Providence Financial Retirement Show — Listener Q&A Episode
Well, hello and welcome to another edition of the Providence Financial Retirement Show. My name is Anthony Saccaro. We are your retirement income source and this is the place where retirees come for income. So glad that you’re here today. Thank you for taking time out to join us. We’ve got a good show today because we’re gonna spend all of our show answering some questions that we have gotten over the past weeks that we just haven’t had a chance to get to.
So this show is gonna be all about you and answering questions that you want to know, and it’s probably a good time to remind you that if you have a question for the show, you can ask it by going to providencefinancialradio.com. There’s a button there to click, ask your question, and maybe we’ll get a chance to answer it and talk about it in a future episode.
And that’s what we’re gonna be doing today, answering your questions. And we’ve got a smorgasbord of questions. We’ve got a question about Social Security. We’ve got a question about estate planning. There’s one about Roth conversions and one about long-term care. And we have several others that we’re gonna sprinkle in as well too.
Well, why don’t we get started and our first question comes from Mark in Irvine and Mark wrote in this. I’m 63 years old and planning to retire next year. I’ve saved about $1.2 million, mostly in my 401k, but seeing market swings lately makes me nervous. If a downturn hits right when I retire, should I delay retirement or change how my money is invested first.
And Mark, I thank you for taking the time to write in the question, because I know a lot of listeners probably are wondering the same thing. It’s interesting though that you kind of asked the question with only two possibilities, should you delay retirement or change how your money is invested? Well, I think there’s a third possibility as well too, and we’re gonna talk about that as we go through what I think is a good answer.
Let’s start with the fact that this is one of the most common fears that I hear from people approaching retirement. They’ve worked, they’ve saved, and as they get closer to retirement, they start to worry a little more about market swings. I’m gonna guess that, you know, 10 or 15 years ago, if the market swung a little bit, you really didn’t care.
But because you’re getting closer to retirement, your confidence is starting to shift. And once you get into retirement, you’re gonna find that that just even happens more. Your confidence gonna start shifting to uncertainty as opposed to the confidence that you had. Why? Because now you’re in retirement.
You can’t make up for lost time once you’re retired and the markets don’t care when you plan to retire. Volatility can show up at any time. And the issue isn’t about market declines, it’s about market declines while you are taking withdrawals. That’s the significant difference. When you’re working, you’re adding money and the markets fluctuate, but it doesn’t bother you ’cause you’re putting money in.
But in your retirement years, you are taking money out. And now market fluctuation starts to feel really personal. It starts to impact everything you do because you are taking money out, and that combination changes everything. You should also note that the sequence of those returns is also absolutely monstrous.
I mean, just huge when it comes to your retirement. And what do I mean by sequence of returns? I talk about it a lot, but we still get a lot of questions about it. Sequence of returns has to do with the timing of when bad years occur in the stock market. If you retire and you have several bad years in a row in the stock market, that’s gonna have a dramatic impact on you potentially when you’re in your eighties or nineties.
Whereas if you retire for 10 or 15 years and then there are several bad years in a row, that impact is not nearly as dramatic. It does not nearly affect your retirement as much if it happens later in your retirement. To phrase it a little bit differently, if you retire and several bad years happen upfront, that’s gonna have a much more dramatic impact on your entire retirement than if those several bad years happen later into your retirement.
And that’s just the way the math works. And I also appreciate, Mark, that you seem to be concerned about another market downturn or some volatility right on the brink of retirement. And if you’re about to retire, I think you should be concerned. The reason simple, it’s because we’ve gone many, many years. We’ve gone now about 13 years without a major market correction or a major market crash like we had in 2001 and 2008, and I think most people feel like the market’s just not gonna go up forever. I know. I feel like that. There’s a lot of professionals that feel like that, and you probably feel like that as well too, which is why you asked that question.
And when you study market history, what you begin to realize is that there are actually predictable and repeatable trends and you can actually get an idea where the market might go based on what has happened in history. And if you’d like to learn more about that, we’ve put together a short animated video.
That’s fun to watch because it is animated, but it’s also very powerful because in this seven or eight minute video, you’re gonna learn what history tells us could happen to the market here in the near future. I’d love to send this video to you absolutely free. I know you’re gonna enjoy watching it. If you wanna get it, all you have to do is go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Give us your information and we will email it to you shortly, and you’ll be able to press play and watch this video right on your computer. But you’re gonna enjoy learning what history tells us could happen to the stock market here in the near future.
It’s gonna be information that’s very powerful. To get your free video about what market history tells us about the stock market and where it might go, very easy. Just go to providencefinancialradio.com/video and we will get it right out. You’ll have it in your inbox shortly. I’m Anthony Saccaro. If you just hopped on, you’re listening to the Providence Financial Retirement Show, where it truly is all about the income.
Thank you for taking time outta your day, wherever you might be to join us, and we’re taking this entire show and we’re answering your questions. Questions about Social Security and estate planning, and we’ve got a question about Roth conversion and long-term care. And right now we’re in the middle of answering a question from Mark who is 63 years old, planning to retire in a year, has saved $1.2 million, and is just a little bit nervous because of the market, and wants to know that if the market drops right when he retires, what should he do?
Should he delay retirement or should he change how his money is invested first? And that’s really what we’re talking about right now. And the real goal is not really to guess when the markets are gonna become and try to time your retirement accordingly. ‘Cause you just can’t do it. What you really wanna do is build a plan that’s gonna work, even if the market is not cooperating.
You don’t retire when the markets say you can, you wanna retire when your plan says that you can. And you know, living in California, we know that there’s gonna be another earthquake. We just don’t know when. Right. And I think you could say the same thing is true about the market. It’s not gonna go up forever.
It’s not gonna be calm forever. But if it happens to go sideways or have a major correction or crash right when you wanna retire, then I think, Mark, you should be concerned because it may affect your ability to retire. And I do find it interesting, Mark, that you kind of suggested in your question that you’re willing to wait to retire if the market goes against you.
And yet I find that odd because most people don’t want their retirement to be tied to the stock market. And I’m a firm believer that if the market crashes and now all of a sudden you can’t retire. I think that’s a deeper sign that you’re probably not invested, right? You’re probably invested way too aggressively and now you’ve tied your retirement or your capability of retiring, your ability to retire.
You’ve tied it to your portfolio, and I know most people, that’s not what they want to do. Only retire if the market says they can. One thing that I’ve often said many times here on the Providence Financial Retirement Show is this. You don’t retire on assets, but you do retire on income. It’s your ability to get income from your portfolio that’s gonna dictate whether or not you can retire.
You mentioned you have $1.2 million, but I don’t know how much income you’re gonna need from that portfolio if you’re gonna retire in a year at 64 or two years at 65, and now all of a sudden you don’t need any income from your portfolio for 10 years. ‘Cause maybe you’ve got rental income or pension income or Social Security.
You combine all that and you just don’t need to touch your portfolio. Well then a major market crash is not gonna have nearly the impact on you as if you need to start withdrawing money from your portfolio on day one. What I find very frequently is that retirees, especially new retirees, they often continue watching their account balances like they’ve done for 30 or 40 years in their working career.
But they don’t focus on the income, and most people know how much balances they have in each of their accounts, but they don’t know what income those accounts are producing. If your income is stable though, then market headlines and market crashes are just gonna feel like background noise. They’re not gonna threaten your retirement because you have your income covered and retirement runs on cash flow.
It doesn’t run on optimism. If losing half of your portfolio and the next market crash and that were to happen right when you retire, then yeah, you might have to delay your retirement and you can’t be in that position without being anxious about it. I mean, if you’re gonna retire and the market crashes at the worst possible time, and now you can’t retire.
You’re not gonna have peace of mind. Not only are you gonna be forced to work, but you’re also gonna be wondering, well, how long do you have to work? When is the money gonna come back? When are you gonna be able to start getting income from your portfolio? When are you gonna be able to retire? All of that is wrapped up in being invested for the accumulation phase of life, not being invested for income.
Like we talk about here on the Providence Financial Retirement Show. If you are invested for income, then those questions go away and you can retire on schedule no matter what happens to the stock market. And if you are gonna retire soon and you’re watching your balances and you’re keeping your fingers crossed and your toes crossed and watching the headlines, and just hoping that everything goes well so you can retire on schedule, well, to me, that’s not a retirement plan.
That’s a retirement hope. That’s a retirement guess. And it might be telling you your feelings inside that anxiety you have. It might just be telling you that maybe it is time to make a switch. You don’t wanna wait until the day before you retire to make a switch. It’s not like flipping a light switch on and off, where now all of a sudden you’re retired and now you’re going to start investing for income.
You wanna start making that transition ahead of time, and the market is at all time highs. Probably a good time to start making that transition now, so if the market does crash, it doesn’t force you to have to work longer. And the transition we’re talking about is the transition from being invested too aggressively with no income, from your portfolio, to being more conservative with investments that are gonna give you the income that you can spend or reinvest regardless of what the market does.
And if you’re sitting back there and you’re wondering how to do that, sounds good, but you’ve never done that before. Well, in my book, More Life Than Money, that’s what I wrote about. That’s all what Chapter five is about. The difference between investing for the accumulation phase of life versus the distribution phase of life.
And I’ll send you More Life Than Money, absolutely free of charge, but you do have to ask for it. And you can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information and we’ll get a brand new hardcover copy of More Life Than Money right out to you.
But you’ll learn what you need to know to be able to feel confident in retiring no matter what happens with the stock market. To claim your free copy of More Life Than Money right now, just go to providencefinancialradio.com/book and it’ll show up on your doorstep shortly. Mark, thank you for taking time to write in the question, and I certainly hope I gave you some things to think about.
Thank you for staying with us. I’m Anthony Saccaro. You’re tuned into the Providence Financial Retirement Show. We are your retirement income source and this is the place where retirees come for income. And we’re spending our time together today answering your questions. So in a real sense, this show is all about you and we’ve got questions about Social Security.
We’ve got a question about retirement, which we just answered from Mark. We’ve got questions about Roth conversion and a question about long-term care. So that is all what’s in store for you for the rest of this show. But now we have a question about estate planning. And this question comes from Greg in Simi Valley, and he wrote in this.
We already have a living trust that we did years ago. How often should we revisit it? And what are the biggest mistakes that people make after their documents are done? And I really appreciate the question and I appreciate that insight because there are a lot of mistakes that people make. I’m gonna suggest that the first mistake that people make is that they set it.
Forget it. Many people think that once the trust is signed, they’re done forever. And I really appreciate the fact, Greg, that you seem to know that this isn’t true. But a lot of people don’t know that. I’ve seen trusts that are 20 and 30 years old that have never been touched. A trust and a will. And an estate plan is a living, breathing document.
It’s a living process. It’s not a one time event. It’s not a trophy that you put on a shelf. It’s a plan that has to keep updated with your life as life changes. Think about it like a GPS. You know where you’re going, but as you start to move towards your destination, you’re probably gonna make some detours because the road and the situation’s gonna change, and that’s the way it is with estate planning.
It shouldn’t be set it or forget it. What are some of the things then that you should think about? When it comes to reviewing and having your estate plan updated, well, the obvious one I think is major life changes. If you’re gonna retire, you might want to have your estate plan reviewed. If you’re gonna move to a different state, probably good to have it reviewed for state law.
If you’re gonna have new assets, right, you buy new properties or you get new accounts, that means that those accounts have to go into your estate plan. They have to be titled right, and your beneficiaries have to be named properly. Family dynamics change. If you get divorced, you get married, then you want to update your estate plan as well, and even your health, health is gonna have an impact on your estate plan as well too.
People that you chose 20 and 30 years ago may not in fact be the people that you want taking care of your health today. Especially if your children were younger when you did your estate plan, you might not have chosen them at all, but if they’re 20 years older today, they might be the ones that you actually wanna start making decisions for you instead of whoever it was you chose before.
So major life changes has a significant impact on your estate planning documents. Even if you have a very simple situation, though, a situation where you have one wife and a couple of children and everyone gets along and there’s no infighting and nothing has changed over the last 20 or 30 years, well, there are other things that need to be considered as well too, because it’s not just your family and not just major life changes that cause a review of your trust to be necessary.
It’s also laws and tax rules. They evolve over time as well. And as an attorney, I generally recommend reviewing your trust every five years or so. I can’t tell you how many times we review a trust where someone sitting across the table from me says, oh no, everything’s the same. Only to realize that there are a lot of changes.
They just didn’t know what those changes were. If you have your estate plan reviewed every five years, then you’re gonna stay really current. I also wanna throw something else in there, and that is that if you have an old trust, it’s probably a good idea to redo the whole thing periodically as well too.
That’s another mistake that I see people make is they think they never have to redo it. That’s not really true, and it certainly depends on your family dynamics. If you have a one marriage, couple kids, family, no problem. You probably don’t have to update it as much as a family where there is maybe multiple marriages and kids from different marriages, but at a minimum, I’d recommend updating it every 10 or 15 years anyway, just because so much has changed that.
A document drafted today is gonna be much different than a document drafted 10 or 15 years ago. And if you wanna stay current and you wanna make sure that everything goes according to plan when you’re not here or when you can’t make decisions anymore, then you probably should update it. Unfortunately, it’s not expensive to do.
May just be several thousand dollars just depending on your situation. But that several thousand dollars is gonna be money well spent. You’ll have the confidence and peace of mind of knowing that your plan will do what it’s supposed to do and not wondering whether it will actually do what you wanted it to do.
But an estate plan should never be a set it and forget it type of plan. And thank you again, Greg, for taking time to write in that question, and I certainly hope I’ve given you something to think about. If it’s been a while since you’ve looked at your estate plan or maybe you’ve just procrastinated, never even set up an estate plan, and you’re just kind of hoping things work out well.
In my new book, More Life Than Money, I have an entire chapter dedicated just to estate planning. You’ll learn about trusts, you’ll learn about wills and power of attorneys and advanced directives and everything you need to know so that you can set up an estate plan and make sure that your assets go to those whom you love instead of those whom the court chooses.
Because if you don’t set up an estate plan, it’s gonna be the courts that dictate where your money goes, not you. And I’m gonna guess that you could probably do a better job of choosing how your money’s gonna get distributed than the courts, especially here in California. If you wanna learn more about estate planning, you gotta get a copy of my new book, More Life Than Money.
I’ll send it to you free of charge. You just have to go to our website and give us your information. That’s easy. Our website is providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information and we’ll FedEx a hardcover copy of More Life Than Money right out to you.
To claim your free copy of More Life Than Money, just go to providencefinancialradio.com/book and we will get it right out. But I know you’re gonna enjoy reading it, especially if you wanna learn more about estate planning. I’m Anthony Saccaro. Thank you for staying with us. You’re locked into the Providence Financial Retirement Show.
This show is all about you because we’re answering your listener questions. We just answered a question about estate planning and before that we answered a question from Mark who wanted to know what he should do since he’s gonna retire in a year and he is worried about the stock market. We’re gonna shift gears though now, and we’re gonna answer a question about Social Security, and this comes from Lisa in Pasadena and she wrote in this.
My husband wants to take Social Security at 62, but I’m thinking that we should wait. How do couples decide when each spouse should start taking their benefit? Well, Lisa, that’s a very, very good question, and it’s all too often that I will see each spouse kind of treat Social Security as if it was an independent decision.
But Social Security should not be an independent decision. It needs to be calculated when to take it with regards to the other spouse with regards to the rest of your income, the rest of your assets, retirement, a lot of factors. They’re not two separate strategies or two separate choices. It should be one coordinated strategy because the decision is going to affect both spouses when I have a Social Security conversation with someone.
I hear a lot of different things. Sometimes people will say something like, well, I’m gonna take it as early as I can because I dunno how long I’m gonna live. And I don’t know how long Social Security’s gonna be here. I have other people that will say the opposite. They will say, I’m just gonna wait till 70 no matter what, because I know that if I live beyond 80 or 90 years old, it’s gonna be much more beneficial.
And while it is true that the sooner you take it, the less you get, but the longer you get it for. The longer you wait, the more you’re going to get.
The reality is that’s not the only decision. That’s not the only consideration that you should be thinking about when trying to figure out when to take Social Security. And by the way, I should throw in the fact that Social Security is all really designed to break even at around 80 years old anyway. So whether you take it at 62 or whether you take it at 70, at 80 years old, or somewhere in that range, you’re gonna have received the same amount. So the race in time is really up to 80. It’s not to 90 or it’s not to a hundred. If you live beyond 80 years old, then waiting until 70 usually makes more sense. Just from a mathematical point of view. You’ll wind up getting a lot more beyond your eighties if you wait until 70. But again, that’s not the only consideration. That’s just more of a generality, but.
There is one big thing that I often see retired couples miss when they’re trying to figure out when to take Social Security, and that is they forget the survivor’s benefit. The survivor’s benefit basically says that when one spouse passes away, the surviving spouse is gonna keep the larger of the two Social Securities.
If the decedent spouse was the breadwinner and they started collecting early, say at 62, then the surviving spouse is gonna get a lot less income than if that decedent spouse would’ve waited until 70 years old. And that’s a massive consideration and it’s one that is often, often missed. Very rarely do I ever hear a spouse couple talking to me about the survivor’s benefits when they’re trying to figure out when to take Social Security.
But I’m gonna suggest that it’s probably the most important decision for most of you, is that survivor’s benefit because the surviving spouse is gonna be left without one Social Security and by waiting for a longer date, or waiting until age 70 to start collecting it, that means that the survivor’s gonna have a lot more income than if the decedent spouse were to have taken it early.
That’s a huge consideration. Lisa, though, I do want to thank you for taking the time to write in that question. If you’re wondering though, when is the best time for you to take Social Security, and maybe that’s only just a year or two down the road and you wanna start getting better educated about it, we put together a short animated video that talks all about Social Security.
Not only will you learn about the difference between filing earlier, filing late, and you’ll learn about the survivor’s benefits, but you’ll also learn about other benefits that are often missed as well too. And if you’re on the brink of taking Social Security, and this is a decision that you have to make soon, you’re gonna wanna watch this video first, just to make sure you don’t miss anything.
I’ll send it to you free of charge, and you can request it by going to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information and we’ll email it to you. All you need to do is press play, and you’ll be able to watch this fun animated video and learn about Social Security at the same time.
Just go to providencefinancialradio.com/video and you’ll have it in your inbox shortly, but you’re really gonna enjoy watching it.
Thank you for staying with us. You’re listening to the Providence Financial Retirement Show, and I’m your host, Anthony Saccaro. Really glad that you’re here. Hope you’re enjoying the show. We’re answering your questions. We’ve already had a question about Social Security. We talked about the survivor’s benefits. We had a question from someone earlier who was a little concerned about the stock market. Whether they should make some changes now before they retire or wait until after retirement.
But now we’re gonna move into a question that’s coming from a wife whose husband is on the different side of the fence. So, let me read the question and let’s talk about this. Diane from Temecula wrote in this. My husband recently retired and suddenly we’re disagreeing about spending. He wants to travel now, but I’m afraid of running outta money. How do couples create a retirement plan that they both feel comfortable with?
And I want to thank you, Diane, for writing that question because it really is such an important question. And the one thing that I want to ask you back, something that I often find to be true that you might not even realize is, does your husband know about this fear? Does your husband know that you’re afraid of running outta money and that he wants to spend, but you are very uncomfortable spending?
Does he know that? I talk with couples all the time, and sometimes I feel like I’m playing therapist. I’ll have a husband and a wife in front of me and it’s almost like they can tell me things in front of their spouse that their spouse never knew. It’s not uncommon for one spouse to tell me how they feel about money and the other spouse to be reacting like, oh my gosh, I never knew that.
So my first question to you is, does your husband even know that you’re uncomfortable with his plan to want to go spend money? And I’m also not asking you if he should know. I’m asking you if he does know. In my own household and in the companies that I run, I have a general rule, and that is no assumptions because assumptions get us into trouble.
We think that someone knows something. We assume that someone’s gonna do something and it doesn’t happen. And so therefore feelings are hurt or plans don’t work out the way we want because something was assumed. So I wanna make sure that you know that your husband knows how you feel and not just that you think he should know how you feel.
From my experience, most of the times when the other spouse feels that the other spouse is uncomfortable, they’re very willing to have a conversation, very willing to make some changes. ‘Cause your husband doesn’t want you feeling uncomfortable about spending money. I mean, I can pretty much guarantee that unless you guys just don’t have a great marriage.
But it does bring up an important consideration and that money is emotional. People feel different emotionally about money. Some people have no problem spending it and other people when they spend it feel like they’re crimping their future or feel like they might be putting themselves in a position to have to worry about running outta money, or maybe they feel like they’re not gonna give the kids as much as they want.
And for one spouse, it’s perfectly fine for the other spouse that’s not. So I think it’s just really a communication issue and you probably want to go back to your husband and just have this conversation with him. What I often find though is that disagreements, most of the times come from uncertainty, not from the money itself.
If you’re invested wrong and your husband is cannibalizing the portfolio and selling a lot of shares or taking too much income and there’s a real genuine reason to have to worry. Then maybe you do have a reason to worry, but if you are invested for income, like we teach here on the Providence Financial Retirement Show, and you’re living off of interest and dividends so that the portfolio value on a particular day doesn’t mean anything because you’ve got income from your portfolio, then maybe the issue is not with him.
Maybe just the issue is with your uncomfortability because of the uncertainty that you have towards how the plan works. And I’ve found that when you have a plan, a plan to spend income, income from interest and dividends, not withdrawing from your portfolio and cannibalizing your nest egg, crossing your fingers and toes, not a retirement hope, but a retirement plan.
When you have a plan that allows you to spend money, then I find that most of the times that solves the problem and both spouses feel comfortable because they know that they have a plan in place, a plan that’s gonna sustain ’em through retirement. In good times and bad, no matter what the market does. So maybe it’s just your lack of awareness of the plan, or maybe it is that you don’t have a plan either way.
I think having a conversation with your husband to make sure you’re not making assumptions and to make sure he knows how you feel, that’s probably a good place to start. So definitely Diane, I hope that helps answer your question, but I do definitely appreciate you taking the time to write in. If you’d like to learn more about how to create income from your portfolio that will sustain you through retirement without having to worry about whether or not you will run outta money.
Well, that’s why we put together this short animated video that I’m gonna offer you free of charge. It’s all about how to get income from your portfolio and we’ll email it to you. You’re gonna enjoy watching it ’cause it’s animated. So it’s fun, but it’s also very powerful because you’ll learn what you need to know about how to get income from your portfolio.
Not have to be in a position to worry about whether or not you can get the income. You’ll know that you can get the income because of how you are invested. If you want this video, just go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information and it’ll show up in your inbox shortly.
One more time to claim your free animated video. To learn how you can get income from your portfolio, just go to providencefinancialradio.com/video and we’ll get it right out. But you’re really gonna enjoy watching it.
Thank you for hanging out with us today. If you’ve been with us for the entire show, then you know that you’re listening to the Providence Financial Retirement Show. You also know that we’re taking the entire show and we’re answering your questions. We’ve already answered a question about Social Security. We answered a question about estate planning. And now we’re gonna answer a question about long-term care. Before I go on though, if you have a question for the show, all you need to do is go to providencefinancialradio.com and you can ask us your question there.
Maybe we’ll get a chance to discuss it and answer it in a future episode, just like we’re doing today. This takes us to our next listener question of the day though. And it comes from Karen in Long Beach, and she wrote in this, I watched what happened with my mom needing care for several years, and it drained her savings. Is long-term care insurance still worth considering or are there better options now?
Well, Karen, thank you for taking the time to write in that question, and you’re not the only one who wonders that. I find that many people start to think seriously about long-term care when they see how it has affected a parent. It really shifts the conversation from theory to reality just very quickly and long-term care isn’t really a financial question, it’s a family question. And most families don’t plan for it until they’re in the middle of a crisis. And this risk isn’t just cost. It’s how expensive care can be and how interrupting it can be to your retirement income and your legacy plans.
And just one event can change years of careful planning. Long-term care risk is really less about probability and it’s more about impact. Kinda like when you think about home insurance, you hope you never need it. One event, one fire is gonna change everything. And from the gist of your question, Karen, it almost seems like you kind of know that maybe there’s better options out there, or at least you know that long-term care, the old policies weren’t really that good.
And I would agree with you. The old long-term care style policies just weren’t that good. There’s something that I didn’t recommend for a long time, and there were a lot of reasons, but one of the reasons is that they could change the price at any point in time. So you might sign up for a policy and then 20 years later you couldn’t afford that policy anymore and you wind up canceling it, and that’s exactly what the insurance company wants, and they were winning that game.
That happened very frequently, and I didn’t like the old style policies because of that. They were also use it or lose it policies, which means that you might’ve been paying this exorbitant amount of money for a long-term care policy for a couple decades only to cancel it ’cause you got priced out. And even if you didn’t cancel it, but you never needed it, maybe you just passed away in your sleep without needing long-term care, well then you never got any benefit from it.
And just this kept a lot of people from ever considering long-term care. But those were the old style policies. They have evolved a lot. Many life insurance companies today and even some annuities today, are actually in existence to provide benefits that will give you a lot of long-term care and that guarantee that the premium that you pay is gonna stay consistent throughout your lifetime.
Sometimes this is just even a one-time payment and you never have to make another payment again. Sometimes you do have to make payments for your lifetime, just depending on your goals and setting it up. But these payments will never change based on these new policies. And there are even some annuities out there that will do the same thing.
They’ll actually pay you a pretty good interest rate, but if you need long-term care, they might double or triple the amount that you put into the annuity just for the purpose of long-term care if you ever needed. And these are often collectively kind of referred to as asset backed insurance, where you’re putting up some of your own money to back your own insurance plan.
But because you were willing to do that, you usually get a lot more benefits than you could under the old plans, and you get to lock in a rate, so you never have to worry about premium increases. And those two things actually make them very attractive. Now I have to mention that there’s a lot of ways to set these up.
There’s not just one plan that fits every situation all the time. It’s gonna depend on your family dynamics. It’s gonna depend on whether or not you just wanna put a chunk of money upfront and never make payments again, or whether you wanna put a little less upfront and maybe make some payments. It’s gonna depend on how much you want to go to your beneficiaries.
You can actually design a plan that if you never use the long-term care, your beneficiaries get a nice tax-free death benefit on the back end so that they get something. Or maybe you want more benefits and maybe they’ll just get a return of premium. But most of the times when we set up a plan like this for someone and asset backed insurance plan, at a worst case scenario, at least you’re gonna get all your money back or close to it.
And with that being said, then yes, they have changed a lot and if you haven’t looked into long-term care for a while, you’re probably gonna be impressed with some of these new plans and how they work. As a matter of fact, in More Life Than Money, my new Amazon number one bestselling book, I spend an entire chapter talking about asset backed insurance.
I talk about how it works. I talk about some real world examples, how much it could cost, the benefits you could get, and you can see it in my book with your own eyes, ’cause I’ve got some charts in there that some people have told me are really powerful. I’ll send you a copy of More Life Than Money, absolutely free of charge. You just have to ask for it. You can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information and we’ll get a brand new hardcover copy of More Life Than Money right out to you. But if you’re looking to get some more information about long-term care and this asset backed insurance thing intrigues you, you’re gonna wanna read this chapter, just go to providencefinancialradio.com/book and we will get it right out.
Thank you for continuing to stay with us here for the Providence Financial Retirement Show. My name is Anthony Saccaro, and we’re taking this entire show and we’re answering your questions. We’ve already answered a question about Social Security. We answered another question about estate planning. And just in the last segment, if you were with us, then you heard us answer a question about long-term care and the fact that it’s evolved over time and really much better now than it used to be, even just five and six years ago.
I wanna move on to our next question though, and that comes from Carlos in Ventura and he wrote in this, I keep hearing about Roth conversions, but I’m not sure if paying taxes now makes sense. Are there certain years or situations where conversions are clearly a good idea? Well, Carlos, thank you for taking the time to voice your question to us because yes, it’s a question that we often get and the short answer is yes.
There are definitely periods of time where it makes more sense than others. And before we answer your question, Carlos, though, I wanna step back for a minute and just make sure that the rest of our listeners know what a Roth conversion is. If you have money in a pre-tax retirement account, you know that at some point down the road you’re gonna have to start taking cash, taking withdrawals outta that retirement account and claiming it as income and paying taxes on it.
The government wants their tax money. They don’t want you to defer all those taxes all these years for, and what a Roth conversion does is it allows you to take some of that retirement account and convert it to a Roth IRA. When you do that, you have to pay the taxes on the conversion. But now, whatever amount you convert into a Roth IRA, that’s gonna grow tax free forever.
And the question, Carlos, that you ask is a very common question, what do I do? Do I do some conversions now or do I just wait until later and never do them at all? Although it’s really gonna depend on the specifics of your situation. For most people, conversions make some sense. And yet, what do you think is the biggest reason why most people don’t want to do a conversion?
Well, if you said, because you gotta pay the taxes, then you are absolutely right. But guess what? You are gonna have to pay the taxes at some point down the road anyway. The question is, do you wanna just pay the taxes on the government’s timetable when you’re forced to start taking required minimum distributions and they force you to start claiming income?
Paying the tax or would you rather set up a proactive tax strategy so you can convert some of your retirement accounts into a Roth and you get to choose when to pay the tax and how much tax to pay? The latter option is generally better. If you’re proactive, you usually have a better outcome than if just reactive. You’ll usually wind up putting yourself in a better situation if you follow the government’s plan. Would you guess that that is set up to be more beneficial for you or more beneficial for them? Yeah, it’s usually more beneficial for them, but there are ways to beat them at their own game, and Roth conversions certainly can come into play.
I find that most people, and if we’re honest, even most CPAs, tend to look at what taxes are you gonna have to pay this next year? Because if that’s all you’re looking at, then a Roth conversion’s not gonna make a lot of sense because you’re gonna have to pay more taxes and CPAs are trained to help you save taxes, not pay more.
But when you start to change your focus from this year to how is a Roth conversion gonna affect you in the next 10 years or 20 years? The answer becomes much more obvious, but most people never shift their perspective. And a Roth conversion is not a short term strategy to save money in tax this year. ‘Cause you’re not gonna do that. Most likely you’re gonna wind up paying more in taxes this year, but you will wind up saving taxes for the rest of your lifetime. So the question is really, do you pay more tax this year and have a huge tax savings for the rest of your lifetime? Or do you save taxes this year and wind up paying more tax for the rest of your lifetime?
That’s usually what it boils down to, and most of the times, doing a conversion is a lifelong strategy to save taxes. Not this year, but over your lifetime. Back to your question Carlos, though, and you had asked if there’s a time or years that it’s better to do conversions than others. And the answer is absolutely yes.
If you are in a window of time where your income is lower, maybe you’re retired, but you haven’t started taking Social Security yet, that’s a great, great time to start thinking about doing Roth conversions because you’ll probably wind up paying less tax this year and you’ll save taxes over your lifetime as well.
And there are other reasons that it could make sense as well, but it has to do with your income. But I appreciate you being a student of Carlos to ask that question and certainly hope that the answer I’ve given you not only helps you but our listeners as well. Roth conversions, though that’s only one potential way to be proactive.
There are a lot of ways that you can be proactive with your taxes so you can put yourself in a better position to save a huge amount of taxes over your lifetime, even if it costs you a little more this year. If you’d like to learn what some of those other tax saving strategies are, though, we put together an animated video that talks exactly about that proactive tax saving strategies.
We’ll send it to you absolutely free of charge. It’ll show up in your inbox as long as you want it. And to claim it, all you need to do is go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your email address and other information and we’ll go ahead and email it right over to you.
And you’ll learn what you need to know to be more proactive with your taxes instead of just letting the government control when you are going to pay your taxes. To get your free animated video, just go to providencefinancialradio.com/video and we will get your video right out to you. You’re gonna enjoy watching it, and at the same time, you’ll learn how to save taxes as well.
I’m Anthony Saccaro. Thank you for staying with us here. You are listening to the Providence Financial Retirement Show. If you’ve been with us for the entire show, then you know that we’re answering your questions. We’ve already answered a question about Social Security and another question about estate planning and long-term care, and now we just answered Carlos’s question about Roth conversions.
And if you have a question for the show, all you need to do is go to providencefinancialradio.com and ask a question, and hopefully we get a chance to give you an answer sometime down the road. We just answered Carlos’ question about doing a Roth conversion and whether it’s something that makes sense now or whether there are certain years that it makes more sense than others. And of course you heard my answer was that, yeah, there are some years that make more sense than others to do Roth conversions. I wanna step back for a minute though, because a part of what I shared with Carlos in the last section was really the fact that the government has its own strategy.
And if you follow the government strategy, generally speaking, it’s gonna be more beneficial for them than it is for you, and you have to know the rules. And one of the things that I wanna spend a few minutes with you now is talking about the rules of the IRA and 401(k)s. And I want to twist your thinking a little bit and give you a perspective that maybe you’ve just never had.
And this is really all gonna tie back into the fact that we wanna all save taxes this year. Most of you are not really looking at lifetime taxes, you’re looking at the amount of taxes you can save this year. That’s what your CPA wants you to do, and that’s what most of you are doing. Focusing on how do I pay less this year?
And one of the ways that the government has really, I don’t know if I wanna say forced upon you, but really positioned strongly, is that you can put all your money into retirement account and not pay taxes on that money this year. You’re gonna wind up paying taxes on it later, but you know what? That’s later.
Right? We’ll deal with that then. But that’s the government strategy. Put money in now to your retirement account, save taxes this year, and deal with the ramifications later. But is that really a wise strategy? And who benefits from that strategy more, you or the government? Well, let’s break it down. When you put money into a retirement account this year, true, you’re not gonna pay tax this year.
But over time you hope that that amount grows and the government is gonna force you through required minimum distributions to start taking income from your retirement accounts later and pay the taxes at a later point. So it’s not that you’re putting money into your retirement accounts tax free, it’s that you’re putting money into your retirement accounts tax deferred.
And does that make any sense? Well, let’s walk through it. Let’s say that you’ve contributed a hundred thousand dollars to your retirement accounts over, say, a 20 year period, and let’s just say that your accounts have done well, and maybe your hundred thousand dollars has turned into $300,000. Well, what would you rather pay the tax on, the $300,000 that your accounts have grown to, or the $100,000 that you put in?
Well, of course you’d rather pay tax on the $100,000. But what would the government rather have you pay the taxes on, the hundred thousand dollars you put in, or the $300,000 that your account’s grown to? Yeah, maybe now you’re starting to understand why it’s really in the government’s best interest to have you put money into tax deferred accounts because you wanna save taxes today, but they know that they’re gonna get a lot more tax dollars from you over time because those accounts are gonna grow.
You’re gonna keep contributing to them every year, saving taxes on a year by year basis. But over the long run, they’re gonna get a lot more tax dollars. And if they get a lot more tax dollars, guess who’s paying a lot more tax dollars. You got it. That’s you. So I’m not even sure that putting all your money in retirement accounts absolutely makes sense because it’s gonna benefit the government more than it’s gonna benefit you, and that’s where Roth conversions come into play.
You can actually call time out and start to construct a strategy that will help you move from your pre-tax retirement accounts into Roth IRAs. Pay the tax on your terms when you want. And then you get to have that money grow tax free forever. Are Roth conversions generally good? For most of you, the answer is yes, but it has to be structured and there has to be a lot of thought put into it, not just something you want to go and convert all your retirement accounts today because that could kill you in taxes.
The government’s rules and apparent incentives usually benefit them more than they benefit you, but you can beat them at the game, and that’s what Roth conversions will allow you to do. You just have to know how to do ’em, and you have to know about them. And if you’d like to learn more about Roth conversions and how they might make sense in your situation.
Well, in my book, More Life Than Money, I wrote a lot about that, how to beat the government at their own game. And I’ll send you a copy of More Life Than Money absolutely free of charge. You can get it by going to providencefinancialradio.com/book and we’ll send it right out. If you wanna get More Life Than Money, no cost, no obligation.
Just a free hardcover copy of my book to learn about the most common mistakes that I’ve seen retirees make and how to be more proactive with taxes and whether Roth conversions make sense. To just get better educated, we’ll send it to you. Just go to providencefinancialradio.com/book. One more time, it’s providencefinancialradio.com/book, and you’ll have it on your doorstep shortly. I certainly hope you’ve enjoyed today’s Providence Financial Retirement Show. We’ve been answering your listener questions. I’m Anthony Saccaro. Thank you for joining us for the Providence Financial Retirement Show. Have a great week everyone.
God bless.
Disclaimer: This transcript is provided for educational and informational purposes only and reflects a general discussion from a live radio broadcast. It is not intended as personalized financial, tax, or legal advice. Individual circumstances vary, and listeners should consult a qualified professional before making decisions.