In this episode of Retirement Unpacked, Al Smith delves into the intricacies of planning for a longer life in retirement. He covers essential topics such as longevity statistics, long-term care, and why these factors should influence your retirement strategy. Al explains the role of life and long-term care insurance and explores financial strategies to ensure you are financially secure throughout your retirement years.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
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Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. There’s other things you could be doing, I’m sure, but I’ll have some good information for you today, information that’s also available directly through me, or if you can listen to a later recording of the show if you don’t have time to listen to the whole thing. But before I dive into that, I want to let you know about an upcoming event tomorrow evening at the Lafayette Library, which is at 775 Baseline Road in Lafayette. At 6 o’clock, there will be an estate planning and tax and retirement event. And that will be, again, tomorrow evening. And if you can’t make it tomorrow evening, there will be another one Saturday. And the Saturday one starts at 1030 at last until noon. And, again, that’s at the Lafayette Library. There will be really good information. about estate planning and also retirement planning, specifically how to get a hold of your taxes once you make that transition into retirement. This afternoon, I’m going to be talking about some things that have to do with longevity. We live longer than we used to. And that’s a good thing if we’re fortunate enough to be in good health, but it is almost more amazing than one might have thought about. For example, in 1960, which isn’t that long ago, a male was expected to live 77 years and a woman was expected to live to be age 80. Now, these numbers are for people who have already reached age 65, okay? That’s in 1960. By 1980, 20 years later, the male life expectancy was 79.1 years, so it grew by nearly 2%. And for women, it’s 83.3 years in 1983. By the year 2000, men were expected to live to be age 81 and women age 84. And jumping to the most recent one for this particular table that I’m looking at, by 2022, men were expected to live to be 84 and women 86.7 years. So there’s always… two and a half to three year difference between male life expectancy and female life expectancy. Well, what’s that mean for us? Well, there’s a lot of things that that means. One of those is is that as part of the retirement planning that I recommend people clearly do, we have to think in terms of what will the last few years of our life, what will they be like? And the statistics about how many people need care, those statistics are pretty enormous. I don’t want to bury you with statistics, but these are enormous. you know, clearly good things to know. And I know that if people reach age 65, there is more than a 50% chance that they will need care at some point. And of those who ultimately need care, about half will need care for longer than a year. And the statistics are much longer than for women than for men. Women, if they need care longer than that year, the average is 3.7 years. For men, it’s only 2.2 years. And the reason for that is that women live longer. And if their last few years are spent where they’re needing care or in a nursing home or something of that nature, then it’s obviously going to cost more and it’s going to last longer and so forth. Twenty percent of people age 65 or older will need long-term care for actually longer than five years. The median U.S. private room nursing home is $108,000 And this isn’t a current statistic. This goes back to 2021. And the projected median of U.S. private room nursing home in 20 years is going to be $190,000. So these are things that not only need to be planned for but taken into consideration because what often happens is a great percentage of folks who need care end up receiving care from a family member, and that’s not necessarily a bad thing, but the thing about that is it becomes extremely difficult for that family member, and they often suffer themselves with health problems because of the long amounts of time they’re spending with someone it’s not terribly mentally healthy either to be taking care of someone who’s unable to take care of themselves and my point in talking about this at all is that this needs to be taken into consideration if you’re sitting down with your advisor or with myself it’s good to think in terms about well if that were to happen Not only how would we pay for it, but what direction would we go? Would we have someone come into the home? Would we move to assisted living? Or would we maybe even relocate to another part of the country where care is less expensive? So my only point in bringing it up isn’t to sell long-term care insurance, but it’s to make certain that you incorporate it into your retirement plan. And as an alternative to long-term care insurance, what a lot of people do is they will purchase life insurance, and you’re asking, well, gosh, if I’m retired, what do I want to buy life insurance for? Excuse me. Most life insurance right now, if not all, has a provision that in the event you would end up being chronically ill, and the word chronically ill means there’s two of six daily activities that you’re not able to do, and included in those are things like eating, dressing, bathing, continence, things like that. If there’s two of the six you cannot do, then that means you are chronically ill, and there can be an advance of the death benefit. Not the cash value, but the death benefit. so that some element of the death benefit of life insurance can be advanced if someone needs care. And the reason that I believe it makes sense to have life insurance if you want to divert some of this risk away from your own nest egg, the reason I think it makes sense is long-term care insurance is quite expensive, it’s difficult to get, and it costs one-third more for women, whereas life insurance is about 10% less for women. So if thinking about this is something that has come to your mind, and many of you who listen I know are caregivers for parents or elderly aunts, uncles, that sort of thing, a sibling possibly. And if that’s the case, think in terms of extrapolating a bit into the future how would you handle your own care or the care of your spouse? So it’s clearly something that needs to be kept in mind. The balance of the show, I’m going to be talking about my most recent book, which goes back a little ways, but it’s called The Christian Path to Retirement. And essentially, as Christians, we’re not promised comfort or fulfillment or peace or or any of those things after we leave the workforce. However, we are directed to learn what God would have us do and move beyond our working lives. And we’re going to be talking about what sort of things need to be planned for as we move closer to retirement. And those who have worked and set aside money in their 401Ks or their IRAs and so forth, if they have the discipline and they do this over a number of years, they’ll likely have a significant level of income from this nest egg. And with the assistance of someone like myself as an advisor, there will be an emergency fund and possibly even something like to pay for unforeseen events, you know, such as long-term care, what we talked about. Now, with inflation and stock market volatility and these kinds of things, the high probability of personal care, that means you really need to be a saver, to say the very least. And you can, a lot of ways of doing that, establishing money into your IRA, and so forth, and I think all of that is important. And one of the things I’ve never had to say to any of my clients is, gosh, you saved too much money for retirement. Social security plays a big part in retirement. And with a very healthy level of saving while your children, especially after your children have gone out of the house, Social Security can become an important part of this. And with Social Security, we can have a whole conversation about Social Security on another day. One of the things that’s important about that is to know your benefits. So go onto the Social Security website and check out your benefits if you have not already done that. Also, something to think about is how does the rest of your income, how does that fit in there with Social Security? And take a look in your plan what you’re going to be doing for retirement. Look at the income that you’ll be needing in the future. They say you’ll need about 80% of what you normally would get. And the 80% may be an understatement because two people can live not for half of one, or one person cannot live for half of two people if one of you should pass on earlier. And so it’s time to really think about the money that would be needed if someone passes on. Another big thing I talk to people about in the book is paying less in taxes once you retire. And I think paying less in taxes can be extremely important. Those of you who have 401ks and IRAs, it’s often recommended that you can convert part of what you have into Roth. That way, as you get closer and closer to retirement, your income will be tax-free. And tax-free income, there’s a whole school of thought called the power of zero, because we don’t know what the tax rates will be like once we are fully retired. We don’t know. But what we do know is if your tax rate is zero, which is what it is for drawing money from a Roth IRA, you know, zero is a good level of, it’s a good tax rate. And in order to reach that level, it’s important to pay tax on the seed rather than the harvest. In other words, if you have an IRA or 401k and you’re 10 or 15 years from retirement, create a plan so that you can convert that traditional IRA or 401k to Roth over time. And I think what’s important is that We plan so we know what that’s going to look like. The conversion to Roth has to happen near the end of the year. By December 31st of each year is when Roth IRAs have to be converted. You can’t, I mean, you could do it anytime throughout the year, but you can’t wait till April 15th like you can in order to make an IRA contribution. And also, by doing it near the end of the year, you can get a feel for what your tax bracket’s going to be like. And also, I would recommend that you kind of gather up your W-2s and so forth, and then convert part of your traditional each year so that by the time your age of minimum distributions, which is age 73, then… you’ll have mostly Roth and very little traditional IRA. Now, in talking about my book, The Christian Path to Retirement, we’ve talked about conversion of Roth IRAs. We’ve talked about filing for Social Security benefits and making certain that you check those out ahead of time. Making the transition to retirement is obviously quite important. A lot of people, although they have created a nest egg, don’t necessarily think in terms about what’s it going to be like moving from work to retirement. Well, it’s kind of like any other big change. Entering the military, getting married, going through a divorce, having children, moving, changing jobs, it’s a big transition. And the better off you will be is with the most preparation. You wouldn’t think of going on a vacation and deciding Thursday night where you’re going to go for the coming week that you have set aside for vacation. So in addition to… the saving over time and so forth, and accumulating a nest egg, I think it’s equally important to sit down and determine how you want to spend your time. Would you like to give back? Would you like to volunteer? Would you like to do things for the community, get more involved in the church? And I think those are incredibly important. And also when you’re making that transition, thinking in terms of moving outside of your company’s 401K, so the financial decisions that you’ll be making in addition to Social Security would be having resources outside of your company planed and where’s the best place to allocate those. There’s a lot of alternatives. Some are much safer. Some have a bit more risk. Some people invest in precious metals. I know some people over time long before retirement have resources that provide passive income, passive investment. and I’m going to have another show about that exclusively. So making that financial transition is important, but also making that transition directly from the activities that you had when you were working, which may have not been too many activities, to now having this spare time. Think about how you’ll be spending your time. Also think about are there any plans for relocation. Sometimes people move to areas where they have other family members. Sometimes people will move to areas where the cost of living is best. And in addition to how you’re going to spend your time and the best way to transition your resources, your finances in retirement, I think what’s extremely important, and we talked about it a little bit, is creating a budget, seeing what your expenses are going to look like in retirement. Sometimes people that have had two cars for many years may go down to one vehicle if it turns out that that works out for them. Also, if people’s budget is tight, they can do sort of an audit of what their expenses are looking like. Some people who are using cable TV find that that’s getting quite expensive, and some of the alternatives of cable streaming, those can clearly be less expensive. But I think the bottom line is once you’ve created your budget and once you’ve made this transition into retirement, both financially and how you want to spend your time, the title of my book is finding your path in retirement, the Christian path to retirement. What would God have us do as we make that transition from work to not working? And the happiest people I have met in retirement are those who have found a way to give back and to help other people. Some clients of mine who live way out on the eastern plains, In Brush, Colorado, the couple, the lady, when she was well into her 70s, she drove a van to either Cheyenne, Wyoming, from Brush, Colorado, or to Denver to the VA hospital. And she would do this every week. And her husband did woodworking. He made beautiful bowls and things like this. in his garage. And I told him that you should sell these. These are beautiful. And he said he just gives them away. And these were some of the happiest people I met, although their nest egg was rather small. Another person who has truly found his place as a retired person is Dr. Jeff Brodsky, I would describe him as a rock star among Christians who have found their purpose in retirement. He’s the founder of Joy International, which is a nonprofit. Their sole purpose is to fight human trafficking. I met him personally at Raccoon Creek Golf Course, where I was a minor sponsor in a golf tournament for Joy International, which is the firm that he created. He wasn’t wearing shoes. He hasn’t worn shoes since 2010 as a way of creating awareness to the public on child trafficking because he noticed quite a number of years ago when he was in Cambodia that many of those folks were also barefoot. But you can learn more about him through Joy International. He may be having another golf tournament this summer. But he has done tremendous things to fight human trafficking. He doesn’t just go around and speak and ask for money. His organization actually goes out to the locations where adults and younger people have been trafficked, and he gets them released and provides a transition for them because some of them have been literally enslaved for years and years. And after they’re freed, they provide considerable services so that they can make that transition back to freedom. And he has done this in all kinds of places all over the world, not just here in the United States. And one thing in the United States that you may not be aware of, but a lot of the trafficking that goes on, goes on between 3 in the afternoon and 5 or 6 o’clock in the evenings. Girls who are maybe depressed and lonely find a figure that seems to pay attention to them, and they get groomed, and the next thing they know they’re being trafficked by someone who says they love them, but in reality they just turn into their pimp, so to speak. Another couple that I know had a condominium in Hawaii. They sold the condominium the year before all of those fires that took place on Maui. And after that fire took place, they returned there and then they volunteered their time helping the folks who needed assistance because of being homeless and having their homes burned in the fire and so forth. And as a result, it was quite a problem to take care of, but they were able to do that. They helped the people who lived on Maui with all of their needs and so forth. Another couple that I know, and this is in my book, named Larry and Naomi. A few years after retirement, through their church, they found an organization that goes and helps folks who have been either made homeless or had a devastating natural disaster. of, you know, enormous proportions, and they take their RV to these locations. They can be in Florida, Texas, where they’ve had hurricanes, tornadoes, and things of this nature. They spend their own time and their own money helping to rebuild churches and schools and this sort of thing, and there are whole groups of people doing that. And they describe what they do as having retirement programs only retirement with a purpose. And I think that’s incredibly important. My book has a picture of them where they’re wearing their vests, and their vests have a patch from each of the locations where they’ve traveled. They’ve probably put on more than 20,000 miles. They’ve been in Florida, Nebraska, Texas, Illinois, Montana, Arizona. And their group has what’s called like a connection center through their church. And they’re helping to build that. And it ends up being a 28,000 square foot of buildings that serve the needs of their church. They’ve enjoyed all kinds of appreciation and output from members whose worship spaces have been devastated by hurricanes and tornadoes. And they have found that giving back like this in retirement has been an enormous benefit to them. They’ve enjoyed it. Their truck and trailer have gotten some wear and tear, but they’ve enjoyed it enormously. Well, again, thank you for listening to me talk about my book and talking a little bit about longevity. Appreciate you tuning in. Hopefully you’ll be here next week, and I promise I won’t have too many statistics next week. If you’d like to learn a little bit about the essential tax strategies in retirement and also estate planning, call my office, 303-744-1128. The event is tomorrow night and Saturday morning at the Lafayette Library. God bless you and thank you for tuning in.
SPEAKER 01 :
Thank you for listening to Retirement Unpacked with your host, Al Smith of Golden Eagle Financial.
