Mitigating Retirement Risks

March 04, 2021

In this episode, you’ll learn…

Chris’ positive focus for the week
Longevity Risk
The sequence of return of risk
Long Term Care Risk
Market Risk
Tax Risk
Stock Market Trending News
Understanding how retirement is evolving
We can help you establish Confidence, Clarity, and Comfort in your retirement
Tax Planning strategies
Roth IRAs
Income planning and investment advice
Protection for your investments
Low interest Rates
Potential Tax Liabilities

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Episode Transcript:

This is the Chris Berry Show. Expert information on wealth, estate, and tax planning for the second half of life. Information that you can understand. Here’s your host, Chris Berry.

Welcome to the Chris Berry Show. This is Chris Berry, of course. And this week, just like every week, we’re going to start with a positive focus, something positive that happened within the last week or so. And for me, my positive focus is that my lovely daughter, Madison, she sold I think 160 Girl Scout cookies. So, she’s in Girl Scouts, I guess, brownies. And every year, of course, Girl Scouts sell Girl Scout cookies to raise money. And I was reading the package on the box, and it’s one of the top entrepreneurial endeavors for young women is selling Girl Scout cookies. So my daughter Madison sold 160 Girl Scout cookies, and I probably should have mentioned it ahead of time, and maybe I could have gotten some of the listeners from the Chris Berry Show to buy some lovely, delicious Girl Scout cookies. But that that ship has passed. But I’m really happy that she was able to sell so many. And then she just recorded a very cute video to send to all the people who bought Girl Scout cookies, so very happy for her.

This week on the Chris Berry Show, what we’re going to do in our second and third segments is we’re going to get into the changing retirement risks. So the risks that maybe your parents or the previous generation had, the risks are a little bit different these days. And we’re going to get into what those risks are and what you can do to try to mitigate some of those risks. Things like longevity risk, and sequence of return risk, and long term care risk, and market risk, and of course, the big one being tax risk. So we’re going to get into that in our second and third segments. But before we do that, I just want to talk about what’s been happening in the world in 2021.

So we thought 2020 was a crazy year. And I think we would all agree that for a lot of people it didn’t quite go the way that we planned. And I always start off each year writing out what my lifetime goals are and annual goals and quarterly goals, monthly goals, and I also have daily goals. And I have a planner that I write all of this out on. And I have my 2021 goals. I have them printed out a couple different places so they can always stay front of mind. But already 2021 has been a crazy year. Everyone joked about 2020 being a crazy year and they thought 2021 was we’re going to go back to a new normal or a normal, if you will, and it doesn’t necessarily appear to be that way.

I think it really started for a lot of people with the election that wrapped up in 2020. And all of the craziness both political and media driven beginning in January. I don’t think we’ve necessarily gotten past that. There’s a lot of craziness going on from a political standpoint. And we’re seeing what the first 100 days looks like under this new presidency, and we see some interesting things there. We haven’t had any big changes yet in terms of repealing the tax cuts and jobs act or anything like that. But we’re certainly watching that based on the proposals, based on what Biden ran on in terms of the election. So, we’re watching this. We’re watching to see what happens.

The first thing, of course, is going to be addressing COVID. And I think a lot of the ground was laid in terms of the vaccinations in the previous administration. And lo and behold, we’re now into the next presidency, and now all these vaccines are hitting the shelves. People are getting the vaccines. I’ve had some clients who have gotten. My parents have gotten the first round and knock on wood no one’s turned into a werewolf yet, so that’s good, but it’s interesting how the vaccine rollout is happening depending on which county, which city you’re in, what your profession is. And there’s debate on whether you should get the vaccine or not or you don’t want to be the first one in line. But I will say this that of my clients and family members who have gotten the vaccine, nothing has been worse than getting say a flu shot. So, knock on wood.

Now, that said, if you’re following the news there’s, they’re talking about the second and third waves or variations of COVID that maybe the vaccine will prevent or not prevent. But anyways, a lot of the craziness of 2020 certainly is spilling over into 2021. And then, so we’ve had the election, we have COVID continuing on. And then something that’s really been interesting for me being in the industry and the profession on the inside to a certain extent was watching the GameStop drama. So I don’t know if you followed this couple weeks ago. There’s a stock GameStop that was thought of as almost like a blockbuster dinosaur or a relic of a previous generation. And all of a sudden in these Reddit groups, which Reddit is a social media platform. Facebook is all about what you’re doing and who your friends are. Reddit, I would say more of an intellectual, more of a sharing news story type, social media site.

From this, there was this individual who had a username, Deep Value. Deep Value, we’ll call him and he really got behind GameStop stock and understood that a lot of the Wall Street or hedge funds were shorting GameStop stock. And he saw some deep value in GameStop in the sense that there’s eSports on ESPN and gaming is becoming more popular. So he thought GameStop was a little bit undervalued. And the previous 52 week of GameStop I think was less than $2 or something like that. So anyways, this really snowball effects really happened just within a week or so where all of a sudden GameStop shut up from $2 to I think the top was $480 per share. And then it dropped back down a week or so later.

So, it was interesting to watch all these individual investors come together to try to stick it to the man, stick it to Wall Street. And then just a couple days ago or a week ago we had the hearings where the Finance Committee for Congress brought in Ken Gil, I think his name was as well as the CEO of Robinhood, which is a trading app for individual investors where individual investors can engage in day trading, and invest in individual stocks and pieces of stock. And it was interesting watching Congress try to wrap their arms and minds and hands around this concept of individuals being able to come together to invest in a similar way that a lot of the hedge funds and Wall Street companies were in the past. And it reminded me of… Well, let me go back.

One of my goals for 2020 is to read 52 books. So basically a book a week and I’ve read some interesting books, some interesting biographies on some really great people like John D. Rockefeller, learning about his upbringing. How his father actually had two families. His father was a little bit of a snake oil salesman. And so, I think that’s one of the reasons that John D. Rockefeller is thought of as such a conservative religious person as a way to swing the other way from his father. But looking at the way that he created his wealth and monopoly and the use of trusts was really interesting.

And then I read the House of Morgan which talked about the Morgan family, JP Morgan, and how the Morgan bank so JP Morgan Chase, how that bank really came into being. And then I read about the House of Rothschild. It was actually two separate biographies, version one and two. And it talks about how the Rothschilds in Europe made a lot of their money. And a lot of it was just the quickness in which they would get information. And I’ll tie it back to GameStop and the hearings. But how the Rothschilds made a lot of their money is that they had courier pigeons, and they had a… Back in 1800s, they had probably the best organized communication of information in the world, in Europe and in the world where they were the first ones to hear whether Napoleon won or lost a battle or war. And then based on that, they would be able to make trades and maneuver financial instruments in such a way because they were the first ones I had access to this information.

I remember back in the ’90s when I was in college, and I was a finance major. We were having a banking class and we were talking about how these Wall Street firms would spend millions of dollars getting a internet that was a millibyte or half a second quicker than the other Wall Street firm where it was all about the sooner you could get access to information, the sooner you could make trades, the more money that you could have. And so, it’s interesting watching how information investing with the internet, with broadband, with the spreading of the internet. A lot of this information has been more of a democracy, democratized. And now we see individual investors having the ability to do things like day trading to a certain extent that really was only available to the hedge funds, the Wall Streets, the New York.

It’s allowing this power to be spread out, creating more of a democracy. And so, that’s where originally back in 1800s the Rothschilds, they had a monopoly on this information where they had their operatives in different countries and other countries would come to these big families. Whether the Morgans or the Rockefellers and Rothschilds almost to be bailed out or to help fund these different wars and this different thing. And so, these financial investment companies were the ones that had a monopoly over all of this information, these insider secrets, if you will. But now with the internet and these different apps like Robinhood, now individual investors have more access to data quicker. And the thought with Robinhood is that, well, now individuals can day trade just like the big boys.

But what we saw is that when this GameStop event happened, Robinhood actually shut down trading on specific stocks like GameStop, AMC, and Blackberry. And so, it was really disheartening for the individual investor, the small time players out there because they thought they had a seat at the big table. But when they tried to move their chips in what the big boys did is they basically shut it down and said that… Like with Robin Hood, they stopped allowing trades buying and selling of certain socks and investments. Robinhood is touted as this free service. Well, understand, nothing in life is free. Everyone should realize this by this point. Google, like your Google email and your Google searches. It’s not necessarily free. You might not be giving up your money, but you’re giving up data and privacy, similar with the Robinhood app. It’s not free trades. Nothing in life is free. It’s a capitalist market out there. What they’re doing is they’re banking on your data. And they’re giving signals to these different hedge funds companies and Wall Street companies.

And so, the Robinhood CEO, went on trial… Not trial, but went in front of the Finance Committee in Congress and tried to explain away why it was okay for him or his firm to shut down trading where they had to. Anyways, it was just interesting. I think from an insider standpoint, I was watching it in little… I guess, I viewed Robinhood and the internet. I tried to have a positive outlook on these things. But again, it just looked at it as individuals who were coming together and they really upset the applecart of the establishment. And then the establishment shut them down and sent them back. So, it was a little disheartening, but it was interesting.

One thing from a financial standpoint if you’re listening this and you’re near retirement or thinking about retiring, understand that those people that made money on GameStop going up or lost money on GameStop going down chances are they’re probably in the younger generation where they’re years away from retirement. It’s certainly not a way to look at investing in retirement as throwing all your money into one stock. You can certainly do whatever you want, but understand most of my clients there, as they get near retirement, they get a little more conservative. They want more of a portfolio versus swinging for home runs. Now, granted, I did have some clients that made some money, but for every client that made money there’s probably nine people that lost money on the roller coaster of the market during those couple of weeks.

And then on top of that, we see things like cryptocurrencies now as well. Bitcoin was shooting up this whole time, and the market was shooting up during the GameStop saga. But it’s certainly been an interesting 2021. And a lot of it I view it is we can’t control the events, we can only control our responses. So part of me is watching it just for the entertainment sake of just me sitting there eating some popcorn watching the craziness go on. But then the other piece of it is trying to think about it, how does it affect what we’re doing here? How does it affect my clients? And so, that’s why from a big picture standpoint, we’re really keeping an eye on what’s happening in terms of the markets, what’s happening politically.

But again, I can only control what I can control and that’s trying to make sure my family is in the best position possible. My clients are in the best position possible. And just trying to stay positive as we go through this craziness that’s now 2021. With that we had a big storm. Hopefully everyone stayed warm and safe during the big storm that happened. My wife, she has family down in Houston. And Texas wasn’t really ready for the storm that happened. So they actually lost power and my wife’s family, her sister, I guess their house got down to 44 degrees because they lost power and obviously didn’t have any generators like a lot of people here in Michigan, but they made it through it. And so, hopefully 2021 starts to get a little bit easier to predict. But that’s one thing I figured out in life is that you can’t really predict what’s going to happen. We can only control our responses.

So, another positive focus from a professional standpoint, and this is something that started last year is we’ve been doing these weekly wisdom webinars every Wednesday at one o’clock where you can go to our website, castlewealthlegal.com. And you can register and each week I hop on a Zoom with just a whiteboard, nothing prepared. And really what we do is we just answer questions. Answer questions about what happened the previous week in terms of the markets, ask questions about whether we need a will or a trust or what type of trust, ask questions about do Roth conversions make sense? A big theme we’ve had last couple weeks is looking at moving money to tax free bucket, but not looking at Roths because of the concern with the estate taxes and Biden lowering the estate tax exemption where now Roths are income tax free but they’re not estate tax free. So I invite you to join us on those wisdom webinars every Wednesday at one o’clock ,go to our website castlewealthlegal.com, and stay with us as we continue the conversation.

Hi, we’re Madison and Ryan Berry.

Our dad is Chris berry from the Castle Wealth Group.

The Castle Wealth Group used to be The Elder Care Firm, but dad wanted the company to be broader in its scope of services.

To not only protect and preserve assets but to help people grow their assets to prepare for retirement.

As a certified elder law attorney and fiduciary financial advisor our dad and his team at Castle Wealth Group can help you with lots of important things.

To tell you more, here’s our dad Chris Berry.

Thanks Maddie and Ryan. Here at the Castle Wealth Group we can help you put together an estate plan to avoid probate, work with you on a tax plan to keep more money for your family and less for Uncle Sam, and protect you against the devastating cost of long term care. Our team is here for your family. I invite you to learn more about the Castle Wealth Group at our next free workshop where you will learn the three steps to create a legal, financial, and tax plan for the second half of life. Call us today to register at 844-885-4200.

The Castle Wealth Group, formerly the Elder Care Firm.

Learn more at the castlewealthgroup.com today.

So, welcome back to the Chris Berry Show, and today we’re going to talk about changing retirement risks. Understanding that retirement is evolving, and these retirement risks are evolving too. And so we’re going to talk about what are the risks that you should be concerned because understand the US economy and the laws are constantly changing. The US stock market and the economy are vastly intertwined. And today the market moves quickly, perhaps more quickly than it ever has before.

Just take a look at the GameStop saga and for thousands upon thousands of retirees and pre-retirees moving towards their retirement dates or recently retired, it can be pretty scary out there. And that’s where we come into play and help you offer confidence, clarity, and comfort in your retirement and legacy planning. And the risks you face with regards to your money, inflation, income taxes, longevity, and legacy and retirement are vast and these risks have evolved too. And the retirement system itself has changed drastically and with the changes we’ve seen taking place from the old defined pension plan retirement world. So those old pensions to the modern defined contribution plan world. Many baby boomers are finding the planning process for retirement to be quite difficult and quite different than what it was for their parents.

So if you’re one of the many people out there who are looking for answers to the various risks you see standing in front of you pay close attention to what we’re talking about today and maybe give our office a call at 844-885-4200. And what we can do is we can put together a retirement and legacy blueprint for you where we focus on five key areas. We focus on income planning, investment planning, tax planning, healthcare planning, and legacy planning, pulling all five of these key areas together in legal financial and tax planning, so that you have a unified plan as you move into retirement, and you plan your legacy.

And so with that, let’s get into what are some of the biggest risks. And I think right now there are three main big risks out there. And with these different risks, there’s also some opportunities. And some of these risks can be lumped together. But the first risk and the risk that we spent a lot of time talking over the last really, almost 10 years, probably less than 10 years, since really 2016. This has been one of the biggest risks, and that is tax risk. The idea that our deficit is growing at a staggering rate. And this isn’t a political discussion because our deficit has grown under both the Republican Party as well as the Democrat Party.

I remember looking at this back in 2016 watching our federal deficit continue to grow. And it became worrisome where there was even apps or there are apps like us.clock.org that shows you just how much debt the country has, and shows it to you on a minute by minute, day by day, second by second basis. It shows you how quickly our debt is escalating. And the concern is what happens if we get to the point where we cannot cover our expenses? What if we can’t cover even the interest on our $30 trillion of federal debt? Just the interest payments alone are skyrocketing, and getting out of control. Plus all the other unfunded liabilities that we have as a country, whether it’s Medicare or Medicaid, or whatever it may be. Social Security, you look at your Social Security statement, and they tell you that unless changes are made, Social Security is going to run out and they’re only going to be able to pay out about 74 cents on $1 by 2034 unless changes are made.

So, back in 2006, I really saw the warning signs that this federal deficit of ours is getting out of control. And then 2018, we have the tax cuts and JOBS Act, which artificially lowered marginal tax rates and created this window of opportunity from 2018 till 2025 to look at trying to mitigate individual retirement plans, like your 401(k)s, IRAs, looking at strategies of paying the tax sooner rather than later. So, I think taxes are huge risk. And right now they’re one of the biggest opportunities to take action on where if you have IRA money, if you have 401(k) money. Let’s say if you have more than $250,000 of IRA money, especially if you have more than a million dollars of IRA, 401(k) money, if you’re not considering tax planning right now, you’re shooting yourself in the foot because we know taxes are going up in the future.

So, one of the things that we’ve really been focusing on with our clients is putting together aggressive tax planning strategies. Now, I’m not talking about tax preparation, that’s just looking at what happened in the past. What we’re doing is we’re taking a look at what is the strategy for this year for the next say, five years to mitigate taxes, because understand you have to pay taxes. You can’t get around it. If you have IRA or 401(k) money we call that, that always taxed bucket. You’re always going to be taxed on it when you pull money out. Now, there are certain exceptions, especially if you have charitable interests, we can look at things like qualified charitable distributions, charitable remainder trusts, etc.

But again, if you have pre tax dollars inside of a 401(k), inside of an IRA, you need to be considering some type of tax plan. And this is something that we’ve been helping clients with since 2016 trying to get them to a more tax efficient retirement. In fact, for some clients, depending on their situation, it may be, we might be able to get you to a 0% tax bracket. Someone I look up to David McKnight wrote a book called The Power of Zero. And I’ve worked with David, really smart guy. But he has a strategy, and we’ve implemented this with some clients where we’re able to try to mitigate taxes or get them even to a 0% tax bracket. And even in my own savings, I’m not throwing all my money into traditional 401(k)s or traditional IRAs because I think taxes have to go up, and they have to go up quite a bit.

So, I’m looking at things like indexed universal life, which can grow tax free. I’m looking at Roth IRAs, which can grow tax free. I’m looking at 529s, which have to be used for education, but grow tax free, looking at health savings accounts, which have to be used for healthcare, but can grow tax free. And then, and this is something we’ve been talking about on the last couple of wisdom webinars. So again, we do a weekly live webinar every Wednesday at one o’clock that’s then recorded and uploaded to our YouTube channel. And you can register for these at our website, castlewealthlegal.com But we’ve had, it seems like a theme, where probably 10 episodes ago is all about Roth conversions. But now we’ve been talking about how Roth conversions aren’t necessarily the end all be all for a variety of reasons.

One, because your Roth IRAs are not protected from the devastating costs of long term care. So if you were to need nursing home care, which costs eight to $12,000 a month, your Roth IRAs are not protected. And then now with a change in presidency, with the Biden administration coming in, and their views on, or wishes to try to lower estate taxes, we’ve also had the conversation that your Roth IRAs are not protected from estate taxes. So if you were to pass a Roth IRA down to the next generation, understand it’s not exempt from estate taxes. And the way estate taxes work or inheritance taxes work is that right now as long as you die with less than whatever the exemption is you owe zero in estate tax. Now, right now, that exemption due to the Trump tax cuts and JOBS Act is $11 million for an individual. But Biden wants to repeal that tax cuts and JOBS Act to bring it back down to five million. And then he’s taking it one step further to bring it down to three and a half million, which is the amount it was prior to 2010.

So if you have a large estate and buy large, I mean, now we have to start considering estate taxes, where if we add up the value of your home, any life insurance, your Roth, your traditional IRAs, your 401(k)s, any business interests. And if that’s greater than the estate tax exemption, well understand that now we have to be concerned not just about income taxes, but now also estate taxes. So, if you were to leave money to the next generation, and it’s above that estate tax exemption, understand, the government might take another 40, 45, 55% cut of that action. And guess what, that applies to your Roth IRAs.

And so, a lot of people assume that Roth IRAs are completely tax free. Well, they’re income tax free to the next generation. Now, the next generation has to worry about the SECURE Act, and they can only keep it inside the Roth for 10 years when they inherit it. But the Roth IRAs are not asset protected, meaning they’re not protected from long term care costs. Nor are those Roth IRAs protected from estate taxes. So, if you end up having an estate tax exemption, either because you have a larger estate that is over and above the estate tax exemption now, or if they lower the estate tax exemption even further, well, guess what? Those Roths that you’ve worked so hard for, those are not going to be estate tax exempt, meaning they are going to factor into your estate tax exemption.

So in the past, we’ve always talked about three buckets. We had your taxable bucket, your tax deferred, which is your 401(k)s, IRAs, 403(b)s, and then your tax free bucket. Well, we have to clarify that tax free bucket, which is really income tax free. It’s not estate tax free. And so, now we have this fourth tax bucket that is income and estate tax free. And so, here we have to look at some more complicated legal structures, different types of trusts other than revocable living trusts. Different types of assets other than, say, Roths, Roth IRAs, to fund that income and estate tax free bucket.

But yeah, so taxes, really, I see taxes is one of the biggest risks moving forward and biggest opportunities. And unfortunately, not enough people are talking about this. And this isn’t information you’re going to get everywhere. I had a conversation with a client last week they were in the office. They’re listening to the show. They liked our point of view, our approach. They listened to a couple of our wisdom webinars. They gave us a call and they came in for initial strategy session. And one of the things they said is that, “Chris, my Fidelity guy, my Ameriprise guy, they’re not talking to me about these types of things. And why is that?”

And so, what I had to do is I had to show them that there’s a hierarchy of advice out there. And at the bottom of the pyramid you have what we call your vendors. These are people where you go there and you just kind of pick off the shelf what you want. This is like the Fidelitys of the world, like custodian. You can invest your money at Fidelity and you can purchase some stocks and bonds and mutual funds and they might have a little quiz to help you, but really you’re on your own. It’s up to you. And that’s great for the do it yourselfers. But understand there’s just certain things that if you don’t know, you just don’t know, right? There’s a difference between mastery where you do something every day for 15, 20 years versus dabbling in it. Reading an article or downloading something on the internet or googling something.

And then the second, and they’re not going to offer you any tax advice. Something that he was frustrated with is he wanted to talk to them about Roth conversions, and the guy on the phone was just completely unhelpful. Because again, they’re a vendor, they’re not operating in your best interest. They’re a vendor. They’re providing a off the shelf service. And then you have your step up from there. These are your basic maybe investment advisors or stockbrokers. They’ll give you some advice on how to handle your investments, and maybe they’ll put together a portfolio that… or sell you some stocks or bonds or mutual funds that they think would make sense for you. But they’re not holistic advisors. They’re not talking to you about income tax or tax planning. They’re not talking to you typically about long term care. Really, they’re only looking at what is the best mix of stocks and bonds for you.

To be honest, they might not even have their own best interest, or your best interests at heart, because they might just have a suitability standard where if you’re working with someone who works for a broker dealer, they have more of a responsibility to the companies they’re selling, brokering and dealing for than they do for you. They’re not a true fiduciary. They don’t have your best interest at heart. They have to represent the companies that they sell product for. And again, they’re not a holistic advisor. They’re not going to talk about which investments make most sense, or make the most sense from an income planning standpoint, from a tax planning standpoint.

And really, at the end of the day, what they are is just they’re following a template. They’re they’re painting by numbers. They’re not putting together a plan that’s right for you. Because guess what, if you have someone, and I don’t want to name any names or put any firms down, but a lot of these common firms where they have an office on every corner, guess what? Without even looking at that portfolio I can tell you exactly how you’re invested. Because they just follow a paint by numbers template. It’s boilerplate for them. They’re not crafting holistic plans. They’re not crafting retirement and legacy plans. And that’s really what we do.

I’m not saying we’re the only ones out there, but we’re at the top of that pyramid where we’re providing income planning advice. We’re providing investment advice. We’re providing tax planning advice. We’re providing healthcare advice. We’re providing legal, and legacy advice. What type of trust should we have? That’s going to affect your tax planning. That’s going to affect your long term care planning, your healthcare planning. It’s going to affect your investment planning. What type of investments should we have inside of your IRA? What type of investments should we have inside of your Roth? What type of investments should we have inside of your asset protection trust? Those answers are different.

From a tax planning standpoint, what is your tax plan? Do you have a plan for taxes over the next five years? Or do you just have a tax preparer that tries to minimize taxes in one specific year versus minimizing taxes over your lifetime? That’s really what we’re doing from a tax perspective. We’re looking at your taxes through a macro lens of over your lifetime. So in retirement, and what you leave as a legacy versus a micro lens. So just minimizing taxes in one specific year.

So, again, the first risk in retirement and this is something that’s different than the previous generation is tax risk. I think we probably all grew up with the idea defer, defer, defer paying taxes as long as possible, but now we’re realizing that might have been not the best approach. Now we get near retirement and we follow those mainstream rules and then all of a sudden we have all this money pre-tax and now taxes go up and we’re going to lose the value that we have in those pre-tax accounts. So what strategies do we have to minimize tax? And again, it’s one of the biggest opportunities right now is tax planning and you’re missing out if you’re not taking advantage of it. Stick with me as we continue the conversation.

Hi, Madison and Ryan Berry here from the Castle Wealth Group, formerly the Elder Care Firm.

Our dad is Chris Berry.

He’s an attorney and fiduciary financial advisor, which means he helps families plan, protect, and preserve their assets.

The entire team at the Castle Wealth Group can help you with lots of important things. To tell you more, here’s our dad Chris Berry.

Thanks Maddie and Ryan. Here at the Castle Wealth Group we can help you put together an estate plan to avoid probate, work with you on a tax plan to keep more money for your family and less for Uncle Sam and protect you against the devastating cost of longterm care. Our team is here for your family. I invite you to learn more about the Castle Wealth Group at our next free workshop where you will learn the three steps to create a legal financial and tax plan for the second half of life. Call us today to register it 844-885-4200, 844-885-4200 or visit us at castlewealthgroup.com

The Castle Wealth Group, formerly The Elder Care Firm.

Learn more at the castlewealthgroup.com today.

So, we’re talking about the changing retirement risks, and we talked about taxes being one of the largest ones right now. The biggest risk, I think, and the biggest opportunity. And again, previous generation, they didn’t really worry about this. They had a lot of pension plans. They didn’t have a lot of defined contribution plans. So they didn’t have this build up of pre-tax funds that all of a sudden now they’re retired and they figure out, okay, how do I defuse this ticking tax time bomb that’s sitting in these pre-tax accounts. So this is a different concern for people retiring these days, for our baby boomers. They have to figure out how to defuse this taking tax time bomb. And so if you’re listening this and you’re still in an accumulation phase, you’re still saving money, then think about where are you saving money. Maybe we shouldn’t be over funding that 401(k) or traditional IRA. You take the employee match, employer match, of course, because that’s free money. But maybe we should be diversifying where we’re saving this money.

Now, if you are near retirement or retired, it’s not too late. We can look at strategies to move money from the tax deferred bucket to the tax free, or the income and estate tax free. Those strategies are still available even if you’re retired at this point because it’s not only about making your retirement as tax efficient as possible. And if we can do that, let’s explore that idea. But also, if we’re looking at leaving a legacy to the next generation, let’s talk about how to make that as tax efficient as possible. And one of my mentors and people that I’ve studied under Ed Slott, who’s known as America’s CPA. He’s been on PBS. One of the things that he really talked about since the SECURE Act is that we don’t want to leave traditional IRA money to the next generation. That’s really fallen down in terms of the types of assets to leave the next generation. Instead, we want to leave maybe cash value tax free death benefit life insurance, which could be income tax, and estate tax free, or maybe Roth IRAs, which can be income tax free, but are not estate tax free.

So, I think the biggest risk right now and biggest opportunity is tax risk. Now that brings me to the second big risk. And I think this is a timely risk. Meaning that we look at the current environment right now. And based on the current environment I think this is a huge risk out there. A, from the environment, but B depending on your age and where you’re at in your life. Based on where you’re at this could be a big risk as well where if you’re 30 years old, and you’re still saving and accumulating wealth, then you’re not going to be super concerned about this. But if you’re 60 or 55, or 70, or near retirement, or you are retired, then we need to take into account the second big risk, which is market risk. We might call this volatility. So, if the markets were to go down, what effect is that going to have on your retirement? Because what we’ve had really is a 12 year bull run.

Now, we’ve had some dips, like in March, the markets dropped but then they miraculously bounced back, thanks to some smoke and mirrors. And I think government pulling a rabbit out of its hat with some of these stimulus packages. But we’re still feeling the effects of the pandemic. Here in Michigan, restaurants can only open 25%. They have to shut down at 10. Because apparently you can only get COVID after 10 o’clock. Businesses are shut down. No one’s traveling. Sports aren’t with it. So you look around and the economy is not doing great. But if you look at the stock market, the stock market doesn’t reflect that. You look at unemployment, where even our firm we’re trying to hire and we’re having troubles hiring because people are paid more sometimes to stay at home than they are to work. It just doesn’t make sense.

And so, the market, we’re at this high and understand that even coming into 2020 a lot of people were predicting that this bull run 10, 11, 12 year bull run had to come to an end because typically these things are cyclical. So if you look back every 10 years or so we’ve had a dip and it’s been a pronounced dip that lasted for quite a while. The 2002s if you remember investing back then. 2008 more recently in 2008 where the joke was your 401(k) became a 201(k). And so, if you’re near retirement age, and you remember that 2008 we don’t want that had to happen because now you don’t have time to make that up. Now we have to worry about what’s called sequence or return risks where if the market dips right at the beginning or during your first few years of retirement, you don’t have as much time to build back that equity that you lost.

So now maybe it’s time to build in what we call a volatility buffer. Building some downside protection inside of your investments, so that if the market goes down your retirement won’t be as affected if you have all of your money in investments. If you had all your money in GameStop, that’s not diversification. So, you would have been doing great while it was going up, but if you wrote it all the way down to the bottom all of a sudden you lost a majority, if not all of your retirement. So we would never want to do that. That’s where diversification comes into play. So the idea is looking at diversification inside of your investment portfolio.

What a lot of people have figured out is that bonds right now due to the low interest rates aren’t necessarily the best option. Maybe we need to look at other tools to build in some of the downside protection where we can protect against the downside, so the money you move in we wouldn’t lose. And then you would participate in the growth or the upside of the markets where if the market goes up 100% maybe you get 50% of that upside. So if the market goes up 10, you get five, but if the market goes down you don’t lose anything.

So, there’s different tools that we can utilize as independent advisors to build us a volatility buffer to take some of the pain of the downside of the markets. Now, if you’re 30, and you’re still accumulating wealth, then you have time to make it up. But if you’re near retirement, and given the fact that we’ve been on a growth pattern for the last 12 years, and if you’re concerned that this, it’s not going to keep going up, if you’re concerned about downside, then I would recommend you reach out to us give our office a call at 844-885-4200, 844-885-4200 or visit us at castlewealthlegal.com. And one of the things we can do is have a get to know each other visit where we learn about you, you’ll learn about our practice, and we figured out if we can help you. And maybe one of the ways that we can help you is building a volatility buffer as we put together your retirement and legacy blueprint.

So, market risk. That’s the second big risk. And along with that, I would say inflation is a big concern for a lot of people as well. The idea that, well, interest rates are down. We have this debt. What if all of a sudden the government starts printing money? Now the dollar isn’t quite worth what it was. And where this really becomes an issue is those people who are seeking safety and have a lot of what we call lazy money. Money that’s sitting in checking savings, money markets, it’s not really earning anything, but you feel safe because you’re not losing anything. Well, guess what you are losing to inflation. So one of the things that we talked about, sent an email to a lot of our clients this last couple of weeks was talking about lazy money where if you have a lot of money sitting in checking savings more than you think you’re going to need for the year, you have 100,000 sitting in checking or CDs or something like that, you’re probably not earning a great interest rate.

Well, there’s different tools that depending on what your goals are might be able to earn a little bit more than those CDs, which are offering maybe 1%, or that checking or savings account, where you’re actually losing out to inflation. So understand that if you have a lot of money sitting in what we call that now bucket checking and savings, you are losing money. You’re losing it to inflation. And there are different investments or different tools that can remain safe, but give you more of an upside than just having it sitting in a CD or something like that. So market risk, inflation. That’s the second big risk. And third big risk, and this shows its head in different ways.

The third big risk is longevity risk, longevity. So people are living longer than ever what we found. And this is something as a certified elder law attorney, this is really what we focus on is the idea that okay, if you pass away that’s estate planning, figuring out where your stuff is going to go and avoid probate. But as an elder law attorney, investment advisor representative, it’s my job to make sure that what happens if you don’t pass away? You continue to age and you face all the issues that go along with aging, and one of those would be outliving your money. And so, that’s why as part of our retirement and legacy blueprint, we’re putting together strategies to make sure you don’t run out of money. That your money lasts at least as long as you do.

Protecting it against inflation risk, protecting against tax risk, putting together an income plan to make sure your money lasts as long as you do. And then invest in your assets in such a way that if a market dip happens in the beginning of retirement, it’s not going to devastate your retirement. You’re not going to run out of money. The goal is to make sure your money lasts as long as you do. And then really longevity risk, one of the biggest things is protecting against healthcare costs. So not only making sure you’re in the right Medicare plan, and you have the right Medicare program, but really protecting against the devastating cost of longterm care. And there’s different strategies to protect against longterm care.

There’s both legal as well as financial and insurance strategies. And we can look at combinations of the two and oftentimes that’s the best way to go is look at it both from a legal as well as a financial insurance approach. Because understand that, unlike, like we’re talking about in terms of the value of advice of we’re not a vendor. We’re not just putting you in some type of templated investment plan. We’re trying to holistically figure out what are your concerns, and maybe bring up some things that aren’t necessarily concerns for you, but maybe they should be. For example, I sat down with some clients last week, and we’re meeting with dad who had dementia and the son and daughter. And their big things were to avoid probate and they were concerned about longterm care costs. But dad had a million dollars of pre-tax IRA money.

And so, one of the things that they weren’t seeing just because they’re not focusing on this area all the time, they didn’t see the tax burden and tax risk that dad had. The potential tax liabilities that were going up with regards to the tax cuts and JOBS Act. And so, as we’re putting together that retirement legacy blueprint for dad we’re building in protections from longterm care. Whether he needs home care, assisted living or nursing home care, both legal as well as financial protections. Also, making sure that we had his investments in such a way that he was comfortable with it. He wanted to make sure that he had the right amount of cash on hand because he’s of that generation where you want to have the cash on hand. And then structuring the legal plan to avoid probate and building guardrails and protection against the devastating costs of nursing home care, which could run eight to $12,000 a month.

And then structuring his assets in such a way that he’s going to be more tax efficient moving forward having a strategy to minimize the taxes and side of those IRAs. And then also if there is anything left over for the kids, looking at strategies to minimize what they’re going to have to pay in taxes. And these are things the family just they didn’t spot because they’re not focused on that. They’re not focused on income investment, tax planning, healthcare planning, legacy planning every day. They’re focusing on the big concern of okay, dad has dementia, what do I need to do from a longterm care standpoint? Well, obviously, that’s important. But also we need to think about not just longterm care, and that’s a big one, but also let’s minimize taxes.

And this is really what we’re trying to focus on at our firm is protecting everything that you’ve worked so hard from. Protecting it from the devastating costs of longterm care, protecting it from taxes going up, protecting it from the president lowering estate taxes. So now what you leave to the next generation, the government wants take a 40% cut out of that. Protect that from the volatility of the market to make sure that you can have the retirement that you want on your terms versus just staying up at night worrying about what is the market doing? Worrying about whether taxes are going to go up and is that going to devastate your pre-tax account? Wondering if what happens if your spouse has a stroke and needs long term care whether you’ll be okay.

So that’s what we do is we put together a retirement legacy blueprint that helps families gain comfort, gain clarity, gain confidence, as it relates to their retirement planning for the future, or present. And then also that peace of mind of leaving a legacy. And I’m not just talking about a legacy of a large amount of money. Leaving a legacy, so God forbid you pass away, everything is handled as efficiently and effectively as possible. Kids aren’t having to take out a home equity loan to pay for your funeral. There isn’t infighting amongst your kids about who gets what. We’re not leaving a big chunk of your estate to the Internal Revenue Service. We’re protecting your estate from that nursing home or estate or Medicaid recovery.

So protecting against all these things, and that’s really what we’re focused on is giving you independence, giving you comfort, clarity, and confidence in your retirement and legacy planning. And if that’s something that you want more of, please give our office a call at 844-885-4200. Make sure that you’re a listener of the radio show, and we can have a conversation and visit at no cost. We will just learn more about you. You’ll learn more about us and we’ll figure out if we can help you or your family create that confidence, create that clarity, create that comfort in retirement and what you’ll leave as a legacy.

And if you want more information or you want to ask questions live, I invite you to go to our website, castlewealthlegal.com. And I invite you to register for one of our weekly wisdom webinars that are every Wednesday at 1:00 PM. If you can’t make it for whatever reason, understand they are live, but we do record them and they go up on our YouTube channel. Or you can always just email us or shoot us a note and we can send you one of our past episodes. But I do invite you to visit our website castlewealthlegal.com where you can get started and we can start planning that retirement and legacy blueprint for you. Or you can visit castlewealthlegal.com and you can register for one of our upcoming weekly Wednesday wisdom webinars that are every Wednesday at 1:00 PM.

Make sure to register early for those. They are capped out at 50 people. Our last week we’re getting near the cap. So make sure to register and log on. Usually about five minutes early. I’m usually on there interacting with people and saying hi to everyone. So this has been Chris Berry with Castle Wealth Group. Thank you so much. Make it a great week. Take care.

Learn more about Chris Berry and how he can help your family by visiting online at the chrisberryshow.com. That’s the chrisberryshow.com. You can also call Chris Berry at 810-355-2584. That’s 810-355-2584. This program content reflects the opinions of Chris Berry and his guests not Castle Wealth Group or Advisors Excel and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment or legal advice or a recommendation regarding the purchase or sale of any security or to follow any legal or tax strategy. There’s no guarantee that the strategies, statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful. We recommend that you consult with a professional dedicated to your needs. This program is furnished by Chris Berry and Castle Wealth Group.

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