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7 steps to help clients retire well

Tom D. Hegna, CLU, ChFC

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Use this step-to-step strategy to create comprehensive plans.

EVERYBODY THINKS RETIREMENT IS SO COMPLICATED. But the more I study retirement, the simpler it gets. The ultimate success of retirement is going to depend on your answers to my next two questions. And I’m not going to ask you how big your brokerage account is or if you have a fancy house. Why? Because the success of your retirement is not about your assets. See, this is a paradigm shift. Do you know what you’ve been taught your entire life? That our retirement is going to depend on this pile of money. And the bigger our pile of money is, the better our retirements will be. That’s what you were taught. That’s what I was taught. And that’s what your clients were taught. But that’s not exactly true.

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 by a market crash or wiped out by long-term care. In fact, for you and most of your clients, these assets are simply numbers on a piece of paper. Think about it. Your brokerage account? Those are numbers on a piece paper. Your bank account? Those are numbers on a piece of paper. And did you know that for the rest of your life, there are only two things you will ever do with those numbers on that piece of paper? You are either going to spend that money or you’re going to give that money.

Use this step-by-step strategy to create comprehensive plans.

You’re either going to give it when you’re alive or, more likely, you’re going to give it when you die. Because I’ve got news for you: You don’t get to take any of it with you. It’s all going to stay down here.

So, when you really research the math and science behind a successful retirement, it comes down to this: Where in the world can I put my money that will give me the most income that I can spend and spend and never run out? And what is the most efficient way for me to give money to others? And you know what you’re going to find? In the entire world, the place you can put your money that will give you the most amount of income, that you can spend and spend and never run out, is going to be some form of an annuity. And the most efficient way to give money to others is going to be some form of life insurance. These are not opinions; these are mathematical, scientific and economic facts.

So when I meet with clients, I share seven simple steps on how to retire happy and successful. These steps are based on the math, science and economic facts. And because of that, they will work anywhere in the world.

STEP 1

You have to have a plan. How can you get anywhere if you don’t have a road map of how to get there? I also tell clients they have to work with a financial professional; retirement is not a do-it-yourself project. One more thing: Many people think this is a knowledge business. This is no longer a knowledge business. This is a words business. This is a language business. This is a questions business. This is a stories business.

STEP 2

I want you to understand and maximize your government retirement benefits. Do you realize that for most of your clients, their government benefits are the largest retirement asset they have? And yet people spend more time planning their summer vacation than learning how to maximize those valuable benefits.

STEP 3

I would encourage you to consider a hybrid retirement. Too many people are trying to retire too early; they haven’t saved enough money. If you could get your clients to work just a couple extra years, even part time, you can increase their success in retirement significantly.

Here’s why: They can have increased earnings, increased savings and increased government benefits. Plus, we can keep them from tapping into that portfolio for a few more years.

STEP 4

You have to have a plan to protect yourself against inflation. Inflation is like a virus that gets worse over time. An example: $10,000 of purchasing power at 4% inflation will be cut by more than 50% in 20 years. It will be cut by more than two-thirds in 30 years.

So, think about this: You don’t just need to have income to age 100 and beyond. You need to have increasing income to age 100 and beyond. So, this is where stocks fit. This is where mutual funds fit. This is where real estate fits.

You can build a portfolio that, if we get inflation, the portfolio will go up. But you can also protect yourself against inflation without using any risk products. I’ve already bought guaranteed lifetime income that will kick in when I turn 60. But I bought more that kicks in when I turn 65. I bought even more that kicks in when I turn 70. I bought even more that kicks in when I turn 75. I’ve got 11 of them. And I’ll probably have 25 of them before I retire. Because retirement is about having increasing income for the rest of your life. It is not about the stock market. It is not about real estate. It is having increasing income and managing risks.

STEP 5

You must secure more guaranteed lifetime income. The success of your retirement is not about your assets. The success of your retirement is going to have everything to do with income.

There are three sources of guaranteed lifetime income. Source No. 1 is your government retirement benefits. What is your government retirement benefit? It is a lifetime income annuity. It’s a guaranteed paycheck for life.

The second source is a pension. A pension is also a lifetime income annuity. It’s a guaranteed paycheck for life. And what math and science really demand is that, as a minimum, you need to cover your basic living expenses with guaranteed lifetime income.

So your government retirement benefit counts; your pension counts. But whatever you’re short, you know what you’re supposed to do? You’re supposed to go find an insurance company and buy a lifetime income annuity.

Now, I speak all over the world. In the last three years, I’ve spoken in Taiwan, Singapore and Thailand. It is not unusual when we have a large group of people that somebody might raise their hand and say something like, “Tom, we don’t like annuities around here. Dave Ramsey doesn’t like annuities. Suze Orman doesn’t like annuities. Ken Fisher takes out full-page ads that say, ‘I hate annuities, and so should you.’ We don’t like annuities around here.”

Do you know what I do? I just act surprised. I say, “Seriously, you’re telling me you don’t like annuities? So, let me understand what you just said. You paid into your government retirement plan for 35 years, but you’re going to call the government and say, ‘Stop those checks. I don’t want any government retirement checks because I don’t like annuities.’ Are you seriously going to do that?

“You worked for that company for 42 years, but you’re going to call up the human resources department to say, ‘Stop those pension checks. I don’t want to get another pension check in my mailbox. We don’t like annuities around here.’”

Well, typically the client will say something like, “Well, I guess we like those kinds of annuities. It’s just those insurance company annuities that we don’t like.” I say, “Really? And why is that?” “Because they’re all loaded up with fees.” I say, “Really?” Does anyone in this room know what the total ongoing fees in a lifetime income annuity even are? Zero. It’s not even a fee product. It’s called a spread product. If you are guaranteed $1,000 a month for the rest of your life, guess how much will hit your bank account every month? $1,000 a month.

STEP 6

You must have a plan for long-term care. My guess is that in your book of business, this is the No. 1 thing that has not been taken care of. It can wipe out your clients’ entire lives’ work. You need to talk about it.

Explain the facts: The odds of your home burning down are less than 3%, but everyone has homeowners insurance. The odds of totaling your car during your lifetime are 18%, but you have auto insurance. The odds of you needing some form of long-term care are 72%, yet you have no retirement plan for that. No retirement plan is complete without a plan for long-term care.

STEP 7

Don’t leave your kids any money. I tell my clients to spend their money. Leave the kids life insurance, because you can do that for pennies on the dollar.

Tom D. Hegna, ChFC, CLU, is an economist, author and retirement expert. He spoke at the 2019 Annual Meeting.

Contact: Tom Hegna tom@tomhegna.com

 

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