If you’re not careful, there’s a handful of retirement planning hazards that can easily sneak up on you. Let’s talk about what those risks are and how to properly protect yourself against them.
John Stillman: Welcome once again to Wright Money Tips. I'm John Stillman alongside Isaac Wright, Chartered Financial Consultant and the President of Financial Dynamics and Associates. If you'd like to get in touch with the team at Financial Dynamics, that number to call is 804-777-9999. Now Isaac, obviously you've been in the financial industry for quite some time, but one of the little known facts about you that people don't know is that you used to be an assassin. You were a murderer for hire back in your day. I'm just kidding.
Isaac Wright: I used to play video games when I was a kid that used to have some of that in it, but that was a long time ago.
John Stillman: Yeah. I would just like to clarify, Isaac has never murdered anybody. That was a joke. All of his past employment is disclosed on his regulatory paperwork that you can request at any point. But-
Isaac Wright: I have not been a hit man.
John Stillman: Isaac, let's talk about some assassins in the retirement world. If you had been an assassin in a past life, you would have been somebody who was really sneaky. You're able to sort of in a ninja-like way sneak up on people. They don't see you coming, right? That's what an assassin has to be able to do. Well, it's exactly the same with assassins in our financial lives. So let's talk about some of these retirement assassins that really can kill your retirement if you're not on guard. One of the big ones, of course, maybe obvious to a lot of people, is stock market crashes.
Isaac Wright: Yeah, I mean, and sometimes people even are aware that that can be a very problematic situation when it comes to your financial game plan and retirement, but the issue is sometimes people turn a blind eye, or we've had many years in a row where the market hasn't had a significant pullback. But the question that you have to ask yourself is, "Does a stock market crash mean that I have to change my lifestyle?" To me, if you have to change your lifestyle, specifically if you have to change it on a significant basis to where you can't do the things that you enjoy to a meaningful degree, you absolutely what I would call is have a retirement assassin on your hands.
Isaac Wright: So keep in mind, I'm not saying the stock market's a bad place to be. I'm not saying the stock market is something that you should be afraid of. But I think you need to also consider all the myriad of ways that you can be able to set up a portfolio and be able to diversify risks, so you don't have what I call a changing of your lifestyle, of what I say moving to a new neighborhood. We don't want you to be in a place where that retirement plan takes a turn to the ditch because you didn't have a plan in place to begin with.
John Stillman: Yep. Well said. All right. Another potential retirement assassin is the premature death of a spouse. If husband or wife dies younger than maybe was anticipated, how might that be an assassin to your retirement plan?
Isaac Wright: You know, and I don't think people even sometimes think about that. I asked you to put this in at the top of the list because, especially if you're in the early years of your retirement or you're not even retired yet, and you have a significant loss of income, or you have a significant loss of just assets, or the potential of having money come in month in and month out, if you lose the social security check, if you lose a pension, or if you have, again, if somebody has a high-paying job and that income goes away, and they weren't properly supported with enough insurance... I'm not even talking about the emotional aspects of losing a spouse. That obviously can have an impact too on what you want to do. But just know that having a premature death of a spouse may very well mean that you have a different lifestyle after the fact. Again, financially speaking, making sure that you have your ducks in a row.
Isaac Wright: So, interestingly enough, John, we're finding people to be a lot more open to a conversation about insurance. You know, everybody feels like it's a four-letter word to talk about life insurance or anything like that, but I think people also understand that if you're talking to a professional that's not necessarily out there just to sell you a policy, they're trying to create a financial plan, that that's obviously a legitimate piece of the pie that has to be addressed. And if it's not, it's not going to come back on the person that's making that recommendation. It's going to come back on your personally. I mean, I'm a big fan. I own a lot of life insurance on myself, because I believe in taking care of those that are around me. So it's something that, quite frankly, sometimes people need to be educated more on.
John Stillman: All right. Another possible assassin to watch out for when it comes to retirement planning is nursing home or assisted living expenses. I'm always amazed, Isaac, how often it seems like people say, "Well, hopefully we won't have to deal with that." Well, hopefully doesn't mean you have a plan in place.
Isaac Wright: Right. I mean, so we just finished talking about a death of a spouse. What if you have a disability of a spouse? That disability may mean that you have to pay for care at home, and you may have a caregiver coming to your home that's $15, $20, $25 an hour, depending on the level of care needed. You don't have to be a rocket scientist to figure out how long your money's going to last. And of course, if you go to a nursing facility, whether it's assisted living or full-blown nursing home, you're looking at thousands of dollars a month. And you can be a very well-off individual. You can have a seven-figure lump sum amount of money.
Isaac Wright: But again, you don't have to be a PhD in Finance to figure out that if you're spending $100,000 plus a year on care, plus the healthy spouse still needs money to live for their needs, and you all of a sudden have a new income, let's call it shortfall, because you're spending all this extra money on care, if you don't have that planned for properly, that absolutely can be a retirement assassin. We actually have seen here in the last six months, I would say, several families that have had a early onset need for this type of care. You know, sometimes people think, "Oh, that won't happen until I'm 80 or 90 years old." I mean, we've seen some people that have had strokes and other things that have needed care in their 50s and early 60s, and they're not going anywhere. They're probably not going to die, but they're going to need care for a very long time.
John Stillman: Now here's one that I think most people definitely have not thought of in terms of a retirement assassin. And that's tax rate increases.
Isaac Wright: I know. Well, listen. Taxes in general, I just don't think people today are getting... I don't want to say ever. It's highly likely that you're not getting insight towards how to minimize Uncle Sam on your finances. It can be done. It should be done. And if you do this consistently over a period of time, there's been statistics out there to show that some tax planning can help you save one, one and half, two percent a year of your net returns. I also say this. I mean, let's say regardless of whether that specific number comes to fruition or not, if we were to have a significant increase in tax, you may not necessarily have a complete dismantling of your lifestyle, but you'll have an erosion of your lifestyle. And so it's kind of like death by 1000 cuts. And I mean, there are certain... When you think about assassins, I mean, some of these things kill you quickly, and some of these things just drain you down, and this is probably one of those.
Isaac Wright: So just know that from a tax perspective, I work with a lot of accountants. I work with a lot of people that are trying to figure out should they have an accountant, and they work with Turbo Tax or some combination of the two, but very rarely are you receiving tax planning advice versus just an accumulation of putting in data into a program, and then it's telling you what you should do. Some of that can be helpful, but sometimes I think having some more insight towards tax harvesting, some more insight towards maybe looking at if you're in a low bracket, Roth IRA conversions. There's other strategies out there that I don't know necessarily a piece of software an accountant's going to give you each and every year.
John Stillman: Yep. A lot of people think they're getting tax planning, when really they're not.
Isaac Wright: Yeah.
John Stillman: One last thing to mention here, Isaac, as far as retirement assassins go, is inflation. Everybody knows that inflation is a thing, but I'm not sure how much people have factored that in to what that's going to look like over the course of their retirement.
Isaac Wright: Well, John, let's end it on this. I think inflation, for people that are looking at how their expenses run year in and year out, understand that cost of living goes up. I mean, granted, you get some reprieves here and there, but if you think about the cost of living, your gas, groceries, and so forth, why I think this is sometimes a little bit more impactful in a retirement is because you may get a raise at work more often than you may get a raise on your social security check.
Isaac Wright: And all of a sudden you're like, "Well, why am I having to take more money out of my investments to be able to live a similar lifestyle?" Or, "Why is it that I'm having to deal with a cost of living" that wasn't maybe looked at the right way, where somebody says, "Hey, you only need $5000 a month to pay the bills." Well yeah, that may be today, but what about 10 years from now when you need $8000 to pay the bills? I mean, that's a big difference. So John, even a three percent inflation factor means you're going to double your expenses every 24 years roughly. You know? So again, I'm just putting this out there because we do take into consideration estimates towards cost of living, and also cost of living adjustments on any income that you have.
Isaac Wright: So if you do have a pension that has a cost of living adjustment... Social security still does. A few of these factors help offset some of the costs of living that you see with your Medicare and other expenses too, but overall, these are areas that if you're not properly planning, can absolutely take your retirement and move it in a negative direction without proper planning. So with our program today, I just wanted to hit what I call five bullets towards the assassination, let's call it, of your retirement, and trying to alleviate that from being a burden on you as time goes forward.
John Stillman: So if we're guarding against retirement assassins, what would that make you, Isaac? The retirement bodyguard? Would that be what you are?
Isaac Wright: Hm. That's a good question, man.
John Stillman: The Retirement Secret Service! How about that?
Isaac Wright: Yeah. For whatever reason, I was thinking bulletproof vest, but that may be a little over the top.
John Stillman: Well, I would imagine the Secret Service probably has bulletproof vests under their tuxes.
Isaac Wright: Yeah, you personified it better than I do. You know, I need to get you into this office. But anyway, John, it's been a good show, and I think people today just want to hear... And I think every other week when we have our podcast, I think just reiterating some of this does help people to keep it in front of them so when the timing is right, and the timing may be right for you now, is just having a conversation about it.
John Stillman: If you'd like to come in and talk with your own retirement bodyguard, Isaac Wright is your man, or somebody on the team at Financial Dynamics. 804-777-9999 is the number to call. 777-9999. Plenty more online as well at wrightmoneytips.com. Always a pleasure, Isaac. Talk to you again soon.
Isaac Wright: You too, John.
John Stillman: Have a great week.
Announcer: Information is for illustrative purposes only, and does not constitute tax, investment, or legal advice. Always consult with a qualified investment, legal, or tax professional before taking any action.
Announcer: Advisory services offered through JW Cole Advisors, Inc., JWCA, Financial Dynamics and Associates, Inc. and JWCA are unaffiliated entities.