Make It Last – Ep 55 – Retirement Shortfall & Why Your Estate Planning Attorney Should Be A Certified Elder Law Attorney

If you are approaching retirement and you don’t have enough money, there are a few things you can do to make up your retirement shortfall. Also, having your attorney be a Certified Elder Law Attorney (CELA) can be a major advantage. Why? Listen to this show to learn why.

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and certified elder law attorney and Certified Financial Planner™. Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

For more information, visit Medina Law Group or Private Client Capital Group.

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Click below to read the full transcript..

Make It Last Ep 55 Retirement Shortfall Help and Why You Should Be Working with a Certified Elder Law Attorney

Victor Medina:  Everybody, welcome back to Make It Last. I’m your host, Victor Medina. I’m so glad you could join us this Saturday morning as we’re discussing one of these topics that it really has me excited, which is how to avoid mistakes, especially money mistakes, the closer you get to retirement. I’m going to go over that.

I just wanted to highlight a couple of things that are coming up. If you’d like to see me come and speak, I’ve got two opportunities for that. One of them is professional in nature and the other is personal and a little bit more fun. I am going to be at the East Windsor Senior Center on May 17th at 10:30 in the morning.

You have to be an East Windsor residents to sign up for that. In fact, you have to pre‑register for it, I think, because they’re a little bit pressed for time. If you’re interested in the topic, the topic happens to be three ways…three reasons… Let’s try that all over again. [laughs]

Three reasons why you should never, ever, ever buy an annuity, and three real life scenarios in which you may want to think about buying an annuity. If you’re interested in that topic, you can join us on May 17th at 10:30 in the morning at the East Windsor Senior Center.

The other thing ‑‑ that’s the professional one, the more fun one is ‑‑ this morning, I don’t know. Are you a fan of a cappella music? I now happen to be, because I’m part of an a cappella group. This morning, starting at 9:30 in the morning, at the Kingston Presbyterian Church, if you got nothing to do and you want to come listen to a free a cappella concert, you can do so.

We’re going to start at 9:30 in the morning. My group, which is called Jersey Transit, of which I’m one of the musical directors, we’re going to be performing along with 10 other groups. I’ll tell you, the groups are all different kinds, lot of fun. All men’s groups, all women’s groups, mixed groups like Jersey Transit, which is a coed group.

We even have a four‑part quartet that sings a lot of really cool jazz harmonies. If you’re interested in that, we’re going to go from 9:30 to 4:00 today, May 5th. In fact, Jersey Transit is the host of this conference that goes on every year. It’s called Spring Sing.

It’s in its 60‑something year, might be 61st year, and we’re hosting. We’re welcoming all these great groups from across the country, Chicago, Detroit, Boulder, Philadelphia, Boston area. It’s going to be a lot of fun, so I hope you’ll join us.

Let me go right into it. I am really excited about this topic. This topic is really about how to make sure that you don’t make mistakes. It’s interesting for me, because part of what we do is to go ahead and make sure that people who are nearing retirement don’t make mistakes.

We started out in that world, largely thinking about that from the context of legal planning. That’s where we began our career. After some time, we started adding some financial services planning to that, helping people think about money in that same area. The idea is all the same, right?

All the training that I have is largely about making sure that I can spot issues coming around the corner that I can think about things in as complete a fashion as possible, then help people use planning to avoid negative results.

That’s the core part of legal planning. It’s a think through lots of different situations, think logically through them and be able to come up with real practical ways to help avoid problems later.

That’s as important when we get into the financial space as well. Here’s the thing. Mistakes are just a part of life. Some of them are easy to recover from than others. If you’re somebody that gets a bad haircut, it will grow back. [laughs]

If you make mistakes that have on it’s side time and the ability to recover, you will come out OK in the end. When it comes to money and time, the closer you are to retirement the less time that you have to recover from bad money moves.

I’m trying to help you take no chances about this. We are going to discuss 10 money moves that you need to avoid as you get closer to retirement. All right. Just jump right into this.

The first money move mistake that you want to avoid is retiring the same old way. The idea is that most people think that the investment approach which got them where they are will work well in retirement. Maybe, maybe not!

I’m not here to say to you that I can predict the future. In fact, I can’t. When you do your retirement planning correct, you’ll know specifically what amount of money needs to come out of which account in every year.

For example you might be taking withdrawals from your IRA first but you won’t touch your Roth IRA for 10 years. Should both accounts be invested in similar ways? No, they shouldn’t because the time horizons on them are different, so should their investment strategy.

As you get closer to retirement, you are going to want to put together an investment approach that aligns each account, each bucket of money that you’ve accumulated to a specific goal, to part of whatever are your cash flow requirements and the time horizon that you’re going to be using them.

At that time you’ll be able to decide how much of the investment risk you need or want to take or to not take by using an investment plan that’s custom made for your financial situation.

We’ve talked in the past about this time horizon or bucketing approach for retirement planning. We do a short‑term, a mid‑term and a long‑term. Depending on when those time lines are set up, whether it’s 2 years, or 5 to 10 years, or whatever else it is, it could be that we need some of that money very safe, in order to draw it out.

The other ones can be a little bit more volatile. Here’s the thing. If you think about it as one big bucket withdrawing money in retirement can be very scary. Having to withdraw in a volatile market really amps up how scary this is.

When you have an investment plan that secures the near‑term cash flow needs with safe investments, then you don’t have to worry about what the market’s doing day‑to‑day. You can watch the financial prognostication TV shows exactly the way that they are meant to be, which is, as entertainment.

This approach will give you a higher probability of success because it’s going to help control your behavior and your attitude toward your investments. It’s also going to be a smart sort of marshalling of your investments across different time horizons. When you know where your retirement paycheck is going to come from, from month to month, you can relax and actually enjoy your retirement.

The second risk mistake in terms of money is to take on risks to make up for lost time. If you’re somebody that got a late start in saving for retirement, and the stock market’s been doing well, the mistake can be that you should continue to invest aggressively to make up for lost time.

I’ve seen over my career these illustrations. The clients come in from other financial advisors to show how tweaking an asset allocation will deliver higher returns. Sure if you’re absolutely right that the market’s going to continue to grow the way that it has.

I mean, this is probably the worst sin in terms of smart planning. You want to plan for the worse and be blissfully delighted if it comes out the other way. While a more aggressive approach in allocation can give you a potential for higher return, it also comes with the potential for lower returns.

If you are already running short on what you need for your goals, taking on more risk might help, but it’s far from a sure thing in terms of securing the retirement. Before you take on additional investment risks, consider options that might deliver a more predictable or reliable income. You could work longer. You could spend less. You could save more.

These are all things that you can control. It has nothing to do with the market’s doing or what investment risk you’ve taken on. If you decide you’re going to take on more investment risk, then it should be part of a well‑diversified plan that insures that you don’t have to liquidate your riskier holdings, just in the event of a market correction.

The thing about it is retirement planning is really about making sure that you’re OK in a worst‑case scenario. You need to be able to stress test to see how it might hold up in bad economic conditions. Likely the worst‑case scenario may not pan out, which means you’ll have a little more to spend along the way.

What I’m saying is that you could plan for the worst‑case scenario and just the numbers suggest that it won’t be worst‑case, which means that you’ll have a little bit better result than you intended. That’s really the place we want to be.

We want to underpromise and overdeliver if it turns out to not be as bad as we’ve talked about, if we’re the financial advisor helping people along the way.

Victor:  We don’t want you scrambling from month to month, when the best case doesn’t happen. Although no plan is perfect, at least having a smart well‑conceived plan helps reduce anxiety by providing an outline for you to follow no matter what the market circumstances are doing.

When we come back I’m going to go over the eight other major mistakes. We’re going to run through these four segments. Do not miss the rest of this show. This is Make It Last. We’ll be right back after this quick commercial break.

Victor:  Welcome back to Make It Last. We’re talking about the 10 worst money moves that you can make if you are a near retiree. These are the people that are not quite yet in retirement and trying to figure out how are they going to get through retirement. We don’t want them making mistakes at the end.

Mistake number one was investing in the same old way. That’s going to have to change. Mistake number two was taking on risks to make up for lost time. We don’t want to do that. The next thing we want to make sure we avoid is claiming Social Security without a plan. Having absolutely no plan for your Social Security claiming strategy.

If somebody dropped an additional 50 or 100 thousand dollars into a retirement account would it make any difference to you? The answer’s probably yes.

I get so frustrated when I see somebody getting close to retirement buy some form of an investment or insurance product to secure a retirement income without first taking advantage of all the nonproduct solutions available, the noninvestment solutions including Social Security.

I get even more frustrated when I see sales people who sell these products without educating clients on what the other options are to accomplish the same thing. If you think about it, this is squarely in the area of annuities for income planning. Annuities might be OK, but guess, what else is an annuity? Social Security.

It’s probably the best annuity deal in town. It provides survivor benefits for a surviving spouse. Why would you incorporate an investment product like an annuity or life insurance if you haven’t already maximized or thought through what your best strategy for Social Security is? I have no idea why people would do that, but I see it all the time.

People mistakenly believe that claiming later also means that they have to retire later. Not necessarily true. Retirement date and claiming date are not synonymous. Some people think that claiming later means that they have to spend less in retirement and wait for higher checks. Again, depending on where you are with your investments coming into retirement that doesn’t have to be true either.

The point is this. You’re going to have to carefully examine your choices. In most cases an appropriate Social Security claiming choice will actually lead to results that is just like having more retirement savings in the bank.

I mean, you may already be aware that claiming strategies and delaying on that might actually bring in eight percent per year between your full retirement age and 70. Here’s the point. You’ve got to carefully examine these choices.

It’s definitely most important for married couples and those people who had a previous marriage that was at least 10 years and then, again, people who with a retirement income may be less than $100,000 a year. This is a way to fill that bucket with fixed money that will never run out no matter how long you live. Social Security’s very important.

Next mistake is to assume that healthcare is covered. If you come into this thinking that Medicare is going to cover you 100 percent, it doesn’t really work that way. Most research suggests that Medicare is going to cover about 50 percent of your healthcare expenses in retirement.

You’re still going to have expenses for Medicare Part B premiums. Your dental, eye care, hearing aids, co‑pay, those are all going to be part of your healthcare expenses. How much is that going to add up to? Well, some research suggest that it’s going to be somewhere between $400 and $800 per month in healthcare expenses. Those are just going to be routine expenses.

For current retirees statistics show anywhere between 15 to 33 percent of their income goes toward healthcare. It’s a broad range, of course, because it varies by location and health status. The sicker you are the more expensive it’s going to be. Of course, if you are living in the northeast, stuff’s more expensive here.

Too many retirees, I think, underestimate the expense on this budget. Once they’re retired they find that each month they’re either coming up short or dipping to much into their retirement saving, essentially, even if you are a high income person with pension.

We deal with a lot of people that have state pensions or they were former school teachers. You can even get caught off guard because the Medicare Part B premiums, remember, are a set as a basis of your income, specifically, your income of about two years ago. The more you make the more you’re going to pay in Part B premiums.

A good retirement plan, I think, builds in these estimated healthcare expenses based on your age and your income and helps you identify other options to help care for long term care needs. Especially, if you need long term healthcare like a home healthcare aid or being in an assisted living facility and planning for that.

The next one, the next mistake to avoid, is just pulling out money without regards to tax planning. You all know that in the book that I wrote there’s a specific chapter. This is the book on ensuring your nest egg is around as long as you are. It’s called “Make It Last, Ensuring Your Nest Egg is Around as Long as You Are.”

You can find it on Amazon. You can find it on the iBook store. Amazon Kindle. You can order it. I think it’s maybe about 20 bucks. There’s a chapter in there, chapter five, and it talks about proactive income tax planning. The biggest bite, I think, to the retiree’s income apple is in tax planning.

One of the most important things you can do as you near retirement is create a multi‑year tax projection that shows tax liability in each year assuming you know what the tax brackets are going to be. If you created one last year, of course, last year it’s going to be different than the upcoming four or five years because of the new tax law.

The projection is going to help you show where you’re projected income will come from including future estimated social security distributions, things that are going to come from a pension, part‑time work that you might have, required minimum distributions, which, remember, you have to start taking once you turn 70 and a have if you’ve got an IRA and you’ve stopped working.

Once you see what your marginal tax rate is expected to be in each year then you can proactively make decisions that essentially reduce your retirement tax liability. This comes into play if you are deciding which account to take money from.

You might be taking the IRA distributions earlier than you thought if you’re not taking as much in fixed income to help manage that income tax bracket. Funding your Roth IRA instead of a 401(k) plan as you’re nearing retirement because of that preferential tax treatment. Remember, we did a show a couple of weeks ago talking about this being a great environment for Roth conversions.

Here’s the thing. We talk about the independent financial advisor and the reason why you’re going to want to work with somebody that has independence.

It’s not only this fiduciary level, but most of the large financial institutions actually don’t allow their sales people and brokers to offer the tax advice because the brokers aren’t trained to do that. They don’t want the liability that comes with anything they might say.

Most CPAs and tax preparers serve as backwards looking people. They’re going to account for everything you did in the last year, which is great, but in order for you to save money on taxes you have to be forward thinking.

That’s the idea of having this lawyer financial advisor the way we have ourselves set up because we want to be able to be thinking forward. I spot the landmines ahead of us then essentially help avoid that. By combining your investment plan with some multi‑year tax projections, you can start to identify effective tax savings opportunities and do what you need to do to put them in place.

One more before we take a quick break, which is we want to avoid failing to track for anything. I said it the other way. [laughs] I hate these conventions of saying things in the negative. It’s good for emotion. It gets you to hook in, but it’s hard to translate.

Here’s what I want you to do. I want you to track your net worth, your spending habits, the annual amount that you contribute to savings, and essentially anything that has to do with money. That way you know if you’re making progress toward your goal. It’s easier to have this information, plan around it, and then to avoid it.

I don’t know if you’re somebody that goes to the gym, but there are people, and you’ve seen them if you go to the gym, there are people who log every workout. They walk around with a pad. They work out. They log their reps. They log how much weight was on there. They log what they did that day, and they probably have those logs going backwards.

I know that my son, who’s a really talented swimmer is able to go backwards in the training that he’s done swimming‑wise. These people know the secret, which is that if they measure it, they will be able to record progress towards a goal. They will have the information.

If you’ve never created a net worth statement or a spending plan or anything like that, I think that you’re missing out on a big opportunity. One of the things that we do in our legal planning engagements is we ask people to put their hands around all of their finances.

We do that extensively because as we’ve created this legal plan, if we’ve created a castle for somebody, we want to make sure that we’ve inventoried everything that needs to go into the castle and then be smart about how to do it. That’s for many of our clients the first time that they have a full idea about everything that they have.

They are thankful for…It just the excuse to put their hands around that and then we help them, nudge them into better investments and better strategies based on what we can observe. Again, from our history and the credentials that we have to be able to spot where things are not optimal and how to fix them.

Victor:  You want to make sure that you’re tracking as much information as you can as you’re getting close to retirement because it will give you an opportunity to know how close you’re coming to your retirement goals. In fact, whether or not you need to do something different in order to achieve that.

All right, listen, we’ve got four more left on these 10 worst mistakes list and you stick with us. When we come back, we’ll go through the last four and help you make sure to avoid all of these worst money mistakes as we are near‑retirees. We’ll be right back.

Victor:  Everyone, welcome back. We are talking about the 10 worst money mistakes for near‑retirees. We’ve gone through six of them already. If you’ve missed the last two segments you’re just joining us, here’s what you got to do. You got to go to our podcast and download this episode. You can get the other ones. I’m only going to recap really quickly for you.

Mistake number one was investing the same old way. Mistake number two is taking on risk to make up for lost time. Mistake number three was claiming Social Security without a plan. I want to do that. Mistake number four was assuming healthcare is covered.

Mistake number five was avoiding tax planning. I did that deliberate. By the way, chapter five of my book is about productive income tax planning. Mistake number six was failing to track anything and not knowing where everything is. Here it is. Mistake number seven is upsizing everything. What do I mean by that?

Well, here’s the thing. As the economy has been doing as well as it has for the last nine years, it can be misleading to think that you can increase your spending and you can increase your…We can stop being as diligent about what you’re doing with your investments. It’s called a wealth effect.

It’s a dangerous thing because as these bounces go up, you start to relax a little bit, which the case is OK. I don’t want you really super worried about your money. When you start to relax your diligence towards spending, you can find that you’re spending increases are starting to outpace your income increases and then we have a problem.

While you’re working, by the way, you always tend to get an increase in income, a raise or something like that. Maybe you’ve allocated that towards spending that you’ve delayed, One of the things that you want to do is always make sure that you’re allocating a portion of that increase towards savings and you want to increase your savings rate. Once that’s done, you can spend the extra.

I really want to make sure that you avoid the problem of increasing your spending in retirement, especially, after years when the market does well, and it looks like that balance is really high. When you look at that balance, it looks so big. It doesn’t mean that there’s necessarily all this play for a brand new car unless that was part of your original plan.

You want to make sure that if your investments deliver results a little bit better than you had been planning for, you take those profits and park them in safe investments, but don’t necessarily send them. They’re going to be like the extra food that you’ve been canning and jarring in the basement.

In case times are lean in the future, these are going to be the cushion that you need in your investments as you get a little bit older. Here’s another mistake that I see people doing in retirement and that is decreasing their emergency fund. Most people think about their emergency fund as being the thing that is they’re cushioning against losing a job.

The idea can be, “Well, if I’m retired and I’m getting my Social Security that’s all locked in, I can blow the emergency fund.” Right? Well, no, not necessarily. There are lots of things are going to go into the category of emergencies that are going to go outside of a retirement plan for essentially anything that you are saving for in the near term.

I had a client come in and she didn’t have much in relative to other investments, I assume other clients that we’ve seen. She had a pretty high emergency fund. We were talking about ways to secure some of the other investments that she had. This is very low that she was able to say, “It wasn’t a ton,” but she had nearly that are more in emergency funds.

She said, “What can we put more into the investment that you are recommending?” I said, “No, I don’t want to do that for you. I want to make sure that you keep this high emergency fund available because you have less, you cannot whether a need for this money on a sooner schedule. If something comes up, it’s going to hit you harder.

“I need that emergency fund to stay where it’s at, even though it seems like it’s a little high relative to your investments.” By the way, these emergencies can come lots of different ways.

We think about them in terms of healthcare emergencies, because, again, it happens a lot for elder law attorneys that they are essentially facing people, are working with people that are facing long‑term care expenses, but it can be a major home repair.

A good retirement plan is going to give you wiggle room for the things that you can’t anticipate. That includes the emergency fund. It’s still a needed tool and your best I think every time, because you can’t just go out, work, change your spending rate and deliver more money.

You’re probably best having about a year’s worth of money, saved away safely in liquid investments when you reach retirement age and shouldn’t be part of your investment plan as an asset available for retirement income. It should be squirreled away and not something that is factored into whether or not you retirement’s going to be successful.

This reserve fund is for things that you can’t foresee or plan against, even in the best of circumstances. We got two more and not a lot of time. The next mistake is to learn nothing as you go into retirement. I will say to our legal clients, “I can’t care more for your estate plan than you do.” I will say to our financial clients, “I can’t care more for money than you do.”

Time invested in your own financial success in the learning that it takes to get there is worth it. Even if you’re delegating this stuff to a trusted advisor, or maybe somebody who is both an attorney and a financial advisor happens to practice in Benton, Jersey. Even if you’re doing that, you need to know enough to find the people in the first place.

That’s why we do this show is to make sure that you have the information that you need to figure out who to select on this. You look at there’s different ways that you can do it. If you don’t like to show, you can read a book. You can read stuff that’s online. You can spend time browsing the Internet.

Just make sure you’re getting the information from the right source and not somebody that’s trying to sell you something with some underlying motivation on it. Even if you’re working with an advisor, you want to make sure that that advisor’s constantly learning, too.

One of the things that we’re proudest of is that I spend about 24 days out of the year, about one month, essentially, in continuing education to continue to learn things because as much as I know, I don’t know everything and things are changing all the time.

You want to be doing something similar. It’s one of the reasons why we offer so many client education opportunities where we’re trying to bring our clients along to know this as well.

Finally, I’m going to leave you with one last mistake. It’s going to be a practical one. I want you to avoid, which is I don’t want you to keep all of this information to yourself. The mistake to avoid is not sharing the plan with your family.

Your kids need to understand your retirement plan nearly as well as you do because if something happens to you, these are going to be the people that are going to step into your shoes and need to continue to follow this on.

I remember meeting with a client where, essentially, mom and dad were still alive. Dad died suddenly and the son stepped in to help because mama was suffering from Alzheimer’s. Well, he knew nothing about what his father was invested in or why. In fact, he knew nothing about the relationship that father had with the advisor and whether or not should continue.

Because of that, we needed to essentially start a retirement plan anew and we started to work with them. For clients that we have in our house, we actually spend a lot of time meeting the next generation. They’re aware of what planning looks like and why it’s important. Again, we encourage our clients to bring in their adult children to meet us.

The kids nice to meet them, too. We’ve got some toys here but not going to be as important for them to help manage your retirement. Most of the people in retirement already have adult kids along the way. All right, those are the 10 money mistakes. I hope it’s been helpful for you.

If you’d like to learn more about that including the ways that we can help, you can visit any of our websites that are out there. You can visit the Medina Law Group website. You can visit the Make It Last Wealth Advisors website, Private Client Capital Group our companies. You can continue to do research by going back to some of the prior episodes for this and listening to the other shows.

We talk about specific investment opportunities, and retirement strategies, and the things that we think you need to know even if you’re going to be delegating this work to somebody else along the way. That’s it for today’s show.

If you want to come and see me speak again, East Windsor, Senior Center, May 17, at 10:30 in the morning or come listen to me sing this morning at 9:30 in the morning Kingston Presbyterian Church. Other than that it’s been Make It Last. We hope you keep your legal ducks in a row, your financial nest eggs secure. We will catch you next week. Goodbye.