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Is there a retirement crisis in the U.S.? We have invited the retirement expert, @TomHegna to talk about the popular retirement income models and how inflation impacts retirees. In this video, Tom answers consumer questions about retirement planning and shares practical tips on how to start saving to ensure a happy retirement.
00:00 - About Tom Hegna
00:38 - What factors affect the retirement age?
02:03 - Retirement crisis and how high inflation impacting retirees
03:47 - How to start saving for retirement?
05:37 - What are the popular retirement income models?
08:56 - What are the main types of retirement plans (i.e. IRA, pensions, etc.)?
11:27 - About additional costs/taxes associated with retirement
13:16 - What is Rule 72(t)?
15:25 - What are the common mistakes with retirement planning?
16:36 - Top retirement tips
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0:00
thank you so much for joining us please tell us is there a retirement crisis in the u.s and
0:10
how is high inflation influencing the u.s retirees i do think we have a retirement crisis and the
0:18
reason is because 50 percent of americans have saved nothing and you can't retire on nothing and
0:24
so you know i think i think there are a lot of people who have undersaved for retirement maybe
0:28
they didn't take it serious. Maybe they didn't understand. You got to put money away every single
0:32
year, starting in your twenties. If you want to retire and you're in your 60, you got to start in
0:36
your twenties. You know, if you don't start until your thirties or forties, you're not going to really be able to retire until you're in your seventies probably. So, you know, I do think
0:44
a lot of people have undersaved and I think a lot of people don't realize all the risks that there
0:49
are in retirement. There's market risk, there's inflation risk. They're going to raise our taxes
0:54
I mean, that's not even a Republican or Democrat thing. That's a math problem
0:59
You know, you might need long-term care. You might die. You might live a long time. There are a lot of risks in retirement
1:04
And retirement really isn't about having a number, a million dollars, or some number saved up
1:09
It's really about setting yourself to have increasing income for the rest of your life
1:13
and then managing those different risks in retirement. And that's what I write about and that's what I speak about
1:17
What could be your advice to the people in their 20s right now
1:22
I would tell the people in their 20s, the only person that's going to take care of your older self is your younger self
1:29
You know, and younger people say YOLO. You only live once. No, it's not YOLO
1:33
It's yo-yo. You're on your own, baby. And so so you've got to take that serious
1:37
And the only one that's going to take care of your older self is your younger self. And I'm happy to say that my younger self helped take care of my older self
1:45
And so I'm in a position now where I can live the retirement that I want to
1:49
But I started that back when I was in my 20s. twenties. How to start saving for the retirement? What's the average saving rate? Well, you know
1:57
when I, when I started out, people said you should give 10% of charity. You should save 10
2:01
and live on 80%. That, that worked for many years. I don't think that works anymore. I still want
2:06
you to give 10% of charity, but I really think you need to save 15 to 20%. I, I throughout most of my
2:11
life, I saved 30 to 40% of my income. And remember when I started out, I was second, I was the second
2:16
lieutenant in the U.S. Army making $13,000 a year. But you know what? I have a whole presentation
2:21
I made my first presentation to younger people, Generation X, Y, and Z, and millennials
2:27
And it's called Who Wants to Be a Millionaire? And I teach young people how simple it is in
2:32
America today to become a millionaire. I teach them how to make more money, how to spend less
2:37
money, and how to invest their money into appreciating assets. See, unfortunately
2:41
too many people are putting their money into depreciating assets, cars, boats, jet skis
2:46
handbags, shoes, clothes, iPads, iPhones. All of those are depreciating assets. They go down in
2:52
value every single day. Now, I'm not saying they're not important, but what I'm saying is
2:56
that's not where you want to put the majority of your money. You want to put the majority of your
3:00
money into appreciating assets, things that go up in value, things like real estate, things like
3:04
stocks, things like, you know, I mean, I even use life insurance and annuities. There's other
3:09
products you can use, but you want to put your money into things that are constantly going up
3:13
in value, not going down in value. And unfortunately, that's not what our culture teaches
3:17
The culture teaches, oh, have a new car. You deserve to go to sandals and spend a bunch of
3:21
money on the beach and you need that new handbag and those new pair of shoes. No, you really don't
3:27
But, you know, that's for everybody to determine on their own. But I will tell you, if you want to
3:31
become wealthy, wealthy people don't blow their money. Wealthy people are very conscious of how
3:37
they spend their money and they put their money into things that go up in value, not down in value
3:41
What are the popular retirement income models? How to choose which one to use
3:47
Well, I mean, I tell people, if you ask 50 different financial advisors how you're supposed
3:51
to retire, you're going to get 50 different opinions. But if you really dig into the research
3:56
retirement has been studied by PhDs all over the world. People like Dr. David Babel of Wharton
4:01
Dr. Moshevolevsky of Toronto, Dr. Menachem Yari of Israel, Dr. Michael Finke, Dr. Wade Fowle of the
4:08
American College, Nobel Prize recipients, Dr. Robert C. Merton, Dr. William Sharp, people like
4:13
Dr Roger Ibbotson Well guess what I read their research and their research says there are not 50 optimal ways to retire There really one optimal way to retire And that what I write about And that what I speak about Now there are many ways you can do it I mean if you listen to your stockbroker they going to say put your money in stocks and take money out every every month
4:31
That is not the optimal way to do it. All right. The optimal way to do it is to cover your basic living expenses in retirement with guaranteed lifetime income
4:39
So, number one, you want to figure out how much money you need to live your normal retirement life, how much for your food, your housing, your clothing, your cell phone, your Internet
4:47
and that should be covered with guaranteed lifetime income. Now, what counts as guaranteed
4:52
lifetime income? Social security counts. Why? Because it's a lifetime income annuity. It's a
4:56
guaranteed paycheck for life. So it counts. The second thing that counts is a pension. Why
5:01
Because it's a lifetime income annuity. It's a guaranteed paycheck for life. So you take your
5:05
normal living expenses, subtract out your social security, subtract out your pension
5:10
whatever you're still short, that's where an income annuity fits because you want to cover
5:14
those basic living expenses with things that don't go up and down with the market
5:18
Now, once you've done that, your next step is then to optimize the rest of your portfolio
5:23
to protect yourself against inflation. So that's where stocks fit. That's where real estate fits
5:27
That's where crypto can fit. You can put other things in there, but you want to have things that go up over time to
5:33
protect yourself against inflation. You must have a plan for long-term care
5:38
And the most efficient way to pass wealth to children, grandchildren, and charities is with life insurance
5:43
I tell people all the time, don't leave your kids any money. You're not supposed to leave your kids a single penny
5:48
You're supposed to spend all your money. Leave them life insurance because you can do that for pennies on the dollar
5:53
And I use me as an example. We got four kids. So one day we're sitting around saying, how much should we leave the kids
5:58
My wife said, I don't know. What do you think? I said, well, if we bought a $1 million second to die life insurance policy, name the four
6:04
kids a beneficiary. When we're both gone, they're going to get a million dollars tax free
6:08
I mean, that's $250,000 a piece tax free plus whatever's left over. I said, let's start there
6:13
So we bought a $1 million second to die life insurance policy named the four kids beneficiary
6:17
That policy is completely paid up. Do you know what the total cost of that million dollar policy was
6:22
$150,000. So now think about that for 15 cents on the dollar, we get to transfer a million dollars tax free to our kids
6:29
But the best part is who gets to spend the other $850,000? We do
6:34
So what I try to do is show clients how to get the most for the least, because that's what it's all about
6:40
There's no dress rehearsal. There's no second chance. And by the way, I don't sell any financial products. I don't sell annuities. I don't sell life insurance. I don't sell long term care insurance. What I do is I take the research of the top PhDs and share that with people. And this is what the research shows that people should be doing
6:56
My next question is about the retirement plans as well. So what are the main types of retirement plans? What are their differences and how to choose the one that is right for you
7:10
Well, I mean, there's all kinds of different retirement plans. Your parents had a pension, you know, they'd work for the company and that was called a defined benefit pension plan. The company put money into the pension and then when you retired, you got a specific amount of money guaranteed for the rest of your life
7:25
Well, less than 4% of Americans have that pension anymore, right? It was just too expensive for companies
7:31
People were living longer. They didn't know what these obligations would be. They have to pay all these people till they die
7:36
I mean, it was kind of crazy. And so they came up with this 401k plan
7:40
And the 401k plan is where you get to put money in
7:44
The company can match it. Sometimes they do, sometimes they don't. It grows tax deferred until you take it out
7:50
And then you can take it out as a lump sum. You can turn it into income. There's all kinds of things you can do. Now, not everybody has a 401k. Some people have a 403b plan. If you're with a teacher or a nurse, there are other 457 plans. There's TSPs for the government. They're all very similar to a 401k. You put money in, it grows tax deferred. When you take money out, it's taxable
8:13
What I would urge caution with is putting too much money into all these pre-tax plans. I would focus, if I was given my recommendation, to put money into a Roth 401k or a Roth IRA. Or if I was sitting down with somebody and say, does your company have a 401k? They say yes. Does it have a match? Yes. Explain the match
8:36
Well if I put in 4 they match it with 4 Good I would do that That 100 rate of return But beyond that I would not put another penny into a 401k or 403b or 457 I would put the rest of the money into a Roth IRA
8:51
or a Roth 401k. Or if you don't have those options, I put mine into cash value life insurance
8:58
You might say, why would you use cash value life insurance? Because I can take money out of there prior to 59 and a half
9:03
and I can take money out tax-free. And I think tax-free income in retirement
9:07
is gonna be one of the most important things you can have. So I have been converting my 401ks and IRAs to Roth. And most of them are in income
9:16
annuity. So I will have tax free income for the rest of my life. And then I've got my cash value
9:20
life insurance, I'll be able to take money out of there tax free for the rest of my life. And I just
9:25
think having increasing tax free income for the rest of your life is one of the best things you
9:29
can do to set yourself up for success in retirement. Are there any additional costs or taxes associated
9:36
with retirement that consumers should know. Yeah, you always want to ask, what are the costs
9:42
What are the fees? And one of the bad things that annuities get hung with
9:47
is that they say the fees are too high. Well, the fact is most annuities are not even fee products
9:53
A single premium immediate annuity is not a fee product. If you're guaranteed $2,000 a month
9:57
that's exactly what you're going to get. A deferred income annuity is not a fee product. If you're guaranteed $2,000 a month for rest of life
10:03
that's exactly what you're going to get. A fixed annuity, a base fixed index annuity, those are not fee products. They're called spread
10:09
products. The insurance company guarantees you X. And if they don't make more than that, they lose
10:14
money. It's up to them to make money. They're not taking money out of your account. Now, variable
10:18
annuities, they do have fees and the fees are higher than a mutual fund. And so people may not
10:23
want to go with a variable annuity, but why are the fees high? Because they have guarantees you're
10:28
not going to lose money in the stock market. And how valuable is that? So I would just say, yes
10:34
You've got to be careful about fees. And you do want to watch taxes because our country is there over 30 trillion dollars in debt
10:41
That debt is climbing by over four billion dollars every single morning. There's over 200 trillion dollars of unfunded obligations for Social Security, Medicare, Medicaid, government pensions, military pensions
10:52
Taxes are going to have to go up. As I said, it's not a Republican or Democrat issue
10:56
It's a math problem. We need a math party is what we need. We need a party that can actually add and subtract because neither one of these parties can figure it out
11:03
But I'm telling you, taxes are going to have to go up. And that's why I would not want to have a lot of my money in a 401k or an IRA
11:11
I would want to have it in Roth 401k or Roth IRA or cash value life insurance
11:15
Things where you can get money out tax free. I think you'll be very well served if you follow that
11:20
A lot of people are talking about this rule 72T. What is exactly what is exactly the function of it
11:27
And how does it work? what are the benefits and how to decide on whether use it or not well with the rule of 72 t i believe
11:37
you need to be very careful what the rule of 72 t says is that you can take out money out of your
11:42
ira and 401k prior to 59 and a half without a penalty okay so you you're a young lady if you
11:48
want to take money out of your 401k there is a way to do it without a penalty but i would be very
11:53
careful there's three methods there's the annuitization method the the amortization method
11:58
and the RMD method. If it were me being your advisor, I would say number one, try not to do
12:04
it because you should not take money out of your 401k or IRA prior to 59 and a half if you can avoid
12:09
it. But if you have to, you have to take it as substantially equal payments based on your life
12:15
Now, you don't necessarily have to take it for the rest of your life, but the calculation needs
12:19
to be based on your life. So the safest way to do it would be to take your 401k and turn it into a
12:26
single premium immediate annuity. That would satisfy the rule of 72T and you would never have
12:32
it blow up. But here's the problem. There are some people that say, oh, no, move it into this
12:36
mutual fund. You'll earn money and you have to take out this amount of money. Well, if the market
12:41
crashes and you're taking out this money and you end up taking out all your money, which happens
12:45
many more times than people think, you then have to go back to day one and pay penalties and taxes
12:52
on all that money. So you can see that it could be very dangerous if you start this thing and all
12:57
of a sudden you have a problem 10 years later, they go back and they make you pay tax and penalty
13:02
on the whole thing So if I were going to do 72T I would work with a financial professional and I would put it into some type of fixed fixed guaranteed payment where you never going to have to pay the
13:13
penalties. You're always going to have to pay tax on money you take out of a 401k, even if you take
13:18
it under 72T. It'd always be taxable, but they'll make you pay a penalty if that thing doesn't
13:24
if that thing blows up and they can. So just be very careful around the rule of 72T
13:29
What are the common mistakes and methods with retirement planning? Well, I think people underestimate market risk and they put too much money in the stock market in retirement
13:41
I'm not against money in the market. I have money in the market, but I've made sure I've covered all my basic living expenses
13:47
I've written five books. My first book was called Paychecks and Playchecks. I made sure I got guaranteed paychecks. I even have some guaranteed playchecks
13:54
And then I have some money invested in stocks and real estate beyond that. But I think people put too much money in the market, number one. Number two, they don't understand how long they're going to live. They think they're going to all die at 75. And right now, life expectancy for a 65-year-old couple is age 93. 50% of all 65-year-old couples will have somebody lived in 93. Do you think people are planning on that? No, they're not
14:16
They don't plan on their taxes going up, which taxes are going to go up. They don't plan on inflation and inflation is here
14:21
So they just don't understand. They don't think they're ever going to need long term care
14:25
And 75 percent of people will. So they're underestimating the risks and they're setting themselves up for failure
14:32
And that's what I write and speak about. There are simple steps you can put into place that will make sure that those bad things don't happen to you
14:40
Could you please share the top tips, your personal top tips on how consumers can achieve retirement goals and make ends meet in their senior years
14:52
Yeah, so my PBS TV special is called Don't Worry, Retire Happy
14:56
Seven simple steps to retirement security. So let me just quickly go through the seven steps
15:01
Number one, you want to have a plan and you want to work with a financial professional
15:05
Retirement is not a do-it-yourself project. You don't do your own dental work in your garage with your drill set
15:10
And I don't think you had to be doing your own retirement planning either. I use retirement professionals and I know this stuff inside and out
15:16
Number two, you want to understand and maximize your social security benefits
15:20
Social security is the largest retirement asset most people have. But most people do the wrong thing
15:25
They take it at 62. No, if you have a husband or wife, whoever made the most, that person should wait till
15:31
66 or 70 if they can, because that check covers both lives. The lower earning spouse can claim early, but the higher earning spouse should delay
15:39
That's a very simple tip. Number three, you should strongly consider a hybrid retirement
15:44
What does that mean? That means just don't go cold turkey into retirement. Take a couple of years where you do some things that you like to do, but you're still getting paid
15:51
It's going to reduce the amount of money that you have to pull out of your portfolio. It's going to increase your earnings, increase your savings, and increase your social security benefits
15:59
Step number four, you want to make sure when you set up your income that it's not just income for life, that it's increasing income for life
16:06
And I share numerous ways that people can do that. Number five, you want to make sure you cover those basic living expenses in retirement with guaranteed lifetime income
16:14
You don't want to have all your money in real estate or stocks or things that can go up and down
16:19
For your paycheck, you want to have that guaranteed. Your paycheck can go up and down, but your paycheck, you need that every single month
16:26
Step number six, you must have a plan for long-term care. No retirement plan is complete without a plan for long-term care
16:31
This is the one thing most people forget about that can wipe out their entire life's work
16:36
Step number seven, use your home equity wisely. For many people, their house is one of the largest assets they have
16:42
There are several ways you can use your home equity wisely. I write about it. I speak about it
16:45
And then finally, the most efficient way to pass wealth to children, grandchildren, and
16:49
charities is with life insurance. Don't leave money. Leave life insurance because you can do that for pennies on the dollar
16:55
And what I'll tell you is that people would follow those simple steps. The research shows they're likely to be happier in retirement
17:01
They're likely to be more successful in retirement. And now the research shows they're likely to live longer as well
17:07
I have a free YouTube channel. It's Tom Hagne. Just go to YouTube, type in Tom Hagne
17:11
My website is TomHagne.com. And I'm very happy to have spent some time with you today
17:16
Tom, thank you so much for sharing this. This was really valuable and really informative
17:21
Once again, thank you. Thank you very much for having me today. Have a good day.
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