if this does happen.
The running out of money in retirement. You know that this is an interesting kind of paradox here it's it's a tale of two cities, a little bit in the fact that the vast majority of of of of Americans are underprepared for retirement and and I've seen a lot of stats and statistics that up to 40% of Americans live on Social Security alone if it's because you kept your budget and control fantastic, but if it's because you have not saved anything else you know that's that's a detriment that's that's probably not that great. I have seen numerous studies and quoted surveys and articles essay running out of money is the number one fear for American citizens. Here's the thing is that I think that in in in the different echelons of wealth between about 500,000 and 1,000,000 1/2 dollars $2 million.
This is a pretty legitimate concern. Write this that the majority of your dollars are probably in retirement accounts. You worry about running out of them and structuring a plan for efficiency in the order of operations and how you tap into, and access the dollars that you have are probably essential in in in in importance in maintaining confidence in lifestyle and standard of living. Once you get from the million and 1/2 to 2 million+ a significantly lower portion of your total overall net worth is actually likely in retirement accounts is probably more in businesses, nonqualified investments, stocks, family-owned partnerships right and and wealth management and being efficient and and intelligent with the decisions that you make with those dollars is no less important, but the. The fear of running out of money may not be as prevalent now we are people who've won the lottery have subsequently run out of money, so it's not to say that that that it's an impossibility pro athletes who may literally millions of dollars each and every season often retire and end up going broke. We hear those sad stories. So it's not that it's impossible, but the concerns are a little different there, and so running out of money just because of the, the status of the average American has been employed has been saving in retirement accounts has been saving toward the goal of eventually retiring versus some of the higher net worth more affluent that that don't necessarily have those same concerns and have more put their money into owning or running businesses in income producing assets. There is a difference in concerns there, and the plan that you have really needs to address your concerns for talk about the concern of running out of money.
You better have a plan specifically addresses that if if the concern is more being as efficient and smart and savvy with the money that we have are pretty confident we don't have a risk of running out of it, then you know you got a completely different type of plan that is is focused more on on legacy that is focused more on efficiency and there's kind of a different echelons.
There we want to be happy in our retirement and wealthy is one healthy is the other component. If you don't have enough money you don't have your health under control and it's really hard to have a successful or happy retirement. What about healthcare it's it's it's the other big risk to quality-of-life. What are some things we can do to address that and and by the way those two things don't necessarily go hand-in-hand.
Health does not equal wealth and and vice versa. So we don't we don't want to risk living a long time outliving our assets.
We don't want to jeopardize the health or the wealth side by having a healthcare event. Either way, you know that that if there is an imbalance there. It can cause problems. I didn't say that very well, but I hope you got what I'm saying.
So there are things I I think that are important on both sides that first like we got to take care of ourselves right your your number one best asset.
If we can put it this way in not experiencing the exorbitant healthcare costs is to generally take care of your self right. The heart attack, stroke, those are the number one causes of death and they don't always cause death. They they can cause lingering extensive healthcare expenses there. That's not to say that the athlete that has worked out every day of their lifetime can't encounter those either right, it's just helping our odds not making any guarantees, but I think that that at its core is important and a mentor of mine once said that it Peter if you're not working out and taking care of yourself. Are you really doing the best things for your clients and that really struck me. You know that like I I thought about that. I continue to think about that on an ongoing basis on the days that I'm lazy and and and don't make that the trip to the gym but you know it it's it's an appropriate question. You know it.
If you're not doing those things that are best for your health and your mind and body and soul are you doing the best things for your money I think is is the question that I would pose there now. Again we can be good.
We can be lucky. The best is a combination of both, but unfortunately those don't always coincide. So from a financial perspective, we should be prepared for those healthcare related expenses. The average 65 year old couple moving through retirement will pay more than $400,000 over the course of their life in healthcare expenses including just the Medicare premiums, deductibles that does not include extensive cost like long term care insurance or long-term care costs. Oh well, that's it seals cut to hear that big numbers is kind of shocking and sobering, and only underlines the fact that you need some help. You should really talk to a financial planner who knows what they're doing and you can't do much better than Peter Mershon. Column 919-300-5886 let's let's have on that one, for it for Jeff and Scott is that there are solutions. None of them are perfect none of them are hundred percent comprehensive but there are options and you should absolutely look at all of these options because it's the elephant in the room, Department of Health and Human Services, services, statistics, a 7/10 of us as close to 70% like 69.4% of people will require some level of care during their lifetime before they pass away, and so the question of long-term care and how to cover the cost of that can be a twister in a trailer park and I mean it can absolutely lay ruin to even a well-built financial plan. So do you go after traditional long-term care insurance do you go after one of these kind of new newer iterations of linked benefits were you got insurance that has a bucket of money. It's a finite life insurance death benefit that you can advance your self for the notice of covering long-term care expenses. Do you set up a lifetime income that has some type of healthcare benefit and doubler. But again, here is kind of the juxtaposition of of of certain wealth levels. I've also encounter people who say I've got the assets to cover I'm self-insured fair fair fair bit you know so okay.
However, what I have found is that individuals in that kind of position they enjoy the confidence that the money gives them to be able to say that and the way they've gotten that is through a good understanding of leverage of making sure that fewer dollars do the job of many dollars that they are putting their money to work and for what is likely no. One half of 1%, 2% of the that the account balance what you would make off of that kind of money just sitting it in an interest-bearing account. It can provide the protection for the money that is giving you the confidence to say that so being self-insured also means understanding how to protect the money not just having the money to protect the expense comparison here.
If I've got $400,000 home, I don't take $400,000 and sit in the bank and say I'm self-insured.
I don't let homeowners insurance.
It's just not a smart use of those dollars. I buy the cheapest amount of coverage to protect the assets that I can find.
And that is possible.
That's efficiency that's leverage that's the way that we should think about that and it's not I don't buy auto insurance or homeowners insurance hoping I wreck my car or hoping my house burns down.
I don't buy long-term care insurance hoping I have that event I buy to protect it, just in case, here's the thing with auto insurance and homeowners insurance. I've never seen a policy that if you if you if you have a car that's insured and then you sell that car without ever having an accident. They refund the premiums they refund the insurance money to you right that doesn't exist.
It does however exist and that long-term care world there are leveraged policies where if you are lucky enough not to experience it. You get a return on the premiums and on the money that you have paid in there so deftly worth looking at an end. Kind of transcendent across different wealth levels. If you don't have a great deal of wealth and assets. This is important to preplan for if you do have a great deal of wealth and affluence and assets it's important to plan for and protect the money that you work so hard to build and accumulate kind of wherever you're at that spectrum because nobody wants to the the last possible option plan, which is dependency right we don't want to depend on our family.
We don't want to depend on the government. Medicare is know what our Medicaid is no one's ideal plan, a option that is the recourse of last resort and that often times were dependent on our children or family. Nobody wants to do that, you know, nobody wants to to to to be the one providing the care.
No one wants to be the one requiring the care so these are steps and and kind of a hierarchy of the ways that you can address these needs and and another one that I think people work are concerned about here is overpaying in taxes right if were talking about deficiencies with our money. That is an area where a lot of people have concerns current and ongoing that proactive planning can help you address so a lot packed in there I know, but will talk about concerns, taxes, healthcare inflation, making a reasonable rate of return what happens when emergencies come up, these are all things that the optimized retirement plan that we talk about on the program that we offer to put together for folks helps you address in the planning process so you are prepared when they occur in real life, and these that the moral of the story is that all these issues are complex and their complex and of themselves, and then in how they apply to each individual situation is also complex and they're all interconnected as well.
So the though the real answer is to talk to a financial planner who you know and who you trust and if you do not have one. May I recommend that you call 919-300-5886 and talk to Peter Mershon talk about that optimized retirement plan, get played, at least in the right direction on some of these things, and in it can really help you, especially when we talk about being proactive in the face of market uncertainties. Anyone can have a smile on their face when the markets going up all the time.
But that's not always good to be the case.
919-300-5886 or go to www.richenplanning.com Peter any final thoughts for sitting on this episode not not to pick a fighter or pick at the scab here, but you mentioned.
If you do not have one eye. I would say that look these these topics. These these conversations these questions. These are real and if if you have not had these discussions with your advisor. If today's show has has brought any thought to your mind of oh we have not had that conversation and address that issue with our advisor, it may be an indication that the plan isn't complete right it may be an indication that word were focusing on rate of return and we made a great rate of return, but if that's what every conversation is about. We are missing part of the planning process and so not not just a subtle suggestion like a a strong recommendation to have different conversations and and maybe seek different opinions. Thanks so much wise words and that number again to talk to Peter Schott is 919300586 Peter some thank you so much for joining us today and I hope that you will listen to us again next time on planning matters radio planning matters right. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy you were encouraged to think investment tax or legal advice from an independent professional advisor. Any investment and/or investment strategies mentioned involve risk and possible loss of principal by three services offered through Brookstone capital management, a registered investment advisor. Fiduciary duty extends only to investment advisory advice but does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fever as of the commandment, belligerent, product commission, which may result in a conflict of interest regarding