FRIDAY, MARCH 2, 2018
JIM JUBAK: Do you know what the source of your retirement income is going to be? Will your income last as long as you do? Well joining us today is one of the nation’s leading experts on retirement income planning, Tom Hegna, author of the book, Paychecks and Play Checks, to share what he has learned in his recently released book, Retirement Income Masters, where he interviews 14 of the nation’s top income planning advisors and give us a little bit of insight of what we should be thinking about so that our retirement income lasts as long as we do. Welcome, Tom.
TOM HEGNA: Thanks, Jim; it is great to be with you again.
JIM JUBAK: Hey, it is fantastic and I know you have been traveling the world, not only educating advisors, but also their clients. You had a great run with your book, Paychecks and Play Checks. Americans are being forced to wake up to this metamorphosis. It used to be all about how much money you had in your bank account and what it was, not what it does, which is provide income in retirement. There has really been a transition, especially with bond rates low that people really have to have a strategy, especially if they are going to be spending 30 or 40 years in retirement. I know you just did a follow-up sequel book, which is Retirement Income Masters, where you actually interviewed some of the best in the country. What prompted you to do that? I thought your book, Paychecks and Play Checks, just hit the ball square in the money and did such a great job, so what prompted you to do this follow-up book?
TOM HEGNA: Jim, I mean Paychecks and Play Checks has had a great run. It still is number one on Amazon in its category. It sells a lot of copies, we have advisors buy it by the case, so Paychecks, and Play Checks is still a very valid book. What I did with Retirement Income Masters whereas I said, “Look, Paychecks and Play Checks was the math and science behind a successful retirement. It was really my words, my language and my stories that have been working for 25 years, but I am not the only one in the retirement income space.” What I did is I went around the country and I found 14 top retirement income pros and each chapter is their story. What do they do? How do they explain this? What is their process and so it is really like 14 books in one because each chapter stands alone and it is not like each chapter sets up another chapter, it is 14 separate chapters, 14 different stories and 14 different top professionals. It is an amazing book. You get great stories from other people, so you get many points of view. There are some great people in there and many of them are top of the table advisors. You know Rao Garuda came from India with seven dollars in his pocket. He made 21 consecutive top of the table qualifications. You have Christie Mueller who has probably written more lifetime income than any other woman on the planet. You have John Schwann, who might have written more lifetime income than any other man on the planet. You have Curtis Cloke, Dr. D, the king of deferred income annuities. There is Michael Kitsis, who does not even really believe in annuities that much. He is a financial planning guy, but I put his chapter in there and we kind of argue back and forth the whole chapter. It is a very interesting chapter. There are many others, so it is just some top producers and what is their strategy and how do they do it. I think between those two books, you can really dominate that retirement income market.
JIM JUBAK: That sounds awesome. I know several of those people have been past guests on our program. The retirement income story is really something. I mean right now, why do you see retirement different for retirees today than it was for people who lived 20 or 30 years ago. I know we kind of touched upon this in the beginning, but there really is a transformation. A lot of people have to have a different mindset today, so share with us what you see with that.
TOM HEGNA: It is different and it is the same. The difference is that in the past you had guaranteed lifetime income from your employer. Everybody had pensions and very few people worried about their savings because with social security and pensions they could live a comfortable retirement. The need the guaranteed lifetime income has not changed, but the sources change. You do not get it from your employer anymore, you have to go out and buy some guaranteed lifetime income. Jim, the real paradigm shift is this; it is exactly what you were saying. We have all been taught about growing our assets, it is about how big we make our pile and it is all about asset accumulation, but when you really study retirement, it is not about assets. It is not about assets. Your assets can be lost. They can be stolen. They can be swindled. They can be sued. They can be divorced. They can be decimated in a market crash. The ultimate success of your retirement is all about income and I would argue guaranteed lifetime income and then also taking key risks off the table. Your retirement is not about your assets, it is all about guaranteed lifetime income and have you taken the key risks off the table. That is a huge paradigm shift. It takes advisors a while to get that and it is going to take even longer for clients to get that, but I am over that hump now, it is all about income and risk management and that is what it is all about.
JIM JUBAK: You know it is interesting, I do a lot of family meetings and what is really difficult is that the parents get it because they are afraid that they might run out of money. They are used to the old CD rates of 8%, 9%, 10% and even more percent and with CD rates under 1%, you have to have a boatload of money just to have a modest living. The kids, this is where I really have challenges helping the parents get to the right place, because the kids are thinking rate of return, rate of return, rate of return because they have the mindset it might not be 10, 15 or 20 years before they are drawing on it, but that sequence of returns really becomes quite risky. I know that that is one of the issues of longevity, you say in your book longevity is the biggest risk and I agree. What is your perspective on how that risk is the greatest risk?
TOM HEGNA: Jim, you know you named a bunch of the risks. There is market risk and the market can crash. There is order of return risk or sequence of returns that you could average 10% a year, but if you just take out 5% a year you can go broke, because if you lose money in the first few years of retirement, you really go into a death spiral. Average returns mean nothing in retirement; it is all about the order or sequence of those returns. Many people do not understand that. There is the risk of long-term care. There is the risk of inflation. I would also argue there is a risk of deflation, so there are many risks in retirement, but there is only one number one risk and that number risk by far is longevity risk. Longevity is not just a risk, it is a risk multiplier of all the other risks and just like you said, the longer you live the more likely the market could crash. The longer you live, the more likely the sequence of returns will decimate your portfolio. The longer you live, the more likely we will have inflation. The longer you live, the more likely you will need long-term care. If you retire at age 65 and you drop dead at age 68, it would not matter if the market crashed the 4000 point. It would not matter if inflation were 12%. It would not matter if you were drawing 10% a year. It would not matter if you forgot to buy long-term care; you did not live long enough. If you live to be 85, 90 or 95, it is all those other risks that can wipe you out, so what math and science says is you must take longevity risk off the table.
JIM JUBAK: Those are all great points, Tom. Is there a best way to retire today? What are some of the simple steps people should consider?
TOM HEGNA: There is not a best way. What I say is there is an optimal way. If we are honest about it, nobody knows what the best is going to be. If gold goes up to $10,000 an ounce, we should all put our money in gold. If oil goes to $1000 a barrel, we should all put our money in oil. If the Dow Jones hits 100,000 in the next five years, we should all put our money in the Dow Jones. Nobody knows what is going to be best. What math and science comes to is what is the optimal solution. The optimal is really, what is your best chance of having the best. Which solution will be the best more often than any other will be the best? Which will never be the worst and that is the optimal solution. The optimal solution I think is clear in that you have to cover those basic expenses with guaranteed lifetime income. You have to protect yourself against inflation. You have to have a plan for long-term care and I would argue that the most efficient way to pass your wealth to your children and grandchildren when you die is with permanent life insurance. A lot of people think life insurance has nothing to do with retirement, but I would argue that life insurance has everything to do with retirement and we can maybe talk about that in your second segment of this show.
JIM JUBAK: Well you teed me up perfect, Tom. It is time for a quick break. When we return, we will talk about some of these solutions that you might want to consider to make sure that your income lasts as long as you do, so please stay tuned.
JIM JUBAK: Welcome back as we continue to visit with Tom Hegna. Tom, I know you have spoke around the country on retirement planning. You are the author of Paychecks and Play Checks and just recently, you interviewed some of the retirement income masters around the country and published a book under the same title. You have a program coming up on PBS that our listeners might be interested in. Tell us about that.
TOM HEGNA: I am excited about it. It is a public television special. It is going to be titled, Don’t Worry, Retire Happy, and I have already filmed it and filmed in front of a live audience. It is going to go live in December and January. It should go nationwide and there will be more information coming out of which cities on which days, but this is really for clients. This is the general public that is going to get the real way to retire optimally. They are going to find out you have to have an annuity, you have to have long-term care insurance and life insurance is very important to your retirement. This is something you cannot do yourself, that you need a financial professional and that you have to have a plan. This goes against what some of these talking heads have said, “Oh do it yourself. You do not need anybody. You can do it yourself.” Well you cannot do it yourself. If you have a cavity in your mouth, you do not go out to the garage, find a drill bit with a mirror and try to drill your own cavity. I would argue that your retirement is much more important than fixing a cavity in your mouth and I have a financial professional, okay. This is not something I do myself and you say, “Well jeez Tom, you know all this stuff.” Yes, I know this stuff, but I do not know which particular company has which particular product at which particular time. I do not follow that level of detail; I am teaching people how to retire. You have to have guaranteed income, you know the proper use of life insurance, the proper use of long-term care and that is what I do, but I need a financial professional that says, “Okay, Tom, now let’s take this down and get the exact right product at the exact right time.” I need a professional for that, so even me, who I consider myself a retirement income expert, I do not do it myself. I have somebody help me.
JIM JUBAK: What is interesting is your talking about that. I was just at the Million Dollar Roundtable, which is an international association that has a meeting once a year and people come from all over the world to share ideas and learn. I know one of the guest speakers there, he had done a survey and he wrote a book about business brilliant. He surveyed all these wealthy people and he worked together with Prince and Associates, they did some other surveys and there is one that just stuck with me and that is what do you do well that makes you money? The average middle class person was around six. The ultra high net worth was one to two, so it goes to show you if you try to do everything yourself, you might be able to accomplish it all, but you are probably not doing any of it very well. The moral of the story just reconfirms what you are talking about, work with experts. Do what you do well, but use experts to do this because it is hard as a financial professional myself to keep on top of all that and that is all I do. I cannot even imagine someone who has no knowledge of the industry and no background, even what questions to ask, if they are trying to it themselves. It just seems impossible. When you talk about some of these talking heads, they have this one size fits all solutions that they recommend. I think you see it all the time. Everybody’s situation is different and there is a level of customization that is necessary for some optimization as you talked about earlier.
TOM HEGNA: Yes and there are so many new products coming out. I will just give you an example, Jim. In the long-term care area, everybody is concerned because premiums are going up on some of these long-term care policies and a lot of companies are pulling out. Well I just saw a product come out recently, it is an annuity that gives a lifetime income. Let’s say somebody gets $3000 a month from their income annuity, if they have a long-term care event, it will double to $6000 a month and there is no underwriting involved. It is like an elimination period of two or three years or something that you cannot claim on it, but for some people that type of thing would be a miracle and yet how many people do not even know that that exists. These changes are happening all the time. They are happening rapidly. You have to have a professional who can stay on top of some of this.
JIM JUBAK: It is interesting. I could even speak of my own family and well meaning kids. We had set up a long-term care insurance policy for one of our family members and other kids got involved and said, “Oh, we will take care of you.” Then when the time came, they ran out of shifts to take care of the person and now they let this policy go that would have taken care of all the bills. The thing is being realistic; they talk about the first step to recovery for alcoholics is admitting you have a problem. I think a lot of people are blindly sticking their heads in the sand saying, “Well it is not going to happen to me.” Do you see that?
TOM HEGNA: I see it all the time, especially with long-term care, but I am now going through that with both of my parents. Thank goodness, I made them buy a policy about 15 or 16 years ago. They did not buy it from me; they bought it from somebody else, which was fine. I just wanted them to have a policy. I would say it is not a perfect policy, but here is what I will tell you. It is a great policy to have right now because they each have a bucket of money of about a quarter million dollars each, not a lot and it is not going to last them forever, but they have pensions, they have social security and they have other stuff. This will literally be a miracle for the family and allow them to live in dignity for many years before we do have a financial issue. I am not saying we never would, but I am saying for the next eight, ten or twelve years, this is going to be a miracle for the family and for my parents.
JIM JUBAK: All excellent points and the thing that I always tell people is, you owe it to yourself to understand what the issues can be and what the potential solutions are, because most people have preconceived notions and as you mentioned, there are new products coming out every day that can solve many different issues. It is just a matter of positioning your money and positioning your planning in a certain way to protect you against those types of events. Hey, let’s talk a little bit about what are some of the ways to get most out of your retirement accounts, those IRAs and 401(k) s?
TOM HEGNA: It really depends on a person’s situation, but I am a big believer in these deferred income annuities. You know for me, Jim, I just keep buying more guaranteed income. I do not care what the market does. I have some money in the market, but now the payout rates are so attractive on some of these deferred income annuities that I buy more income and then when I get some more money, I buy more guaranteed income. I have guaranteed income that is going to start at my age 60. I have more that is going to start at age 65. I have more that is going to start at 70. I have more that is going to start at age 75. I have laddered guaranteed lifetime income for myself and my wife for the rest of our lives. We sat down, we decided how much money we wanted to give to our kids and that was one of the first steps. We bought life insurance and paid off that life insurance and that is going to the kids. Now guess what we can do with all the rest of our money. It gives us the license to spend that money. I had talked earlier that some people think life insurance has nothing to do with retirement; life insurance has everything to do with retirement. It is the permanent life insurance you bring into retirement that gives you the license to spend and enjoy your years in retirement. As you know, most people out there are not fully enjoying their retirement. They are living the “just in case” retirement and then what happens is they die. What happens is the money goes to the kids and what do the kids do with it? They go on the cruise, they join the country club and they do all the things that the person said they were going to do because the person lived the “just in case” retirement. If you have life insurance, you do not have to live a “just in case” retirement, you can live a bold retirement.
JIM JUBAK: Well put and I know one of the sayings that is out there is buy income and invest the difference. Whether you are investing that difference in life insurance for legacy goals for your family, maybe you want to still try to hit those home runs in the market place, you still have those opportunities, but man, when they invented retirement, it really was for people that lived a really, really long time beyond life expectancy. You look at social security when it was invented, the average life expectancies you would be dead basically six months before your first check. Well now, people are going to live 30, 40 or maybe 50 years in retirement. You do not want to be saying, “Welcome to Wal-Mart or would you like fries with that” when you are 85 years old because your money ran out. Number one, I do not know what your prospects of being hired at that time are, but boy to be old and broke does not look very attractive. When you talk about these guaranteed lifetime incomes, obviously they are backed up with contracts and insurance companies. You have to look into that to make sure that the companies that you are working with you feel comfortable with, but when you talk about laddering and diversifying, it always makes sense whether you are buying income or investing in the marketplace, you want to be diversified.
TOM HEGNA: Absolutely. Nobody has not been paid their lifetime income annuity by any company and so it is about as safe a product as you are going to find on the market today. I would encourage people, if they are not in the retirement income space, to get in the retirement income space, learn the retirement income business, and learn the words and the language to help clients retire successfully.
JIM JUBAK: Tom, I know you do not sell product other than you have a lot of educational tools that can help people understand these concepts a little bit better. Obviously, you have your books, but you also have a website and a place for people to go to. Why don’t you share with our audience what resources you have available.
TOM HEGNA: There is going to be a whole consumer website for this public television special. It is going to be, Don’t Worry, Retire Happy, is the title and that is going to the name of the book. There is going to be Retire Happy University, so be looking for that, but you can get information on all that at Tom Hegna.com. There are a lot of free videos on Tom Hegna.com. There is a way to purchase the book if you want the book or the audio books. I would say Tom Hegna.com is the place to go and then from there it can take you to the Don’t Worry, Retire Happy websites that will be coming up in the next few months, Jim.
JIM JUBAK: Hey, Tom, always a pleasure. I love what you are doing and how you are educating people. I just want to close with a mutual friend of ours, Joe Jordan. He was a guest on our program a while back and he is a big proponent of income as well. He talks about how Americans kind of got out of adjustment and I cannot remember what book he talked about, but he said, “You know back in the 1880s there is a popular romance novel of the most eligible bachelor in England. Apparently, his income was something like 10,000 pounds a month, which would be pretty good in England today, but back in the 1880s, that was really something. They did not talk about net worth; it was all about cash flow. As people are living longer, cash flow is king, not cash but cash flow. Thanks again, Tom.
TOM HEGNA: Thank you, Jim. Great to be with you.
JIM JUBAK: Thanks for joining us this week and tune in again next week as we explore another phase of the real wealth process. Remember, if anything you heard in today’s show you would like to get more information about, contact your Prism Insurance Agency advisor. If you feel that any of this information would be helpful to a friend or family member, just click the “forward to a friend” button.
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