We’ve been talking about some of the things you can do to protect yourself in retirement, and when it’s time to get a second opinion. I have some ideas I’m going to share. I’m going to do a top-three list backward.
In a previous segment, I shared the story of my brother-in-law Tim, who’s cooler than me. He made the trip from Virginia, to visit us here in Austin on his motorcycle home. He shared over dinner one night, how he wasn’t sure he was going to be able to retire. He’s 62 years old and he was watching his 401K go down in value seemingly every day. He wanted to know how he was supposed to retire when his money was vanishing before his very eyes. I’m sure that many of you feel the same way. Maybe you’re in your early 50s or 60s and want to retire but you’re not sure you can. Maybe you’re already retired, and you’re watching your 401K and investment accounts go down almost every day.
All of this is a strong indication that you may need a second opinion regarding retirement planning. Don’t accept that it must be that way. Call us and let us help you. If you’re experiencing that concern, it may mean that you’re working with someone who doesn’t know how to effectively help you plan for retirement.
Investment planning and retirement planning are two very different things. There was a great article a few years ago in SmartMoney and the headline was something along the lines of, “The Advisor Who Got You to Retirement Is Probably Not the Advisor That Can Get You through Retirement.” The whole article was based on how these are two different things. Growing money is one set of skills. Once you get to retirement that skillset is just a tiny subset of what your advisor needs to be able to do.
Your advisor should know how to best deliver income that is stable, safe, and secure: an income that grows over time and lasts your lifetime. Your advisors should be able to tell you when to take your Social Security, how to manage your taxes, and how to deal with healthcare and the nuances that come into play when Medicare kicks in. Studies show that there’s a huge percentage of people who are going to need long-term care. It may not be a nursing home, it might be receiving care in your own home, but how are you going to pay for it?
I bet you know someone who started retirement in good shape. Next thing you know, a healthcare event happens. Suddenly, they’re spending all their money and they die broke. Do you want that to happen to you or do you want to maintain your independence? Things like this can threaten your financial security and your ability to maintain your lifestyle if you don’t have your account set up the right way. You can get crushed just like my parents and millions of other families did back in the late 1990s and early 2000s. It’s so unnecessary. Here’s what you need to do to protect yourself. Let’s start with number three.
Number three is that you should be aggressively moving money to tax-free accounts as quickly as you can. This is a conversation to have when you’re sitting down with your tax advisor every year. If they don’t help you with this, then what are you paying them for?
Why is this so important? Well, our government is not what you would call fiscally responsible. They spend money like crazy and don’t care about how they’re going to pay for anything. As a result, our national debt is out of control. Social security and Medicare are out of control. Because of the way they’re spending money in Washington, DC, I think it’s safe to assume that tax rates are going to increase in the future. We are still at some near historical tax rates. The odds are high that they’re going to increase in the future.
Your money in your IRA, 401K, or 403B is money that’s never been taxed. Start moving portions of that money into tax-free accounts. You must pay tax at some point. Why not pay a little tax today to avoid a huge tax later? When you look at the numbers, for many people, it’s a no-brainer. Is your advisor talking to you about that every year? It’s not your job to go to your advisor and ask them if you should be looking at doing Roth conversions, for example. You’re paying them; that’s their job to bring it to you. If they’re not bringing it to you every single year, get another advisor who does their job.
Next, we have number two. Number two is to protect yourself from a recession or a bad market environment. Your growth accounts should be just a portion of your money and you must manage your growth accounts like you’re driving a car. We talked about this a little bit earlier on the show. When you’re driving a car, if it’s sunny and clear, it’s safe to go a little faster. But if you’re coming up on an S-turn or if it’s pouring rain outside it’s smart to slow down. When the markets are doing well, it’s okay to be fully invested. If they’re not doing well, then you shouldn’t be. If markets are cloudy or uncertain, and things are looking scary have more money in cash. If markets are looking good, have more money in the markets.
That brings us to number one. The number one thing to do to protect yourself is to carve out a portion of your money and put it somewhere safe that gets a decent rate of return. I’m not talking about a bank account, CDs, or even bonds. You need to have a place where you can put your money where it’s safe, gets a reasonable return, and can be used to distribute all the income you need. In today’s world, that would be a very small select group of fixed-indexed annuities. There is a lot of research to tell you, these could be a good choice in today’s world.
To recap, get yourself some safe money in the right place, manage your growth money intelligently, and move money into tax-free accounts.
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