[Video] The Transition from Career to Retirement: Are You Ready?Submitted by Reby Advisors | Certified Financial Planners | Danbury, CT on December 12th, 2018
Presented by Doug Kuring, December 12, 2018
Doug Kuring, a Financial Planner at Reby Advisors, recently led a retirement income planning seminar titled The Transition from Career to Retirement: Are You Ready? In this 49-minute presentation, Doug covers the eight factors that determine whether you'll be able to generate sustainable retirement income that supports your lifestyle.
This educational presentation covers financial strategies based on 33+ years of experience advising families at all stages of their financial lives. Throughout, Doug shares many valuable tips designed to maximize retirement income and protect your money from critical risks.
If you have any questions or need advice on this topic, please do not hesitate to reach out. Reby Advisors offers a complimentary 15-minute discovery call to anyone who would like to explore whether we're a good fit to be your financial planning team. Call (203) 790-4949 or (800) 769-9963 or click here to send us an email.
02:20 - Common Retirement Worries to Address
05:00 - Maximizing Your Social Security Income
10:22 - Out-of-Pocket Healthcare Expenses
18:23 - Minimizing Your Income Taxes
23:25 - How Much Can You Afford to Spend?
28:40 - Investing to Keep Pace with Inflation+
36:45 - Making Your Money Last to Age 95 and Beyond
40:08 - Using Life Insurance for Income, Lifestyle Protection and Legacy Assurance
42:27 - Budgeting in Retirement
44:48 - Critical Retirement Questions
My name is Doug Kuring. I work at Reby Advisers right upstairs, we're on the first floor I believe in this building, main floor and first floor are a little confusing here but ... so today's talk. We're going to be talking today about supporting one's lifestyles while you're working, which all your income is coming from a paycheck, right, to living in retirement where all of your paychecks are coming straight out of the savings that you've accumulated for the most part, okay? It's a very stressful situation, for a lot people heading into retirement. It's an extreme life transition. It's the one point in somebody's life where quite often, they're moving the most money that they ever will in their entire life, okay?
We're going to talk about some of the things that our firm does, strategies that we use, best practices that we implement across the board with all of our clients. Tell some good stories and horror stories of things that I've seen over my experience doing this and then just based on my experience, the things that I know work for people and what I know don't work for people, okay, because we have a little bit of a lighter crowd today. I mentioned to these guys before, if you have any questions that come up in each of the sections, don't hesitate to just ask. All right. Nice picture of myself, so Reby Advisors.
We were founded in 1985, we've been around for about 33 years now. Bob Reby was the founder, still is the CEO today. We advise about 550 families, mostly local here in the Danbury, Brookfield, Ridgefield area. Fiduciary advisers. Fiduciary is kind of one of those hot words that have been thrown around recently, you've probably seen it in all the newspapers. All fiduciary is, is somebody that delivers advice that's in your best interest at all times. They're doing the right thing for you. The advice that they give to you is ... has no conflict in it. We're not getting kickbacks from mutual funds or anything like that, okay?
We are a team of certified financial planners. A lot of the ads from the CFP board have been shown on CNBC and other news agencies and at this moment, we have about 550 million dollars of assets under management. Those are assets that we manage on behalf of our clients and we're growing which is always a nice thing. All right. I always start my talk off with letting people know the questions that I hear most commonly from people that I sit down with for the first time, okay? Chances are that if you're heading into retirement or you still got a good runway ahead of you, these are some of the questions that are on your mind currently or will be on your mind, all right.
If we just start with the one that's in the big box over here. Can we continue to live the way we do without running out of money? Very common question that I get from a couple, okay? All this question is asking me is I live a certain way today, can I continue living that exact same way in retirement and not run out of money doing it, okay? Should I pay off my mortgage before retiring, a very common question that we get, okay? When should I start my social security benefits another very common question that we get and by the way, each of these questions we'll be addressing in the presentation, okay, within the sections that we go through.
How much is healthcare going to cost me in retirement? It's one of the biggest questions I get from people when I see them for the first time. The answer is a lot, okay? Do we have enough to last us for the rest of our lives, without running out of money and having to go back to work? Chances are that when you retire, you don't want to have to go back to work, all right. You want to start doing the things that you didn't have time to do while you were working. Now, you've got eight to nine hours of freed up time. You want to spend that time doing the things that you want to do and love. Where am I getting my income from in retirement and how much can I expect to get?
Really important question to have answered before entering retirement, okay? The last thing you want to do is realize that, that lifestyle that you've been living can't really be supported off of what you saved. It's better to know going in, all right? Each of these little circles here, off of your retirement income are sections that we'll be addressing in this presentation. Each of these factors plays into the amount of retirement income that you can produce over a 25 to 30 year period, okay? Again, what we'll cover, mistakes to avoid, questions that you need to consider, strategies that we utilize with our clients and that you can take advantage of and then the good and bad stories, okay?
I like to keep the crowd involved a little bit. Nothing too crazy but I'll start each section off with a simple true or false question, you guys just let me know what you think. True or false, you will receive your maximum social security benefit if you wait until your full retirement age, true or false.
I thought it was true.
Yeah. I'd say true.
I think it's false.
It's false. It is false. Yeah, so two things I want you to take away about social security, all right. After 12 months of receiving social security benefits, the choice that you made is permanent. There's no take backs, okay? When you choose within that 12 months that you want to redo, you have to pay back everything that you've received since the day that you took it. Bottom line is that your choice gets permanent quick, okay, so it's very important to know that the claiming strategy that you're going forward with is the right one for you. Number two, it's really important to coordinate your social security claiming strategy with all the other stuff you have going on and the assets that you own.
In the event that you can delay social security, it pays to do that and I'll explain to you why. A quick example up here. If you were born in the year 1960 or later, your full retirement age deemed by the social security administration is age 67, well, what does that actually mean? You will get social security statements that have an amount on it. It says at your full retirement age, you will receive X amount of dollars per month, okay? That would be your full retirement age, all right? Born 1960 or later, your full retirement age is 67. In this example, we have somebody who's going to be receiving $2,800 a month at their full retirement age, which is equal to $33,600 a year.
All right. Now, we've got kind of the full spectrum here of times in which you can claim social security, ages in which you're eligible to start claiming. The earliest age is age 62 and this applies to everyone. The earliest age you can claim social security is age 62. Well, why wouldn't I claim earlier, when I can get it ... start getting money earlier? The reason why is because if you choose to claim at your earliest age possible, you'll be giving up 30% of your social security check permanently, okay, which if you just look at the difference here, it's about $10,000 a year. It's significant in retirement, right? That's age 62, that's the earliest you can claim.
Well, what happens if we go beyond your full retirement age? Each year that you choose to delay and age 70 is the latest, the age that you can claim, you can't go beyond age 70. Each year that you choose to delay, the social security administration guarantees you an 8% increase in that monthly benefit. When we go to 67 to 68, plus 8%, guaranteed for the rest of your life, 68 to 69 plus 16% so another 8%, 69 to 70, plus 24%, all right? That's where you get to ... this number here and again, it's about a $10,000 difference in this example, permanently for the rest of your life so it pays to delay if you can, right? If we look at just the delta between the latest you can delay, and the earliest you can claim, if you claim at age 62, you'll be giving up 77% of what you could have made at age 70. That's a big difference, okay?
Now, there's a lot of things ... social security is like a maze, to be perfectly honest with you. There's so many rules that the IRS has thrown in there. Quite frankly, it's really ... it's a lot, okay? There's a lot of strategies that we implement for let's say spouse or couples. One of them is, whoever is the higher earner, one of the strategies that we implement is we always try to have that higher earner delay until age 70 and collect their maximum benefit possible. Why do we do that? In the event that the higher earner pre-deceases the lower earner later on in retirement, let's say age 75 now, that person passes away.
The lower earning spouse steps into that higher earning spouse's social security benefit, right? Wonderful thing when now, you're a single spouse and ... I mean, tragic, right? You lost your spouse but at least you can step into that higher social security benefit around.
Are they still collecting both?
No, they give up their lower one for the higher one, right? There's strategies for widows, if you're still working and you choose to claim social security, they take away a portion of your benefits because you're making a paycheck still and collecting social security. There's a lot of moving parts with social security, right? Bottom line, it pays to delay, if you can and two, make sure that if you can delay, do it. All right, that's social security, moving on to healthcare. True of false, a retiring couple can expect to spend roughly $245,000 on healthcare throughout a 25 to 30 year period? It's true and actually fidelity .... fidelity just came out with the study that was released the other day.
It's closer to 300 because medical cost are just increasing more and more at this point, right? I would expect closer to 300, all right. Well, how much exactly ... not exactly but within a good range is this going to cost me? I don't know exactly, right? I broke this section up into three phases of one's life. If you retire prior to age 65, you have certain options, retiring at 65, you go on Medicare and then age 85 and I chose age 85 for a reason. Of all the clients that we have in our office upstairs, right, who own long-term care insurance, 70% of those clients are on claim.
Meaning that's seven out of 10 of them ... seven out of 10 of those clients that own long-term care insurance, are using that long-term care insurance to pay for long-term care expenses, which in my world, when I'm developing a plan for somebody, and they're age 65 or younger, that's a damn near certainty. Okay, that's something that I need to incorporate in somebody's financial plan because there's a pretty good probability you're either going to need long-term care insurance or you're going to need to figure out how you're going to pay for it on your own, okay? Let's start with before age 65.
COBRA is one option, okay, if you're not still working, COBRA is an option. It's just continuation of workplace benefits for the most part. Now, when you work for an employer, your healthcare insurance is typically subsidized quite a bit, right? They cover about 70 to 80% of the full premium. You cover the delta, right? When you are on Cobra, you are in charge of that full amount plus another 2% so they like to just kick you while you're down and tuck on a service and administration fee for supply in the COBRA insurance. Okay, so 102% of the entire premium is on you. These numbers up here are for a couple and we just assumed that $150 per paycheck is coming out of that individual's paycheck for healthcare insurance, all right?
These are just the numbers there. It comes out to be about $13,000 which is well within the range of what we've experienced, which would be that to a 20,000, depending on what you need and the insurance that you're comfortable with. The other option that you have is I think the access healthcare Connecticut network which would be privatized healthcare, typically what we recommend for people is going forward with a high deductible low premium plan and then funding an HSA or you can take the tax deduction on your tax return for funding the HSA and going forward with that plan. Now, age 65, Medicare, right? Medicare is wonderful healthcare insurance. Original Medicare is wonderful healthcare insurance.
Original medicare consist of part A, which is your hospital coverage. Part B which is going to be your doctor visits, check ups and that sort of thing. Something called Supplemental Medigap which is insurance that basically catches anything that falls between the cracks of part A and part B, any cost that come through and then part D, which is your prescription drug coverage. Now, part B, right, currently is a standard $134 per person per month. Part A is free for anyone that is a US citizen and has paid Medicare taxes out of their paycheck. Supplemental, the most robust plans are F, G and N currently.
Pricing range is quite a bit for your supplemental insurance. I've seen it as low as like 64 or something like that. All the way upwards of 400, it's expensive. It can be expensive. Part D is prescription drug coverage. The reason why I say here it must be reviewed annually, as we age, chances are that when we go to the doctor and he prescribes us new medication, if we have a certain plan that doesn't cover that medication, those cost are coming out of our pocket, right? You got prescribed a new drug, you're going to want to review it annually to make sure that your plan covers that drugs and you're not paying for it out of pocket, full out of pocket.
Now, under the Medicare umbrella, you've got original Medicare which is what I've just talked about and then Medicare advantage. Medicare advantage is also known as part C, all right. It's privatized Medicare for the most part. It acts very similarly to an HMO where you have in-network providers that you can go to. If you got out of network, the cost are on you. I typically don't recommend the part C because original Medicare is such a wonderful coverage and then in the event that you need to go see a specialist that's not within the network, that's not really something that somebody wants to deal within retirement.
They want to go see the doctor, that's the best and that can help them, all right? Now, if you go to age 85, again, this is where the long-term care picture kind of steps in. Just to give you guys an idea of what an assisted living facility cost, okay, which on the spectrum of long-term care. You have home healthcare which is kind of your basic assisted living, like a middle of the road service and then you've got the private nursing, skilled nursing facilities, which would the most expensive. Now, the average Connecticut Assisted Living Facility cost for a person is about $5,000 per month and that's currently, that's today, okay?
We go to a couple, $10,000 a month. Like I said, 70% of the retirees that we have, that own long-term care insurance are on claim. What long-term care cost does Medicare cover? The answer is very little. Very little, okay? Medicare has a stipulation in their skilled nursing facility section within part A. They will cover days one through 20 in the skilled nursing facility. Days 20 through 100. It goes to like a co-insurance model, where you share the cost and then after day 100 it's on you. Just to give you a feel, the average long-term care need is about one to three years. If you're only getting 100 days from medicare you better know where the money is coming from, right?
If you don't own long-term care insurance, it's coming out of your savings. It's coming out of your portfolio and retirement. It's the only way it can be paid for. That's why I say, as far as somebody's ability to sustain their lifestyle and retirement over 30 year period. If you haven't figured out, exactly what pool of money you're tapping into if you choose to self-insure, you need to do that because it's going to drain your assets. That's where it's coming from. Any questions? Bottom line is healthcare is going to be expensive, okay? Yup. All right. True or false, all sources of income in retirement are taxed equally.
I say it's false.
It's false. There's three tax rates you're going to run into retirement. Okay, there is ordinary income tax rates, there's capital gains rates and then if you work with a great adviser, it could be zero percent, okay? Traditionally, people had three sources of income in retirement, right and one of them for the most part is completely dropped off from that and that is pensions, right? Very rarely, do I see both people coming to me with a pension asset at this point, in my life. Now, the other two that are still there, you're savings of course and then social security. Okay, now, your savings can be divided up into two categories and this applies for everyone. You're going to have your retirement accounts which would be like a 401K or an IRA.
Then, you've got your non-retirement accounts, which would be like an individual account that you set up maybe like Charles Schwab or fidelity or whatever. Different types of money are put into those. You've got pre-taxed money going into the 401Ks and the IRAs. You've got after tax money going into the non-retirement accounts. All right. Taxes matter in retirement, right? Where you pull your income from in retirement matters, why? This becomes a tax game, okay? To show you why, we have a scenario here. Let's just say we have a retired couple. They're both ages 67 and they live a $90,000 per year lifestyle. It cost them $90,000 to live the way they do.
They have a one million dollar portfolio that's split between retirement and non-retirement savings so they've got the pre-tax and they've got the after tax so a wonderful thing, flexibility, right? We've determined that their speed limit, now, I'll introduce you to speed limit. We use the term speed limit interchangeably with withdrawal rate. The reason why we named it speed limit is because our clients are able to grasp on to the fact that if I go beyond this withdrawal rate, if I exceed my speed limit, then I'm putting my money at risk, right, because we need to make sure that your withdrawal rate can sustain your lifestyle over a 30 to 35 year period in retirement so we use speed limit.
It's just an easy way for our clients to understand where they're at. Their withdrawal rate, i.e. their speed limit is 4% a year, $40,000, okay, 4% in a million, 40,000. Where should they pull their income from? Well, if they pull all of their income from their retirement assets, all the pre-taxed money, right, the money that the IRS has never laid their hands on, never taken their cut from, when you withdraw that money in retirement, it is taxed at ordinary income tax rates, which are higher than capital gains rates. Capital gains rates are preferential compared to ordinary income tax rates for the majority of Americans, okay?
Let's go to the example here. Let's say of their $90,000 a year lifestyle, they have $50,000 coming from social security. I need to get them $40,000 of after tax money. If I pull it from their retirement assets, I know that, if they need 40,000 of after tax money, I have to pull out more, why, because I need to account for taxes. All of a sudden, we went from that nice 4% withdrawal rate, 40,000 to 50, which is a 5% withdrawal rate. Now, they're exceeding their speed limit, okay? They are going beyond the limit with which their assets can sustain their lifestyle over retirement, okay? Really important for people to understand this.
If we go to the non-retirement side of things, in this case, let's say that $40,000 ends up being $40,000, if I pull it from that non-retirement account. That ends up being a 4% withdrawal rate, they are within their speed limit, okay? Taxes matter because they affect your asset's longevity.
Social security, when you collect it, does that then becomes taxable?
85% of social security income is taxable, yup. Makes sense?
Okay. I'll go a little bit deeper into the 4% rule, a very common thing that gets thrown around on Google for one and then in the industry. True or false, withdrawing 4% from my retirement savings each year guarantees that I will never run out of money, true or false?
All right. If you ever hear the word, guarantee, from somebody in this industry, please be skeptical, all right, guarantees are either really expensive or they just don't exist, all right. There's that and then the 4% rule. It's a very common thing that's talked about in our industry. The 4% rule, it's more of a guideline than it is a rule. It does not apply to everyone, okay? Especially if you choose to retire very early, 4% is not going to cut it for the most part, all right. You need to go lower. You need to have 3% or even lower than that, okay, it depends on the level of assets that you have.
The bottom line is that it's very important to know what your withdrawal rate is, what your speed limit is, okay? To know that if I take out more than this amount from my savings, I'm really putting ... I better bet on a couple of really great years right in a row to bring me back to where I was, which as we know, nobody can predict the market so, better to just stay within this pediment, okay? Why does 4% not guarantee as that we'll never run out of money? Okay, so I want to introduce you now to what's called sequence of market returns. Other than just seeming like I just threw a bunch of words at you that you might not understand.
Sequences of market returns, we know that the market doesn't go up every year, correct? The market does not go up every year. If you listen to somebody on CNBC and then say, on average the market goes up seven to 10% a year, on average that is true but every year it doesn't happen as an average. You get individual differences in between each year, right? The market can go up one year, it can go down another year. How the market acts the sequence in which, you get those returns especially in the first five to 10 years of retirement, will make a huge difference on the longevity of your portfolio, all right? Let's go through two situations where we have a good sequence of returns and a bad sequence of returns, all right.
Same individual, starting with a million dollars in retirement, going with that magical 4% rule, right, it's not a rule, okay, $40,000. Now, this is an actual period in time, 1964 to 1973, I'm just showing the S and P 500. A good sequence of returns looks like this. We have a bunch of good years in retirement. For the most part it's good, even the down ones are not that bad, okay? Especially in the first five years, four out of first five years are great. That's a good sequence of returns. What does it look like after year 10, started with a million, I'm living my lifestyle. After 10 years, I have more money than when I even retired with, it's a wonderful story, okay?
The first five years were wonderful. It takes a lot of pressure off the portfolio later on down the road. Let's go and show you what a bad sequence of returns looks like. In year one, the first year I retire, the market is down 35%. My portfolio is down 35%, okay? Just to show you a simple math example of why the first couple of years matter, if I go down from 100 to 50, I've lost 50% right? If I got to go back from 50 to 100, I got to gain 100%, okay? It's easier for me to lose than it is to gain, right? Simple math and the market works like that, okay? Balance at year one, a million dollars, I'm withdrawing 4%. My first five years are not good, even with this year, right in here not good. What's my balance look like at the end of year 10?
I haven't even gotten back to where I was when I started, okay? Now, what are the things that we can do to mitigate this risk? Number one, don't invest your retirement savings in just the S and P 500, okay? Diversification is crucial, okay? Watching your taxes, knowing your speed limit, all these things that are within your control, right, that are really simple things, will help mitigate this risk, okay? Any questions on that? Okay. Let's all pray for good sequence of returns for everyone in the room. All right. True or false, the closer you get to retirement, the more conservative you should invest?
True but, okay?
True but is a great market right now.
True but, all right. The but comes into play and I'll explain to you why. When we are working, our portfolios tend to look something like this, okay? Mostly because we have picked like a target date fund or a balance fund, just something that's within the 401K options that we have available to us. Typically those options are pretty well-diversified and let's just say it's 60% equities, 40% fixed income just to keep it simple and that's how we look. We're happy, we're not thinking about retirement yet. We're not stressed about it yet. We are just taking money out of our paycheck, throwing it in.
The market can do whatever it wants, I don't care, I don't need to worry about it just yet. All I'm focused on is savings. We're happy. Now, if we go two to three years out prior to retirement, we start to look like that. We get scared, right, because now, all of a sudden the money that we've been saving, I can't afford to lose it, very common emotion that I see people coming in with, can't afford the lose the money that I've saved. People know enough about the market to say, if I go, all fixed income or a very large portion, all fixed income, that I know that I'm taking money off the table, that's in the market, okay, while that is true, you're also giving up something that is extremely crucial for your retirement.
There has to be a balance, okay, between your equities and fixed income. This is not going to cut it for retirement. The reason why is because that portfolio will not keep up with inflation. Inflation is one of those insidious silent killers in the background that creeps up on you and all of a sudden, you realize that the price of rent, the price of stuff that you're buying at the grocery store, gas, whatever. It just continues to keep going up. It's a very real thing, the problem is it doesn't go up everyday and people don't talk about it everyday so it creeps up on us, okay? The only portfolio that is going to help you keep up with purchasing power, maintaining your purchasing power over a 25 to 30 year period, fixed income does not do that for you.
Fixed income is a flat amount of income over whatever time period of bonds you have, okay? Equities have proven over the long-term to outpace inflation. You have to have more than this, sitting in your retirement fund. More than that amount of equities. You will not be able to keep up with purchasing power if you do that, okay? That's where the but comes into play. People get scared, they don't want to lose the balance of their portfolio assets. The fact of the matter is that if you go too far into fixed income, you're going too far and you're putting your portfolio at risk that way, okay? What are some of the ways that I work with a client to strike a balance, where the client says, "Doug, I just can't ... I can't have that much of my portfolio and equities."
"It's just too much risk for me. I can't sleep well at night, it's keeping me up at night," right? There's a balance between that emotion that is very real and that I have to take into consideration and then the one where the client has communicated things that they want to do in retirement, goals, objectives. They want to leave money to their kids maybe, et cetera. All of that, requires your portfolio to continue growing, to outpace inflation so there must be some sort of allocation into equities. Well, how do we strike a balance, there's a statement ... it's basically an agreement between me and the client.
It's called an investment policy statement where we say, what's the amount of risk that I can handle and sleep well at night versus the amount that I know I need to achieve the goals and dreams that I have, very simple, okay? Then, from there, you strike a balance with the client. Makes sense?
This slide is really important. This line probably says it the best, when it comes to investing in general, right? Our behavior, the way we react to how the market performs, okay, we are often our own worst enemies when it comes to this thing, why, because when the market is at its highest, it's usually when we get the most greedy. That's the time when we want to start investing more and more and more, right? The market can't go down, right? It's only going up until it doesn't. Then, when the knives start falling, we say "Get me out," right? We can't afford to lose any more money. Both of those ... well, both of those emotions are very human and natural, all right.
I've never had a client that's been immune to that no matter how sophisticated they are and number two, at those points in time when the market is at its highest and we want to buy more, when the market is falling and we want to get out, those are the exact worst times to do those things, okay? The S and P 500 over a 20-year period has returned about 7.2%. A diversified 60/40 portfolio, a little less because you have some fixed income in there. If we look at the average investor, 2.6%, so they significantly underperformed the index for the most part, right, why because of what I just told you. They're buying at the high and selling at the low. We want to do the reverse.
We want to buy low and sell high, okay? That's the name of the game in investing, that's how you make your money, okay? When I work with the client, because I know that this is a very human thing. It's very natural for us ... a few of these things during those times. What do I do to help the client not do those things? Well, I call it building a war chest. It's kind of aggressive but it seems to get the point across pretty well. When times are really bad, 2008, God, the market ... I mean, the world was coming to an end, right? We didn't think we were going to have banks at that point. Building a war chest, so what does this do.
I know that I can intake a good portion of my client's money, one to three years worth of income that they need to live their lifestyle and I can stash it in short term fixed income in a cash assessed money market allocation. What does that do for the client? Well, they know that they have one to three years of income on the sidelines, that they can go to no matter how the market performs. If it's down, I don't care. I don't need to sell it. I can wait for it to come back up, why, because I have this money on the sidelines that I can go to and I'm just going to continue living the way I do. I don't need to do anything differently, okay?
That's the name of the game, as far as building a war chest. It's income regardless of how the market performs. Helps reduce some fear when the market is down and most importantly retirement, if you haven't ... if you can't tell by now, retirement is all about the income that you can produce, okay? All we're trying to do in retirement is just live comfortably the way that we are now, without running out of money, right? It's the name of the game and that's what that kind of ... that's what it allows us to do. All right. Longevity. It's going to be a big factor on the retirement income that you can produce so true or false, one out of every four married couples that are age 65 today, can expect to live to age 90, one out of every four, what do you think?
Like both, both-
Those are false. No, true.
They might be true.
I'd say true, sorry. I consider it true.
It's false, it's one out of every two, it's even higher. One out of every two.
Trick question, tricked you on that one, sorry. All right. If you are aged 65 today, here are the chances of living to. Now, you're definitely living to 75, 80, nine out of 10 chances, 85 years, 75%, 90, 48%. We are living longer. We are living healthier. Medical technology is even better, drugs are getting better. We have a lot going for us. What does that mean for retirement? It just means that your assets need to last longer, okay? Yes, we are living longer and that's an awesome thing. We generally are living healthier lifestyles nowadays. It seems to be everybody is going gluten free and eating paleo and all these nice diets.
Eating their chips.
Why is it that couples like had a better chance of-
They keep each other alive longer.
Yeah. I think they-
It's definitely true. It's definitely true. The bottom line is look your money ... we are living longer. These statistics continue to go up year after year so if you just follow the trend, one out of every two living to 90, it's going to be higher than that as we continue to go. It'll be interesting to see what it's like when I retire and maybe we'll be living until 150, I don't know. Exactly. Exactly. One of the biggest fears I have for my clients is not necessarily a long life. It's living a long life while you're not healthy. That's one of the biggest things when that comes into play because, this is typically the timeframe where like dementia and Alzheimer's kind of kicks in.
Things get a little dicey here and so even if we're living beyond here, that's actually a really big fear of mine for my clients and then if couple in long-term care cost, if we're living longer, our long-term care stays are going to be longer, you're going to need more money so it's all these things that come into play but bottom line is that we are living longer and therefore your assets needs to last you longer. All right, true or false, you can take your company life insurance with you when you retire, true or false? Maybe. Some companies do, some companies don't. It depends, okay? Now, a lot of people asked me, when I do this presentation, why are we talking about life insurance when we're talking about retirement income?
Well, there are ways where life insurance and retirement, definitely can help ... can provide a benefit to your retirement income, all right. If you think about entering retirement with a mortgage, all right and one of the spouses passes away. Well, the death benefit that that spouse has can be used by the other spouse to completely pay off the mortgage. What does that do? Now, you no longer have a mortgage payment, frees up cashflow, okay? For people that do have a pension, when you are nearing retirement and you're up for a pension but you haven't chosen it yet. Think of like a three year window prior to age 65. You know that you have a pension.
You know your family is going to benefit from getting a pension, which is income over the course of your retirement. If you pass away before choosing the pension, they typically only provide you with a lump sum and it's not as much as what the retirement income would have been over the course of your life and so what do you do? Well, life insurance is effective there because if you do pass away prior to retirement, you can use that to ... as like a pension source of income, all right? Permanent sources of life insurance have cash value built into them. You can use that, you can tap into that to supplement your retirement income. A lot of people that we work with, use insurance as a tool. They use it as a tool to provide a legacy to their children in the event that they want to do that.
They don't have to worry about draining their assets down to zero at their time of death because when they die, their heirs will get a tax free benefit. All right? All right, last one. You can expect to spend 20 to 25% less than your current budget in retirement, true or false. Whatever you're spending now, when you get into retirement, you can expect that to be 20 to 25% less.
Definitely false so based on our experience, now, if you ask Google that question, Google will tell you that's true. It's definitely false, right? Based on our experience, whatever lifestyle you're living now, you're going to be living in retirement and potentially plus some, okay? What are some of the expenses that people budget for and then the ones that they typically overlook? Well, the ones that they come into me with are all the things they want to do in retirement. All the stuff that's going to be fun, the travel, they want to get that second home on the beach, whatever it is, right? Stuff you enjoy doing and just want to do more of.
That stuff that's definitely in the budget, right, when they come to me. Well, what are the things that I know as a planner are going to come up, the less sexy stuff, okay? Dental, vision, hearing, not covered under Medicare. If you don't want your teeth flowing out of your head, budget it. Weddings, in the event that you had a child late in life or you have some grandchildren getting married, thousands of dollars, right? Home maintenance is a very common one. Okay, you retire at 60 then when you turn 75, all of sudden, you need a new roof. New roofs cost $20,000, $25,000. They're expensive, okay? New car purchases, it depends.
If you want that new car every three years then you need to budget for at least, if you ride that thing until it dies, then we're talking about a different timeframe, right but buying a new car every year, again thousands ... or not every year, every couple of years is thousands of dollars. Bottom line here is that, I see people planning for the things they want to do versus the things that I know are going to come up, okay? The stuff that you just don't think about. All right so some questions that I'll just leave you guys with, that I'd know are really worth considering and having answers to, preferably prior to retirement a couple of years before is even better.
Am I going to outlive my money or is my money going to outlive me? I would suggest finding a plan where your money outlives you, okay? A lot of preparation and planning goes into that question in order to answer it. What are my sources of income when I retire and how much can I get. This is very much ... well actually, on the day I retire, where am I getting my income from? Another very common question I get so on day one, which account of all the stuff that I own, where am I going to and how am I getting the money, who am I contacting, how much can I take out, am I going over my speed limit, all these things, right?
How much in taxes am I going to pay? Do I have a written financial plan? What we have found is that having a written financial plan, one that you can physically hold versus just having a financial plan out there in the ethos on the web, right? Our clients are constantly going back to their financial plan. They're saying, did I ... look, did I account for the new roof? Have we thought about the amount of taxes that I'm paying now? What is my asset allocation? I forgot, right? They're constantly going back to their financial plan and then coming back in with it. Whenever we meet, it's a requirement, right?
We take our financial plans that we made for you last, apply the updates, rerun some things, see where we're at. See if there are any adjustments we need to make in your lifestyle. Are you spending too much? Are you spending too little? Can we spend some more? All things that need to be taken into consideration. Can I afford to keep my lifestyle the same when I retire? We had posed this question in the beginning. It's one of the biggest ones that needs to be answered before retirement. Is my spouse ready for me to ... this is tongue in cheek a little bit but is my spouse ready for me to retire, right? What am I going to do all day?
Now, this is a really important question to have answered because we spend a lot of our days at work, okay? All of it for the most part, right? Eight to nine hours of our days at work. You're going to have eight to nine hours of free time now in retirement so what are you going to do with that time? Well, we work with people to figure that out and then we start attaching expenses to it because the things that you want to do cost money, right? We need to figure out exactly what are those things you want to do and what are those things going to cost and then from there, we can work into, okay, is that too much, can we add some more things onto it?
Is there anything else you want to do? Start building the plan from there. Am I putting my children at financial risk by becoming a burden to them? It's a very serious question and it comes into play with long-term care especially, right? If we don't have the assets to cover long-term care cost, or the insurance, chances are that somebody is going to have to step up to the plate and I've seen first hand who does it, it's the children, right? The children bears the financial burden to do that. Now, they love their parents and I understand completely why they do it. I would do the same for my parents.
I can tell you that it cost a lot of money for them to do that and you're potentially putting their retirement at risk, okay? Don't mean to leave us off on such a morbid one at the end but that is the end of my talk.