Home > Podcasts > Rethink Your Money > Crafting a Wealth Plan to Last Your Lifetime

Crafting a Wealth Plan to Last Your Lifetime

Published on February 5, 2024

John Hagensen

One of the biggest threats to your retirement isn’t market volatility; it’s your longevity. People are living longer, which means you’ll likely spend more years in retirement than you think. Join John as he outlines actions you should be taking now that could boost your savings, allowing you to feel secure during your slowdown years and your retirement years without sacrificing those plans you have.

Episode Notes:

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen: Welcome to the Rethink Your Money podcast presented by Creative Planning. I’m John Hagensen, and ahead on today’s show, the importance of changing your financial plan. Not just building it but changing it. Whether growing your money is the highest priority, and finally, how much is too much to be paying your financial advisor. Now, join me as I help you rethink your money. About a week ago, there was what felt like kind of the end of an era game between the Golden State Warriors and the Los Angeles Lakers headlined by, of course, two of the all-time greats, Steph Curry and LeBron James. Went to double overtime. Steph’s knocking down threes from halfway across the universe.

LeBron, down one in double overtime, drives to the rack, gets fouled, and hits both free throws to win the game for the Lakers. As good as Steph was, he always hits crazy shots, easily the best shooter of all time, it was LeBron who impressed me. He’s sitting there on the bench. He’s got gray all over in his beard and his hair, and struck me how long this guy has been in my life as a sports fan. I remember him on the cover of SLAM Magazine when he was, I think, in ninth or 10th grade, and the article essentially said that he could score like Jordan, pass like Magic, and would be the first pick in the NBA Draft as a 16-year-old if he were eligible to come out. That’s how hyped up this guy was, and one of the few times somebody lived up to the hype.

In fact, he’s played so long that he has now played against 35% of NBA players throughout the entire league’s history. This is a league that was founded in 1946, 38 years before King James was born, which makes this statistic all the more eye-popping. But it got me thinking more about longevity on a personal level, and certainly, this is a show on personal finances and its implications to you as an investor. It’s been well chronicled that we’re living far longer than ever before, that life expectancy will continue to expand over the next 10, 20, 30 years, which is great, but it means that you’ll spend more years in retirement than your grandparents did, potentially a lot more.

And so, maintaining your standard of living is going to require some financial planning adjustments. Long gone are the days where you’d work 35 years at the exact same job. You’d get a gold watch, a retirement party, you’d take your company pension and your social security and you’d go sit with a space heater on a lazy boy and watch Matlock for three years and you’d pass away. That was not a difficult retirement to navigate from a financial perspective. It just didn’t last that long, and most people had pensions. But if you fast-forward to today, people are retiring in their young 60s, mid-60s, and living to 95 or 100 years old with no pension. I mean, that’s great. You’ve got a whole bunch of time for pickleball, but now your money needs to last 30, 35 years.

So here are a few tips to begin hedging against this longevity. This LeBron-like gray in your beard, 20-year NBA career that you’re going to experience in retirement. First, boost your savings rate. Ideally, you should be saving 10 to 15% of your salary for retirement. In a perfect world, it’s 20. If you do that for all of your working career, most people end up with way more money than they need, and if you start that from the beginning, it doesn’t feel like a sacrifice because you’re used to living on 80% of what you make. Remember, if you’re 50 years of age or older, the IRS allows you to make ketchup contributions. So for 2024, that’s $30,500 in 401k accounts and $8,000 in IRAs. In addition to boosting your savings rate, plan to work longer.

Now, if you hate your job and you’re miserable, then, yeah, maybe you don’t. But if it’s sort of like a, “I may want to retire.” Maybe just plan on working a few years longer than you initially expected. Certainly, if your health is good and you have a decent work-life balance, you’re still likely based upon current longevity, you could have a pretty darn long retirement. And we’ve all heard 70 is the new 60, right. You could consider delaying social security benefits to age 70. Now, let me be clear. When you elect, this benefit is very personalized and specific to your situation. In fact, oftentimes, you’ll stagger the benefit between spouses. The smaller benefit takes a little earlier, and the larger of the two benefits, that will also be the surviving benefit, may wait until age 70.

But keep in mind the argument that, “Well, if I die early, I’m not going to receive all of my social security benefits that I paid into, and I’m going to leave a bunch of money on the table, and I don’t like that idea, John.” Well, yes, that is true, but from a financial perspective, you’re dead. Your reality is if you wait on social security, you’re not on your deathbed in the hospital going, “Ugh, big its regret is not collecting all of my social security,” because again, you likely won’t run out of money if you pass away at 71 years old. Where your plan becomes stressed, and we’re seeing this more and more as a result of longevity, is when you live to a hundred years old, it can be really helpful to have a larger social security benefit, especially if, as in most cases, the wife outlives her husband and then a widow has to relinquish the smaller of the two benefits.

It helps cushion the blow a little bit if the remaining benefit is as high as it can possibly be. It floors your income at a much higher amount. It also provides, as a side note, some fantastic tax benefits because if you are retired and you haven’t turned on social security, your taxable income starts each year really low. So strategies like realizing capital gains or Roth converting can be uniquely positioned in that window of intentionally suppressed income. Another hedge against longevity, maybe instead of fully retiring just downshift in your 60s or 70s. I see this now all the time. It might be worth working 20 hours a week or continuing to work full time but in a career that’s less stressful or doesn’t require travel. That’s why you see the golf course marshals driving around.

They’re like, “Oh, I love this. I was in the corporate world until five years ago. Now I get free golf and chat with people. Yeah, I only make 25 bucks an hour, but I enjoy myself. I have a lot of clients that are physicians.” Anesthesiologists are a great example. “I like doing what I do, but I don’t want to be on call, and I don’t want to be working 40-plus hours a week anymore.” And so they’re working one or two days a week on their own terms at an outpatient clinic with very low stress, and they’re still making really good money for the amount of time that they’re working. That has become much more viable, certainly depends upon your career, but forget the financial implications. It can be really helpful from a psychological and an emotional overall satisfaction to not go from a hundred miles an hour to zero but to ease your way into retirement over a 5, 10, 15 year period.

Another financial planning consideration related to increased longevity is to stay more aggressive from an investment strategy standpoint. I mean, it made sense. If you were 65 and you had a pension, and your life expectancy was 70 or 75, you laddered some CDs, and who cares about inflation risk? Who cares about how much the money’s going to grow? The time horizon was so short. But again, that’s not the case if you are retiring at 65 and lived to 95. What that means is, unless you plan on being broke and out of money before you pass away, some of the dollars you presently have invested are still going to be sitting there 20 or 30 years later. Even if you’re in your 60s or 70s, do you want monies that have a 25-year time horizon to be in government treasuries? No.

The best way to not run out of money if you live a really long time is to grow your money. Now, certainly being mindful of bear markets and crashes and, “Where am I going to get income from effectively without selling stocks while they’re down in value?” Historically every three or four years, like, “Where am I getting money?” You have to buffer those and have some safety. But the biggest mistake I see of early retirees isn’t that they’re far too aggressive, it’s that they’re way too conservative because in their mind, “I’m retired. I’m not a spring chick anymore. I need to put my arms around all my money and protect it.” Yeah, you certainly need to be mindful of risk, but you also need to be mindful of inflation. In fact, academic research has shown, as humans, we don’t think about spending and saving on an inflation-adjusted basis, and it’s a huge risk in retirement.

Every 20 to 25 years, your money has to double in a normal inflationary environment just to keep up with inflation. You need to earn in that three, 4% range just to not be going backward. Next, plan out your retirement paycheck because once you fully retire and you’re used to every two weeks seeing money hit your bank account, and all of a sudden, it isn’t anymore, you want to know exactly where you’re going to generate income from to cover all of your living expenses from the guaranteed sleep at night type income sources, social security, and potentially a pension if you’re fortunate enough to have one and some lower risk investments such as cash and bonds, but also what that total return mix is going to be as I just mentioned, so that you can also achieve some growth along the way as well.

But going into retirement, you do not want to have uncertainty around where you’ll be getting your income from. You’ll also want to budget for healthcare costs. Typically, according to Fidelity, it’s about 250,000 per person, not counting what’s covered by Medicare, over the course of retirement. So that needs to be built in, and where you build that in is the most important aspect of preparing for longevity, which is having a written, documented, detailed financial plan. You might be surprised to know that most people, even who work with a financial advisor, do not have a defined financial plan. And if they do, it was done once. It’s now outdated, and it’s rarely updated to fit today’s needs, which is really the key. The value in a financial plan is not building.

It’s changing it. Every single financial plan I have ever done, even the ones I spent tens of hours on because there was tremendous complexity, they’re all wrong, every single one of them because they are made with assumptions today that, in fact, will not play out as we think they will over the next 20, 30, 40 years. And certainly, I mean, not even over the next two years or three years. Too much changes in life and in the world, and as a result, your plan must be dynamic. My special guest today is Creative Planning Wealth Manager and Doctor of Psychology Dr. Dan Pallesen. Thank you for joining me again on Rethink Your Money.

Dr. Dan: Hey John, thanks for having me back.

John: Nobody sits around and asks themselves how they can be a worse saver, right. We all want to be the best savers we possibly can, and this year, as is often the case with inflation, contribution limits have increased by $500 for 401ks and IRAs. But Dan, when we look at human behavior, we know that it’s difficult to save as much as we’d like. What do the numbers say? How are we doing as Americans in terms of saving, and are there practical ways you think we could be better savers?

Dr. Dan: Good question, John. It’s like the pieces are in place. We can contribute more just like we can every year in these qualified retirement accounts. On top of that, the money that we do have, even in savings accounts, might be earning a little bit more now than it has been over the past few years. So there’s a carrot that’s being dangled in front of us to save more. But I would say, as a nation, we’re not great at saving. We’re not doing a good job. It’s hard to think that the pandemic was four years ago at this point. I mean, shoot.

John: Crazy.

Dr. Dan: … I’ve had a kid since then. Some days, I wake up, it feels like it was yesterday, and then I look at my two-year-old, and I’m like, “Oh my goodness, it’s been some time.” But compared to the pandemic when stimulus packages were coming through, and a lot of Americans were increasing their savings, partly because there was not much to spend on other than the necessities, fast-forward to today, we’re really not doing a good job in saving.

They’ve done recent studies, and they found that Americans are actually saving 5% less than the historical averages of just disposable income. Like what are we putting away in savings accounts and retirement savings? So we’re actually saving less than we have historically. About half of adults say that they either have less in their savings this year compared to last year or none at all, and so we hear these stats year after year, but it seems that even since the pandemic, it is getting worse for us as a nation of savers.

John: I have a pet theory, and you can tell me if you agree or not, but the exposure we have to the, quote, unquote, Joneses nowadays is just so much more in our face with social media, of course, is an unrealistic highlight reel of everyone else’s lives.

I think seeing other people’s lives that look amazing, and a lot of times it’s a vacation or their house and their incredible mudroom they just renovated or whatever. We have that more than maybe 20, 30 years ago where you kind of saw your neighbors and a couple of people in your social circle. Do you think that’s making it may be harder for us to refrain from spending today and saving for the future?

Dr. Dan: Oh, absolutely.

John: Envy comparison, right.

Dr. Dan: Yeah. Yeah. Dissatisfaction comparison. Whether this is happening consciously, subconsciously, social media is an easy target, but it should be held responsible. We’re seeing the unrealistic, quote, unquote, best of the best, and when we compare that to our lives, it feels like we’re not enough.

We don’t have enough. We don’t have the nicest things. When you watch TV shows or movies, what’s depicted in the media, even the houses and apartments that people live in relative to what they’re probably earning, is unrealistic, and it makes us feel less than where we are financially. Absolutely.

John: I definitely think that our expectations have increased a lot, right. Certainly, you talk to my parents, “Oh, kids these days. What they expect?” And I think that’s pretty typical of every generation. When they get older, they look at their kids and grandkids and like, “I don’t know about the future of this country.” I’m sure the silent generation was thinking the same thing when the boomers were hippies in the 60s doing their thing. So I think that’s pretty typical.

Dr. Dan: There’s always, yeah, the kids these days and the, “Get off my lawn” mentality and, “What’s going on with this generation.” But I will say it is a fact that a third of people have more credit card debt today than they even have cash reserves.

John: Wow.

Dr. Dan: The amount that we’re spending and putting on credit cards and building up that debt, as opposed to building up cash savings and other savings, it’s pretty alarming.

John: So how do you think that we can do a better job as savers? Are you thinking we all should be vision-boarding with our spouses to dream about the future? And you’re laughing because what the listener doesn’t know is that I know your wife, Jordanne, and you are big on vision boards, and you’re pumping your fist right now. Yeah, because you know that that’s true. Is that what we need to be doing, or how can we start doing a better job saving?

Dr. Dan: You know me so well. You know me so well. I love vision boards. A huge advocate of it. All joking aside, creating a vision of a future, seeing it, and pursuing it. I know your producer on the show, Lauren, is a big advocate of vision boarding as well, so I think there’s a lot of support out there. But when it comes to how to be better savers, it really comes down to two things. Like with most things in life to find success, it’s schedule it and automate it.

This is sort of the annual reminder to the listener that because your contribution limits are higher in some of your accounts, check your automatic contributions, have you increased those to reflect those higher contribution limits? And if you’re not, that’s a great way to save more is to have it out of sight, out of mind, John. There’s a lot of parallels to financial success and good health.

John: Yep.

Dr. Dan: I think about my wife and I, we join this gym. There’s nothing special about the workouts, but it’s one of those you don’t go in anytime. You actually have to schedule a class and go in, and you’re with a bunch of other people and what we like to do on the weekend leading up to the week. I look at my work schedule, and I schedule out all the classes I’m going to take this week. I’m never thrilled to go in and exercise, but because it’s scheduled, it’s becoming more of my routine. And so it’s just another parallel of the power of scheduling things and having them automated.

John: The idea that we’re going to be disciplined enough, completely on our own over especially long periods of time, is pretty unrealistic in the midst of a busy life. I think that’s great. A lot of those places also are smart. They’ll charge you if you cancel within 48 hours, which is-

Dr. Dan: Oh, yeah.

John: … another motivator in accountability.

Dr. Dan: Oh, yeah. Yeah. So scheduling and automating is the best thing. As a psychologist, I have a few other tips and ideas. Shout out to Simon Sinek, and I don’t know his background. I don’t think he’s a psychologist, but he’s-

John: Start with the Why.

Dr. Dan:… the Start with Why guy, and that’s huge. I mean, I think of some of these studies that have been conducted of how to be better savers than one of them is basically connect a why to how. We’re talking about how you automate it. You schedule it. But why? Why are you saving? They’ve done a study where someone has brought in a meaningful picture of their childhood or something in their background and then talk about that picture and then from there decide how much they’re going to be saving in their retirement accounts relative to a control group.

And those people that are connecting to something in their past have shown to be better savers over the long run. They stick with their savings goals better than those that just have said how much they want to say. There’s something about connecting our saving behavior to why we’re doing it helps to motivate it. We’ve joked about visualizing the future. I think it’s important. I think it’s good to have a good vision of what’s possible for you. John, you’re a northwest guy. I mean, you probably tell the story better than I do, but what’s the example of the initial guy with Nike that broke the four-minute mile? Prefontaine, is that his name?

John: Yeah. And then how multiple people thereafter continue to break it.

Dr. Dan: Yeah, once you see it, you believe it. You know it’s possible for you. There’s something about taking action on things that you’ve seen done before you. So those are just some tips I have to be better savers.

John: And beyond just having a higher balance when you actually do get to retirement, or you reach that goal in the future that you had to save for. Beyond that, you need some sort of win and reward in the moment. And so if you’re really saving just to save, you could also argue, not only are you going to be less motivated to, in fact, save, but what’s the point? If you’re just saving without any purpose, why are you saving? I mean, maybe you shouldn’t even be saving. So I think some people get caught up in, “I want better investment returns. I got 8% last year, man. I really wish I had gotten 10. Well, what would the impact be? Obviously, you’d rather get 10 than eight, but what’s the impact?”

Dr. Dan: Yeah.

John: “Well, I don’t know. I just want to get 10. Sounds better than eight. Well, you’re going to die with $4 million instead of 4.2 million.” Now, if somebody identifies, “Well, yeah, that extra 200 grand difference, this is exactly the organization I’d be giving it to. This is what I’m passionate about.” Well, then, they have a justification for saying, “I really want to maximize returns.” But just to maximize returns for the sake of maximizing returns or saving just for the sake of saving without any sort of end goal is not very motivating or very fulfilling.

Dr. Dan: I couldn’t agree more. I can’t tell you the amount of conversations I’ve had, John. I know you’ve had them over the years, too, with that typical late-life worker who just can’t quite pull the trigger on full retirement. They’re well beyond a financial independence state for them.

John: Sure.

Dr. Dan: It’s not going to move the needle at all, but there’s just something about we can’t step into this next phase because they haven’t envisioned what that would look like. It’s just this Drive to constantly work harder, earn more, invest more, whatever it may be. But when there’s no end goal in sight, it’s hard to know when you’re at the finish line.

John: I appreciate your perspective as a doctor of psychology, a wealth manager, a certified financial planner. Thanks for sharing your wisdom with us here on Rethink Your Money, Dan.

Dr. Dan: Thanks for having me. John.

John: Continuing on with a theme of being good savers is my one simple task for this week. And my objective with this segment is to help you throughout 2024 by offering an easy-to-execute tip, usually requiring only a few minutes of your time, so that you hopefully can compound 52 strategic intentional money moves and end 2024 in a better financial position than you started the year at. Today’s one simple task is to increase your contribution rate by 1%. I’m not suggesting doubling it. I’m not saying let’s increase it by 5%, just 1%. Dr. Dan highlighted the importance of automation. The beauty of 1% is that you’re not even going to feel it.

If you are saving a thousand dollars a month right now, by the way, you’d be doing better than most Americans for sure, that would make it $1,010 per month. You’re going to feel that $10 per month. Of course not. It sounds small, but consider this. 30 years at an assumed rate of return of 8% on a $1,000 per month. Savings rate produces $1.49 million. Before I compare that, just pause for a moment. A thousand a month for 30 years, you’re a millionaire. Now, if all you did, though, was start at $1,010, as I’m suggesting, and you didn’t even increase your savings rate each year by 1%, you just, at the end of every decade, increased it by 1%.

So you start out at 1,010 and then, 10 years later, 1,020 per month, and then 20 years in, you make it $1,030 per month. Of course, I’m not compounding the 1%. I’m actually suggesting you increase it even a little less than 1%. In this example, you still end up with $25,000 more by increasing your contribution rate in a way that would absolutely not impact your life at all. If you choose instead to increase it by 1% annually for 30 years, you end up with hundreds of thousands of dollars more without feeling the pain, without feeling the sacrifice. So this is the power of small adjustments that grow exponentially. So again, your mission, should you choose to accept it, is to increase your contribution rate this year by 1%. That’s your one simple task.

And yes, this message will self-destruct in five seconds. You can’t look at anything market-related at this point and not see all-time high, sets new record high, and I’m getting a lot of questions from prospective clients that I meet with around, “Is an all-time high significant? Is this a good thing, a bad thing? Is the market overpriced? Should I never be buying at an all-time high?” When in reality, it should be expected. A Chipotle burrito is going to cost more 10 years from now than it does today. Your kid is going to be taller at 12 years old than they were at five. We understand progressive growth in other aspects of our lives. The market is the same thing. Remember, a portion of the market’s growth is simply inflation.

Prices are higher on the products and services that these publicly traded companies are producing, and that’s reflected in their stock price. Since 1926, the market has ended at an all-time high, about 30% of all months. Meaning, if you just grabbed your monthly statement over the last hundred years, about three out of every 10 statements, the market’s had an all-time high. And as Creative Planning President Peter Mallouk posted on X, the one-year return following the market reaching an all-time high is actually higher than the average return following all other months. And he had a chart showing bear markets since 1950 that I’ll post to the radio page of our website if you’d like to review that.

It’s pretty interesting when you see the red and green bars with the percentages over the last nearly 75 years. In fact, if you go back to 1988, according to Ben Carlson and take five-year forward returns investing only at all-time highs, you averaged 78.9% over the next five years. If you invested on any other day, the five-year forward return averaged 71.4%. The same is true over three-year periods and one-year periods. You overperformed if investing at all-time highs. And these were data points that I had seen before. But Meb Faber, who is a great financial writer and podcaster, wrote an article that framed this even a little bit differently, and I think the results were even a bit more surprising than what I just shared.

Meb took his study all the way back into the 1920s and looked at the hypothetical if you only bought stocks at all-time highs, otherwise you sat in the safety of government bonds. He dubbed this as a switching strategy, and it’s been a pretty darn good strategy. You got a little better returns than stocks with lower volatility significantly with smaller drawdowns. And all you did was check your account at the end of each month, and if stocks were at an all-time high, you stayed invested in stocks for the next month, and if not, you were in government bonds. That’s it, all you did for the last hundred years. You again finished with slightly higher returns, less volatility, and significantly shallower drawdowns.

The takeaway, again, I’m not suggesting this is a strategy that you put in place for your money. You look at it at the end of every month and decide if you’re going to be entirely in stocks or entirely in bonds. And by the way, in a taxable account, this would have big tax ramifications. And if you were doing this the first 80 years until the 2000s, the trading costs would’ve been outrageous and eroded some of these returns. But the lesson is that all-time highs are not something to be afraid of. The next time someone you know says, “Invest in the market. It’s just high. It’s all-time high,” just if you care about them and you’re good friends with them, explain the folly of their ways.

Tell them they’re just wrong. They’re thinking about it emotionally. And if there’s somebody you don’t really care about or you don’t know that well just internally feel some pity for them that they just don’t get it because there’s no evidence that you should be reluctant to invest money simply because the market’s near or at an all-time high. And if you have questions about your investment mix, your financial plan, and you’d like to sit down with an independent credentialed fiduciary and you’re not sure where to turn, visit creativeplanning.com/radio now to speak with a local wealth manager just like myself. Why not give your wealth a second? Look. Well, all-time highs aren’t the only financial concept that we need to rethink.

Another one is that all retirements look alike. Now, retirement is not just about the end of the work, right. It needs to be also about finding your passion in this next season. Where are you going to find purpose? What are your goals for this season of life? And part of the reason we’re not great at retirement, we’re all still trying to figure this thing out, is because it’s a relatively new phenomenon. I mean, think about even a hundred years ago, you would work the land. You’d become too old to physically work. Your kids would then work the land, and you would be taken care of by them until you passed away. And that generally wasn’t very long because we weren’t living very long.

Then, in the 1920s, a variety of American industries, railroad, banking, oil started promising workers some sort of support in their later years to incentivize them to take on some of these jobs that maybe, in a vacuum, were less desirable or harder on their bodies. And then, by the 1930s, the New Deal was passed, and social security was implemented, making the official retirement age per the bill 65 years old. And, of course, life expectancy at the time for American men was 58. So it was really old age poverty insurance more than anything else. Well, fast-forward to the 1970s, life expectancy has gone all the way up to about 70 years old thanks to medical advancements. Of course, we’re far beyond that now in the 2020s.

But suddenly, more people were living past that age where they had sort of this permission slip to stop working and some of the money to do it. And this is when we began to see the shift of retirement in large numbers, and people stopped working, but they were still healthy, and they had extra money, then they had these government benefits and started embracing things like golf. And if you think about just the concept of retirement, it’s really only a conversation because of insane abundance. Most societies for the entire history of the world have never had this luxury. Currently, in America, we almost spend a third of our life in retirement with this goal while we’re working to hit this period where we can essentially do whatever we want or do nothing if we want.

And I can tell you firsthand, as a financial planner who has met with thousands of people, most people are less happy in retirement than they were when they were working. I don’t want to burst your bubble in saying that, but that whole idea that life’s what’s happening while we’re busy making plans. If you’re 10 years out from retirement, you’re really fixated on retirement getting there, make sure you stop and smell the roses. You may be in the best years of your life, one of the sweetest seasons of your life. Now, that’s not to say that you can’t have a fantastic retirement, but a lot of purpose is found in using your God-given skills to work as a team or advance a company’s mission or help customers or help clients.

Oftentimes, some of your closest relationships and friendships are found through work, through that natural organic mesh point of effortlessly being surrounded by one another. So the common question I receive is, “Do I have enough money to retire? How much am I going to need?” And that’s not a bad question, but it’s not the only question. How about things like, “How am I going to spend my time in retirement? What are my goals? Where am I going to find purpose? What is my day going to look like? Who am I going to be spending time with? Is my spouse still working? [inaudible 00:29:39] I’m going to be home alone a lot, or are we creating a simultaneous retirement?”

Because while there are certainly scenarios where your health isn’t great, or you’re caring for an aging parent, or your spouse has a medical situation and retiring to help them is very worthwhile. Maybe you’re miserable at your job. There was a change in who your boss is, and you can’t stand this person, or you’re traveling all the time, and you can’t even make your grandkids little league games. There are great reasons to retire, but the common wisdom that all retirements are alike. They’re great. That’s the pinnacle. That’s the golden goose. You just got to get to retirement. I think that’s an idea worth rethinking.

Another concept that’s often misunderstood is that growing your investments, well, that’s the absolute most important thing. It’s growth. Let me share with you a few recent examples of why not just growing your wealth but protecting it can be equally or even more important. Had a young couple that I work with that uses Creative Planning Property and Casualty, which is our insurance team that helps with homeowners and umbrella and auto and all of your risk management needs. And our team got them set up with the appropriate coverage. And recently, they were attending an outdoor event with their dog. Their dog barked and nipped at the photographer/videographer that was there for the event.

The photographer fell over, wasn’t seriously injured, kind of banged up a little bit, certainly frazzled, but damaged some of his equipment. And without proper liability coverage, they may have had to pay a substantial amount out of pocket. As a result, it was kind of a traumatizing event, but it didn’t impact them financially because their risk-mitigating strategy was properly aligned with their asset size and the rest of their financial plan. Had another scenario. This didn’t happen to me personally. It was another one of our wealth managers who shared this story with me. They had a client call them in tears because their pest control guy fell off a lower part of their roof, but they hurt their leg and their ankle, and the client was obviously concerned about the gentleman that fell first of all.

But then, when they realized they weren’t going to be significantly injured, they were worried about their liability. Our property and casualty team was able to walk them through coverages, and it was more than sufficient to cover his net worth. Once reminded, he was thankful that it wasn’t going to be something that prevented him from being able to retire or was going to put his family in a bad situation. He was really worried because there was a loose roof tile, and it was like, “Hey, was this our fault? Was it…” He just didn’t know. And so having that protection was really important. And the last example is something that I see often.

I had a client go through a property and casualty review, and we found coverage through one of our carriers. We’re independent, by the way, on this. It’s not like we’re pushing one company. I mean, that doesn’t matter to us. That insurance team is independent. And one of the gaps we covered was 25,000 in water backup. They later had a claim for a little under 25 grand related to a water backup. And without the move, they’ve been out of pocket for that entire amount. In this case, they only had to pay the deductible. So while insurance certainly isn’t some sort of sexy topic, we’re not even talking about expensive, high-priced permanent life insurance, or this is like basic property and casualty that still should be integrated with the rest of your plan.

And growing your money is great, but if you have an unexpected situation that forces you to lose a quarter or a half or everything in the worst-case scenario because you weren’t properly protected, the previous growth is meaningless. And the more money you have, and you know this if your net worth has increased over time, the more you start thinking about not just growing your money but, “How do I make sure that I don’t lose this. Am I properly covered?”

And so, if you have any questions about that, that is why we provide comprehensive wealth management. It’s not just investment management. It also includes things like taxes, estate planning, and, yes, evaluating the scenarios that could derail the rest of your plan. Well, it’s time for listener questions, and one of my producers, Lauren, is here to read those for us. Hey Lauren, who’s up first?

Lauren: Hi John. So, first off, we’ve got Julia from Goodyear, Arizona. “Is a 1.5% annual advisor fee on my account balance okay to pay? I’ve been working with my current advisor for a couple of years and have about 500,000 invested with him. This fee impacts my return, so I want to know if this is too high and if I could get a better deal elsewhere.”

John: So in short, yes, you can get a, quote, better deal elsewhere, and 1.5% is a little higher than the industry norm. I would say expecting to pay somewhere around 1% is typical on a half-million dollar portfolio, maybe 1 1/4. But somewhere in that range, one-five seems a little high unless they’re filing your tax returns included in that price or providing other services that I’m not aware of that are baked into the 1.5. But yeah, it’s a little high relative to the industry, but there are certainly other factors, like what are the cost of the underlying investments. Are you paying trading fees? Are they providing detailed financial planning included in that fee?

I mean, if it’s just investment management, I wouldn’t be paying more than a half or 3/4 of a percent. But the question with this fee, as it is with anything we pay for in our lives, is what is the cost? Not in a vacuum, but relative to the value you’re receiving back. If this advisor was making you 30% returns every single year, 1.5% would be the greatest bargain price you could ever pay. Now, of course, no one, to my knowledge, is capable of providing 30% returns every year, but that’s an extreme example to illustrate that. It really comes down to what are you receiving relative to what they’re doing and what does that fee relative to your other options in a capitalistic economy.

My suggestion, Julie, would be see what else is out there, doesn’t mean you need to transfer all of your money tomorrow, but maybe find a couple certified financial planners. Firms that have been around a long time, like us at Creative Planning, go through the interview process doesn’t take that much time. And I think at the end of that, you’ll either think to yourself, “Wow, I’ve got a great advisor. They may be a little bit more expensive, but they really are doing a great job for me relative to what I think I can get elsewhere.”

Or you’ll say, “Whoa, I’m glad I went through that process because this other firm’s less expensive and going to do way more than I’m getting right now.” Nothing lost in that second opinion other than a little bit of your time, and relative to a half a million dollars, it’s probably worth investing one or two hours to ensure that you’re getting the most value absolutely possible. And that’s available to you. If you’re not sure where to turn, of course, you can visit us at creativeplanning.com/radio to schedule a complimentary visit with a wealth manager just like myself. All right, Lauren, next question.

Lauren: Sal, from Tampa, Florida, says, “I was approached by an insurance agent at a seminar that showed me I can get a 7% guaranteed rate. Is this a good investment option? My total portfolio value is around 800,000 and is a mix of stocks, bonds, and mutual funds.”

John: Oh, Sal. Well, this is typical Florida. I’m here in Arizona. You go to these warm-weather retirement snowbird areas, and man, I mean, you could be eating for free basically every day of the week for the rest of your life if you’re willing to go through the pain of listening to another financial seminar. And most of these are done by insurance agents. And the reason for that is that insurance products pay large commissions upfront. Those dinners are expensive. And so the economics don’t generally work for a firm only charging fees of 1% per year. But on an 800,000 dollar portfolio, if you go buy a front-loaded, high-cost, lock up your money for 12 year fixed or indexed annuity, the commission with bonuses and overrides can get up as high as 10%. Well, now the 80 dollar steaks looks pretty. That’s a cheap one. You want two steaks, or you’re still hungry.

Let’s make it three because I’m getting an 80,000 dollar commission if one person in this room that has 800 grand decides they are terrified about the market, they are terrified about the economy, “Give me something safe,” and they buy that annuity. I’ve seen scenarios where agents have attendees filling out insurance applications at their dinner table at the conclusion of the workshop under the pretense, “Hey, listen, you have a 30-day free look period. You can cancel it. No questions asked. Let’s just get this going so we don’t lose this opportunity. I mean, I don’t know how long this is going to be around.” So just understand that’s the dynamic, and you better think long and hard anytime you’re considering taking a big chunk of what you’ve saved over decades or a lifetime and placing it into a product where, if you change your mind, there are massive penalties.

By the way, I’ve been asked, “Why are there these big penalties?” Well, because they don’t go to that insurance agent usually who’s masquerading as a financial advisor and require them to pay back the 80,000 dollar commission. They take it out of your account through surrender penalties. The only one that loses in that scenario is you. But the bigger thing here, Sal, is your referenced 7% guaranteed rate. So there aren’t annuities paying a guaranteed 7% rate of return with no risk, but what you have are annuities that will pay 4% or 5% or be indexed to the market with a cap of 5%. Meaning, if the S&P 500 goes up 3%, by the way, not counting dividends, you’ll make 3%. If the S&P 500 goes up 17%, you’ll be capped out at 4% or 5% or whatever the cap is, and that resets annually, and you’ll usually be in a longer-term contract with big penalties if you want out early.

There is a parallel value that you’ll see on your statement. And in many contracts, it’s referred to as a GWB or a guaranteed withdrawal benefit. That is where, in many cases, it’ll be growing at, say, 7% per year while you’re deferring taking income from the annuity. Now, I’ve met with hundreds of confused clients who purchased these years earlier at a similar steak-dinner workshop. When I explained to them, “That dollar amount on your statement is not accessible in a lump sum. It’s not actually your value. It’s simply a balance that you can calculate an income stream off of.” Now, if you’re a little confused right now, you’re not alone. Probably, a lot of people are confused right now. And the sad part is I’m not even getting into the weeds or the really confusing components to these contracts.

So while I don’t think annuities in and of themselves are a four-letter word, that they aren’t ever a useful tool in certain scenarios for a certain type of client. But in general, these are not bought. They’re sold by some of the best salespeople you will ever meet in your entire life for massive commissions. And most people that I have interacted with have a lot of buyer’s remorse down the road because there were a lot of moving parts that they didn’t fully understand at the time. They didn’t position size it right. Even if you decided to utilize something like this, I would be getting a second opinion from a certified financial planner, and I would be maybe 20, 30% of the portfolio, 40. I mean, it really depends upon, of course, your situation.

But this is one of those products where if you change your mind, there aren’t a lot of great options to get out of them. Well, I thank you for that question, Sal. If you’d like to meet with us, we have an office there in Tampa. And for anyone who has an annuity, a variable annuity, a fixed annuity, an indexed annuity and wants to have an independent objective look from a credentialed fiduciary who isn’t the person making tens or hundreds of thousands of dollars to sell it to you, we would be happy to give you an evaluation relative to how that fits in with your other options and the rest of your financial plan. Visit creativeplanning.com/radio now to speak with a local advisor. And if you have a question, you can submit those as these listeners did by emailing radio@creativeplanning.com.

There was a fantastic article at thehumbledollar.com on why you should be aware of your white elephants. So in Southeast Asia, possessing a white elephant was symbolic of power and prestige, and it was a really good omen to find one out in the wild. In fact, it signified prosperity for the kingdom. They were considered so sacred that they weren’t used in war, they weren’t used in labor activities, and it was a great honor if, in many cases, it would be a king that would present someone with one of these white elephants. And first thought is like, “Wow, that’s pretty cool. Why would anyone ever turn down a white elephant? Did that ever happen? Well, of course not. I mean, look at how amazing they are. They’re white elephants.” The problem is they were, in many cases, a huge burden because you had to feed this giant animal, and the animal doesn’t have any use case.

There’s nothing that provides for you, but you also needed to house this white elephant, and so it could be an ongoing financial curse. In fact, there were other periods of history where kings would give away a white elephant to someone that displeased them. Then they’d say, “Hey, if you don’t keep this thing alive and healthy and in good shape, I’m coming for you. It’s going to be bad for you.” And so they’d be forced to spend an absolute fortune taking care of this precious animal. So here’s how I see this relating to your finances. Are you aware of the white elephants in your life, those that have been given to you and those that you have given to others or maybe will potentially give to others? You not a client who gave their kids a lake cabin in a country club. You’re thinking to yourself, “Oh man, that’s amazing.

That sounds great, John. My parents didn’t give me some fantastic house in a country club.” And in theory, yeah, it was a cool place. But the ongoing HOA and club dues were incredibly expensive. The house was old and had a tremendous amount of deferred maintenance because the parents were older and hadn’t done much on the home for the last 15, 20 years. The whole thing needed to be renovated aesthetically, but also needed a new roof and landscaping, a bunch of other things. And none of the kids golfed, none of the grandkids golfed. These beneficiaries had little kids. It was completely across the country from where any of them lived. And you may be thinking to yourself, “Well, why don’t they just sell it? It could probably net them a decent chunk of change.”

Well, they didn’t because they felt terrible. They knew the importance of that home and the significance it held to their parents, in particular, their father. And they were really having a challenging time with this white elephant. “What do we do with this?” I had another client who wanted to give their kids this large yacht. I don’t know if you’d consider it a yacht, but it was a big, big boat, and it was worth about a half a million dollars. It was a really nice boat. I explained to my client, “This is a depreciating asset. The mortgage fees are almost two grand a month. None of your kids are making crazy money right now. That’s going to be an unbelievable expense for them.” And kids weren’t really even into boating. And so, while at surface, my client might’ve thought, “Well, this is a huge blessing that I’m giving to my kids. I mean, look, this amazing boat, all the memories they can make on it.”

Your kids don’t want a boat, and they can’t afford the ongoing upkeep and costs. And here’s the takeaway. Don’t foist white elephants onto future generations. I think the second takeaway that maybe is even more important, have an open dialogue while alive with your children, with your grandchildren about what they value and what they cherish. And if you’re the kid, have the conversation with your parents about what you value and what you cherish. I encourage you to identify a couple of items that you really care about that really mean a lot to you. And yeah, ensure that they’re not money pits or inconveniences for your kids. Explain to them [inaudible 00:45:35], “These are really important to me.” And then, for everything else, give them the freedom. Say, “Look, this is important. This is important.

You guys do whatever else with the rest of the assets. Whatever serves you at the time. I don’t know what situation you’ll be in, but you make the decisions once we’re gone that are in the best interest of you and your family. You know that we love you. We’ll be gone. And we want you to be in the best position possible.” Because the hope is that whatever they inherit helps reduce complexity in their life rather than adding to it. And it’s just another reminder that it’s far more important to make memories and spend money while you’re alive rather than waiting until you’re gone. Pass your values onto the next generation, not just your valuables. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.

Disclaimer: The proceeding program is furnished by Creative Planning, an SEC-registered investment advisory firm that manages or advises on a combined $245 billion in assets as of July 1st, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning or this station.

This commentary is provided for general information purposes only, should not be construed as investment, tax, or legal advice, and does not constitute an attorney-client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.

Important Legal Disclosure: 

Have questions or topic suggestions? 
Email us @ podcasts@creativeplanning.com

Let's Talk

Find out how Creative Planning can help you maximize your wealth.


Prefer to discuss over the phone?