One For The Money

This episode of the One for the Money podcast airs on January 1st when many Americans make resolutions to improve their lives. These resolutions often focus on eating better and getting more exercise, perhaps because of everything eaten during the holidays. In this episode, I share why, financially, it’s better not just to be wealthy and wise but healthy too. Listen to the tips, tricks, and strategies portion, where I share a few ideas that have helped make exercise easier for me.

• Exercising and long-term financial goals [01:33]
• Greater quality of life [04:17]
• Benefits of HSAs [08:28]
• Tips to help you exercise more [11:22]

January is a time of resolutions that often focus on physical health. Unfortunately, most of these resolutions have faded away by mid-February. Investing in your health is in your long-term financial interest, and health brings a freedom that few realize until it’s gone. Not only does exercise extend our lives, but it extends the years we have good health. Good health allows us to spend less on healthcare and more on things we want. 

Longevity is most impacted by major modifiable behaviors such as exercise, sleep, nutrition, and emotional health. Exercise itself is in a league of its own because of its ability to extend one’s life and reduce all-cause mortality. This observation was made by the famous Dr. Attia, whose practice consequently focuses on exercise. Dr. Attia also noted that this is the most challenging aspect of behavior for people to change because of the significant time commitment. 

Exercise doesn’t just buy you more time; it buys you more quality time. Quality of life isn’t the only benefit. Good health is essential because healthy people can have lower healthcare expenses. Healthcare is expensive now, but even more so in retirement. The average retired couple will spend $285,000 in today’s dollars just for medical expenses, not including long-term care expenses. 

Early retirees will especially want to consider exercise, as they must pay most of their healthcare expenses before Medicare does. Just because someone turns 65 does not mean Medicare covers everything. Deductibles, premiums, and prescription costs add up quickly, and all must be considered. Stay healthy, and you may be able to avoid many of these costs.

One of my favorite planning tools is a Health Savings Account. HSAs are the only investment vehicles that are triple tax-free. If used for qualifying medical expenses, growth and distributions are tax-free. The money in an HSA is not susceptible to taxes and isn’t impacted by the amount of the individual’s income. While anyone can get this deduction, not everyone is eligible to invest in an HSA. You must have a qualifying, high-deductible medical plan. Additionally, the contributions are limited per individual and family. 

What if you don’t need all the money in an HSA for health care expenses? Essentially the account becomes like a traditional IRA, and distributions are taxed at ordinary income tax rates. Remember, the earlier you invest your money, the longer it grows. That growth can be significant. With just $2,000 invested annually for thirty years, earning a 7% rate of return could grow that account to over $200,000. That money would go a long way to help offset healthcare expenses in early retirement. 

• Exercise, VO2 max, and longevity | Mike Joyner, M.D
• Jerry Morris: Pathfinder for Health Through an Active and Fit Way of Life
• How to plan for rising health care costs | Fidelity

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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In this episode of the One for the Money podcast, I explain one of the greatest financial risks you could face in retirement, which has nothing to do with the stock market! I’ll also share the planning strategies you can use to address this risk. In the tips, tricks, and strategies portion, I share a strategy to reduce the financial risk associated with lawsuits. Listen to learn more!

• Top three risks in retirement [01:09]
• Long-term care planning [03:41]
• Options for long-term care [06:40]
• What is umbrella insurance [09:46]

While there are risks in retirement, I view three as more serious. The first is running out of money via significant negative returns in the years just before and after retirement. That scenario is also known as the sequence of returns risk, which I outlined in episode 20. Significant negative returns in the few years just before or after retirement can significantly impact how long your money lasts. One way to counteract this risk is the bucket strategy. That strategy allocates a portion of funds to a conservative bucket of investments, a portion to a moderate bucket, and a final portion to a growth bucket.

The second primary risk I see in retirement is inflation, which is the persistent rise in the prices of goods and services. For example, if someone had $100,000 in a safety deposit box, and inflation averaged 5% per year, that money could buy only half as much in just thirteen and a half years. As I explained, the growth portion of the bucket strategy works to address the risk of inflation.

The third major risk in retirement is fundamentally different from the others. It’s the tremendous expense associated with a long-term medical event such as an extended bout with Alzheimer’s. The long-term care needed for such an event can top $100,000 annually.

Long-term care describes the medical and non-medical services older adults generally need when they can no longer care for themselves. These are called activities of daily living, and there are six of them. Activities of daily living include bathing, dressing, getting in and out of a bed or chair, walking to use the restroom, and eating. If you cannot complete at least two of those in your own power, you are considered in need of long-term care, and you can access the benefits of a long-term care policy if you have one. 

While most of us hope to live a full life with little to no illness before leaving for the next life, seven out of every ten people over 65 will need long-term care support. The national average for in-home health care is $59,000 per year, and a nursing home can be as high as $108,000 per year. Those are 2022 numbers, but because healthcare expenses increase quickly, those long-term care costs could double every fourteen years! Unfortunately, Medicare doesn’t cover long-term care. Medicaid can cover long-term care, but only for those poor enough to qualify.

Since Medicaid is not a desirable option, two options remain. The first is self-insure, assuming the risk and hoping a need doesn’t occur. That’s a huge risk for you and your loved ones to carry. With expenses potentially being $100,000 per year, your retirement nest egg would quickly be impacted. The second option is to share your risk with others by pooling your resources via an insurance-based solution. 

There are a few types of insurance options. The traditional standalone policies were a popular option quite a few years ago, but the insurance carriers underestimated the need and vastly underestimated the cost. This situation resulted in holders of these policies having their monthly premiums increased significantly and their benefits reduced. A huge drawback to these policies is you can’t use any of the money you’ve put into it unless you have a long-term care event. 

A newer solution is a hybrid policy. These policies use an insurance vehicle, such as life insurance or an annuity, to offset expenses. The money can go to beneficiaries if the policy isn’t used. These insurance products can offer a lot more coverage for a long-term care event utilizing the leverage of pooled insurance dollars. Some products can provide two or three times the premium paid for the coverage. That means you could have more coverage if you need it, and if you don’t, your beneficiaries will get the original amount plus a fixed rate of return. 

• Ways to Avoid Running out of Money in Retirement - Most Accidents Happen on the Way Down, Ep #20
• Cost of Long Term Care by State
• How Much Care You Will Need
• California Long-Term Care Income Tax
• Umbrella Insurance

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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Can you retire when you have debt? This episode of the One for the Money podcast focuses on answering that question. More and more Americans are retiring with a mortgage, but is it right for you? Doing so depends on many factors that can’t be assessed in isolation. Listen to the end when I share a simple strategy to pay off your mortgage early.

• Keeping mortgages past age 65 [01:44]
• Why are more people retiring with a mortgage? [02:57]
• Retiring with a mortgage [06:58]
• Debt and relationships [08:16]

Whether you can retire or retire early with debt depends on the type of debt you have. If you don’t have a three- to six-month emergency fund, have multiple sources of debt, have multiple credit cards to pay off, have an auto loan, and have a mortgage, then the answer is almost certainly no. If you only have a mortgage, retiring may be possible depending on several factors, such as retirement income, mortgage payment, mortgage interest rate, and years remaining on the mortgage. 

Having no debt, including a mortgage, makes retirement so much easier. I wouldn’t recommend an early retirement before paying off your home. Paying off your mortgage early essentially provides a risk-free rate of return. For example, if your mortgage rate is at 5%, paying it off early saves 5%. While that savings isn’t an incredible rate of return, it’s pretty fantastic, considering you don’t have to pay that on the loan. However, more and more Americans are entering retirement with a mortgage. A 2016 report by Harvard’s Joint Center for Housing Studies showed that in 1996, 25% of homeowners in their late 60s to 70s still had a mortgage, but in 2016 that number had jumped to nearly 50%.

Several developments over the last three decades may explain the dramatic increase in the share of retirees with mortgages. Americans today seem to have less aversion to debt than the generation that grew up after the Great Depression. Although consumer debt levels always ebb and flow with economic cycles, total debt as a percentage of disposable income is significantly higher today than in the late 90s. The Tax Reform Act of 1986 made mortgages a more attractive form of debt. The reform eliminated the income tax deductions for interest on credit cards and other types of consumer debt with one exception: mortgage interest.

For the majority of the last decade, mortgage rates were extremely low. While the rates have climbed rapidly this year, 85% of homeowners in the United States have a rate lower than 5%. That makes taking a mortgage into retirement a little more manageable. People have also been purchasing homes later in life because homes have become expensive. In the late 80s and early 90s, housing prices were about three times the typical household earnings, while prices today are more than four times.

A simple tip to paying off a mortgage early is making one extra payment each year, applied to the principal. What kind of difference can that make? Let’s say you secured a 30-year fixed-rate mortgage for $400,000 with a 5% interest rate. Your regular monthly payment would be $2147 per month. If you make an extra monthly payment of $2147/per year, you’d pay off your 30-year mortgage four years and five months early and save over $62,000 in interest in the process. 

That’s a huge savings of time and money, which would set you up very well for early retirement. Ultimately, a paid-for home gives you something a mortgage cannot: peace of mind. Removing that worry significantly impacts psychology and happiness, which is why I believe a paid-for home is a critical piece of early retirement planning.

• More Retirees Today Have a Mortgage 
• Housing America's Older Adults 2019
• Nearly 10 Million Homeowners 65 And Older Are Still Saddled With Mortgage Debt
• How Many Taxpayers Itemize Under Current Law?
• 85% of Homeowners with Mortgages Have a Rate Far Below Today's Level, a Factor Prompting Many to Stay Put

• https://BetterPlanningBetterLife.com 
• Schedule a meeting with Jonny
• Connect with Jonny on LinkedIn

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While the One for the Money podcast focuses primarily on retiring early on a permanent basis, this episode explains the planning needs to retire even earlier via a mini-retirement. A mini-retirement provides the opportunity to test-drive a full retirement, allowing the individual to travel, volunteer, and pursue new hobbies or other interests. In the tips, tricks, and strategies portion, I share some strategies that could mean massive tax savings during a mini-retirement.

• Taking a temporary break [01:11]
• Self-funding mini-retirement [03:53]
• Health insurance [06:29]
• Tax savings in mini-retirement [10:44]
• Tax gain harvesting [13:15]

The idea of a mini-retirement isn’t new but is often associated with professors. Nowadays, a sabbatical is a periodic break from work. This tradition started at Harvard around 1880, but other professions, such as scientists, physicians, and lawyers, also take sabbaticals. According to a survey by the Society for Human Resource Management, only 17% of companies offered a sabbatical policy to their employees in 2017. That means most people won’t work for a company that provides a sabbatical. However, with some planning, people can create their own sabbatical via mini-retirement and enjoy the benefits themselves.

This episode is just an introduction to the planning considerations of a mini-retirement. Sadly, far too many people have consigned themselves to a life of working from 9-5 until age 65, not realizing that many retirements are even possible. But, with the right kind of planning, they certainly are. Often such mini-retirements will have only a little or limited effect on one’s goals for retirement, even an early one, and a delay of a year or so is more than worth it. 

Health insurance needs in mini-retirement can be met in the same way as in early retirement, which I discussed in episode 5. For a U.S.-based mini-retirement, employer retirement healthcare benefits can be utilized for an additional 18 months of coverage. This coverage was made possible via the Consolidated Omnibus Budget Reconciliation Act of 1985, also known as COBRA. However, most times, the full cost of the health care plan will need to be paid, plus an additional 2%. The extra cost is worth it for a domestic-based mini-retirement. Another option is the public market established under the Affordable Care Act. This legislation enables people to obtain coverage, even with a pre-existing medical condition. 

While the cost of these plans can vary widely, the recently enacted American Rescue Plan provides even more generous subsidies based on income. These are solutions for U.S.-based mini-retirements. International mini-retirements require other planning. However, travel supplemental insurance is often an option. Travel health insurance is also an option for those traveling abroad for a short time. For extended periods, many countries allow foreign nationals to purchase health insurance from the government or private firms within that country.

Factors to consider when planning

One of the most significant factors to consider is the length of the mini-retirement, which will determine the level of planning required. If the plan is for one to three months, the amount needed for expenses can be saved up in advance. The plan must include home and location expenses if time is spent in another location. Taking a mini-vacation for six months to a year would require considerably more planning. Homeowners need to consider if they plan to keep or sell their homes. Selling would simplify the math, but keeping could mean potential rental income.

Once the duration of the mini-vacation has been determined, monthly expenses are the next thing to consider. While income may stop during mini-retirement, expenses certainly will not. Covering those expenses requires some supercharged savings in the prior months and years. The money saved for this purpose should not be subject to market risk and should be protected in a bank account. Saving this money requires significant sacrifices, but the motivation for doing so is based on the glorious experience on the other side. 

• Sabbatical - Wikipedia
• Health Insurance When Traveling Abroad
• Bronnie Ware – Regrets of the Dying
• Let’s Have a Heart to Heart: Early Retirement Healthcare Planning, Ep #5
• Meaning & Purpose in Retirement, Ep #6
• Too Much Money & Too Few Memories, Ep #24

• https://BetterPlanningBetterLife.com 
• Schedule a meeting with Jonny
• Connect with Jonny on LinkedIn

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While an early retirement can be a result of actions you have taken via better planning, there are outside forces that need to be considered as well. One of those forces is the Federal Reserve. In this episode of the One for the Money podcast, I share why the Fed is not necessarily your friend unless you are a bank. Listen until the end to hear more strategies to consider, given the actions of the Fed.

• Why are stocks and bonds struggling? [01:46]
• Mortgage on a house of cards [04:38]
• Fixing inflation [06:41]
• No one knows the future [09:33]

At the halfway point of this year, the markets had the worst six-month performance in over 50 years. Stocks and bonds were down for only the fourth time since 1926. Now, nine months into the year, bonds and stocks are still down, and the primary reason they're still struggling is higher-than-expected inflation. If the prices of things that both businesses and individuals buy increase too quickly for too long, future prices can go out of control and cause significant economic problems. A small amount of inflation is good, lots of inflation is bad, and negative inflation on a broad scale is even worse, like what is seen in a depression.

Because inflation is a natural result of the economy, we want a happy medium for inflation. The Federal Reserve is responsible for keeping inflation in that comfortable, medium zone. Right now, they're taking actions that are causing both bonds and stock prices to reduce. However, it's unknown whether these actions will have their intended effect. 

To understand where the economy is going, we must first understand the journey to where it is today. What may surprise many is that the challenges we face today result from actions taken during the Great Recession between 2008 and 2012. In the early 2000s, the housing market was ascendant, and there was a surge in home purchases and prices. Sadly, the housing market crashed, and the economy was pushed to the brink of collapse, as many banks were at risk of failing. As a result, the nation became dangerously close to another depression. 

During this crisis, an untested solution was implemented to save the banks and economy that sowed the seeds of what we are reaping today. Many believe this crisis was solely a result of greedy banks, but that's not entirely true. Banks were indeed guilty, but they had a tremendous amount of help from homebuyers and a well-intentioned government program. That government program reduced the financial requirements to borrow money to purchase a home. Requirements for proof of income, credit scores, and down payments were significantly reduced or eliminated so that more people could buy homes. 

During normal times, the Federal Reserve raises interest rates and reduces the amount of money in the banks. The reduced bank reserves and higher interest rates make borrowing money more expensive for consumers, lowering demand and ultimately slowing inflation. Unfortunately, the usual levers aren't an option as the banks have already lent out much of this extra money. The Fed can now only increase interest rates and not substantially reduce the money supply in the economy. 

Some may use this situation as an argument for the government to take over the banks. This solution could cause even more problems, however. Concentrating control in the hands of fewer individuals will only create more problems. The best societies and economies have power distributed more broadly. So what can we do? One solution is to significantly reduce the Fed's ability to create more money and create conditions in the economy that will allow businesses and the private sector to grow and make the extra revenue needed to retire the debt used to justify the printing of the extra money.

• NINJA Loan
• Will Higher Interest Rates Tame Inflation?
• Refocusing the Fed
• When Life Gives You Lemons, STAY INVESTED!, Ep #18

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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We often focus on the amount we need to retire comfortably. In this episode of the One for the Money podcast, you might be surprised to learn that most retirees die with too much money and too few memories. I’m not advocating that we reduce our savings for retirement. Instead, we should enjoy the fruits of our labor both before and during retirement.

• The strongest force in the universe [01:29]
• Spending just the earnings [02:37]
• Why do people die with so much money? [04:51]
• Making lasting memories [06:42]
• How to spend more, wisely [10:54]

Albert Einstein famously called compound interest the strongest force in the universe. I love showing people the remarkable growth that can come from small contributions given significant time. It’s astounding that if you invested $5,000 a year for 40 years, and your investments earned an average rate of return of 10% each year, the $200,000 contributions would grow to $2.2 million. That’s eleven times the original investment!

As remarkable as that is, I’ve found that there’s something that compounds even better than money: memories. Many retirees don’t spend down their money in retirement. According to a 2018 Investments and Wealth Institute study, nearly six in seven retirees spend down only the earrings in their portfolios. That means they spent only the money generated by their investment portfolios. These people use guaranteed income sources such as Social Security, dividends, and interest and don’t touch the principal.

Many retirees are unnecessarily constraining spending and living well below their means. Behavioral biases and predispositions may prevent individuals from making optimal spending decisions in retirement. Most people match their spending with their income, and when their expenses increase, they decrease their spending accordingly. In fact, many retirees save money in retirement rather than spending. According to the research, retirees with more than $100,000 of assets save 38% of their income. 

According to a survey conducted by the Insured Retirement Institute, 48% of people prioritize a comfortable standard of living, while only 3% view leaving a legacy as their primary goal. The only other double-digit financial goal in this survey was protecting one’s current level of wealth. Most people’s goals in retirement are a comfortable standard of living and protecting the current level of wealth. The remaining common financial goals are minimizing taxes, better managing risk, funding college, improving cash flow, aggressively growing wealth, or some charitable giving. However, all of those were between 1% and 6%. 

Based on my research and experience in my practice, I believe there are two primary reasons people don’t spend as much as they could. The first is that they’ve always been in a saving mode. Switching to a spending mode is difficult, especially when there is no longer a salary. Everything depends on the next egg. It’s why people with guaranteed sources of income, pensions, and annuities spend more in retirement. I believe there are better ways to spend more than using annuity, but it shows what an impact this can have. The second reason is what I would call the “just in case” expense. We financially plan for worst-case scenarios. However, there are ways to prepare without sacrificing the ability to make memories both now and in retirement.

Sometimes, some of the best help I can give clients is when I give them the confidence to spend on what they want to achieve. Then they can make memories that can last lifetimes. And when we make memories with our kids and grandkids, those memories will last lifetimes. Of course, we need to plan so that the fear of running out of money doesn’t leave us with a worse feeling of regret. Most retirees die with too much money and too many regrets. Some are nervous about spending, but with proper planning that accounts for multiple scenarios, you can have the confidence to spend both now and in retirement to make memories, achieve your dreams, and have a life with less regret.

• The Decumulation Paradox: Why retirees are not spending more?
• Regrets of the dying
• Why Most Retirees Never Spend Their Retirement Assets
• Insured Retirement Institute

• https://BetterPlanningBetterLife.com 
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The question I’m most often asked is, “Will I be able to retire?” In this episode of the One for the Money podcast, I answer that question and share ways to know you’re on the right track. In the tips, tricks, and strategies portion, I explain how a simple rule can help you track your progress towards retirement. Listen to learn more!

• Well, it depends… [01:06]
• Determining yearly expenses [03:37]
• Income sources [04:56]
• The 4% rule [05:44]
• How much will you need to save? [07:28]
• High impact factors [09:19]
• The rule of 72 [11:50]

As a Certified Financial Planner, people often ask me if they’ll be able to retire. That question is imperative to ask now, because now is the time to make adjustments in saving and spending. The few years prior to retirement are generally too late. We need to consider many factors to determine readiness for retirement. Of course, these factors are based on assumptions, as we’re making forecasts about the future regarding rates of return, inflation, healthcare expenses, and life expectancy. 

There are some standard benchmarks we can use such as starting retirement at age 65 and living to age 90. That would mean 25 years of retirement. My financial planning practice focuses on early retirement, but we can make modifications from that initial baseline. Determining how much you need to retire starts with considering how much will be spent each year. That number is generally higher than one might think.

More people are taking mortgages into retirement. For those who don’t take a mortgage into retirement, their houses tend to be older and require more repairs and maintenance. Transportation costs will remain the same if the person leases vehicles. Insurance and other costs will be factors if the car is leased or owned. Any additional expenses such as heat and air, electricity, subscriptions, personal care, food, and internet will be similar to now and will increase with inflation. 

Healthcare and leisure expenses increase significantly in retirement, especially healthcare. A couple, on average, spends over $250,000 a year on healthcare in retirement. A Fidelity study found that people should expect to spend between 55% and 80% of their pre-retirement income each year through retirement. Interestingly, the higher a person’s pre-retirement salary, the smaller the percentage of working income would need to be replaced when they stop working. 

After calculating approximate expenses for a typical retirement, the next step is determining the sources that produce that income. First, we would add up what is sometimes called “mailbox income.” This income comes in regularly, including a pension, social security, and rental income. We would then subtract the annual amounts of this steady income from the total amount needed for spending each year. The difference between those is the income investments would need to produce. 

How do we determine how large an investment nest egg needs to be? The 4% rule is a distribution rule derived by financial planner Bill Bengen. This rule has been adopted by many in the industry because of its simplicity. It was created to meet the financial needs of a retiree, even during a worst-case economic scenario such as a prolonged market downturn. The rule was developed using historical data on stock and bond returns over the 50 years from 1926-1976, focusing heavily on the severe market downturns of the 30s and early 70s. 

Bill Bengen concluded that even during untenable markets, no historical case existed in which a 4% annual withdrawal exhausted a retirement portfolio in fewer than 33 years, which bodes well for early retirement. The 4% rule was tested during some challenging decades, notably the Great Depression, World War Two, and the challenging economic times during the 70s. By withdrawing just 4% each year from retirement, that retirement account should last 33 years.

• How much will you spend in retirement? | Fidelity
• How much do I need to retire? | Fidelity
• 4% Rule Definition
• FPA Journal - Decision Rules and Maximum Initial Withdrawal Rates
• Ways to Avoid Running out of Money in Retirement - Most Accidents Happen on the Way Down

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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If you are confused about what estate planning is and its importance, this episode of the One for the Money podcast will resonate with you. I break down the critical elements of an estate plan and their respective purposes, which should help you understand why you need one. In the tips, tricks, and strategies portion, I share tips on ensuring your estate plan is executed as you had planned.

• What is an estate plan? [01:01]
• Creating an effective plan [03:19]
• The purpose of a trust [05:05]
• Power of attorney [07:12]
• The 30-year estate battle [09:04]

Many people don’t understand estate plans or why they would want one. As a culture, we don’t talk about these things a lot. And fortunately, many of us haven’t encountered situations where one was necessary or wasn’t already in place. Those who have experienced what it is like when someone passes without an estate plan know how vital a plan truly is. An estate plan is the sum of everything someone owns that has value. That would include land, real estate, stocks, bonds, annuities, cash, jewelry, vehicles, and any other asset someone owns or has a controlling interest in, less liabilities such as mortgage and consumer debts.

An estate plan is simply a plan for how to distribute someone’s net worth after death. In the last episode, I explained how expensive and time-consuming the process is without a plan. Some may wonder why they can’t just distribute assets to the spouse and next of kin, but life and families aren’t that simple. Family members have had far too many disputes about who would receive what. A trust or estate plan may seem complicated, but it is way better than the alternative.

Most people are familiar with a will. A will provides the details on how assets are to be distributed at death, names the estate executor and beneficiaries, how and when said beneficiaries will receive assets, and who would be guardians for any minor children. A will is vitally important because it is where a beneficiary is named for certain assets that don’t allow a beneficiary to be named directly. A retirement account, for example, requires at least one beneficiary to be named. Certain assets don’t allow listing a beneficiary, such as a house or real estate. 

Wills can be as simple as a handwritten note. However, wills alone are not legally binding and can therefore be contested in court. While the will can guide the court in how assets should be distributed, beneficiaries will still have to go to court. As I mentioned in the previous episode, this legal process is called probate, which is expensive and open to the public. 

If a will doesn’t avoid probate, what does? That’s where a trust comes into play. A trust is an arrangement that allows a third party or trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets will be passed to the beneficiaries. Trusts usually avoid probate, so beneficiaries can gain access to these assets much more quickly than if there were only a will. There are many types of trusts, but a significant distinction is whether they are revocable or irrevocable. My wife and I have a revocable, living trust we established in 2016. The trust allows us to proceed with our lives as usual, and we can change it anytime. It essentially serves as a safety net for our family if something happens to my wife and me. 

Revocable estates are subject to estate taxes, but only if the value is greater than $23.4 million, according to 2022 tax law. An irrevocable trust would help mitigate taxes. However, all assets transferred to the trust would be beyond further control, the terms could not be changed, and the trust could not be dissolved. These types of trusts work if the primary aim is to reduce the amount subject to estate taxes by effectively removing certain assets from the taxable estate. 

Too many people make the mistake of not making an estate plan, thinking they’ll set one up later. I understand why many want to avoid the thought of their passing, but these things need to be addressed to ensure the best possible impact on the family. If you have any questions about estate planning, it’s best to discuss them with a legal professional.

Capital Investment Advisers and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.

• Congratulations, You Already Have an Estate Plan - BUT YOU DON'T WANT IT!, Ep #21
• 10 Famous People Who Died Without a Will | LegalZoom

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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In this episode of the One for the Money podcast, I explain how everyone has an estate plan. I also provide reasons why you want better than the default. In the tips, tricks, and strategies portion, I share a tip in the form of a sad story that shows why you want to review and communicate details of your estate plan to the responsible party. Listen to learn the importance of estate planning and the difference good planning can make.

• What happens without an estate plan? [01:38]
• The memory you leave [03:53]
• Keeping the plans updated [06:35]
• The importance of communication [07:53]

Estate plans are a critical component of better financial planning and, ultimately, a better life. We accumulate assets, real estate, investment accounts, vehicles, and more throughout our lives. When we pass away, there needs to be an orderly way for these assets to be distributed to the people we choose. Without an estate plan, the state of residence makes those decisions in public and after many extra expenses. 

While it may seem obvious that you would want to avoid having the state in charge of your assets, a surprising number of people don’t have an estate plan when they die. Perhaps we wouldn’t entirely fault those who died suddenly, but even many with longer-term illnesses don’t plan for their estate. 

When I open a retirement account for clients, naming a beneficiary is required. Bank accounts can also have beneficiaries. However, certain assets such as houses, cars, and jewelry do not have a way to assign a beneficiary. That’s where an estate plan comes in. It allows us to name who receives what, when they receive it, and under what conditions. For example, we might want our children to receive their inheritances in portions throughout their lives rather than a lump sum when they’re younger and possibly less disciplined. Without a plan, the state will be making all of these decisions.

I recently heard an estate planning attorney describe the challenges of not having an estate plan in California. Without an estate plan, the process takes a long time. Currently, the courts are backlogged, causing people to wait for an initial appointment for up to nine months. Then the family would need to pay a filing fee to open the proceedings, run a notice in the local newspaper, wait another several months for a final hearing, and pay another court fee to close the case. In addition to those expenses, the hourly fees charged by the lawyer can cost thousands of dollars. 

I was at a webinar where the presenter shared the story of how an elderly couple had moved to Florida. Years later, the wife passed away, and their grown children decided they would move their father back north to be closer to his family. His children made all the necessary changes to facilitate the move, changing bank accounts and mailing addresses for investment accounts. After he passed away, the family went through their father’s things and were elated to find a $500,000 life insurance policy. When they contacted the insurance company, they were informed that, sadly, the insurance policy had lapsed and was worthless. Despite their father paying for the policy for several decades, payments were missed because of the closed bank account. Sharing details of an estate with the responsible party is essential to one’s wishes being carried out.

Years ago, I spoke with another advisor going through a difficult time because one of his clients had died unexpectedly. Thankfully, the client had a life insurance policy. Unfortunately, his ex-wife from over ten years ago was still listed as the beneficiary, and his current wife wasn’t happy about it. Since the advisor didn’t facilitate the purchase of the original policy, he hadn’t thought to review it to ensure the beneficiaries were up to date, and no one knew about the policy to have it updated. This example illustrates why we review clients’ estate plans and regularly conduct beneficiary reviews for accounts and life insurance policies. We always want to ensure everything is in alignment with current wishes.

• Estate Planning Basics - Fidelity
• 10 Famous People Who Died Without a Will | LegalZoom

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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Even the best savers can run out of money in retirement. In this episode of the One for the Money podcast, I share how making the appropriate adjustments in the few years before and after retirement can help prevent that. In the tips, tricks, and strategy portion, I’ll share information for those who started saving later for early retirement. Listen to learn more!

• Into thin air [01:51]
• Sequence of returns risk [03:30]
• The years before retirement [11:32]
• The bucket strategy [13:09]
• Saving late for early retirement [16:43]

While the most common accident in mountain climbing is falling, the majority of those incidents occur on the way down from the peak. People put so much physical and mental energy into making it to the pinnacle that they don’t take the necessary precautions on the way down. Think of your approaching retirement as submitting your financial Mount Everest. Taking withdrawals from your retirement investments is like climbing down, which requires even more precautions.

The mistakes made after retirement can be costly, and unlike when someone is younger, they don’t have the time or salary to overcome these mistakes. One of retirees’ biggest fears is running out of money. This shortage can happen for many reasons, including negative returns in the first few years before and just after retirement. Another significant risk is inflation. Strategies need to be deployed to address both of these risks.

The rate of return in the first few years of retirement significantly impacts how money lasts throughout retirement. Similarly, the rate of returns in the years before retirement makes a huge difference. So what can you do to retire on time without running out of money? We can’t predict the future rates of return, and we can’t know if the stock market will be up or down.

Some might think a good strategy is to be conservative in investments. However, that would also mean slowing growth and not keeping up with inflation. For my clients nearing or in retirement, I employ a bucket strategy. The monies to be withdrawn in the near term are invested more conservatively. Monies to be withdrawn in the next 6-15 years are invested more moderately. Finally, monies that will be withdrawn beyond that timeframe are invested more towards growth or a higher percent allocated to stocks.

In the bucket strategy, the ultimate determining factor for each bucket is the action of the market, the individual client’s spending goals, and their tolerance for risk. The logic behind the strategy is that money spent in the near term shouldn’t be impacted by large swings in the market. Monies spent further in the future have the potential for increased growth to provide future income and offset the effects of inflation. 

While the bucket strategy works well for those who completely stop working, another approach would be retiring slowly by reducing work hours before leaving the workforce. This situation would result in less reliance on income generated from an investment portfolio and create a smoother transition from a full-time job to a life without work responsibilities. A flexible or dynamic budget can be helpful to make withdrawals less in down years. Delaying Social Security to increase monthly benefits can also reduce reliance on income generated from a portfolio. These and similar approaches aim to match assets, liabilities, and time horizons as best as possible.

• Into Thin Air: A Personal Account of the Mt. Everest Disaster
• A Wealth of Common Sense
• When Life Gives You Lemons, STAY INVESTED!, Ep #18
• Most Accidents Happen On The Way Down — betterplanning.betterlife.
• Sequence of returns | BlackRock

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

Subscribe to ONE FOR THE MONEY on

Apple Podcasts, Spotify, Google Podcasts

Audio Production and Show notes by

PODCAST FAST TRACK