July 31, 2021
What Steps Should We Be Taking to Protect Against Inflation? |Weekly Wednesday Wisdom Webinars
Certified Elder Law Attorney and Financial Advisor Chris Berry of Castle Wealth Group answers retirement and estate planning questions every Wednesday at 1pm.
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Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.
On this week’s webinar, attorney and advisor Chris Berry of www.castlewealthlegal.com answers the below questions.
- Introduction / Positive Focus
- What is the difference between a living will and a will?
- I am 67, my wife is 65, should I take Social Security now or wait until age 70?
- There’s been talk of inflation, what steps should we be taking to protect against it?
All right we’ll go ahead and get started here my name is Chris Berry of course and we do these weekly webinars once a week every Wednesday at one o’clock. Where we just log in and answer whatever questions you have. So if you do have any questions feel free to put them into the question and answer section and I’ll make sure to address them. Otherwise, we have three questions or submit them ahead of time. So I’ll dig into those but first I always start with a positive focus something positive that happened recently and so my positive focus is that I was able to spend last weekend up in Mackinaw City with my wife and kids. So we went to Mackinaw city spent a day on the island. Did the carriage tour around Magna island and we were able to get out of there before I don’t know if you saw there’s a bomb threat on Mackinaw bridge. So luckily we were out of there by the time that happened but it was a great time up north.
So that was that’s my positive focus so again if you do have a question or you want something answered from a legal financial or tax standpoint please put it in the question-answer or the chat otherwise what I’ll do is share my screen and get into some of the questions already submitted. And if you do have a question or something is unclear as I’m going over this feel free to put that in the question and answer because again this is for you. There’s no scheduled PowerPoint or anything like that it’s really just answering people’s questions. So with that let me share my screen and if you want to see how something specifically that we cover applies to your situation go to 15 chris.com and you can book some time on the calendar otherwise let’s get into the questions. So the first question is what is the difference between a living will and a will so what we’re talking about here is what we call estate planning tools and typically when we’re talking about estate planning the tools we typically use a trust. And there are different types of trusts a lot of times we’ll have a will we’ll have a financial power of attorney. So you get a knock in your head who’s going to make financial decisions. A medical power of attorney who’s going to make medical decisions and then if you own real estate some type of deed typically like a ladybird deed which is the type of deed that says the home is in your name while alive. And then upon death flows into the trust and then we always need to make sure that if we do have a trust we work on getting it funded properly making sure assets are titled in the name of the trust.
So a will sometimes like the technical term is a last will and testament now important thing about a will is that it just gives instructions to the probate court and if you’re looking at avoiding probate you don’t want to rely on a will. Typically that’s why most people end up doing a trust because a will gives instructions to the probate court versus a trust which avoids probate. So the question is what is a living will well a living will is really is talking about end-of-life decision making and many states have a statute saying what a living will is Michigan is one of the few states that doesn’t have a statute on living will. So really this type of end-of-life decision-making falls into the medical power of attorney. Now, this might have different names we might call it a patient advocate designation that’s the technical name in Michigan as we call a patient advocate designation. You might also hear this called an advanced directive health care proxy all of these basically mean the same thing all of them are referring to a medical power attorney and then I’ll even throw living will in there. So living will is end-of-life decision making you might have heard of Terri Schiavo. She was a woman down in Florida. She was in a vegetative state her husband wanted to remove her from life support her family wanted her to remain on life support it became a big court battle that lasted over eight years. That’s all because she did not have a living will or medical power of attorney or patient advocate or advance directive appointing your spouse to be able to make these medical decisions. So really all of these kinds of are the same thing big picture living with it’s confusing a living will talk about end-of-life decision-making while your will is your instructions to the probate court. So really any comprehensive estate plan at the end of the day will have a trust typically a will financial attorney medical power of attorney deed and then if we have a trust we need to make sure everything’s funded. So you’re living well that’s kind of part of your medical power return so hopefully, that was helpful. All right number two I am 65 the person that writes this question is 67 I mean I’m not 67. My wife is 65 should I take social security now or wait until age 70. Well as an attorney and fiduciary I have to give this answer it depends on treatment it depends on your situation and again that’s where we first figure out what are your goals figure out the best strategy and then pick tools to help you achieve it those strategies. Now that said there are two ways to look at social security timing and that’s really what we’re getting into it. So just looking at social security timing kind of in the value how to maximize the most out of social security. So a lot of times when I talk to people that’s really what they’re looking at it is they’re just how do I get the most out of social security as possible and some people kind of default to taking it as soon as possible because they want to get as much as possible from social security other people default to taking it at full retirement age or taking it later because social security grows at roughly about eight percent per year in terms of your income. But really what happens is there’s a couple of key ages. So 62 is typically the earliest you can take social security your full retirement age might be at 66 or 67 depending on when you’re born and then the latest you would want to take social security is age 70. So this is what we call full retirement age and a lot of times we don’t take social security during this time period most people take it either at full retirement age or age 70.
Because what happens is each year you wait your social security benefit grows roughly eight percent a year and you can’t really get eight percent a year guaranteed in the market. So the idea of creating an income stream that’s eight percent greater if we wait longer than might be appealing especially if we think we’re going to live longer. So why might we want to delay taking social security so why take social security at age 70 well if we think we’re going to live for a long time. So longevity is okay because what happens is there’s kind of a break-even point. So if we say we take social security at 62 then your benefits are kind of going like this versus if you take social security at 70 okay you’re missing out on benefits but there’s going to be kind of a crossover point a break-even point usually about 82 to 84 is when that break-even point is. So if you plan on leaving the path say 82 then just from a numbers standpoint it’s probably going to make sense to delay taking social security. Second, if you have a spouse understand the spouse will get bumped up to the higher social security. So if we have one spouse who says social security for one spouse is 3 000 per month and then the non-working spouse’s social security was only a thousand per month. We’re not only looking at your longevity but also we need to take into account the longevity of your spouse. So if you were to pass away they would get bumped up to your higher social security. So if we delay taking social security that might not just benefit you but that might also benefit that surviving spouse third reason why a lot of times we lean towards taking social security later is I call this the worst-case scenario. So what is the worst-case scenario if you wait to take social security at 70 70? A lot of times people will say well what happens if i die at 71 right. Well then you passed away and sure you didn’t maximize the amount from social security but you’re dead and it doesn’t really matter versus if you take social security at 62 and now you have a reduced benefit of say only 1500 versus if you’re to wait and it’s three grand and you live forever and then you run out of money or your expenses outpace your income. I think that’s a worse scenario so I’m not saying everyone should delay taking social security but just those are some reasons why you might want to delay taking social security. Now on the other hand if we take social security earlier and allows you to retire early and you can enjoy some of those go-go years more and do more then maybe that’s the reason to take social security earlier but I don’t look at social security just in a value need to look at it. In terms of an overall plan right and this is really what we focus on is having an income plan an investment plan this is all part of what we call a retirement legacy to blueprint a tax plan. So how are you going to navigate taxes healthcare and then legacy so fitting social security not just into an income plan but also really this factors into tax planning as well and I’ll show you why? So and we’ve talked about this many times we have these different taxable buckets we have post-tax.
So this is money that you have to pay tax on the gains we have pre-tax these are like your IRAs and 401ks and then we have tax-free so how does social security fit into this conversation. Well, let’s say you retire at age 62. Okay, what happens to your wages so your wages go down meaning your income goes down and if we delay taking social security then if we’re looking at tax brackets we might now drop to like the like have zero tax. And then there’s 10 and then 22 and then 24 right. So what this allows us to do is when we retire now we can pull money out of here for one reason being income so now that we’re lower tax brackets we pull money from the IRAs to cover our income need and then also if there’s space. So let’s say our income need gets us to a hundred thousand dollars of income well there’s space to do things like Roth conversions or move the money to cash value life insurance. So by the time, we reach 72 when now RMDs happen or 70 so then at 70 we turn on social security because we’ve lowered the amount in our tax-deferred bucket, and now by the time we reach 72 our required minimum distributions might be minimal. So another reason why we might want to delay taking social security is for tax planning reasons because it allows us to get more money out of those pre-tax accounts without social security factoring into the analysis or factoring into additional income. So if we turn on social security too early that limits the amount we can pull money out of the retirement accounts in the most tax-efficient manner possible. So with that said there’s no hard-line rule whenever we’re sitting down with clients we’re going over all the different options. So hopefully that’s helpful all right let me see if there are any questions or comments none so far. And again if you do have a question or something is unclear please just let me know all right number three there’s been talk of inflation what steps should we be taking to protect against it. Again it depends on your situation but one big thing would be not don’t lock up money in strictly fixed accounts okay. So what am I talking about here I’m not talking about fixed index accounts but I’m talking about fixed accounts. So things I’d be staying away from right now would be CDs offered by banks multi-year guaranteed annuities which are the same thing as CDs. Both of these are going to have a fixed rate of return like a cd for six months might be one percent multi-year guaranteed annuity for a couple of years might be two percent. You’re basically locking yourself into those types of accounts also don’t have too much what I call lazy money. So money just sitting in savings like typically all you should have is really an emergency fund or you should have whatever your emergency fund is. So maybe three to six months’ worth of expenses and then if you are in retirement whatever your income gap is for the year and then whatever big expenses you have coming up for the year. Otherwise, that money is you’re actually losing that money due to inflation because having money sitting in your checking savings or money market you’re lucky if you get one percent and I think the latest I sell for social security increase I think this year is gonna be like five percent if I’m not mistaken. So things that we want to avoid CDs probably aren’t the best route to go multi-year guaranteed annuities leaving excess money and things like checking savings money market.
So then the question is okay what do we do with that money well that’s where we have this conversation where any investment has two out of three characteristics we can have our money geared towards growth. We can have it geared towards liquidity or we can have it geared towards safety and any investment has only two out of those three characteristics. So the money that’s safe and liquid is the money at the bank and again this is that lazy money where if inflation is is going up the cost of goods is going up and you have money. That’s not earning any interest then that value that cash is going down like I had a client I was meeting with today and their wife passed away but her idea of safety was putting money into the mattress. Like well if inflation’s going up the value of that dollar is going down. So we don’t necessarily want to rely on that so we want to look at something that offers some growth. So this might be putting the money into the market and we can have aggressive or conservative portfolios or you might want to look at certain investment tools that have the opportunity for growth or safety. And this might be things like fixed index annuities or cash value life insurance where the downside is protected but you can get a rate of return of anywhere five to eight percent which again would be outpacing inflation these days. So first with the talk of inflation first thing is don’t lock up money into kind of fixed accounts like CDs or multi-year guaranteed annuities where you’re locked into getting a basically a crummy interest rate because if you look at interest rates right now mortgage rates are super low. I just had a client refinance for about two and a half percent well unfortunately that’s also affecting the interest rate earned on CDs multi-year guaranteed annuities and even bonds right have a lot of people who so the money in the market typically is made up of what equities like stock and bonds and with bonds performing so bad they’re moving their safe money over here just because bonds are offering such a horrible rate of return right now.
So don’t lock up money in fixed accounts and I would also and the second thing would be don’t have excess lazy money sitting at the bank really the money at the bank should be geared typically towards whatever your emergency fund is. Which again is about three to six months worth of expenses any big expenses you have for the year. So if there’s a big home improvement deal or something like that money should be safe and liquid and then if you are in retirement whatever your income gap is for the year. So if you know that you need about extra thousand dollars a month over and above whatever your fixed income is then maybe you should have twelve thousand dollars sitting in check savings. So with inflation it’s what’s the big thing is just make sure that your money is working for you don’t have access to money sitting at the bank don’t lock your money up into things that are offering you basically horrible interest rates for a period of time. So all right that was the three questions that I had submitted ahead of time. So if you do have any other questions or anything else you want me to cover whether it’s in the news or you heard this or Susie Orman said this or Dave Ramsey said that feel free to put that over into the question and answer section. And I’ll go ahead and answer that and we’ll give everyone another minute to put in any questions if they do have any questions and going once going twice and stole. All right well everyone has a wonderful week thank you so much for logging in. If you do have questions feel free to shoot those over via email. Make it a great week take care bye.