Estate Planning Myths

Dispelling myths, rumors and misinformation is an ongoing battle for financial advisors. Estate planning is a topic especially prone to myths and misinformation. In this report, I’m going to dispel 10 common myths about Estate Planning and give you the real facts — facts that could be critically important to helping protect your financial future.

Myth #1: “I’m too young to need an estate plan.”
Statistically, that statement may be closer to true if you’re in your 20s and 30s. The problem is, many people still believe this statement in their 50s and beyond. As a result, a lot of people who intended to create an estate plan “eventually” end up dying before they get the chance. The result is often a legal and emotional nightmare for their families.

Myth #2: “Only wealthy people need an estate plan.”
Technically speaking, an estate is defined simply as “all the property owned by a particular person.” In other words, if you have property and assets, you have an estate and need an estate plan. Your estate includes your savings accounts and investments, naturally, but it also includes your home, boat, collectibles, heirlooms, and even items of sentimental value.

Myth #3: “An estate plan is only concerned with assets and property.”
That’s wrong because estate planning is also very much about emotions, relationships, and deeply personal matters. In fact, in my experience, that’s the greatest risk of not having an estate plan. It’s not the legal or financial chaos that often ensues, but the emotional fallout. I’ve seen families torn apart by arguments over who gets what, or over what to do with a parent on life support. A comprehensive estate plan could have helped prevent these arguments. That leads us to myth number four.

Don’t Let Long-Term Care Be Your Financial Blindspot

It’s no secret that Americans are living longer than ever. While that’s great news, it also creates many personal and social challenges. According to the Centers for Disease Control, for a couple in their mid-60s, there is a 50% chance that at least one of them will live into their mid-90s. That means Americans planning to retire in their mid-60s need financial plans that help ensure sufficient income and savings for up to 30 years and account for any potential unforeseen expenses. One of the most significant of these is the necessity for long-term care. Statistics on the subject are telling. According to a report by the Kaiser Family Foundation:

• 70% of seniors will, at some point, need long-term service and support because of a physical or cognitive impairment, and the average length of time that assistance with daily activities is needed, in these cases, is three years.
• Because of the size of the Baby Boomer demographic, the number of Americans needing long-term care will reach an estimated 27 million by the year 2050, more than double the number (12 million) in 2010.
• 48% of people aged 40 or older predict they will need long-term care as they age, but only 35% say they have set aside funds to pay for their long-term care needs.

That last statistic is the most important and relevant to this report, which is intended to illustrate why considering the potential impact of long-term care (LTC) in your income-based financial plan is so important. To put it simply, the impact of a long-term care event on your retirement income could be massive. According to a 2010 study by Genworth Financial, 88% of retirees paying for long-term care said it reduced their household income by an average of 34%.

That number has likely risen significantly in the past 10 years when you consider the current national average monthly costs of various types of long-term care, as determined by the 2021 Genworth Cost of Care Survey:3

Definitive Guide to Retirement Income

When it comes to retirement, you need to have enough money coming in to cover your expenses and meet your goals without running the risk of depleting your nest egg. However, not all forms of retirement income are the same in the eyes of the IRS. Some can be partially or even fully taxable, and some can impact the way your Social Security benefits are taxed. And that’s just for starters.

In this report, we’ll discuss the following:

1. What is retirement income?
2. What is a fixed-income investment?
3. Understanding fixed-income investments
4. What is an example of a fixed-income investment?
5. Types of fixed-income investments
6. What is the average retirement income?
7. What is a good monthly retirement income?

What is Retirement Income?
As many Americans are enjoying 20 to 30 years in retirement, it has become imperative for anyone close to retirement age to establish their own streams of income that they can count on to cover their living expenses and meet their goals in retirement. That’s basically what retirement income is all about: having enough money coming in each month so that you don’t have to tap into the principal balance of your retirement savings.

Retirement income can come from a wide range of sources, including:

• Social Security benefits
• Annuity payouts
• Retirement or profit-sharing plans
• Insurance contracts
• Pension plans
• IRAs, 401(k)s, and 403(b)s

Coronavirus and Finances

Another Reminder About the Importance of Financial Defense
To say that March 2020 was a volatile month for the stock market would be an understatement. With the outbreak of the coronavirus and ensuing economic lockdown, the market ultimately dropped by some 40% before rebounding with the help of government-approved artificial stimulus. Financial markets around the globe were equally volatile — and to some degree, that volatility continued for years afterward.

The speed and severity of the COVID-19 outbreak, combined with the massive social and economic consequences, were a reminder about the importance of understanding risk and protecting your financial assets as best you can. Historically speaking, they weren’t the first such reminder, and you can bet they won’t be the last.

In this report, I’ll discuss how some of the most recent market crises have influenced my philosophy and business model and awakened an entire generation to the practical value of investing for income.

A Look Back in History
On a personal level, the coronavirus crisis reminded me of when I watched the dot com-com implosion tear apart the markets in 2000, and when I saw so many peoples’ fortunes decimated during the 2007-2009 stock market collapse. Those events, like the coronavirus, took many advisors and investors by surprise — but not me.

In 1999, while most Wall Street cheerleaders seemed to believe that the sky was the limit, I believed something completely different. My knowledge of stock market history led me to believe that a big market correction was right around the corner. I knew from my interpretation of basic historical trends that the market was going to take a turn for the worse. The trends also told me that there would be a series of dips over the next 15-to-20-plus years.

Building Blocks of Retirement

Traditionally, the key to a financially solid retirement plan has been to save early, ideally from the day you start working. It’s always been good advice to live by, but today’s retirement is more complex. It requires a different approach.

It wasn’t always this complicated. There was a time in the not-so-distant past when you worked 30 years for the same employer. When it came time to retire, you had a pension and Social Security to depend on. Now, most of us are facing challenges that are making it harder to achieve a more comfortable retirement lifestyle. Living longer, carrying more debt, family dynamics and healthcare weigh heavily on many Americans. Market volatility and fallout from the pandemic have only exacerbated the situation.

Retirement can be the most rewarding and exciting phase of your life, but today more than ever, it’s up to you to make that happen. To do it, you’ll need the right strategy.

The information in this guide can help you better understand what that strategy should look like and how to go about creating it. More specifically, you will find solutions that may assist you in offsetting lower-than-expected income sources; creating streams of renewable income; and guarding against market volatility. But let’s start with some basics.

How much will you need?
Estimating your retirement budget can give you insight into how much money you may need to fund your retirement.

Bonds vs Bond Mutual Funds

Since many of today’s financial advisors got into the business in the 1980s and 90s, during the best stock market in U.S. history, most have become stock market specialists. Frankly, if they do fixed income, it’s usually an afterthought, and most will simply take the easy way out and invest their clients’ money in bond mutual funds.

What many people don’t realize is that bond mutual funds carry risks, costs, and tax implications that can be reduced, or even eliminated, by investing in a diversified portfolio of individual bonds, or other fixed-income securities.

That’s because when an investor buys an individual bond, they receive two important guarantees. First, they’re guaranteed a fixed rate of interest for the life of the bond. Second, when the bond matures, they’re guaranteed their principal back—assuming there have been no defaults. With that assumption, an investor knows what they’re going to earn on the bond if they hold it to maturity. They also know the maturity date and the name of the company they are invested in. But what about bond mutual funds? How do they compare to individual bonds?

For starters, both guarantees that come with individual bonds are “off the table,” so to speak, when it comes to bond mutual funds. Bond mutual funds don’t pay a fixed rate of interest. The interest they pay fluctuates. What’s more, bond mutual funds never mature; your investment in the fund will continue until you decide to liquidate it.

Annuities-Income for Life

You try to protect your car, home, and your health with insurance, but are you trying to protect your retirement income? With the potential for tax-deferred growth and a guaranteed income stream, annuities can be important in helping meet your retirement objectives.

How Annuities Work
Very basically, an annuity is a contract between you and an insurance company. The contract allows you to contribute money to a tax-deferred account. In return, you can get regular payments from the account as income. Many aspects of an annuity can be tailored to a buyer’s specific needs. Besides choosing between a lump-sum payment or a series of payments, you can also choose when to start receiving payments. An annuity that begins paying out immediately is
referred to as an immediate annuity, while one that starts at a predetermined date in the future is called a deferred annuity.

The duration of the disbursements can also vary. You can choose to receive payments for a specific period or for the rest of your (or your spouse’s) life. Naturally, a lifetime of payments may lower the amount per check. However, it helps ensure that you don’t outlive the asset, which is an annuity’s key selling point.

10 Signs You Are Working with a True Retirement Income Specialist

Not all financial advisors are created equal. Many say they specialize in retirement planning, but only a select few have the tools or training required to make them a true retirement “Income Specialist.” How can you tell whether your advisor falls into this elite category? Here are 10 signs to help you identify a true Income Specialist:

1: He listens to your concerns
If you’ve asked your financial advisor to move your assets into more conservative investment vehicles, such as bonds and bond-like instruments, and he didn’t fight you about it, then you might be working with a true retirement Income Specialist. Income Specialists know that as you approach retirement, there is a very important “shift” you need to make in your finances, which involves shifting your strategic focus from investing for growth, or capital appreciation, to investing for income. Failure to make this shift is often the reason people fall short of reaching their long-term financial goals.

Unfortunately, since many of the advisors working today first got into the industry during the 1980s and 90s, in what was the fastest-growing stock market in U.S. history, many became stock market specialists focused on chasing growth. Since their clients were participating in the market through mutual funds, many of these advisors also became overly dependent on mutual funds. Few know how to invest for income the right way through interest and dividends.

Many advisors today would prefer to keep your money invested in a mutual fund, where they can sit back and let the fund manager do all the research and heavy lifting, while the advisor collects a fee or commission for simply placing your money into the fund. In other words, the advisor might be more concerned about setting up streams of income for himself rather than you. That brings us to item #2 on our list.

7 Risks to Your Retirement

Most of us look forward to retirement, imagining that we’ll get to relax and enjoy activities we haven’t had time for such as traveling, reading, and exercising. However, as pre-retirees transition into full retirement, many don’t realize they are crossing the threshold into an entirely new way of living, one in which they’re increasingly vulnerable to risks that are unique to retirees. After spending decades working toward a goal, too many retirement plans are set back by these 7 Easy-to-Avoid Risks.

Risk 1: Longer Lifespans
In the year 2000, 50,000 people lived to be age 100 or older. By 2050, that number is expected to reach 1 million.1 With life expectancy rates higher than ever, it means that most people will need to plan for a longer retirement than they might expect. According to the Centers for Disease Control, for a couple in their mid-60s today, there is a 50% chance that at least one of them will live into their 90s. What this means is, to be safe, retirees today must plan and strategize for up to 30 years of retirement income.

Risk 2: Spending Principal
Spending principal in retirement has never been a smart strategy, but with the average life expectancy rising, it’s more of a slippery slope than ever before. To understand the potential dangers of spending principal, let’s consider a 30-year retirement like a 30-year mortgage, only in reverse.

Understanding Social Security Benefits

Before you retire, you should know what all your various sources of income will be, and how much you can expect to receive from each. Obviously, Social Security benefits will be one of those sources, but how much you can expect to receive depends on many factors. There are ways to help maximize your benefits and get the most you’re entitled to, and there are strategies to help minimize your tax burden from Social Security. The most important thing to consider in working toward these goals, however, is whether your Social Security benefits are coordinated properly with your other assets and sources of retirement income. We’ll address that shortly, but let’s begin with some basic facts about Social Security.

Money You Can’t Outlive
Social Security is one of the few sources of income you can pretty much depend on for life. Once you start taking your benefits, they continue to your death—and the longer you live, the more you will extract from the system. For example, if your benefit starts at $2,000 per month, and you live 10 more years, you will receive over $300,000 in lifetime benefits. If you live 30 more years, you’ll receive over $1 million over your lifetime, assuming the annual cost-of-living adjustments (COLA) averaging 2.8%. That’s good to know because retirees are living longer than ever. According to figures from the Society of Actuaries, there is a 35% chance that the average 65-year-old man will live to age 90 and the average 65-year-old woman has a 46% chance of living to age 90. For the average couple aged 65, there is a 50% chance that both spouses will live to age 81 and at least one spouse will live to age 92.

The System is Solvent… for Now
As you probably know, many have expressed concerns in recent years about the solvency of Social Security. That concern stems partly from the fact that people are—as noted—living longer, which means the Social Security Administration is paying out benefits longer than they had to in the past. Another problem is that when Social Security started, approximately 40 people were working and paying into the system for every 1 retiree. According to the most recent data, there are now only 2.8 people working and paying into the system for every 1 person taking benefits.

Despite all this, estimates from OASDI (Old Age, Survivors, and Disability Insurance) indicate the current Social Security trust fund will not be depleted before the year 2033. If no changes are made to the system between now and then, however, a reduction of about 23% to everyone’s Social Security benefit would be necessary after 2033. So, while the system is solvent for now, working Americans in their 40s and early 50s might want to keep pressure on their elected officials to address the important issue of Social Security reform sooner than later!