The Challenges Of Retirement

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Retirement should feel like a safety net that’s going to catch you when the time comes. Yet many people still don’t feel it as that; rather, they think it’s a problem that should be feared. To help you overcome that, Joe, David, Karen, and Bret are bringing back topics that tackle the many retirement challenges people often encounter. Each of them drills down into many areas and provide real-life scenarios for you to better understand topics such as the misconceptions about annuities, people’s questions about retirement, women in retirement, and some updated changes in the tax laws.

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The Challenges Of Retirement

We\’re going to drill down a using some of our previous shows on very specific areas of retirement that you may or may not understand. David Bezar will address the areas of challenge in retirement, Karen Bezar will talk specifically about women in retirement, and we\’ll go back in time with Bret Elam and focus on the updated changes in all of the tax laws. Karen, we had a conversation that you referenced about an elderly couple who you met with in terms of a conversation.

It was a good story. There were a lot of meaningful bullet points in there. Some of the phone and email conversation was questions David about Karen\’s reference to annuity, which came out of that meeting with that elderly couple. I want to start with that because I think there\’s confusion when you hear the term annuity. I want to give you the first opportunity to talk about that here in the opening segment.

Joe, we had a flood of phone calls, a flood of emails, which is exciting because that\’s the whole idea behind what we do. We want to start conversations. Karen was discussing one of the folks that visited us for a conversation inside the office related to their retirement. What stemmed out of that conversation is the potential use of an annuity to create some guaranteed income in the later stages of their life to make sure that they had enough income to survive and cover their expenses outside of social security and any pension money. The word annuity, some people think it\’s the evilest thing that\’s ever been created on the face of the Earth. There are people who advocate for it dramatically. I think it\’s the greatest thing that\’s ever been created.

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What I try to share with people our show is based on education. We want to be advocates, we want to educate, we want to start conversations, and we want to clear up misconceptions. The first thing I want to say is we at Thrive are fiduciaries. As fiduciaries, it is our obligation to make sure that we represent an act in the best interests of the people that we serve. The way our company is structured is we have a couple of companies. We\’ve got a company called Thrive Financial Services, which is primarily an insurance-based solutions type company. We have a company called Thrive Insurance Group, which is a little bit more sophisticated estate planning, trust work and things of that sort. Then we have Thrive Capital Management, which is a registered investment advisory firm, which puts us into the scope of being fiduciaries.

The thing about us when we sit down with families to try to clear the air about what are the best choices for them, we put our fiduciary hat on. In addition to that, we\’re a little indifferent in which solution we ultimately come up with, because we earn our money regardless. If it\’s an insurance-based solution that makes sense for a client and they feel that\’s the right and appropriate solution for them, then we use that and we earn money. If it\’s just simply managing assets and developing portfolios from a risk-based perspective, then we are in that way.

We don\’t have a biased one way or the other, but I still think it\’s a good topic to discuss. There are a couple of misconceptions out there about annuities. When you say the word annuity, unfortunately, everybody thinks that every annuity out there gets lumped under one category. There was an article that was put out. It was Are You Missing Out on Guaranteed Income Because of These Five Misconceptions? I think it\’s a good place to start.

I want to emphasize quickly Sunday Night Live with Thrive presented by Thrive Financial Services is about that very statement that you made. Everybody in the room is here to provide education. The more informed you are, the better those meetings occur. When a couple sits down with Karen and they\’ve been through a long process and they\’ve been through a long history in their life, being educated is the correct approach for all of us.

That\’s our process and we\’ve always embraced it and it\’s what we encourage people to go through. That education process does not mean the sales process. There\’s a big difference between the two. At no point do people feel pressure and that\’s why I think they can sit and relax for the first time and be open-minded to the conversation and really listen. That way, they can get all the information to base their decision versus what they\’ve been either told by their next-door neighbor or what they read or what they heard. They can gain all the facts. This is why I think it\’s important.

[bctt tweet=\”The more informed you are, the better those meetings occur.\” username=\”\”]

TIAA is an organization that\’s very big in the retirement planning side of things. They do a lot of teachers and hospitals and things of that sort. They did a poll that they called the 2016 Lifetime Income Survey. They said, the primary goal for the retirement plan was to provide guaranteed money to cover the living costs in retirement, which we all know is critical. When people were asked whether they owned or plan to buy an annuity, the only investment that can actually guarantee income, no matter how long you live, only 23% of the people polled said yes. A lot of people discard the concept of purchasing an annuity for guaranteed income because of these misconceptions out there.

The first thing and we agree with this is that annuities are very complicated. There are three types of annuities out there. There are variable annuities, there are fixed annuities, and then there are fixed indexed annuities. We\’re not going to lean towards any particular thing, but each of them has their own bells and whistles, but they can be complicated. They\’ve got fees that necessarily aren\’t transparent. The way they do interest crediting isn\’t always clear. We call it the shiny object situation where people who tend to sell annuities as their primary solution just get people pointed at what they call the shiny situation.

Number two is if you die too soon after investing in an annuity, you\’re going to throw all your money away. We\’re going to share with people that is absolutely not true. A lot of annuities depending on the type that you buy, have beneficiary designations to them. If you didn\’t utilize all the money, there\’s certainly money left over to your heir so you don\’t give up control of that. That\’s a misconception. Number three, annuities aren\’t appropriate investments if you think you\’ll need access to your savings for emergencies. Not true.

There are annuities that have absolute liquidity options that you can get back 100% of your money, whether it\’s an emergency or not, but that statement is just false. Number four is you can get higher payment than an annuity offers by investing in a portfolio of stocks and bonds. As we talk further in the show, you\’re going to see that that\’s not true and that you shouldn\’t buy an annuity if you want to leave money to areas which we just covered. Those are some misconceptions that we\’re going to cover, share and hopefully, educate people up.

Karen, we\’ve missed you. It\’s nice to have you here.

Thank you, Joe. I\’m glad to be here. I\’m a mom first and we have to take care of our kids and when you work together, sometimes we have to split the duties.

I want to spend some time with you in this opening block, Karen, if I can just to give our audience a little bit of an understanding about Karen Bezar. I think it\’s important to do that. Your passion for educating people is true and very similar to David\’s and Bret\’s and to the philosophy of Thrive Financial Services. Your will and your mission to empower women is something that\’s a priority for you. Talk about that for us.

First of all, I want to backtrack a little bit and say that financial services was not originally my passion, but my passion was always helping people. I was originally in the medical field and I enjoyed what I did very much. David and I were newly married, a few years and David had a financial service business. I could see that he was struggling to keep up with the pace and he asked if I would be interested in helping out a little bit. I said, \”I\’ll help out a little bit.\”

A little bit became a lot of bit and full-time. I said, \”I\’ll come to help you but I will not talk to people. I will not get licensed. I\’m terrified of doing that.\” Who cares more about your business and yourselves? I saw the need for me to get more involved and that\’s exactly what I did. I found out that it\’s actually something that I love to do. I think we\’ve been working about 24 years and I\’m looking over to David to see if that\’s pretty right. We\’ve actually been married for 29 years. We’ve been together a little bit longer than that. We\’re still happily married, which some people find that hard to believe that we\’ve been working together for so long and it\’s working out for us.

Part of that I would say based on how you started to introduce yourself, here are the experiences that have helped you or shaped you or allowed you when in conversation to be able to understand almost to become a chameleon with the individual or the family perhaps that you\’re talking to.

Life experience has helped shape that as well. We started young, a married couple and no children. Then we had children and as we grew, so did our client-base. As we grew the business together, we started to see a different perspective as far as helping somebody in their early years as it was moving forward that we needed to help them is they plan to retire. Another area that I saw a need for was speaking with women or educating women. I will sit down with a client who was a woman who maybe has been newly divorced. Her husband took care of everything and after meeting with her she said to me, \”Thank you so much for explaining everything to me. You helped me understand.\” I was teaching her, but I did not know I was educating her, but I was. She asked many questions and she said, \”Thank you for making not making me feel stupid.\”

[bctt tweet=\”Education process does not mean sales process. There’s a big difference between the two.\” username=\”\”]

She did not know what she was doing at the time. That resonated with me to the point where I thought, \”Maybe this is an area we need to focus on.\” As the years went by, I said we became parents and we grew with the business and being a mom is always number one. That\’s why I wasn’t here in the past couple shows. As Dave and I worked together, something came along for David to step out of our business for a little while and try another area. As he did that, I stayed in the business. We have a big client base and a lot of them were women and I realized that it\’s something that I enjoy doing. I stayed with the business and I sold my old financial service practice because David had started Thrive Financial Services along with Bret and saw a need for the help that I could give him. The growth was exponential and they needed more help.

David, let me ask you to weigh in on what Karen\’s saying. One of the things in our very first show, one of the reference points that I remember that stuck out for me was just as Karen had mentioned. You\’ve grown with your clients, you\’ve started with your clients, you\’ve welcomed them in and you\’ve grown with your clients and lived with them through their life cycle.

It\’s been an interesting journey because as we were growing and getting older and maturing our financial situations personally, we\’re changing as well. It helped us understand at the time the typical client that we were dealing with, what they were going through. Now that we\’ve been in the business for 27 years, people are at different stages of life. That\’s what definitely made us recognize as a business person, we had to adapt. We had to change the course and direction of our businesses and we did.

I would tell you, I don\’t want to say one\’s more important than the other, but I think we have a much greater impact with people that are right at that retirement age or have entered retirement age. Primarily because while you\’re on that journey getting there, you could make some mistakes. You can because you\’ve got time to recover but you don\’t get that do-over. There are many decisions that you make that are one-time decisions and they have dramatic impact.

Karen, Financial Planning for Women. That\’s a topic of importance and there was a huge part of the audience that is going to gravitate to you and is going to fall into the belief that empowering women is good from a financial standpoint as well, touch on it for me.

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Planning for retirement for women is important because it affects them differently. A major aspect of being a woman in retirement is we happen to live longer than men. We have to plan on living longer in retirement. Women are affected as far as Social Security income is that for every dollar that a man earns, a woman earns $0.76 on that dollar. As you\’re building up your Social Security income, that makes a big difference when you\’re looking to retire.

We bring Bret Elam into the conversation. One topic that we\’re going to discuss that you talked about in the pre-show is very important. It\’s the retirement checklist. What do you need to do and what should go on a retirement checklist? I bring you into the conversation to start that process and start the conversation for our audience.

When we talk about that retirement checklist, Krause, we\’re all getting back to preparation. We were talking about Carson Wentz practicing with wet footballs getting ready for the 49ers game and that\’s what it\’s all about. It’s talking about preparation. We don\’t want to enter retirement and then figure it all out. It\’s doing the necessary steps up front. We\’ve alluded to dental pain, the necessary questions to make sure that we have a bulletproof plan when we enter retirement. A recent article that we found out there that was great was Are You Really Ready for Retirement? done by CNN.

We\’re going to use their bullet points and really dig into it a little bit different in terms of the reality points of it if you will. The very first question we have out there is do you have the financial resources you\’ll need to support you for the rest of your life? There was a recent study by the Boston College Center for retirement research. They found that 40% of working-age Americans had an unrealistic sense of whether they\’re on track to maintain their standard of living. Krause, quick question for you. What day of the week typically are we spending the most money?

My guess would be Friday or Saturday.

You\’re spot on, that\’s it. We asked that a lot during our workshops as well. Every day is Friday or Saturday. There are a lot of statistics out there. We only need 60 to 80% of the money that we earned while we\’re working to live on. If someone\’s making $100,000 and I only need $70,000 to live on and then we asked, \”Where\’s that extra savings if you indeed don\’t need that much money?\” People love the plan for that two-week vacation rather than going through that budget exercise. There\’s great budget resources that are out there on the internet, irregular spending.

Karen did a great spot talking about women. We need to make sure we\’re including things in our budget like getting our hair done, our nails done, pet food. Everything that we think about. We think about food and transportation and housing, etc. Another big deal too is we deal with a lot of people whether they be from the labor unions, teachers, people especially that have pensions where they\’re having money taken out of their paycheck, going into a pension. Money going into 401(k)s or 403(b)s where people are always thinking that I may necessarily need to get to that gross amount that I was making.

What\’s that take-home money? That\’s what we\’re spending a month in and month out. Forget taxes, we talked about taxes past couple seconds where taxes are typically lower when we enter retirement. If you\’re struggling with that budget exercise, if we can at least come up with that net paycheck that we\’re getting month in and month out, it was a great starting point. Obviously, we need to keep up with inflation as time goes on as well. It\’s going through those necessary steps of going through that budget exercise.

Also understanding it and going back to that original 40% of working age Americans are unrealistic in terms of understanding what they have going to need for the future.

You have to be true to yourself. The next thing that we jump into is where are those sources of income coming from? It\’s going through the different buckets of money. We\’ve talked about strategies and the importance of maximizing Social Security. Social Security obviously is a big bucket that will satisfy almost create the foundation of what we\’re going to live on. During our workshops, we talk about how Social Security is almost 65% of normal families’ expenses in retirement. Then we’ve got to take into consideration, pensions and your assets.

[bctt tweet=\”There are so many one-time decisions that you have to make, and they will have dramatic impact.\” username=\”\”]

David spoke about annuities that were out there. Where sometimes it\’s worth looking, \”Should I have an annuity that\’s going to generate income for me? Where it may take place of a pension if you will, giving us some guaranteed income? Are there going to be inheritances that are out there?” Really understanding where you get into the micro level of it of when and where I\’m going to be pulling from those different buckets of money. We believe some misconceptions out there where they say, \”Let\’s delay taking from our deferred tax buckets if we will and take it from our tax-free buckets.\” We talk about a different combination of putting all those puzzle pieces together to ensure that we have a tax-efficient retirement as well.

Another big question is do we have health insurance squared away? Where we see that a lot of times it becomes a struggle, let\’s say from a budget standpoint, is to realize our healthcare has typically taken our paycheck before we receive it. We need to make sure we\’re adding that back into our budget. Typically, we find about 15% of our budget is made up of healthcare as we enter retirement. Whether we\’re retiring at 65 and we can lean on Medicare where we’ve got to go get a supplement on top of Medicare.

Typically, we\’re planning for around $350 per person per month in retirement. We\’re fortunate enough to sit down with people that feel like their life is hijacked because they’ve got to pay for healthcare before Medicare age. We sit down with people and we talk about strategies, how you can have the most do healthcare in the most efficient way. Again, understanding all the rules that are out there. Another great question too Krause is your retirement portfolio in shape? David did a great segment talking about the Riskalyze analysis. In 2007, just prior to stocks losing more than half of their money during that financial crisis, more than four in ten 401(k) participants between the ages of 56 and 65 had over 70% of their 401(k) account invested in stocks.

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What we found we have plenty of those clients, they weren\’t retiring in 2007, 2008 and then the emotion\’s taken and they\’re getting off the train as it went back up. It\’s making sure that we have the appropriate asset mix and there\’s no general asset mix of 60% should be in stocks. Everyone\’s going to be a little different. That\’s where that Riskalyze Test really comes in and this is a big one. The last one is do you have a plan for how you\’ll actually spend your time in retirement? People think so much of what the retirement from and never spend the time of what they\’re retiring to.

We find from a lot of people, whether they\’re going to spend more time with the grandkids, or they going to volunteer. We meet plenty of people that that are bored in retirement or like, \”I should have never hung up the cleats.\” They missed that socialization of going to work every day. It\’s being mindful of what\’s life going to look like. We\’re creatures of habit, changes are natural. As we\’re going into the office day in and day out, all of a sudden we\’re not anymore. We\’ve got to figure out what we\’re going to do with that next phase in our life.

Good stuff from Bret Elam. I want to bring David back into the conversation. David, somewhere in my mind, I kept hearing how we started this program where the phones were popping at Thrive. Your email was buzzing off the hook is the phrase that we referenced with questions. There\’s confusion and trying to understand and that\’s why Sunday Night Live with Thrive was born and we encourage those questions. We want the questions to come but you\’re getting a lot of them.

As matter of fact, Joe, we were checking our Facebook page and seeing commentary and ask them more questions about annuities. Like I said, it\’s always a hot topic for us financial advisors on trying to bring clarity to folks about how they work and what they do and if they\’re appropriate, so on and so forth. I thought if it\’s okay with you that we would maybe save a potential segment about investing errors, which is a very important topic. I think we can maybe spend a little bit more time, maybe diving into annuities a little bit deeper level.

Right before we jumped back into it, I do want to mention one of the things at Thrive is we\’re reactive to requests by our client. We get phone calls, we get emails. One of the things we decided to do at Thrive is we put an additional website together, Joe called ThriveUniversity.info. That is a ton of information of videos, educational classes. Not as deep as we go in here. They\’re shorter little vignettes of it but a great information on many different topics. People can request additional information through that site as well.

It\’s great stuff. It\’s part of the education process, no doubt, no pressure. The ease of your leisure to be able to go in there, watch it, absorb it, and then reach out with questions.

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It makes for a better conversation for our folks when they come in because they\’ve elevated their understanding of it and they can ask great questions that way. Jumping back into some of the questions that we received, let me make a couple of quick comments. When it comes to annuities, they\’re not evil and they\’re not the greatest thing that\’s ever been created on the face of the earth. They are appropriate for certain situations at certain times for certain people. That\’s it. I could tell you at Thrive that we don\’t love annuities, but we love what annuities can do because there aren\’t other solutions that can replicate the same thing.

Our encouragement to folks and the other thing too is it depends who you talk to from a financial professional perspective. Typically, if you\’re dealing strictly with an insurance person, they may lean very heavily on annuities. Again, we don\’t think annuities should replace everybody\’s assets by any stretch of the imagination. If you\’re talking to somebody who\’s a little bit more investment-oriented as a professional, they may completely boo-hoo against annuity. Finding someone who\’s got a balanced approach, who can give you that unbiased feedback about is where you want to go. We don\’t love them but we do love what they can do. The primary thing that they can do, there are two. One of them is we use certain types of fixed indexed annuities as a bond alternative inside of an investment portfolio.  When we are looking at investments and trying to design a portfolio, bonds typically are the safe haven for people to invest.

The challenge that we have today is we really think interest rates are probably moving up.

The challenge that we have is we think interest rates are probably moving up and as interest rates move up, bonds go in the opposite direction. The values decrease. We don\’t have any confidence of putting people in long-term type bonds, but we liked the type of yields that long-term bonds provide. As an alternative, there is a particular annuity that we\’ve investigated, did our due diligence on. We found it where we can give absolute 100% principal protection.

We have liquidity, meaning you can get back 100% of the money you invested at any time with no penalty. It has no management fees, no fees involved that can erode the performance of it. Because it\’s for the long end of the bond curve, only the portfolio portion might only be 10% or 15% of an overall portfolio is where we would use it so that we can get that somewhere between 4%, 4.5% type return. That\’s one primary reason we would use an annuity. Bret can talk a minute about the other where we try to create guaranteed income.

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Guaranteed income, for those of us that don\’t necessarily have a pension that\’s out there and realize pensions are built off of an annuity chassis. At the end of the day, we look at the insurance company that\’s backing our pension that is indeed out there. Again, we\’ve talked about a couple age, 65. The chances of one of us live in one spouse living to the age of 95 is 50%. Understanding that we\’re in the greatest bull market in the United States history that we\’re getting ready to see a correction. We don\’t know if but simply when. Again, the worst thing that we can do in retirement is pulling money from a declined asset.

As David said, not for every single one of our dollars put to give us some peace of mind that god forbid that market goes on that roller coaster. We joined it on the emotional roller coaster is knowing that we have a bucket of money that\’s guaranteed to last for maybe not only my life but maybe my partner\’s life as well. We talked about when, when the first spouse passes away, we\’re going to lose a Social Security check, it needs to fill that bucket. A lot of times annuities that we have out there again for the particular situation, for the particular person that income can last until the day we pass away.

Annuities have their place and working with a financial professional who has no bias, who can make an evaluation of is it a particular fit is probably an appropriate conversation to have. Typically, folks that are higher net worth don\’t think they have a need for it. We\’ve spoken to a number of our higher net worth clients as far as the bond alternative, a placeholder wall. If the market does correct, we don\’t have a loss of principal and it\’s been received incredibly well. I encourage our audience not to instantaneously discount annuities. I also encourage our audience not to jump with both feet into annuities. Get the information, get the education and see if appropriate.

In behalf of David and Karen Bezar, Bret Elam and all of our audience, I’m Joe Krause, we’ll see you next time.

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