RJS 6-21-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Shillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
the assets safely. I've been an insurance agent for over
twenty four years. During that time, I've learned a few
insurance strategies, like using annuities as safe money harbors or

(00:23):
using cash value life insurance to supplement retirement income. Just
a reminder, you can call our office at five six
three three three two two two zero zero if you'd
like to enroll into one of my virtual Medicare community
meetings I give you every month via zoom, or you

(00:43):
can email me at Craig at Craigshillig dot com and
that's my name, cr Aig at cr AI G S
c h I L l I G dot com. Since
June is designated a National Annuity Awareness Month by the

(01:04):
Coalition for Annuity Awareness, this month is focused on educating
consumers about the role and benefits of annuities, encouraging consumers
to consider them for meeting their financial goals, and seeking
professional advice for implementation. Today, I wanted to discuss annuities

(01:25):
and I have some retirement articles that I'd like to
share with you for you retirement savers. Pre retirees now
get four years to supercharge their savings. Those of us
that are aged fifty and older have long been able
to make special catch up contributions higher than the standard

(01:49):
limit for annual deferrals into tax advantage accounts, like for
one case. In twenty twenty five, that ability has been
supercharged for sale between the ages of sixty and sixty three.
Thanks to rule changes created by the Secure two point

(02:09):
zero Act, clients approaching the traditional retirement age can give
their retirement savings as a significant boost late in the game,
either to help them reach an underfunded savings goal or
to create room for higher discretionary spending during life and

(02:30):
after work. For twenty twenty five, the maximum pre tax
amount that individuals may contribute to an employer plan is
twenty three five hundred dollars plus seventy five hundred dollars
in standard catchup contributions for those who have reached age

(02:52):
fifty or older. If you've attained age sixty, people can
make catchup contributions up to the grater of ten thousand
dollars or one hundred and fifty percent of the standard
age fifty plus catchup limit for twenty twenty five. The

(03:13):
standard catchup limit of seventy five hundred means that the
increased limit for ages sixty to sixty three would be
eleven thousand, two hundred and fifty bucks. This framework gives
clients a four year window to meanium fully bolster their

(03:34):
savings before retirement ages. Between the normal contribution and the
sixty age sixty to sixty three bonus, clients can put
away some forty two hundred and fifty per year at
the twenty twenty five limits. That's the potential of one

(03:55):
hundred and thirty nine thousand dollars in total accumulated pre
TEX savings during the age sixty to sixty three window,
a number that will likely grow as inflation adjustments are
made to this standard savings limits. These increase saving limits

(04:17):
are subject to several regulatory complexities, including the need for
high income earners to make any catchup contributions to roth
style accounts. Employers aren't required to allow them either, but
assuming that they're available, it's a good idea to plan ahead.

(04:38):
Working with your advisor, you can review your current budget
against long term goals to determine if they can make
room to increase their contributions when the time comes. Now,
let's talk about some money worries. Money worries means most

(04:59):
Americans don't want to live to age one hundred. Less
than thirty percent of respondents in a recent survey want
to live to age one hundred and the fear going
broke and the fear of going broke is their major reason.
Advisors clients who skew wealthy tend to live longer than

(05:23):
the average due to better food, better access to fitness,
and medical and health reasons. Annuities and long term care
insurance can help with both of those scenarios. The number
of Americans living to one hundred and beyond is expected

(05:45):
to quadruple by twenty fifty four. For many, that's a
scary financial proposition. Only twenty nine percent of respondents and
a recent survey conducted by by the Nationwide Retirement Institute
in collaboration with the American College of Financial Services said

(06:07):
they even want to live to age one hundred, citing
financial and health concerns as their top worries. Indeed, about
three and four a worry that they'll run out of
money before they've run out of time, and seventy percent
of Americans agree that society is not prepared to meet
the needs of people with longer life spans. According to

(06:33):
the Joint Research, forty percent of non retired Americans say
they plan to delay retirement due to inflation. The math
is even more sobering when factoring in the lower projected
ten year portfolio returns, as extending retirement by just five

(06:55):
years during a period of weak market returns increases, the
disk of running out of money is more than a
three hundred percent chance. Too many people underestimate how long
they'll live, and that blind spot can seriously undermine their
financial security. We consistently see that those who plan for

(07:21):
longevity feel more confident about retirement. The key drivers of
that confidence include working with an advisor, having access to
guaranteed income, and building a plan that is designed to last.
Emphasizing the role that advisors, asset managers, insurance agents and carriers,

(07:46):
and other stakeholders can play in creating retirement confidence and
security for any client. When people think seriously about living longer,
it becomes clear that physical, mental, and financial health go
hand in hand. Just as we encourage healthy habits to

(08:07):
support longer lives. We need to help build strong financial
habits that ensure people can thrive well into their later years.
Retirement planning, the finding suggests, needs a major reset. Consumers
and advisors must shift their mindset to prioritizing longevity risk

(08:33):
and placing a stronger emphasis on guaranteed income strategies that
can weather uncertainty. The survey highlights just forty eight percent
of Americans factor lifespan into their savings and investment decisions,
and only twenty six percent of respondents correctly estimated the

(08:54):
longevity of a sixty five year old man. According to
Joint research, that's a big deal, especially for professional financial
planners who are generally serving people who are both wealthier
and healthier than the average. Clients aren't all just going
to live to the average projected age. Many will live

(09:17):
well beyond that age. They are the people on the
right side of the longevity bell curve. If Americans knew
they would live longer, the data suggests many would take
meaningful action to improve their physical and financial wellbeing. This
includes adopting healthier lifestyles, playing, paying closer attention to debt,

(09:42):
and carefully planning one's retirement date. In other words, your
mindset matters. The fact has been born out in prior
research from the American College. For example, we've shown that
longevity optimists are seventy five percent more likely to save

(10:04):
at least ten percent of their income, underscoring how a
positive perspective can drive more financially secure retirements. So let's
talk about some income solutions and insurance itself. It's worrying
that such a significant majority of Americans say that society

(10:25):
is not prepared to meet the needs of people with
longer life spans. There are effective solutions that already exist.
These include long term care insurance and guaranteed income products
including annuities and protected retirement solutions that are available to

(10:48):
retail investors and in a growing number of employee and
employers sponsored retirement plans. The problem these tools remain widely
misunderstood or overlooked, highlighting a significant gap in consumer education.
Bridging that gap is a big goal for the Nationwide

(11:10):
Retirement Institute and a big part of the role as
head of Nationwide Financial Marketing. The goal at the center
of the Total Retirement Income Planning Initiative, which offers a
variety of tools and resources for both consumers and advisors
to address the longevity challenges for clients. Even as thirty

(11:34):
two percent of consumers believe the long term care insurance
would be one of the most helpful resources for preparing
to live to age one hundred, only one in ten
report owning a long term care insurance policy. The story
is similar for annuities, as thirty one percent of consumers

(11:55):
say that an investment guaranteeing income for life would help
them feel more financially secure, knowledge and adoption of these
products remains very low. One development is the innovation allowing
workplace retirement plans to move easily more easily provide guaranteed

(12:18):
income solutions to savers. This type of solution is growing,
they noted, but there remains an opportunity to encourage more
widespread adoption of these features, and that kind of alludes
to back having fixed annuities inside a four to one
k option. As the risk of longevity combined with today's

(12:41):
volatile market environment create what might seem like a perfect
storm for retirement savers, the good news is that solutions
exist to provide a measure of certainty in an uncertain
environment and guess what annuities is one of those solutions

(13:02):
I want to share with you another article here at
talking about spending and retirement. Spending drops in retirement, but
satisfaction doesn't. People often assume that maintaining financial well being
and retirement equates to maintaining a constant standard of living,
as expressed in terms of after tax spending. New research

(13:26):
from PGIM puts that assumption to the test. Financial satisfaction
increases marketably for older Americans when holding consumption levels constant.
This suggests that retirees do not necessarily need to maintain

(13:47):
pre retirement consumption standards throughout retirement to maintain the same
level of financial well being. The utility of consumption changes
across the life cycle, such that people who are late
in retirement generally don't need to spend as much to
experience comparable satisfaction. The finding may sound technical, but it's

(14:12):
important for financial planners and their clients and assessing the
appropriate level of spending during the retirement journey. A plan
that sees spending trend downward to avoid bankruptcy and retirement,
it turns out, is not inherently problematic from a well
being perspective. While only about forty five percent of respondents

(14:36):
spending between twenty and thirty thousand per year between the
ages of fifteen fifty four are satisfied with their financial situation.
About eighty four percent of those age eighty or older
with similar consumption levels are satisfied with their current situation. Additionally,

(14:56):
financial wellbeing declients for only about seven ten percent of
households moving into retirement, despite consumption declining by about twenty
percent on average. This analysis suggests that reductions in spending
during retirement are likely to be significantly less than suggested

(15:18):
by many existing models. Regardless, we need to approach the
implications of these potential spending reductions in later retirement with
more nuances to better reflect how people experience retirement and
adjustice situations over time. Using data from the Longitudal Health

(15:42):
and Retirement Study from the University of Michigan, the paper
shows that households experience a medium consumption decline of about
twenty percent upon entering retirement. However, changes after retirement are
relatively constant with the initial retirement spending level and actually
trend to trend slightly higher over time. One potential reason

(16:08):
for the drop in consumption retirement is the realization that
household simply cannot spend at pre retirement levels due to
a lack of savings. This reduction in consumption, as well
as the overall lack of retirement savings, has given rise
to the notion that we are in, or at least

(16:29):
headed towards a national retirement crisis. A Prudential Financial survey
is showing that fifty eight percent of respondence somewhat or
strongly agreed with the statement that a national retirement crisis exists.
Workers were much more likely than retirees to agree with

(16:50):
this statement. About two thirds of those aged sixty five
or younger believed there was a national retirement crisis, compared
with just twenty six percent of retirees who describe their
personal situation as a crisis. That drops to ten percent
for retirees with fifty thousand or more of in savings.

(17:14):
There's a clear disconnect between perceptions of national crisis what
other people are experiencing and the reported situation of retirees,
where retirees are both far better off when asked about
their situation. This is consistent with a retiree perspectives in
the HRS. Overall, roughly ninety percent or moderately or very

(17:40):
satisfied with retirement. These responses suggest that, despite perceptions of
a retirement crisis, retirees are relatively content. One potential explanation
for the disconnect could be that retirees don't actually need
to replace the standard of living in retirement as pre

(18:02):
retirement to be financially content. This is relative. This is
relatively clear evidence that financial wellbeing increases with consumption levels.
More surprisingly is that there's also notable improvement by age
even when holding consumption and constant. While it's possible retirees

(18:24):
could be over reporting financial wellbeing, there are other potential
drivers as well. For example, retirees are going to have
significantly more free time than workers, which may offset the
lower potential consumption levels. Targeting a similar level of consumption
throughout retirement seems like a reasonable goal for American workers,

(18:49):
but the analysis suggests that those who may not achieve
this target are likely to fare far better than commonly
assumed in retirement models. This means that even retirees who
may have to eventually live off less in retirement may
actually end up better off from a satisfaction standpoint as

(19:11):
compared to how satisfied they are doing while working. Inflation
is the X is the excerbating problem for millions of
retirees today. That's the big issue. The impact of inflation

(19:32):
on Americans retirement savings is clear. It remains a key
concern of retirees and those who are planning their retirement years.
Inflation is the most cited concern among fifteen hundred US
investors nationwide ages twenty nine to seventy nine, including three

(19:52):
hundred and seventy three retired Americans, and a survey conducted
on behalf of schroeders. It found that eighty four percent
which they could better protect the retirement savings from inflation.
More than six and ten respondents admitted that they do
not know how long their retirement savings will last, although

(20:12):
only forty percent believe they have saved enough. Meanwhile, forty
five percent of those are already retired say expenses have
been higher than they had expected, especially health care, with
retirees reporting spending on average of fifteen percent of their

(20:33):
monthly income on healthcare costs such as insurance premiums, prescription costs,
and other out of pocket expenses. Concern about inflation was
cited by ninety two percent, up from eighty nine percent
last year, while healthcare costs eighty six percent are in
line with the twenty twenty four numbers. There is increase

(20:57):
concerned about market downturn significantly about a market downturn significantly
reducing assets eighty percent now versus seventy six percent in
twenty twenty four. Rising prices on essentials like housing, food,
and healthcare have significantly diminished the purchasing power and financial

(21:19):
security of retirees. The uncertainty that's currently plaguing so many
retirees is a pointed reminder of the value of proper
planning products and personalized advice for comfortable retirement. Retirees are
mostly positive about their retirement experience, although a quarter of

(21:40):
lost sleep worrying about their financial situation and twenty seven
percent spend an hour or more per day worrying about money. However,
sixty four percent said that they do not work with
a professional advisor. Asked to describe their financial situation in retirement,

(22:03):
five percent said they are living the dream, thirty seven
percent said they're comfortable, thirty nine percent are not great
but not bad, sixteen percent are struggling, and three percent
are living in a nightmare. The path to closing the
retirement savings gap is paved with better planning products and

(22:26):
access to advice. As pension plans continue to be replaced
by defined contribution plans, like for one case, the importance
of being proactive in saving and planning for retirement cannot
be overstated. It's one of the greatest challenges and opportunities
facing plan participants and the firm striving to provide solutions

(22:50):
that can improve their retirement readiness. Remember, nobody likes annuities.
They like what annuities do. Don't forget. I give monthly
virtual meetings regarding Medicare. I give those for two companies
every single month all year. In one meeting, I will

(23:12):
cover the Medicare supplement plan with a standalone drug plan.
That meeting is usually a sponsored by Wellmark. My next
couple of dates for Wellmark are July fifteenth, August fourteenth,
and September sixteenth. United Healthcare is a sponsor for my
other virtual meeting, I focus on on Medicare advantage plans

(23:36):
known as Medicare Parts C and I cover the four
parts of Medicare and the benefits of the Medicare advantage
plan platform. You can call our office at five six
three three three two two two zero zero for the
Zoom meeting codes and additional dates and times. You're also

(23:57):
welcome to email me at Craig at Craigshillig dot com
and that's my name, c R a I G at
c R a I G S c h I L
l I G dot com and I'd be happy to
send you the virtual zoom Link meeting codes and additional

(24:21):
dates and times. This is Craig Shillig with Safe Money.