David, Karen, and Bret each discuss a unique topic and trend that is going on in the financial industry. Some topics include stock trends heading into 2019, how to approach annuities, and why you should start saving for retirement now.
Listen to the full podcast below!
It is becoming more apparent, on a weekly basis, that there are so many changing questions that come up on a daily basis. I received a solicitation in the mail over the weekend and the invitation was to buy a lot of land in the Poconos.
I Saw that one.
The reference was I could use my IRA or my 401(k) to buy or secure the piece of property at $19,000. Now, I don’t know whether or not it’s relevant to me, but it made me think about the number of messages that we consume in our lives every single day and then all these messages somehow factor into our retirement.
Funny that you’re bringing that up because I’m going to touch a little bit on that in my segment today. You get some interesting messages sometimes, don’t you?
No doubt about that, and some of them, Bret, are real, some of them perhaps aren’t as relevant to you, but that’s what it’s all about. Again, it goes back to what you preach, goes back to the preparation of the buckets and preparing and managing the process so you can get to a point and experience some financial success and retirement.
Yes. Again, it’s hearing about global concepts at the top and then figuring out how it all boils down for everyone’s individual circumstances, so, whether it’s receiving something in the mail, or something I heard on TV, or something even at one of our workshops, it’s I hear something. Hmm, that sounds like that may apply to me, and then figuring out taking the next step to say, “Okay, I hear it. Now let’s figure out how it all applies to me.” That’s what we help do. Again, being educators advocates out there in the community.
Questions are good, David. There’s no doubt about it. The questions come in many different ways from many different areas depending on who the individual is and the scenario, so that’s a good thing because I don’t believe there’s a scenario out there that you can’t handle or you can’t address.
Well, we feel strongly about that. We pride ourselves in making sure that we’re incredibly educational across all topics related to what I call the fourth quarter of life. Making sure that we get the ball across the goal line and we retire successfully. During these times that we see, there’s a lot out there that isn’t good for people. The markets are a little volatile right now. When you’re hitting new highs pretty routinely and we’re in a bull market longer than any other on that we’ve experienced, a lot of times people are feeling very pumped up. Kind of flexing their muscles, so to say, and when some of these solicitations come their way, they may not really be legitimate. They may not be appropriate, but because we’re feeling good, we think, “Hey, let’s take a ride. Let’s take a run on that one and maybe it’ll work out.” A lot of times, that type of situation can be one of the flaws to a successful retirement, so you got to be careful with that.
I keep going back to the conversation that we had when we had James Chilton from SOFA, who joined us just a few weeks back. SOFA is the Society of Financial Awareness, and that really resonated with me because, for you, Karen, Bret, and for Thrive, it’s a really big deal. It’s a really, really big deal. You just don’t sign up for SOFA.
We do some written or oral survey sometimes, and a lot of people are there because it is education-backed and endorsed by SOFA. It’s important to make sure that the information you’re getting out there, number one, is given by a fiduciary. Number two is do your homework. You have to really make sure of these 2 things.
Bret, I’m going to give you an opportunity. What do you have lined up for us today?
I know David, a little bit later, is going to be talking about the market, but I’m actually going to be chatting about a great article came out. One of the publications that we recieve was called Seven Ways Annuities Can Solve Financial Problems. There’s probably about 10 different ones. I just want to touch on them, and briefly review how people are utilizing them out there today.
There is a lot of volatility going on out there in the market today. It’s something that a lot of people chat about and we are advocates of them in certain circumstances. Let me just make it through this list talking about seven ways annuities can solve your client’s financial problems.
Let me just dig into them because so many times we have these great lists and we get into the weeds and never finish them, but let’s start off with that. The very first item is what we call our split annuities, and let me explain how this works. How a split annuity works is you can actually use multiple annuities where one is going to complete whatever that income need may be. Again, our immediate income needs are where it partners up with a second annuity, which simply defers to allow our principal to get back to even.
For example, let’s say I have $500,000. I might do an annuity for $250,000 today, and start taking income from it today. Then, take the other quarter million dollars and letting it go to defer all the way out for, say, 10 years. So, when that 10-year timeframe is up, I’ve spent that first bucket. What it allowed for was that second bucket of money to grow back to a half million dollars and then we start all over again.
That’s a concept that we call are using split annuities. Almost bucketing the annuities, if you will, of how to create some immediate cash and then in addition allowing for that other bucket through a deferred annuity to get back that principal to even. Then we analyze what makes sense for that next period of time.
The second one is something that’s called a bonus annuity. How a bonus annuity works is there are some solutions that are out there today that give you a large bonus simply when you sign up on the initial time for that annuity. For example, we had an annuity with a 30% bonus that actually allowed for premiums to go into the policy. Meaning, money you can put into the annuity, over the first three-year time period.
But, how a bonus annuity can work is it allows people to get a large bonus up front. Again, if you put in $100,000 day one, it turns into $130,000. A lot of times when David, Karen, and myself sit down with people going through our Thrive Roadmap to Retirement process we find that people have been sold annuities and have no idea why they have those annuities. Unfortunately, a lot of times when we talk about annuities it can be the good, the bad, and the ugly. We diagnose that it’s not the proper solution for them. Sometimes, having a nice bonus associated with an annuity is a way to go from one annuity to the next, or a way to enhance the overall solution itself. Bonus annuities are a great solution out there as well.
Another diversified way when we talk about annuities are called multi-year guaranteed annuities. These are very similar to a CD, with a lot of the same features as a CD, or a bond. But again, an annuity is issued by an insurance company. What a multi-year guarantee annuity does, is it takes the guesswork away. For example, I’m going to go out there and buy a five-year annuity for 3.75%. If we’re looking for something that may provide a little bit more interest than a bond in an increased interest rate environment or a CD.
Also, what a multi-year annuity allows for as well, is being able to withdraw money from the annuity while you’re deferring that growth. A lot of times, you pull money out of a CD if you want anything more than the interest.
Next one, number four, talks about tax-sheltered annuities. A lot of times we see this with hospitals or schools, and people that are able to participate into a 403(b) account. An annuity, a lot of times, has investments that can be a little bit more conservative than the traditional markets that are out there. Typically, you’re not seeing the hospital or the school necessarily contributing towards those. A lot of times you’re getting a pension from them, so they’re not necessarily contributing towards the 403 themselves. Another way that people have a choice when it comes to investments, is called a TSA, which stands for a tax-sheltered annuity.
Number five is income protection. It’s a big deal and we’ve talked about annuities previously. It sounds like a chicken and the egg, but clients who don’t want to worry about juggling assets to generate income, and need a low-risk source of income, can invest in an immediate annuity to cover those fixed monthly expenses. Where this becomes important, is with funds of living expenses being guaranteed through the purchase of the annuity and income-based annuity. Clients can invest their other assets more aggressively because they’ve taken care of those fixed needs on a monthly basis.
We talk about number six. It is fund a divorce decree with ASPIA. ASPIA stands for a single premium immediate annuity. Number seven talks about funding the purchase of a business. I almost want to combine the two of these side by side. When you talk about a single premium immediate annuity, you come up with a bucket of money. These solutions are becoming a little bit more popular than they were over the past 5 to 10 years because interest rates are now starting to move up. Because interest rates are starting to move up, it makes these solutions a little bit more attractive to people.
If you are entering in a divorce decree, and you have alimony or child support that says you need to pay five or 10 years of this dollar amount, it’s a way for you to earmark a pot of money. You’re going to take a discount on it, because you don’t need all that money up front because you’re going to get some interest over the time period.
I’m confused because I’m trying to figure out which one applies, which one doesn’t apply, which one makes sense? There’s so much there.
There’s that great novel out there, The Tale of Two Cities. It’s the best of times, it’s the worst of times. People have to understand there is a time and place for annuities. As fiduciaries, it’s not something that we would ever recommend for everybody’s investment total. It has to be appropriate. It’s not a one size fits all type situation, and that’s why it takes a big degree of information to help the consumer decipher whether it’s an appropriate fit or now.
That was going to be my question. Individually, this may or may not apply depending on the scenario. I would imagine all of that factors into the process?
Yes, same thing. Whether you’re talking about an annuity or whether you’re talking about a stock, whether you’re talking about a bond, a life insurance policy, etc. Things that we hear on the radio or TV are incredibly contradictory. Annuities are terrible, annuities are great. Life insurance is terrible, life insurance is great. Related to the market, everyone’s situation is unique. Depending upon what people’s circumstances are, you don’t want to necessarily dismiss a potential solution for yourself.
That’s what we do when we meet people through the Thrive Retirement Roadmap. There is no one size fits all. It’s diagnosing, and figuring out what people’s goals are. Maybe it’s making sure I don’t run out of money. Sometimes it’s wanting to leave as much money to the next generation. Everyone’s circumstances are completely unique from each other. That has to do with the importance in us sitting down, grabbing a cup of coffee with somebody in one of our conference rooms and just going through that. Again, that’s all part of our process, and why we enjoy helping those who need it.
We want their plan to be their plan, not our plan to be their plan. We just love to show the people the light through the forest on how to simply go accomplish that.
I think very, very important. If you listen to the seven categories identified, or the seven annuities referenced to by Bret in this segment, it makes a lot of sense to me in terms of being able to rationalize and process what will be and what will not be based on the timing now, versus the timing later.
Remember, go to meetthrivefinancial.com and you’ll learn a lot about Thrive Financial Services. You’ll learn a lot about Bret, you’ll learn a lot about David, and you’ll learn a lot about Karen. Karen, over the last 6 to 8 weeks we’ve really started to open up this net and this funnel of focusing in on specifics for women.
Working with women is near and dear to my heart. Mainly, because I’m a woman and my parents went through a divorce, and I saw how it affected my Mother. She wasn’t set up or educated enough to handle things on her own. Dave and Bret are married to some great women, I might say, so they are they get it as well. They really are out there to do the right job for everybody, but we have a soft spot in our hearts also for women who are struggling at the same time. Just what Bret went through, all that information, as confusing as it sounded, we do know what we’re talking about. We study finances backwards, forwards, inside and out, so we know what the good products out there are, and vice versa. I’m going to touch a little bit on how to find a financial advisor. Because, don’t you think that maybe you need somebody in your court that is really there to do the right job for you?
I think it supported my thought all along. It’s amazing how much you guys know. It really is. The depth and the understanding of what you have is mind-boggling.
It’s what we love to do. We’re financial nerds and we are proud of it. I’m going to touch a little bit about how to pick a financial advisor, but you saw how you get those messages. You are looking to buy some property, possibly?
That is right, In the Poconos.
In the Poconos. I have some swampland in Florida I want to sell you too. Although a lot of the property is going to be swampland, so, Wiserwomen.org is an organization I’ve recently become familiar with and I have a newsletter here. Oddly enough, what I was going to talk about a little bit is some of those messages that you see out there that maybe you should think twice before answering. As a daughter of somebody who’s over 70, my Mom has recently started texting, now she’s getting these great messages. She received a message from a bank the other day and it was not even her bank, so they were asking for information for text messages. If something sounds too good to be true, then maybe you should think twice before you answer.It's what we love to do. We're financial nerds and we are proud of it. Click To Tweet
Ask a question, right?
Yes. People call the IRS. I do not work with the IRS, but say we’ve gotten phone calls that they’re coming to arrest me, or knockdown our door. But, if we pay them this amount of money right away, then you’ll be okay. Just as somebody who takes care of our clients, we are very cautious about information, and we are cautious with what people need to listen to out there as far as mixed messages that you’re getting. One way to avoid that in your financial life or financial future, is by having an advisor out there who, as David said, is a fiduciary.
I’m going to touch on that a little bit. Something that a fiduciary or any financial planner should do is understand your financial needs. It’s just one step in finding a financial planner. I would urge people out there to come to one of our workshops. Again, it’s meetthrivefinancial.com. You can go on our website, and you can see where our workshops are. If you’re out there looking for a financial advisor, come to a workshop and see if you are interested in taking us up on our offer of the complimentary consultation that we offer.
The amazing thing is, after we have a conversation, or after you come to the workshop, if you’re not ready to engage, that’s okay!
That’s the start of educating. The start of the process is the conversation, so that’s an amazing thing in itself. Let’s have a conversation. Where is goes from there is totally up to you.
Exactly. We’re focused on financial education. That’s why we do the workshops. Well, we do the same thing with our clients or people who are prospective clients when they come in. We ask for some information ahead of time. We are very transparent. We tell you what you need to bring with you, and we really show you what we can do. We take a holistic approach to what your financial future should be. It’s everything, including just taxes or, preserving your money so that you don’t end up being shocked by the stock market coming down. We also talk about, whether you have legacy concerns and things like that. We take everything into account. How much are your medical expenses going to be? You have to put aside, they say or we say, at least $250,000.
I know my mother-in-law was all excited. She said, “I’m getting a raise in our social security.” I said, “Great. What does that mean for Medicare expenses? They could be going up soon.” When you’re looking for somebody to be your financial advisor, just remember a key question, “are you a fiduciary?” Not everybody is a fiduciary. You have to be licensed. David and Bret are Series 65 licensed. They are financial advisors, and we take that very seriously.
I would like to really encourage that if you’re not dealing with a fiduciary you might not be in the best possible conversation that you’re supposed to be in.
That’s an accurate statement.
That’s how I feel. I want to deal with somebody who has my best interest at the forefront of what the conversation is going to be. That’s important to me.
We’re legally bound to do what’s right. We are morally bound as well. We always do the right job for people. Again, we take a holistic approach to it. Take a look at our website, meetthrivefinanical.com. Come to one of our workshops. We’d love to meet you, talk with you, and see what we can do. The education that we can provide for you is very interesting. You won’t be sorry. Again, we have the homemade cookies, we have some refreshments, and David and Bret are there if you have any questions as well.
It is easy to know or understand that your scenario is completely different from the scenario of somebody else or another individual or couple who’s in the room. That’s where the Thrive Roadmap to Retirement really does zero-in on the individual. So, whether it’s a woman who’s divorced, or separated, or her husband has passed, it’s up to the different scenarios personalized to the individual. That in itself, I believe, is a very powerful statement.
Right. I agree with you. We have people come in, couples come in, but we always have to plan for the what ifs.
What I wanted to talk about is, we see a lot of people who come into the workshop, and then end up visiting us at our office. I commend them. We’ve got a lot of do-it-yourselfers.
What I’ve been saying to draw some impact with them is that getting to retirement isn’t that difficult. The formula for getting to retirement is primarily working, making a living, keeping your expenses below what you earn, and taking that delta, that difference between those two numbers, and going out and investing. Whether it’s through an IRA, a 401(k), whatever it may be. That’s what most people do.
Over a 20, 30, or even a 40-year span of time, as long as you’re investing in good quality, primarily in most times, domestic companies you really can’t go wrong, right? We always see the market go up. We always see the market come down, but then it goes back up again. If you stay the course, things should turn out to be pretty good. Where the difficulty of doing it yourself occurs, is when you finally retire and you no longer have job income, it means you probably are no longer making contributions into a 401(k) or IRA.
Now it’s a different set of rules. Now it’s about navigating, we call it decumulation. There are so many different terms for it today, but how do I spend that money? How do I withdraw that money out of my retirement account successfully?
For do-it-yourselfers, what we hear most consistently is, “I weathered 1987. I weathered the year 2000. I weathered 2007 through 2009, so my idea is just to kind of stay the course.” The thing that people don’t necessarily take into consideration, because we’re creatures of habit, is the thing that we lose when we’re in retirement, which is time. Now, we might be 65 years old and with these market cycles occurring you may not have the complete time to rebound and wait it out. You probably are spending some of those assets, so taking money out during a declining market really exacerbates the situation. Then, the other thing you’re not doing, is making new contributions to fill back the hole that’s been created by a market turn.
We try to encourage people that you really must take a different approach, and you need to learn a different approach. That’s the big part about it. There are not many people out there teaching a different approach because they don’t know it. We pride ourselves on that. If you go to meetthrivefinancial.com you’ll see a lot of that. If you go to our normal website, thrivefinancialservices.com, you’ll see a lot of the resources and education on this concept. We specialize in that stage of life where you’re going to be using these retirement assets.
Right now, we have a lot of volatility that we haven’t seen in the past.
There’s a lot of forces that are kind of pushing at the stock market right now. We have a rising U.S. dollar, we see interest rates climbing rapidly, we have tension with the trade wars with China, Brexit has resurfaced. A lot of these things are causing this longest, in history, bull market, which is at a very mature stage right now to really start instilling some fear in investors. But people don’t know necessarily what to do, especially the do-it-yourselfers.
There’s also some seasonality. In October, we tend to see things get very volatile, and then November sometimes we see things kind of increase. But, this year with midterm elections and the political challenges that we are facing, it’s anybody’s guess to what’s going to possibly happen out here. What I want to talk about quickly is just a little bit related to investing beyond the boom.
There’s a famous investor out there, this guy called the Oracle of Omaha, Warren Buffett. Warren Buffett warned against this thing called the Cinderella Effect.
What he said was don’t be fooled by that Cinderella feeling you get from great market returns. Nothing sedates rationality like large doses of effortless money. The markets have made money. People haven’t put hard work into it. They just kind of stayed the course and rode the markets and we’ve seen phenomenal returns. That sedates rationality like large doses of effortless money.
After a heady experience of that kind, normally sensible people drift into behavior akin that of Cinderella at the ball. They know the party must end, but nevertheless, they hate to miss a single minute of what is one hell of a party. Therefore, the giddy participants all plan to leave just seconds before the clock hits midnight. There’s a problem, though. They are dancing in a room in which the clocks have no hands.
This is coming from Warren Buffett. So the moral to that story is people’s enthusiasm and exuberance that the market is just doing unbelievable, and knowing it’s going to come down at some particular point. I don’t really have a plan for that, but I’m going to stay the course. A lot of times, especially in retirement, we find somebody who was 65, 66, or 67 back in 2007, and ask them what the experience was like. because, that will really give you a picture to the inside of planning for retirement during a bull market, and then having the clock strike midnight. The problem is now there in your face.
That’s a typical situation. That’s where we see people come into our office and worry so much, but we ensure that there are definitive strategies. There are definitive plans where you can put protections in place to make sure that money does not get eroded so you can utilize it in retirement. Let’s talk a little bit about that.
Most investors are facing emotional dangers that build up in these types of rising markets. Right now, I think almost everyone feels pretty good. The thing that came out recently was consumer spending being down. I think that’s a result of people coming to some degree or realization. Karen and I, we go out to dinner four or five nights a week instead of one or two times a week because you just feel the money’s going to be there. You get onto the internet, you get onto Amazon and you buy an extra pair of sneakers that you probably didn’t really need. Instead of going to Ocean City, New Jersey for your vacation, you may end up at the Atlantis in the Bahamas or somewhere exotic.
People kind of set the bar a little bit higher. We try to caution people related to that, but the clock of economic reckoning is absolutely ticking and it’s really ticking very loudly. No one wants to see it. Nothing rises forever, and everything doesn’t rise at the same time. But again, nobody really wants to leave the party. Here’s a couple of steps that we can put out there for people to kind of help them understand how to navigate things.If you're working with an advisor who's constantly making trades in your portfolio, it's probably more for their benefit than it is yours. Click To Tweet
Number one, is I would say, choose investments based on markets, instead of shares.
I’ve seen people who come in having just gotten a major amount of money sitting in one and two individual stocks. They’ve done extraordinarily well, but all you need is one of them not to do so well, and it really can be a devastating situation. Another thing people, from an investment standpoint, should be doing is diversify based on value. We have these cannabis stocks in Canada that have been going crazy, crazy, crazy, and people got caught up in the enthusiasm of it. Who knows what’s going to ultimately happen there? But that’s riding an emotional wave versus a value-based wave.
Next, rely on financial information, rather than economic news. Whether it’s just normal news or it’s economic news, it’s becoming really challenging to watch either one of them right now. Because in a matter of three minutes, you can hear the most polar opinions on something, and as a consumer, how do you determine who’s right or who’s wrong? Rely on financial information rather than economic news.
Next one is keep investing simple. It’s not rocket science, right?
Whether you’re using exchange-traded funds, or mutual funds, put a good balanced approach to your investment strategy. Now, one of the things I would tell people is if you have individual stocks, you should probably be working with a professional who understands options a little bit. If you’re using mutual funds or ETFs, maybe put some stop losses in place during these crazy economic times. Make sure, also, to keep investing costs low.
I love some of the commercials that I hear out there. One in particular, they talk about transparency and about keeping fees low. That particular brokerage causes 2% a year to manage people’s accounts, which is a little crazy. Trade as little as possible, right? If you’re working with an advisor who’s constantly making trades in your portfolio, it’s probably more for their benefit than it is yours.
Lastly, make the decision process during panics automatic. Let me repeat that one. Make the decision process during panics automatic. If people come out to our workshop, they’re going to hear a lot about this. If they go to meetthrivefinancialservices.com they’re going to hear a lot. They can email us, text us, all those types of things. We’re happy to help out. We love doing it.
That will wrap up our discussion today from Karen, Bret, and David. We kicked everything off with Bret’s conversation on seven specific topics that fell. Karen continues her focus on women with Wiserwomen.org. Then, David closed on a clock with no hands. Very, very powerful. Very important. On behalf of David and Karen Bezar, and Bret Elam, thank you to all of the Thrive army, and we will see you next time!