2022 EP0416 - PLANNING MATTERS - CONCERNS

We want you to plan for success. Welcome to Planning Matters Radio. Welcome once again to Planning Matters Radio, the show where we explore the personal finance issues of the day and have a little fun doing it. My guest, as always, is Peter Rishon. He is a Ramsey trusted SmartVestor Pro and the founder of Rishon Planning. Peter, welcome to the program. Always a pleasure, Scott, and 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 maybe 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 Rishon, you can call him at 919-300-5886 or go to his website www.rishonplanning.com.

That's www.richonplanning.com. Market instability, Peter. We've seen it before.

We'll see it again. We're seeing some right now. The question I have for you 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 as the headlines 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 headlines. So, the emotion 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. Emotions are valid, emotions are important, emotions are fantastic, but emotions often lead to mistakes. We've 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 Dalbar. Dalbar 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, Dalbar attributes that to investors make emotional decisions about their money. That's 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.

Now, we want to make sure that we're not ruled by our own fear and emotions, but does the knowledge that other people are likely to have those same fear and emotions, is that something we can use to our advantage or something to be aware of? It can, and in fact, there's some other kind of sayings about the market that tip the hat to that premise. Buy on rumors, sell on news is the one that comes to my mind when you say that, and 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 oftentimes when those events actually happen, the market goes the other way. And it's like, as things are sort of thought about, as 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 so it sort of comes back to par and then continues along its course. And so, yeah, that's sort of baked in there that if we are 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 that 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 oftentimes we are wrong.

There's a couple other sayings. 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 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 we're hearing these rumors, when we think something may be happening, when we're starting to see headlines that has actually already been included into the inherent prices of the market. So it's not like we're going to be smarter than the market and beat the market unless we're, you know, 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 we could do a whole show on why that shouldn't be allowed. But unless we've got that insider information, which 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 I somehow find out this information, likely everyone else already knew about it in the first place, so how insider really 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, yeah.

9-1-9-3-0-0-5-8-8-6 is the number. So we could be reactive, emotional, things like that in regards to market instability. I've heard you say it 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 things that we need to work our way through, then when they occur we are better prepared for them.

And again, I'm going to take this back to fundamentals of psychological behavioral patterns. Let's just look at like a Roth IRA, for example. The limit for me, I'm under 50, is $6,000 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 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 when I get $6,000 I'm going to make sure to contribute to my Roth IRA, if a downturn in the market occurs, I may actually say, oh, emotionally, I don't want to put my money in all at 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, again, to be a proactive planner means to set in place some of these fail safes 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 is real. So when things happen like Russia and Ukraine and inflation and supply chain and interest rates are going to rise and the market all of a sudden is in correction territory and could be heading for worse and that's the news of the day 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 response is stay the course. You're taking advantage of these situations. They shouldn't be something that concerns you because eventually this too shall pass. And if you continue with the plan, you'll benefit and take advantage of what other people are fearful of.

9-1-9-3-0-0-5-8-8-6 is the number to talk to Peter Roshan himself. He's the creator of the optimized 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 in 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. Studies show that up to 60% of retired Americans did not retire of their own accord or of their own predetermined timeline. They retired unexpectedly. Accident, injury, sickness, illness, company furloughs, layoffs. 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 work and then realized they enjoyed being at home and changed their previously intended retirement time. So there's a lot that could go into an unexpected retirement, but the reality is we need to be prepared ahead of time as much as possible. You know, planning for retirement should theoretically begin on the very first day of your working career.

Now, it often doesn't, right? When you're 14 and a half, you got your worker's permit, you show up to your first job because you're hungry to earn some money, you don't oftentimes 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, too.

Right? 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 know, 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 toward 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. And here's another part of that, Scott, is more and more, retirement's not meaning what it traditionally has meant in the past.

You know, kicking back completely, sitting on the lazy 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, rewirement. I don't intend on retirement.

I want rewirement. I want to do less of what I have to do and more of what I want to do. And I think that's what a lot of people are striving for.

There's a lot of people, you know, 65, 70 plus who are 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, if we're building toward that, sometimes those hobbies that we have, those things that we actually like and enjoy, 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, I had a friend whose family, they always set their clocks five minutes fast so they would never be late for anything. And it would drive me crazy with missed television shows, all these things, but they were used to it. Now, when you talk about being prepared for retirement before the need might come up, should people kind of set that clock a couple of years early and be ready to retire? Or is that kind of built into the plan that would be happening in the first place? I love that idea. I mean, I have done the same thing with my clocks.

It didn't work effectively for me. Like you and in the radio world, I'm sure that that could be problematic. However, I like the analogy there because, yeah, if you set 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. I mean, working longer, I'm never going to tell anybody is bad 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 doughnut hole interim, 60 to 65, it's in your hands. Do you enjoy continuing to work?

Do you want to keep doing this or not? And oftentimes, 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 we wanted to, we could walk out the door and be okay. 919-300-5886 is the number to talk to Peter Rishon directly, maybe talk to him about that optimized retirement plan. Running out of money is kind of the ultimate nightmare, not just in our lives, but especially for someone on a fixed income in retirement. How does this end up happening and what happens if this does happen, the running out of money in retirement?

You know, this is an interesting kind of paradox here. It's a tale of two cities a little bit in the fact that the vast majority of Americans are underprepared for retirement. 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've kept your budget in control, fantastic. But if it's because you have not saved anything else, you know, that's a detriment.

That's probably not that great. I've seen numerous studies and quoted surveys and articles that say running out of money is the number one fear for American citizens. Here's the thing is that I think that in the different echelons of wealth, between about $500,000 and $1.5 million, $2 million, this is a pretty legitimate concern. 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 importance in maintaining confidence in lifestyle and standard of living. Once you get from the $1.5 million to $2 million plus, a significantly lower portion of your total overall net worth is actually likely in retirement accounts. It's probably more in businesses, non-qualified investments, stocks, family owned partnerships, right? And wealth management and being efficient and intelligent with the decisions that you make with those dollars is no less important. But the fear of running out of money may not be as prevalent. Now, people who have won the lottery have subsequently run out of money. So it's not to say that it's an impossibility. Pro athletes who made 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 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 don't necessarily have those same concerns and have more put their money into owning or running businesses and income producing assets. There is a difference in concerns there and the plan that you have really needs to address your concerns. If we're talking about the concern of running out of money, you better have a plan that specifically addresses that. If the concern is more being as efficient and smart and savvy with the money that we have, but we're pretty confident we don't have a risk of running out of it, then you've got a completely different type of plan that is focused more on legacy, that is focused more on efficiency, and there's kind of a different echelon 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 and you don't have your health under control, then it's really hard to have a successful or happy retirement. What about healthcare? It's the other big risk to quality of life. What are some things we can do to address that?

Yeah, and by the way, those two things don't necessarily go hand in hand. Health does not equal wealth and vice versa. So we don't want to risk living a long time and outliving our assets. We don't want to jeopardize the wealth side by having a healthcare event. Either way, 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 think that are important on both sides of that. First, we got to take care of ourselves, right? Your number one best asset, if we can put it this way, in not experiencing exorbitant healthcare costs is to generally take care of yourself, right? The heart attack, stroke, those are the number one causes of death and they don't always cause death. 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, 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. I thought about that, I continue to think about that on an ongoing basis on the days that I'm lazy and don't make that trip to the gym. But it's an appropriate question. 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 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 costs like long term care insurance or long term care costs. Well, to hear that big number is kind of shocking and sobering and it 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 Rochon.

Call him 919-300-5886. Let's haggle on that one for a moment though, Scott, is that there are solutions. None of them are perfect, none of them are 100% 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 statistics say that 7 out of 10 of us, as close to 70%, it's 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 costs of that can be a twister in a trailer park.

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 where you've got insurance that has a bucket of money? It's a finite life insurance death benefit that you can advance yourself for the purpose of covering long term care expenses. Do you set up a lifetime income that has some type of health care benefit and doubler? But again, here is kind of the juxtaposition of certain wealth levels. I've also encountered people who say, I've got the assets to cover it. I'm self-insured. Fair, fair, fair be it.

So, OK. 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, you know, one half of one percent, two percent of the the 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 a four hundred thousand dollar home, I don't take four hundred thousand dollars and sit it in the bank and say I'm self-insured. I don't need homeowners insurance. It's just not a smart use of those dollars. I buy the cheapest amount of coverage to protect the asset 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 it 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 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 in 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 definitely worth looking at and kind of transcendent across different wealth levels. If you don't have a great deal of wealth and assets, this is important to pre-plan 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've worked so hard to build and accumulate kind of wherever you're at in that spectrum. Because nobody wants the 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 no one. Medicaid is no one's ideal plan A option. That is the recourse of last resort.

And before that, oftentimes we're dependent on our children or family. Nobody wants to do that. You know, nobody wants to be the one providing the care.

No one wants to be the one requiring the care. So these are steps and kind of a hierarchy of the ways that you can address these needs. And another one that I think people are concerned about here is overpaying in taxes. Right. If we're talking about efficiencies 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 we're talking about concerns, taxes, health care, 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 the moral of the story is that all of these issues are complex and they're complex in 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 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 Rochon. Talk about that optimized retirement plan. Get pointed at least in the right direction on some of these things. And 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 market's going up all the time, but that's not always going to be the case.

919-300-5886 or go to www.richonplanning.com. Peter, any final thoughts for us today on this episode? Not to pick a fight or pick a scab here, but you mentioned if you do not have one. I would say that, look, these topics, these conversations, these questions, these are real. And if you have not had these discussions with your advisor, if today's show has brought any thought to your mind of, oh, we have not had that conversation and addressed that issue with our advisor, it may be an indication that the plan isn't complete, right?

It may be an indication that we're focusing on rate of return and we've 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 just a subtle suggestion, like a strong recommendation to have different conversations and maybe seek different opinions. Thanks so much, wise words. And that number again to talk to Peter Richon is 919-300-5886. Peter, thank you so much for joining us today. And I hope that you will listen to us again next time on Planning Matters Radio.

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