Episode Transcript
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(00:01):
In your corner, saving one investorat a time. I'm working for clients,
not companies, all wild bullyproofing portfolios, totally committed to sharing your academic
truths of botomistic always representing Main Streetand not Wall Street. Team. It's
your Sun Money team and this isthe Sun Money Investment Show with Drawn Financial
(00:22):
Advisors. Hello and welcome to theSound Money Investment Show with Brown Financial Advisors.
I'm Greg Brown and I'm James Burton. We are a registered investment advisor
firm. We are independent. Wedo work for clients and not companies.
To receive your complimentary and personalized financialincome plan, give us a call five
one three, five seven five ninesix five four. Perhaps you're seeking advice
(00:47):
on an old four one K fourto three B, some type of employer
sponsor plan even in anyway analysis forsome out there. Here's the point.
If you're no longer with the company, then as a rule, your money
should not be there either, sowe can help you take control of that,
whether it be rolling it out intoa tax multual i RA either way.
Give us a call five one three, five seven, five nine six
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five four thos our website, BrownFinancial Advisors Dot com email show your thoughts
to team at Brown Financial Advisors dotcom and our home office is in Milford,
but we also have locations in BlueAsh, Worstchester and Florence. Gregg.
Well, today we're going to discussthe six retirement risk at least six
here different types of risk that youand your money could face during retirement.
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You know, retirement can it canbe challenging. So many things in life
can. But in this case,you've worked a lifetime and here you are
choosing to retire hopefully live another lifetime. How prepared are you for that?
So? Have you crossed all theteas and dotted all the eyes? Or
have you dotted the teas and crossedyour eyes? Cross your eyes? You
get it? Yeah, frustration,anguish or anticipation, whatever it might be,
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just keep crossing. But when comparingthis career, you've had this,
you know, twenty thirty years ofworking productively and you might even say involuntarily.
I hope you were dragged to workeach day. It wasn't exactly your
calling, your purpose, your passion, but you did it anyway. Congratulations,
and here you are at the finishline. Now. As we often
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remind people not to shock them intoa new reality, but to just to
advise them that now they are theyare intentionally, purposely, willfully, wilfully
voluntarily going to be unemployed for twentyor thirty years. So after this working
career and the investments that to haveall gone with that in the retirement life,
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that those investments are going to needto support to go with that too.
There are some things that will well, they'll remain the same. So
how let's just say, how haveyou handled your investments, your money?
How have you done so far?What have you done so far? Do
you know that's going to need tochange significantly? You cannot do what you've
always done. You cannot do whatwe call in the distribution phase, when
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you're paying yourself back with your moneyover a long period of time called cash
flow from these investment dollars. Youcan't treat the distribution phase the same way
you did the accumulation phase, whereyou were saving and building and preparing up
until the time you decided to retire. So we've defined about six different risks
that you'll be facing one way oranother in retirement. And if it weren't
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important for you to be concerned,we'd all be living a stress free,
worry free life. What we wantto reduce the worrying concern. We want
to give you a plan, abalance plan. We want to help you
assess exactly where you are, whatyou have, the investment you hold,
internal spreads, fees, margins,loads and expenses, understanding your total cost
of investing, your total actual riskof investing, and make sure you're lined
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up with the objectives so that youcan achieve your successful retirement on purpose and
oftentimes we say not happenstance that cangive you a great deal of relief to
project forward, to see the probabilitythat you will succeed entirely with your purposes
in retirement with what you have,and if you're close to retirement, near
to retirement, or even in retirement, when to stay successfully retired all the
above, if you're a little before, there are so many things we can
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do. We can help people becomemore tax savvy with the investments you have,
so that we needs take out moneyfuture downroad in your retirement it's going
to be more tax friendly, taxfree even or that if there is a
gap between your savings needed to meetthe objectives that you have and your planning
projection will show this again with thedegrees of probability, you will know and
be able to quantify exactly what's neededto complete the mission to get to that
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finish line and succeed according as well. So today we're going to help define
discuss these different risks so that wecan help you develop a game plan to
address each and every one of them. All right, so let's get to
the thought provoking questions to tie intotoday's show. For starters, what's the
historical rate of inflation? What's themore recent rate of inflation? And yes,
there are a multitude of different CPImeasurements that the government uses to maybe
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downplay the effects of inflation on thingslike your social Security benefits. So next
year, the cost of living adjustmentright now for social Security is trending to
be around three maybe three and ahalf percent. Most of you out there
and thinking, well, inflation isobviously higher than that, but well not
according to the government. How longshould you plan on living in retirement?
And Gregg touched on this before,So if you retire safe, for example,
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at age sixty, if you're planningon sticking around for at least two
maybe three more decades, well thenthat's how long you might plan on living
in retirement, and just because itshould be part of your plan, maybe
at another five years at the end, just in case you get hit by
that longevity tree. How long shouldwe look at conser alternatives When we say,
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well, how about traditional long termcare insurance versus maybe having an asset
based protection plan for long term careinsurance. It doesn't mean that you're necessarily
going into a nursing them. Butstatistically speaking, I know there's that word
statistics about fifty percent of people whoare nearing retirement. It's it's likely you're
going to wind up in a nursingthem at some point in your life.
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And you remember the lady at theseminar this week, she had a plan,
make sure you go to nursing homealready broke, because the millionaire next
to you in the bed next toyou, they're going to get the same
two gallons of two percent milk withthe same expiration date you are, they're
gonna get the same care. Somedicaid works that not exactly are a plan,
but no, because you have tobecome financial destitute to qualify for Medicaid,
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and that's not a good outcome.For people, you don't want that,
But she was saying it in justand she kind of had a plan,
just like we've heard other people withplans. You know, the fellow
that said, my financial plan,mister Brown, mister Borth is just to
make sure my checking accounts overdrawn theday I die. Of course, his
wife didn't feel the same by theexpression on her face. I mean,
you can go on. What isyour actual plan though? And all these
are just outline of some of therisks involved in James long term care.
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The item you're on, People statisticallyare concerned primarily about two things. They're
almost equal in weight. It isrunning out of money before running out of
life and or going to a nursinghome. So you started right off the
top with longevity and living in retirement. You don't want You don't want to
outlive your retirement. You want yourretirement, the money, the resources outlive
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you. And then part of thatis to make sure for you and your
significant other in spouse can enjoy thatsame benefit through some planning, because that
next item, long term care,could decimate you financially, and it could
literally strip the hubcaps off of yourcar and leave your spouse also equally destitute.
So right off, you know,coming out of the gate, you're
swinging away with some serious issues thatwe need to get our minds around,
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get a plan for, lay itout, and I can tell you as
you see it. Every day peoplehave money and they just invest. They
kind of hope for good things toresult, but there's no tangible plan with
all the mechanics and the metrics tomake it highly probable to actually succeed.
Too. They're just doing what they'vealways done and just trusting somehow that's going
to work. And we can showyou statistics all day long. Well.
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On the traditional long term care insurance, the answer is yes, they're all
alternatives out there to that, andit should be part of your overall plan,
part of your overall retirement plan.We'll talk about that more during the
show. How much might you spendduring retirement on healthcare? Not just simply
yeah, long term care is onething, but just think about the out
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of pocket expenses for your insurance premiums, if you actually go see the doctor,
go into a hospital, have prescriptionmedication needs. It all adds up.
It's surprising how much you might expectto spend during retirement on healthcare costs.
Can you invest in principal protected productsand actually still make money, or
even better, still make an actuallydecent rate of return on your money and
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again be surprised? All that answersas well, how can you control your
emotional ties to your money and avoidmaking irrational decisions? How can you control
your emotions and avoid making emotional decisions? I know for some it's easy to
say don't worry about it, andothers it's much tougher to actually not worry
about it. What is the sequenceof returns risk? And how can it
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be avoided? What should a goodretirement plan look like? And should you
hire a certain type of financial advisoror advisory firm so help manage these different
types of risk? I know someof these might seem like rhetorical questions,
but nevertheless they need to be asked. Greg Any thoughts. Yeah, you
don't remember that commercial some brokerage firmhad it where they showed a person attempting
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to do surgery on themselves. Andyeah, we're not fans of brokerage firms.
We believe in registered investment advisory workand platforms where your financial fisheries,
and we believe in a holistic model. So we do investments, insurance to
state planning, financial planning and complanning, insurance, tax tax preparation, tax
advisory, the whole Mayo Clinic offinancial services, if you will. And
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there's a lot of synergy in that. So that's what we believe in and
how we're different, and we wouldlike to offer to help you with all
those things into a complementary assessment exactlywhere you are a plan, get you
connected with our virtual vault. Wecan store things in common behind a firewall.
Also do a complete tax review,review your state, look at beneficiaries,
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consider your current insurance, what holdswhat you're holding in terms of insurance
in this purpose, if you believein fully insured investments, you know,
insure your body, your car,your house, why not some of your
nest egg. All of these areingredients of a healthy retirement and the balance
plan that we want to look atand the quality of your investments. Those
risks, those costs, are theyaligned with your purpose? Are they more
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risky than you may be aware of? Can we get you? Can we
get their red out? That's that'sa color of money statement. Green as
safer, yellowest managed, red isunmanaged money for when k is do it
yourself, lucky stock picking markets,you know, track record investing, just
the market timing. All that thatgoes together to be symptomatic poor decision making,
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investor behavior, one on one errors, errors. Your number one risk
is not bad investments or fraud,it is it's really going to be investor
behavior. This stacistics show that youhurt yourself more than any other component,
and so we'll go through more ofthese risk as we continue our funderment the
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office five months, three, five, seven, five, nine, six
five four calls we can help astay tune. You're listening to the Sound
Money Investment Show with Brown Financial Advisorshere on fifty five KRC the talk station.
Opinions expressed are solely those of BrownFinancial Advisors and should not be interpreted
as specific advice. Materials presented arebelieved to be from reliable sources and no
representations can be made as to itsaccuracy. All ideas and information should be
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discussed in detail with one of ourqualified investment advisors prior to implementation. Market
based investments involve risk, and pastperformance is no guarantee of future results.
Insurance based investments offer guarantees based uponthe claims paying ability of the issuing company.
All insurance, tax and mortgage servicesare offered through Brown Insurance and Tax
Advisors LLC. Brown Financial Advisors andBrown Insurance and Tax Advisors are affiliated companies.
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We only transact business in those statesin which registered or were otherwise legally
permitted. And welcome back to theSound Many Investment Show with Brown Financial Advisors
on Greg Brown, and I'm JamesBourton. We are an independent RIIA that's
a registered investment advisory firm. Wedo work for clients, not companies.
That's Main Street and not Wall streets. Our fun number five one, three,
five seven, five ninety six,five four, website, Brown Financial
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Advisors dot com, email team atBrown Financial Advisors dot com. And our
home office is in Milford, butwe also have locations in Blue Ash,
Westchester and Lawrence, Greg. Somedaywe ought to get one of those little
gizmos that does sound effects sliving somethings up because I want to say in
some echo chamber fashion, the sixRetirement Risks, London. Yeah, yeah,
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let's add some Jim Kramer sound effects, right, zin Zin, that's
probably want Okay, Well, herewe are and we are discussing six retirement
risks and as we continue talking aboutyour retirement some of the risks that you
will potentially face during that retirement.We don't want to scare you, we
promise, and just to make sureyou're totally aware of some of the key
areas that will need some of yourfocus and to set up a greater level
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of confidence and what your plan shouldbe, can be and actually will be
when you come see us, sowe can put your hard earned dollars to
work and aim them right at thebull's eye of that target, even if
we had a couple of the centerrings. You're cooking with steam and things
do change, right, Everything inlife drastically can change, or it can
be moderately changed from no change atall. When we visit with people,
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say anything new or difference since thelast time we saw you, And we're
always hoping to hear no, becauseolder you get, the more you like
to just have things be the waythey are, because you know, we
all have good news. Excuse me, but the news doesn't always come in
form of good money. In markets, news and noise headwinds of the day
can be challenging to your peace ofmind when it comes to you and your
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money, so life and routines willchange in retirement. Your risk tolerance may
very well be modified here in theiremotional connection to your money will also vary
you Over the course of time,all the project's tasks and purposes that vie
for the use of your dollars willbe tugging at you, and we want
to coach you through many of thosedecisions. And the financial needs and income
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needs change right just as you movealong. You might want to be the
first ten years spending a little moreand doing all the things on your bucket
list, realizing the next ten yearsthat follow you'll do a little less than
the third ten year set thereafter,maybe even less, et cetera. You
know, everyone kind of has theirflavor, their palette, their taste butt
of how they want to approach this, and it's individualized. There's no cookie
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cutter approach and you shouldn't settle fora Wall Street approach. This is main
street. We're on the same sideof the table helping you win on purpose
as your financial fisheries to put yourinterest first in every situation that's different.
You are the boss, you arethe company. We work for clients,
not companies, and we want toassess all these things that impact your retirements.
So as we continue discussing these sixdistinct areas, James lead us off
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with some of this, well,the six things we're going to cover today.
Inflation, longevity risk, Yes,that's a risk, long term illness.
That's where you're still with us,You're still alive, but you might
have some type of chronic or longterm illness that makes things very difficult,
not only for you financially but maybealso physically. Healthcare costs kind of ties
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into the long term illness, irrationalinvestor behavior, and finally, the sequence
of returns risk. So starting offwith inflation risk, yes, it's been
on a lot of people's minds hererecently, and we've come off two straight
years of having, you know what, the governments has actually conceded to be
pretty historically high rates of inflation,and this year, yes, when we're
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talking about twenty twenty three, therates have come down, but again compared
to what compared to win. Soif you look at from twenty twenty one
to twenty twenty two, then comparedto those two years, yes, twenty
twenty three's rates of inflation are significantlylower, they're still elevated when we look
at the history local figures, butagain compared to what compared to win sometimes
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you say, well something is goodor bad, well compared to what.
So when it comes to inflation risk, it's a fact of the matter that
it's a much larger risk while you'rein retirement than if you were still working.
So here's what that means. Duringyour working life, there tends to
be a natural progression in your careerthat sees raises, bonuses, and in
general making more money as the yearsgo by. Sometimes your salary, your
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wages are tied to at least somewhata rate of inflation, so there's almost
a natural cost of living increase whenit comes to that. But when it
comes to retirement, you really wellin general aren't earning a paycheck anymore.
Instead, you're likely trying to createone of your investable asset pools into well
converting it into what we would calla self funded pension greg well with pensions,
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if you're looking at confronting with apension decision, come see us about
that. You know, social securitymaximization, learning how to take what benefit
and when pension decision lump sum monthlycheck, a little bit of both.
So when you mentioned pension, andthen throw in there with that company buyouts,
if you're looking at transitioning from uncompanyingthe next doing a roll every four
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one k assessing what the buyout termsmight be, and and just put it
into context of your overall plan,building a plan seeing you know, if
maybe you can even step out intoretirement. Just a lot of considerations.
Just when you hear a trigger wordlike pension, makes me think about that.
With the social security and with pensions, you know, we see fewer
pensions have built in cost of livingadjustments. We see mostly you know obviously
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and James already mentioned it cost ofliving adjustments and social security. So when
it comes to maximize and soil security, you know you're gonna wait till seventy
you take the largest check, areyou gonna have your maybe your spouse take
the smaller check now, maybe hereor she's not working or working more than
twenty two thousand dollars a year worthof income earned income and can take that
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check and bank it without any kindof haircut or takeaway from social Security,
and you have those years of savings. And then while you're deferring the other
check for the other spouse, itbecomes larger so that when you take it,
there's more money. Yeah, youmight have to cover some of the
cash flow needs with other buckets ofmoney in the meantime, or work a
little longer. But why would youeven do this, Well, maybe you
just want a better survivor's check forthat spouse so that when you were to
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pass the larger the two Social Securitychecks is kept. Everyone kind of has
their secret sauce on what's going tobe best to apply their situation. And
when looking at this SOLIS security inflationrates, it's a little bit redundant,
but you know, in twenty twentyit was only one point three percent.
For twenty one, you know,kind of a whopping five point nine and
then you know, talk about thebig haul, a superwhopper in twenty twenty
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two, robust eight point seven percent, which triggered the largest SOLI security cost
of living adjustments since nineteen eighty two, which was eleven point two percent.
And all that extra money from threerounds of stimulus payments plus the ongoing massive
government spending, where does it leavethe overall economic situation and macro picture of
the United States? You know,the Federal Reserve, the treasury, the
government, the budget, lack thereof a budget, all that goes with
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that. And then with inflation coolingin twenty twenty three, trending towards more
of four percent. And yes,we all know that the government's calculating inflation
different ways over long periods of time, but at least as it relates to
this time last year or two yearsago, the calculus was the same.
So the actual benchmark measurements are beingtrue, that that inflation has cooled,
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Interest rates are leveling off, inflationsdown, demands still outpacing supply. We
have a healthy amount of supply relativeto demand. Markets working, manufacturing strong,
growing, and there's just there's somegood news out there, you know,
and oftentimes say shy of nuclear war. Things are looking pretty pretty good.
And what's interesting, there's always politicalposturing. Well, the Democrats are
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in the office, so you can'tsee nice things about the economy because they'll
get false credit. Well, there'smore to the underpennings the economy and financial
markets then sixteen hundred Pennsylvania Avenue.There always has been, there always will
be. So don't get too caughtup in the crossfire of the rhetoric of
politics. When it comes to thespecifics and dynamics of economics, it is
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impactful over time, It does havean influencing input, but it's not all
that. It's just it's kind offodder and it really gets tiring, very
tiring. Well, when it comesto politics versus your money, how about
this, politics is red versus blue, your money should be red versus screen.
It doesn't mean the same thing.It means if you're going to be
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conservative in your politics, that's onething. If you're a big conservative your
investments, that's something else. Italso means are you taking the appropriate amount
of market risk? But where I'llsay it this way, politics really should
be set aside when it comes toyour investment dollars because they don't. The
markets don't highly correlate to who's inthe White House, I would agree.
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What about some longevity risk here,let's look at this. If you're healthy
and entering retirement, how long doyou plan on living? Do you happen
to know that? Don't answer that? Actually, and it's important because why
the amount of time you have tohelp ensure that your asset pool, your
investments will last is the question that'sthe question if you plan on retiring at
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sixty, for example, then there'sa real possibility of retirement to last two
to three decades. Perhaps more so, you should go about determining whether you
have enough money saved to finance retirementfor twenty to thirty years or more.
And that can be a scary thoughtback to you are voluntarily unemployed for two
or three decades, almost as longas you had actually been employed. Well,
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just a couple of thoughts about whenwe look at interest rates. Yes,
the cost to borrow has gone updramatically, but in some ways also
the costs for savings, as faras your interest rates that you might receive
either from the bank or from creditunits or insurance companies has gone up also
dramatically. So you can get afive plus percent rate of interest from several
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of these different entities without taking anymarket risk. Now that might be good
as far as looking at that asa bond replacement strategy, there's there's a
lot of logic to using something likethat, and you know, we're big
fans of at least making sure thatyou're appropriately invested for the time frame as
well. Banks. If you're lookingat four interest rates at are short term,
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very short term, less than ayear, versus insurance companies have maybe
two to three or even five years. With the interest rate environment, we
would not recommend going beyond five yearsat this time. But again that's just
simply because at this point no onereally trust the FED. Just going to
close on that thought. But ourfunderbout the office five one three, five
seven, five nine six five fourcalls we can help. But stay tuned
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to listening to the Sound Money InvestmentShow with Brown Financial Advisors. You're on
fifty five cares the tax Station.Welcome back to the Sound Many Vestiment Show
with Brown Financial Advisors. I'm GregBrown and I'm James Borthon. We are
a registered investment advisory firm. Weare independent. We do work for clients,
(23:07):
not companies, and it does allstart with the plan. That means
actually having a plan, knowing whatyou own and y you own it.
So when you're seeking advice on anold four one K four three B some
type of employer sponsored plan IRA Arollover investment planning, retirement planning, income
planning, tax planning, social securitymaximization, roth conversion analysis, anyway analysis
(23:30):
for some perhaps even an in servicerollover all those and more we can help
five one, three, five,seven, five nine, six, five
four. Our website Brown Financial Advisorsdot com, email team at Brown Financial
Advisors dot com, and our homeoffice is at Milford, but we also
locations in Blue Ash, Westchester,and Florence. S'all, so, James,
as you're kind of talking about inflationrisk, excuse me, and then
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some interest rates and how they kindof correlate and aren't needed, we dropped
in a little bit about longevity risk, not outliving your money. Excuse me.
The earlier retire, the longer it'sgoing to last, the longer you're
constructively unemployed and have to make upthe gap with some cash flow for other
resources, investment resources. Ideally accordingto a plan, invest a properly right
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risk, right purpose so that yourobjectives can in fact be achieved. Along
with that kind of in singularity ofthought, a strategy that we like to
help people just conceptually understand to goin hand in hand with an actual plan
is you could call it more ofa planning method. In fact, it's
that your retirement budget is clearly it'san important factor when it comes to longevity.
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Knowing how much money you spend ona monthly basis, also accounting for
things like Christmas, birthday, vacation, special occasions. Don't forget those semi
annual insurance payments and annual and whateverduration. In terms of other taxes,
forms of taxes you need to likeyou add those together by twelve get everything
annualized so you can get it buileddown to a nice little monthly basis.
(24:56):
Right, so we know what thebogie is of inflows needed on a net
of tax spendable basis to have anotherwonderful month, and then go into the
new month and repeat the process.Right. So, and one more just
to add on in case you mightbe supporting junior bear or some adult child
in their financial endeavors. That's alwaysa big bugaboo when it comes to funding
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your retirement is who else are youpaying for in addition to you and maybe
your significant other. Yes, absolutelythrow that in to the mix, and
then also learn how to ratchet itback down. Excuse me. Ideally you
get to the point where you knowyou'll you'll have a couch form and some
food and some prayer, and otherthan that, a lot of the other
expenditures should come to I have asuggestion for this. If you're the one
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paying the bills, it doesn't meanyou cannot ask for an invoice. Yeah,
an invoice or apply it to theaccount, keep track the charges and
accept monthly payments, and other termsmay apply. Yeah, I know we're
all guilty. We're all guilty,but yeah, you need just final thoughts
there transition where they're picking up yourlunch and dinner or you're going Dutch at
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best and occasionally, you know,returning the favor. And then on vacations
it's more like we'll see you there, hope to see you there. We'll
be there and you know, andDutch again. I don't know where the
Dutch came in where they term.Maybe you can look it up sometime.
We'll just tell everyone where Dutch comefrom. So here we are with the
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monthly budget, and you know,an annualized basis whatever percentage of your investments
that would equate. Let's say youneeded forty thousand dollars as as a gap,
or let's keep it more modest,thirty thousand is what you needed from
investments on top of social Security tofloat your boat, have a have a
great lifestyle, manage to maintain yourlifestyle. On a million dollars of investments,
that's a three percent withdrawal rate.So we've just boiled it down to
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a simple percentage, and knowing howthat withdrawal that you need, and changing
the withdrawal rate over time will lookif you have to adjust for inflation or
additional cash flow needs. Is allabout determining the health of your retirement portfolio.
Now, Granted, if you getan average rate of return and we're
comfortable on the investment mix and therisk mix, and your nestegg is invested,
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and we set that percentage of drawdown, that withdrawal rate to whatever,
say three percent on a million thirtythousand, and you need to adjust
that over time. Well, we'relooking at the money growing a little bit
over time, right, and offsettingand hedging inflation so that you're ongoing three
percent withdrawal the following year, maybea more amount of money meeting a higher
amount of expense. Now this iswhere later we'll talk about sequence returns.
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If your million dollars takes a hugehit thirty percent hit in the market,
and it's not a million, it'sseven hundred thousand, and you're still taking
thirty thousand off seven hundred thousand,just like you take thirty thousand, if
a million, you're starting to gokama kaze. You're starting to drive that
balance down faster and lower by maintainthe same dollar withdrawal rate and not percentage.
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So we really need to look atthis carefully. People get you know,
they mean they make a right handturn, they end up taking a
left and getting lost somewhere, evenin a parking lot. We've got to
look at this carefully. That's justa very simple, high level look,
James, what are some other riskfactors. Well, another big risk factor
is having a long term illness orsome type of chronic illness. And let's
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kind of start with this. Theaverage life expectancy for US Americans has continued
to actually rise. Now put thatlittle asterisk next to that said, post
pandemic, it's more like its plateauedinstead of continuing to rise. But nevertheless
it you know, what is createdis a need for some i'd say type
of long term care coverage or sometype of game plan for the event of
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the likelihood. When I say thelikelihood, there's over a fifty percent chance
that people who've turned sixty five willneed some type of long term care at
some point in their future, sothat you know, if you're sitting around
looking at you know, your husbandand wife, it's like, sorry,
honey, it's not me, it'syou that's gonna be. I'll promise to
come visit. But nevertheless, that'sthe likelihood, is that there's more than
(29:12):
a fifty percent chance of needing along term care stay. What's that going
to cost? Well, well,I can tell you what it costs.
In today's dollars is a skilled nursingfacility is approximately eight thousand per month.
That's ninety six thousand per year.The average linked to stay for let's just
say the men folk out there isabout one to maybe one and a half
(29:33):
years. Women, on the otherhand, there's the adage of ladies tend
to linger. Their average linked tostay is over three years. So in
today's dollars alone, you're looking atit could be over three hundred thousand dollars
as a big gaping hole blown intoyour retirement budget if the need for a
long term care stay does arise.And sometimes it's just a level of care
that's involved, because what we graduateto from being independent is sometimes we need
(29:57):
just assisted living care well what doesthat cost. It's just about fifty percent
of what a skilled nursing facility is. So if it's eight thousand for the
skilled facility, it's only four thousanda month, only four thousand a month
four assisted living. So remember thisthe rate of inflation says if it goes
up on average, let's just sayfive percent a year. Now, what's
(30:18):
this going to cost in five toten years. Well, what that means
is at about twenty five to fiftypercent of that figure. So instead of
three hundred thousand, it could costas much as six hundred thousand for this
particular type of expense. Greg.Yeah, long term carriage is one of
those things. If you get thewrong type of insurance, you might experience
what's called to use it or loseit. Right, If you don't use
(30:41):
it, you spend all that moneyand it's gone. It's expensive. And
as we've seen lately, increasingly clientscome in and talking about their old policies
that they have from whatever point intime or or source excuse me, and
gosh, we're seeing radical increases tothe tune of fifty even saw two hundred
(31:02):
and eighteen percent increase. People aregetting washed out. They can't afford it
or to keep the same premium,they're losing benefits and or years in time
of the benefit, and it goeson. There are other forms of planning
for long term care that we shouldinvestigate in addition to just insurance. And
there's other forms of insurance or lifeinsurance policies that have death benefits that will
pay you back the money you've spenttax free and more and will offer two
(31:26):
and three times to face value thedeath benefit benefits towards long term care,
and can use other resources that youhave as investment resources invested this way to
cover multiple basis, if you will. So there are other approaches and traditional
long term care. We also hearit's increasingly difficult to get approved the cognitive
(31:47):
skills test. Well, it's noteven go there. Does okay, you
know what I'm thinking. You knowwhat I'm thinking. Does the job at
president come with long term care benefits? And do they have to go through
underwriting? Because anyway, so thecognitive skills test are challenging. I've actually
looked through a sample a little batteryof those cognitive skills test James and I
(32:07):
kind of struggled. I think it'sit's set up. They'll ask you to
repeat seven numbers backwards five minutes afterthey gave you the numbers to begin with,
and ask you five other questions thatput your mind in a different hemisphere.
And it just so it's I guessthe messages. It can be expensive
and a little bit cumbersome to geta hold of and hard to hold onto
(32:29):
once you have it. So assetbased on term care, some solutions,
some general financial planning around how toown money by ownership, by tax status,
prepositioned of course, planning around spindown, repositioning assets against the five
year lookback. You know, wecould go on and on, but just
looking at the impact and if youhave long term care later and you just
(32:49):
need to cash flow, we'll justdrop it in some wat IF scenarios in
your overall financial plan and take alook anyway, there's a lot there.
Rising healthcare costs, James in general, welling healthcare costs a lot of times.
When we transition to being Medicare aged, that typically means age sixty five
and above, but for people whomight be on disability, your Medicare benefits
(33:10):
may start at a much younger age. But it's still no matter what your
age or demographic is. It's vitallyimportant to have the proper type of Medicare
insurance coverage. For some that meansa good Medicare suppment plan where they don't
have to worry about networks of providers. It means you can go anywhere you
want in the country, and yourdoctor, your medical provider, your hospital,
(33:32):
if you will, will absolutely takeyour insurance with no questions asked.
If you have a Medicare advantage plan, it's more of a page you go
type of a model of insurance.There's also networks of providers. That means
if you're in anthem, humanity unithealthcare networks, well great, that's fine.
Maybe your insurance covers your doctor.But the bad thing is having to
(33:53):
choose your insurance over your doctor,or your doctor over your insurance. We
don't. We want to avoid thatat all costs, So that means finding
the appropriate Medicare plan. We'll getback onto that when we come back from
commercial break. But our funderbout Alphasfive one, three, five, seven,
five, nine, six five fourcalls we can help. Let's stay
tune. You're listening to the soundMany Investment Show with Brown Financial Advisors shown
(34:14):
fifty five KRCD Tax Station. Welcomeback to the Sound Many Investment Show with
Brown Financial Advisors. I'm Greg Brownand I'm James Burton. We are an
independent RIIA. That's our registered investmentadvisory firm. We do our for clients,
(34:35):
not companies. Our funderbrut Dalphas fiveone three five seven five nine six
five four website Brown Financial Advisors dotCom. While you're there, speedlong through
our website. There's many different thingsthat are appropriate for not only investment planning,
but retirement planning, tax planning,income planning, and you can also
listen to some of our more recentpodcasts of this particular show. So Brown
(34:58):
Financial Advisors dot com. Email teamat Brown Financial Westers dot com and our
home office is in Milford, butwe also locations in Bluewash, Westchester and
Florence. Greg Well, you know, in these rising healthcare costs, in
a nutshell, you retire early,you might have a gap in insurance kind
of cover this off and on,and then the total out of pocket being
close at three hundred thousand dollars,that's a that's an eye open or longer
(35:21):
you live, the more exposured opportunityfor healthcare services you may have, and
along with that is kind of payas you go. So well, reminder
two about when you're planning for yourhealth insurance. Sometimes the husband wife team,
one of the reasons why they hangon for a little bit longer is
the spouse is the one who needshealth insurance. What's the cost going to
(35:42):
be if you're sixty five, they'resixty one, and you have to plan
for a gap of four years worthof health insurance costs. It's not it's
it's it's absolutely not to be underratedabout the impact of that. Absolutely,
So when hits Medicare age one doesn'tyou know, maybe the other one goes
more years of work under the grouphealth plan just to cover the spouse to
(36:02):
avoid that additional expenditure. One morethought that number you just gave out,
the three hundred thousand to see averagecost that does not include long term care
costs or the potential long term carecosts. Yeah, this is looking at
premiums, copas, detectibles, outof pocket expensage relative to just normalized healthcare
from the time you're probably about sixtyfive to end of life, and healthier
(36:24):
you are the longer you live,the more opportunity for healthcare and expenses go
with it. Yes, it's true, if you don't live as long and
you're unhealthy, you might spend apretty pretty nickel too, but not everything
as you might assume. And then, speaking of assumptions, the whole concept
of emotion emotional irrational investor behavior mentioneda little earlier, mentioned a little more,
(36:45):
and now the next risk here iswhen that's harder to identify because it
could be harder to also control.And this is the risk you bring about
on yourself with the way you think, act make decisions regarding your investments in
all these dollars. Now, we'vebeen studying the fact that investor behavior has
some financial decisions for quite some time, and we get an annual report called
(37:07):
Dalbar Study, and it is quiterevealing of what anecdotally, excipt systematically and
matter of factly causes people to fallshort on returns they deserve for risk taken
because of the impact of styles ofinvesting passive versus active versus market timing,
missing the best ten days worst tendays in and now the market reacting to
(37:30):
market news, noise, headwinds,concerns, anxiety, etc. And the
investors time and time again caused themselvesthrough irrational behavior. They cost themselves returns,
they increase risk, increased costs,lower returns, and actually deviate from
(37:50):
successful investment tracking over time. Soit's just a fact. I mean,
we've done shows before focusing solely onthis so called smart people out there who
make bad decisions. I think we'veall lived that life at some level at
some point. But in this case, with hard earned money, at a
financial phase of life, heading inretirement, where there's no do over,
little more consequential, wouldn't you say? So? The fifth risk here is
(38:15):
the emotional rational behavior that will comeback to haunt you. And to make
it simple, and while there aremany more that we'll describe, this one,
this one's big. We're gonna lookat two investor behaviors in particular.
Well, here's one called confirmation bias, and it's pretty simple. People tend
to justify their decisions by asking otherpeople that they think alike about their decisions.
(38:37):
It's like, well, I agreewith you, so what do you
think of my decision? Well,I agree with you. We tend to
gravitate towards these people who you know, again agree with our decisions, and
we push away from anyone who doesn'tagree. For example, if you buy
particular stock, bond, mutual fundETF, but someone that you confide and
doesn't agree with your decision, youmight just go find someone else who does
(38:59):
to make yourself maybe feel a littlebit better about your decision. Sometimes the
most the most difficult thing to admitor to say, is that I was
wrong. Yeah. Right. Anchoringis another one. People tend to anchor
too, decisions or investments that theybelieve in or have had past success with,
regardless of what the future outlook mightsay about that investments. If it
(39:23):
weren't sad and true, excuse me, there would be an element of humor
in all this laced within it.And that is the limbing effect. Whether
you're a conservative or a liberal,it is just it's just amazing the effect
that media and marketing has. Theygot your number, they'll send you stuff,
(39:43):
advertisement, Internet lead you to blogs, the targeted ads. Yeah,
the targeted ads. It just topermeate. Yes, your phone is listening
to you and they speak your language, and they know your mindset, your
philosophy, your worldview, and theyline you up like limbings to go right.
Off a cliff and it happens tothe other side of the aisle.
So when you confirm with a peoplegroup of politics, or you anchor in
(40:08):
with investments where you have bias,both forms of these biases will eat you
alive. They have nothing to dowith the reality of investing and succeeding.
And you know, being on conservativetalk radio for fifteen years, here we
see it because we're you know,we're on a side of dogma here just
by positioning. And boy, isit thick. It is thick. I'm
(40:32):
not saying we disagree with your worldview. We're just saying we disagree how you
tie it in and anchor it andallow confirmation bias to permeate in your investment
decisions. It is not healthy andwe have the statistics to prove it to
you. And you should care aboutthat. Sequence of return risk. Last
risk of the day, most importantrisk we can talk about is sequence of
return risk. We haven't talked aboutmarket risk much. We've been saving it
(40:57):
for last. But of course marketrisk is a huge deal too when it
comes to retirement based portfolios. Becausemarket cycle always have, always will and
why you can control when you chooseto retire perhaps, and you can't control
what the market does in any givenday on a timeline, you're going to
retire at the beginning of a bullmarket, or in the middle one,
or at the end of one,which means at the beginning of a bear
market, or in the middle one, or at the end of one.
(41:20):
Right, and what will that dogright on? Right on time? Emergency
nine to eleven, four to oneone. I hope you get the message
here. The market will do whateverit will do to your investments according to
how you're invested, what risk,and your plan. There are things we
can control and things we can't.We can control behavior, we can control
positioning, we control planning, andwe can aim towards outcomes, and we
(41:44):
can increase and improve upon the probabilitiesof success. But we need to remove
those other variables, and we needto do it together, and we need
to take you know, the oldsaying is guns don't kill people. People
with guns kill people. There's someguns we need to remove from your hands,
put them safely back in the drawer, and then let the expert.
You know, that's why the Marinesdo what they do and not your average
(42:07):
Joe and Joanna. Now I'm offwork gun rights. So don't mistake that
statement. But how can we helpyou avoid potential loss and the effect in
your retirement and your income If youwon't let us help you do just that.
Well, one thing that can alsohelp is to segment your money.
Sometimes give one bucket of money orone account a specific job title or job
(42:28):
description that means have one that's targetedfor growth, another one that might be
targeted for income. But when itcomes to the sequence return how that works?
You know as far as this isreally what happens during the first few
years of your retirement regarding the marketand the sequence of those returns that come
afterwards, returns you don't control andmarkets you can't predict. All knowable information
(42:49):
is already factored in the price ofa security today. Only new and unknowable
information can change the price. Sopeople are telling you they know the unknowable
run. This is the statistic.Please listen to this carefully, James.
Well, here's the analogy that we'regoing to use. It combs kind of
like this. We have the hypotheticalexample of the tale of two brothers goes
like this, or two brothers whoretire three years apart from each other.
(43:10):
Brother number one is sixty five,who's retiring now. Brother number two is
sixty two. He's going to retirein three years also when he is aged
sixty five. They retire with thesame amount of money at a million dollars
each and the same annual withdraw thesame income need. They each ironically need
only forty thousand per year from theirportfolios. So here's what happens. At
(43:34):
age eighty five, Brother number one, it's almost like he's crossed the finish
line. He has one point sixfive million. Three years later, Brother
number two is now also eighty five, and he only has five hundred forty
thousand dollars. What happened? Howcould there be such a large difference in
their account balances because when they retiredwith everything equal, but something else wasn't
(43:55):
equal. Right, Well, it'ssimple the market returns the experience were differ.
Brother number one retired and then thefirst three years of his retirement we're
in a bull market. Brother numbertwo retired, and the first two years
of his retirement we're in a bearmarket or some type of a pullback.
And compound interest mathematics is what doesthe rest the market? Math greg what's
(44:16):
the moral of the story there.The moral of that story is you can
control to some extent when you retire, and the planning and the products and
the solutions, and the investment styleand the risk that we're going to adjust
towards and staying to the plan andbudgeting and making things work. There's a
lot we can control. And thenthere are some things we can't. And
(44:37):
that's the market dynamic itself, thetiming of the ebbs and flows, the
bulls, the bears, well homeI and it's just the timing of that.
So what do you do? Wewant to help you make sure that
your risk tolerance is in line withyour retirement income needs and objectives, especially
for the first few years. Sothis will help you to mitigate the impact
(44:57):
of negative sequence of returns hopefully avoidthe ne to have impact your launch term
excess success in all these areas ofplanning, planning, balanced plan succeed on
purpose. Contact us, come toour website, email us a team the
Brown Financial Advisors. Come to ourpublic workshops, food fund and finance.
Listen to us each week, catchus on podcasts. We want to help
you. It's complimentary. Come seeus our funded about the Alphas five,
(45:20):
one, three, five, seven, five nine six five four again five
one three, five, seven,five nine six five four call us we
can help now on behalf of Gregmyself, James, thank you for listening
today. Have a great we canremember this sound money where good things are
believable, achievable and true for you