In this episode of Make It Last, Victor dives into both the legal and the retirement world. First, Victor discusses planning for incapacity and managing different financial accounts in that time. Then, Victor goes through the 3 different worlds of money: Banking, Insurance, and Wall Street. How are these worlds defined? How should they be integrated? How should your investments change once you hit retirement? All these questions answered in this portion of the show.
Text ABC to 609-554-5936 for a free report on the ABC’s of Fixed-Indexed Annuities!
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Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA) and Certified Financial Planner professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
See below for full transcript
Announcer: Welcome to “Make It Last,” helping you keep your legal ducks in a row and your nest eggs secure with your host, Victor Medina, an estate planning and elder law attorney and certified financial planner.
Victor J. Medina: Everybody, welcome back to Make It Last. If you know, it’s the only show that helps you keep your legal ducks in a row and your financial nest eggs secure, and taking you through the world of legal and financial retirement planning.
I’m your host, Victor Medina. I’m so glad you can join us for another fun and exciting episode. I’m really jazzed for today’s show because I planned here to talk a little bit about some legal stuff and a little bit about some retirement stuff. I always like it when I can blend those two worlds together.
In the legal world, we’re going to talk about how to plan for incapacity. We’re going to go over dealing with different financial accounts and what are your alternatives in order to help somebody manage your money if something were to happen to you, if you became incapacitated.
We’re going to give you some alternatives to consider as you think about how to put your plan together for that. In the retirement world, we’re going to talk about the three different worlds of money and integrating those.
When we start talking about investing your hard‑earned dollars, you might get in mind some financial vehicles. That you might be using some different products, most likely, things like stocks, bonds, mutual funds, may be even real estate. There are a plethora of investments available to consumers. They come in all shapes and sizes.
The difficult part, though, is figuring out a way to make all of these investments and other financial work vehicles work together in order to put you on the path to success in your financial life.
When I think about retirement, one of the things I like to make clear is that, the same investments and financial vehicles that got you to retirement, probably are not going to be the same financial vehicles that will get you through retirement. Possibly, right. Most of the time, I find this not to be the case.
Unfortunately, I see too often pre‑retirees, and even retirees, people that are already in retirement invested in the same way in retirement that they worked through their working years. Sometimes I’ll be so bold as to ask them, “You know what, how much of these have you owned or changed since you become retired, or you intend to change?”
The answer for many of them is just zero, that they continue on with what they have. Today, I’m going to talk a little bit about the three worlds of money and what they can mean to your financial portfolio. By the way, these three worlds include The Banking World, The Wall Street World, and The Insurance World.
The question is, do you have money in all three of these worlds? Do you know where your money is invested? Do you understand why it’s invested there? Today, I’m going to help you better connect with these investments and other financial vehicles in your financial portfolio. Leading up to that I have, in the last week or so, really spent a lot of time with new clients, talking to them about annuities and specifically talking to them about fixed‑indexed annuities.
When I go through this education with people, normally, I lay out for them the different worlds of insurance products and the whole journey that insurance companies have gone on from their inception through the most recent iteration and why there are these different kinds of insurance products. We’re going to be talking a little bit later in the show about the insurance world.
In my conversations with people in my office, new clients, I have been struck by the number of times that I’ve had to explain to them what a fixed‑indexed annuity is. I guess not really struck, because I do understand that it’s not a common topic.
Most people don’t have a lot of experience with it. Maybe it’s not at all surprising that they need this explanation. I also thought, well, maybe if I’m having these conversations with people in my office, it’s probably the case that you out there listening to this show have these same questions.
What I find interesting when I have conversations with people, basically about any financial product, that there is almost always a gut reaction to what’s going on positive or negative. People will either evolve or hate mutual funds, love or hate ETFs, love or hate annuities, love or hate bank products.
I don’t know what causes somebody to be so clear about their feelings. It’s often a matter of maybe have prior experience with something or maybe just some more mainstream‑related education that they received. There’s a lot of commercials out there that will tell you about why annuity stink and people will should never invest in them.
And then the people who market annuities will tell you how bad the stock market world is and why you should never be involved in that. Of course, the banking people, they’re going to tell you that the other two people are wrong. You should never be in Wall Street, or the insurance world, and you should have everything in bank products.
Look, even just laying it out like that, [laughs] you start to hear how ridiculous that stuff sounds. It can’t all be that’s true. So, what is coloring? What are people’s experience with that? Many times, it’s the people who are presenting that information. What, in fact, are their motivations?
For me, I’m kind of like Switzerland here. I will take on anything that will help a client’s retirement picture look better.
Sometimes that’s just a function of incorporating a little bit of everything. Sometimes it’s about making an independent examination of something. Say, “Look that is categorically bad.” It’s not because I can’t provide it for my client but it’s because I’ve look at it and even if I could provide it for my client, I’m not going to.
I’ll give you a couple of examples of that by the way. We don’t very often ever recommend variable annuities. They just tend to be terrible products for most people, terrible products for the majority of the world. There is a reason why. Probably too much to get into this show.
Similarly, we don’t ever recommend actively traded mutual funds. They tend to not stand behind their promises of outperforming what evidence based or more, objective and passively invested are. Their fees almost never justify that either. First of all, they’re wrong most of the time [indecipherable 06:34] their fees and then their fees are high, too.
There are some things that fall into that category. Everything else is kind of fair game where we’re talking about whole life insurance, annuities, mutual funds, individual stocks, bank products, each of these things has a role in a client’s life. It was really about kind of mixing and matching those.
To my point, I’ve created a report that will help explain these fixed index annuities. I’ve been telling you that I’ve a lot of meetings around that. I’ve had to explain it a few times. I thought, “Well, what if I created a report that I made available to all of the radio show and podcast listeners. In that way they could get this information.”
I know that I’m not going to cut off having to have conversations in my office about that. I should only be so lucky that by putting up this one report it would be over. Actually, I enjoy these conversations with all of these frustrated teacher a bit. If I get the opportunity to educate somebody about that and I get their eyes to open and get them to understand what we’re talking about. For me, as many times as its own and reward.
I’m not going to get to meet with everybody that’s out there. Because of that, I want to provide the report. For that reason, I want to give you the information so you can download that report. It’s by text message. What you got to do is you have to text the word ABC, just the letters A‑B‑C, the first three letters of the alphabet.
If you can’t remember it, we got to put you into incapacity and dementia segment, coming up next. Anyway, you text the word ABC to 609‑554‑5936. That’s 609‑554‑5936 ABC, text that over to that number and we will send out a report on the ABCs of FIA, Fixed Index Annuities, kind of the way that works. I want to make that available to you.
Now let’s get into the first part of the show which is talking about the different options for managing accounts in the event of diminished capacity or incapacity in what we can do to help family members do that.
Now, planning for incapacity is probably one of the most important parts of a comprehensive estate plan. Whether it’s a comprehensive estate plan or retirement plan, no matter what you want to think about it. When you get to adulting and you’re at that point and time in which you are…you’re getting to be retired and you know that it’s not a matter of if or when, you’re going to need an estate plan.
Planning for incapacity is one of the most important things you can do because one of the things that happens if you fail to plan is…sort of default option for how you deal with these things. The plan that you have to go through if you don’t plan for it the right way is often super expensive and super inconvenient.
You have to go through guardianship. It may cost $10,000 to $12,000 and all the while somebody is not managing…you don’t have any access to your money to help you. What we want to be able to do is talk about this because there is an ever increasing number of people who are going to possibly have to face this.
Most of what I’m talking about is baby boomer generation continuing to age in record numbers. I think the number that most people are comfortable with is saying that there are going to be 10,000 baby boomers turning 65 every single day between now and the year 2040. That means that there’s just this growing, mushrooming number of people that could possibly face incapacity and the need to manage their assets.
While medicine has not reached the point where it can prevent these cognitive impairments, there are tools that can be used to ensure that your finances continue to be managed effectively in the event that your diminished capacity manifests itself.
What we want to do is talk about each one of these different areas. We’re going to talk about four different ways that we can go through this planning.
The first one, and probably which is one of the most common ones that people do, is they simply add a name to an account. What they’ll do is they’ll create a convenience account.
It may not be the person’s main account. They’ll either create a separate account, or they’ll take another account that exists. They’ll make that person a co‑owner.
You might have mom’s account. Mom is retitled. Mom’s account is retitled to include both mom and her son.
You could also, by the way, a joint account that’s owned by husband and wife, and then they add another owner. They put the son on with mom and dad.
There were already these accounts that exist that they’re known as convenience accounts. They exist solely. The additional owners added purely for the sake of giving them ability to access these funds. There are, by the way, some financial institutions that identify this as a convenience account.
Those ideas, by the way, in terms of doing that, have been around for a super long time. There are a couple of reasons people consider using convenience accounts.
One of them, really and quite frankly, is to avoid the need to pay for professional legal work. What they’re doing here is they’re trying to shortcut the need to hire an attorney to put together an estate plan because the other ways that I’m going to talk about right now require there to be legal work to be done.
This is a quick fix. It’s just a matter of filling out the paperwork at the financial institution. If you do that, then you get access to that.
There are a couple of reasons why this solution is far from ideal and, by the way, can lend itself to a number of significant other problems. They solve the problem of accessing the money, but they create problems.
First thing that I want to talk about, if you retitle an account to include another owner, it means it’s not just the original owner’s assets any longer. If you create a joint account, there is joint ownership, which means that the owner that’s added to the account will have full access to the funds because now it’s their money, too.
While doing this can enable a healthy child to have access to funds to pay for some of the medical bills, well, it also gives that same healthy child the same access to the same funds to, well, I don’t know, pay off their mortgage, or transfer the funds to another account.
It places these funds at risk. It eliminates any checks and balances that there might otherwise be.
I don’t want to bury the lede. When we go talk about the other options in our planning, the ones that require legal work to do, one of the benefits of those is that you create these checks and balances, these different fiduciary obligations.
By the way, even if a bank manager, an advisor, or a custodian suspects that there’s something wrong going on in that account or a requested transaction, generally their hands are tied. They have to process the transaction according to those instructions because instructions come from an owner.
If you create this joint account, this convenience account, and there is somebody that walks in there and says, “Well, I want to do something. I want to empty out this account. I want to leave it with zero dollars in there.”
The bank manager could look, and then say, “Look, I’ve had this account with Jim and Jane for a really long time. They’ve never emptied this out before. I’m getting these instructions from the son. The son wants to empty it out.”
“I don’t really feel right about it. I feel like there’s something wrong. Perhaps, I should try to step in and take some of the precautions that exist when I think that there’s elder abuse or financial fraud.”
In a scenario where somebody has added a name to an account, you don’t have that opportunity. They have to end up listening to those instructions and following the instructions.
There may be some recourse on this. You generally have to prove that the joint account relationship was merely established for convenience, and then there was a fiduciary duty that was owed.
Look what I did there. I lined up a whole legal action to go into that. One where I have to submit all of these proofs rather than already being in a scenario where somebody had to act as a fiduciary.
What I did was trade the need to do legal planning up front and pay legal dollars for the risk that I have to pay a lot more legal dollars with a much harder journey in front of us to prove that. That doesn’t make a lot of sense.
A couple of other issues, by the way. If you add a joint owner, you can subject to those assets to additional creditors. One of the most troubling aspects of using a joint account means that someone else, a family member, is going to have those assets subject to their creditors.
It exposes the account to the overseer’s creditors and their financial problems as well. If you can get to that money, or if someone can get to the money, so can their creditors.
Establish that, if you’ve got a joint account and you have access to the money in the account, so would the creditors. If you end up adding your son to a million dollar brokerage account to help manage the investments, one day, on the radio, the son comes home from work. He hears that one of the companies was acquired. The stock prices jumped.
He’s excited about it. He knows that it’s in mom’s account. He whips out his phone. He looks up the price of the stock. He’s driving. He causes an accident.
That accident’s Johnny’s fault. The resulting lawsuit, he’s sued for everything that he’s worth, including his recently established joint account. Mom, who put him on there, could be out that million dollars.
It’s really hard to protect that against claims. It is important to make sure that we go ahead, try to protect them, and avoid that.
By the way, this approach where you think to yourself, “Jeez, I’m going to add a joint owner to the account,” isn’t available for all assets. That’s the third point I wanted to get to here.
In fact, even if you were willing to disregard all of the risks and potential issues that I’ve been outlining so far, it’s limited because there are kinds of accounts that you can’t ever create joint accounts around.
For instance, IRAs, and Roth IRAs or other kinds of retirement accounts, like 401(k)s. They can’t be converted to joint ownership. There’s no such thing as a joint IRA.
The I stands for individual. Therefore, only an individual can be the owner. The only way to get the IRA into a joint account is to distribute them out of the IRA, which causes all those taxes. You’re not going to ever do that. There are three downsides to having things owned by a joint account or try to use that planning.
One, there’s risk that, that money can be walked off with. There’s a risk that, that money is subject to creditors. Then there’s a downside that you can’t use this planning for all of your assets.
Victor: I want to take a break right now because I’m going to leave that taste in your mouth. Say, “OK. That’s not what I want to do.”
When we come back, we’ll talk about the other options that you can use to help people manage their fears. Incapacity is not something you can control, whether or not you’re going to go through five. Having a great plan in order to navigate that, entirely is something you can control over. I’ll talk about how to do that when we come back from this quick break.
Announcer: Life is better when you have your legal ducks in a row. One area attorney can help you get your financial ducks in a row as well. Victor J. Medina fills dual fiduciary roles, an estate planning and certified elder law attorney. Also a credentialed certified financial planner professional.
Through his law practice at Independent Registered Investment Advisory Company, Mr. Medina serves high wealth individuals seeking conservative advice and a professionally‑managed approach to retirement wealth management. Learn more about Victor’s 360‑degree wealth protection strategies. Call 609‑818‑0068.
That’s 609‑818‑0068, or listen to the newest episode of Make It Last radio, Wednesday mornings at 11:00 on 1450 Talk Radio. Investment advisory services offered through Palante wealth advisors, LLC, a New Jersey and Pennsylvania Registered Investment Advisor.
Victor: Everybody, welcome back to Make It Last. We’ve been talking about ways that use legal planning to help a family member manage your account if you become incapacitated in the future. We talked, in the first segment, about what not to do.
One of the things that is an option that we totally don’t recommend is adding somebody on to an account as a joint owner, whether it’s a convenience account, whatever you want to call it. It’s just to help them get access to it. Remember the reason why we don’t want to do that is because we give them access to 100 percent of the money.
We possibly make that money subject to creditors and also where we can’t use that planning, as planning for 100 percent of the assets. It is not the best option. We do have another option and this option has been around for a super long time. That is, that we can use a power of attorney.
The power of attorney is a much better way to allow somebody to gain access to managing an account. Let me talk to you about what that is. Let’s be clear, this is going to require some legal planning to do right because while there are powers of attorney that are downloadable from the Internet, I’m going to make a case for why we don’t recommend using them.
Let’s talk about what a power of attorney is. A power of attorney is a legal document that grants an individual or if you want, multiple individuals, the right or the power to act on behalf of another person.
It creates a fiduciary relationship between the person who creates the document or what we call the principal, and the person who takes on the responsibility either called an attorney‑in‑fact or an agent.
The idea that they’re called an agent tells us everything that we need to know about that relationship because agency, an agency relationship under the law is the highest level of responsibility for another person. It means that the person who is the agent has the legal obligation to act on behalf of that principle.
They owe them a duty of loyalty to do things like, not use the money for themselves and not waste the money. They’re held to a higher standard. Now, there is a practical challenge to using a power of attorney, and it’s this.
While the power of attorney is a legal document that confers a legal obligation for somebody to work on behalf of another person and in fact, gives them the authority to do that, there is no repository of powers of attorney where you can register this.
There is no method of a verification that the power of attorney is in fact, a valid power of attorney. In fact, one of the things that we have to do is we have to provide a copy or an original of that document at each and every financial institution that holds money in order to be authorized to use this power of attorney for another person.
The reason why this becomes a limiting portion of the planning is because each financial institution can review and conclude a different thing about that power of attorney. They’re going to have an internal process for evaluating that power of attorney to try to determine whether or not it is still effective.
They’re going to have policies in there that are going to set forward things like, how old can the power of attorney be? What kind of provisions must it contain? Again, there is no centralized way of saying, if only it has these certain provisions and under this certain age, then we know it will automatically be accepted. There’s no central way of doing that.
Even the document itself might have limiting provisions in there saying it’s only good for the next 3 years or 10 years, or if I’m incapacitated, or if the sun is in line with gamma, whatever. It doesn’t have a way of self‑proving. That creates this risk that when we go to use the power of attorney, it may not be deemed effective by this financial institution.
Even if we were going to get a positive result in one financial institution, it doesn’t mean that we’ll get a positive result for every financial institution. Those are important things to consider, but the power of attorney is really a good document to have.
It’s a necessary document to have because the absence of the power of attorney means essentially that you’re going to have to go through this guardianship kind of thing, and that’s not anything that you want to have to go through.
There are different kinds of powers of attorney. You can get a general durable power of attorney. You can get a limited power of attorney. General durable power of attorney is going to be broader in that sense. A limited power of attorney is going to be limited.
It’s going to be limited by time or by scope, those kinds of things. The general durable power of attorney, by the way, is usually juxtaposed with a springing power of attorney. A springing power of attorney is one that is only effective when somebody becomes incapacitated.
Whereas, a durable power of attorney is often immediate and survives their incapacity. What does that mean, by the way? It means that the durable immediate power of attorney is effective from the day that you sign it. You can continue to use it even if somebody becomes incapacitated.
The springing power of attorney requires there to be a showing of incapacity before it’s deemed effective. What’s right and what’s wrong off of that, it really depends on the client, and what their circumstances are. I’ll give you some general things that work in the greatest number of cases.
One of them is that most people who are married end up creating immediate powers of attorney that include their spouse as the agent off of that first. That seems to make a lot of sense. Most people are already comfortable with their spouses managing their affairs for them. That ends up working pretty well.
There are a lot of single people that are uncomfortable with immediate power of attorney, and they go with a springing power of attorney instead. The idea there between the two is that, why should you do one if you’re single versus if you’re married, springing versus not or what works.
For me, I tell people, if you’re going to go with a springing power of attorney because you’re nervous about somebody having this authority, just remember that when you go to use this, you’re going to place an additional obstacle over this becoming effective.
Namely, you’re going to put yourself in a position where the financial institution is going to have to review the power of attorney, see that it requires this incapacity, and then review the evidence that you’re showing for incapacity.
You just give them another chance to reject it. If living through that is more tolerable to you than having somebody have authority over your stuff, then you can make that decision. Understand that you’re doing that.
One other downside to the power of attorney, and it’s really…I don’t know, not really being fair to our topic because we’re talking about how to manage assets if you are incapacitated. That power of attorney terminates when you do. [laughs] When you die, the power of attorney goes away.
We have to remember that it doesn’t give authority to continue to manage assets at death. We’re going to have to if you’re going to keep that asset owned in your individual name versus the last option we’re going to talk about here. If you end up doing that, then you’re going to run the risk that you’re going to have to go through a probate in order to gain access to that asset.
We’re going to talk about that last option that actually will solve some of that. Here’s the thing. That even in a case where a power of attorney ends when you do, it’s an important document to have. The power of attorney is the only document that will allow somebody access to individually‑owned assets that can’t be jointly owned or transferred.
We’re back to talking about IRAs, 401(k)s, Roth IRAs. You’re not going to be able to do anything with those. Whether put them inside of a jointly held account, or put them inside of something like a trust. You’re not going to be able to do that with that.
You’re going to need a power of attorney in order to manage those accounts, and even do things like enter into a contract, to stand into somebody’s shoes. This is not even just managing assets.
If you want to be able to essentially contract business, do things for somebody, put them into a nursing home, and manage the relationship with a nursing home, and sign a contract, you’re still going to need a power of attorney to do that. It’s important to have even as we talk about our third option.
Our third option is to create a revocable living trust, and to name a family member either as a successor trustee, somebody that comes in to manage that trust after you do, or a co‑trustee. You might be on the cusp of losing your capacity.
Maybe there was a diagnosis of Alzheimer’s or something where you’re going to in the future be unable to manage their accounts, and you’re comfortable with somebody having access now. The right thing to do is to name them as a co‑trustee.
Most of the time, in a revocable living trust, people believe that those only for rich folks. It’s really not the case. With the revocable trust, we’re using that planning strategy to add convenience to somebody’s estate plan. One of the ways is what we’re talking about now, which is essentially gaining access to manage financial affairs while you’re incapacitated.
There are other benefits to that, too. Being able to avoid probate, and being able to manage assets throughout death immediately afterwards, and not having to get qualified as an executor or somebody different in that role, death versus during alive. There are benefits to that in terms of convenience.
The revocable living trust, by definition, this legal entity that’s created when you sign this trust document that provides a relationship between the person that creates the document, and the person who is the trustee.
Unlike a power of attorney, most people when they create a trust, name the same person in both of those roles. They are the person that creates the document, and they are also the person that is in charge as the trustee versus the power of attorney.
We have somebody else as the agent. You’re going to trust, most of the time, somebody creates a trust where they are the trustee over their own trust. That makes a lot of sense when they’re alive and well, healthy, because they want to be able to manage that.
By the way, whole idea about revocable is this idea that they can change the terms to anything, whenever they want, however they want. That’s the idea about revocable.
What you can do in the revocable living trust is you can name people to be in charge after you in circumstances where you might become incapacitated or when you might pass away. That would be a successor trustee. You’re also able to name somebody to serve alongside you. That’s essentially a co‑trustee.
The revocable living trust offers advantages when compared to a power of attorney. One of them is the revocable living trust is far less likely to be rejected by a financial institution, because this living trust is its own legal entity. There is no determination about whether or not the document itself is valid.
If it’s taking legal title to a property, then by definition, the trust is act and controlling with respect to that property, which means the financial institution doesn’t have to scrutinize it. You might have to check to make sure that the person that you’re saying is in charge of there is, in fact, in charge of it by the documents itself, if there is that.
These authorities say that the trust is valid or not. It is a legal entity. I call this mini company, if the company is owning these assets. Therefore, if the president, you, become incapacitated, it’s very natural that there’s a vice‑president to take over with that. It’s very streamlined in that sense.
It offers advantages because we don’t have to worry about there being a failure of that document later in the future. It also offers other advantages in the way that it continues on after somebody’s death.
We talked about this idea that the power of attorney ends when somebody’s life ends. The trust continues on until the trust says that it ends. The trust might say that it doesn’t end until the assets that are in your name become distributed to your kids on your passing.
There is a continuity to the trust that doesn’t necessarily exist with the power of attorney. I know that power of attorney ends when somebody’s death. It continues on. Therefore, the revocable living trust can just bypass probate. It can do all of these things that the power of attorney can’t. It’s a super power of attorney. It’s probably the best thing that you can create.
Remember, I did say that you want a power of attorney to manage the other things that are going on. The revocable trust has an Achilles’ heel. You remember Achilles’ heel? That’s the thing that we deep them in the river. All of them was protected except for this one area. Here’s the one area where the revocable living trust is vulnerable.
That is that the assets that you want to manage in the trust must be retitled in the name of the trust before you are incapacitated. We call that funding or we call it asset integration, the idea that you take the things that you own, and you retitle them in the name of the trust.
I want you to consider that the trust is a form of a castle, and it’s affording you all of these protection. Here’s the thing. If you don’t put your stuff in the castle, the castle can’t work. It can’t protect anything. That’s what we’re talking about in terms of retitling your assets. We want to be able to transfer the title into the trust. That way, the trust protections can become realized.
The best of all worlds in your planning is to not only have a revocable living trust, but to also have a power of attorney and using them in combination. I don’t really see a big benefits to having joint ownership. I think that you should avoid that.
When it comes down to getting specific advice in your scenario, always, always work with an established, confident estate planning attorney. You don’t want to go to somebody that has multiple different practice areas. You want to go to somebody that is in fact, a hundred percent in the world of estate planning.
By the way, if you’re looking for somebody to do that with, one of the best credentials you can check out is being a certified elder law attorney or a CELA. You can go to “nelf.org.” It’s N‑E‑L‑F dot O‑R‑G. You can look up certified elder law attorneys in your area.
Those certified elder law attorneys are really the expert level, expertise level, specialty level, in estate planning, and specifically elder law planning. It means that an objective outside agency has reviewed all of their credentials, including peer recommendations.
Victor: They need to be recommended by their peers in order to be somebody who’s allowed in as a certified elder law attorney. If you do those things, you can find somebody that’s going to be able to put this stuff together for you. I hope that’s been helpful. What we’re going to end up doing here now, by the way, is taking a quick break.
When we come back, we’re going to talk about the three worlds of money. We’re going to be fast on this one because not a lot of time left in the show. Strap and we’ll be right back after this quick break.
Announcer: Imagine, if the attorney you trust to protect your legal interests could also be trusted to protect your retirement, well. One trusted advisor, dual fiduciary roles, Victor J. Medina. Mr. Medina is an estate planning and certified elder law attorney with a national reputation.
He is also a certified financial planner professional through his law firm and Independent Registered Investment Advisory Company. Mr. Medina provides 360‑degree wealth protection strategies for individuals in or nearing retirement. His unique approach offers advantages to high‑wealth individuals seeking conservative advice and a professionally‑managed approach to their retirement wealth.
To learn more, call 609‑818‑0068. That’s 609‑818‑0068. Or listen to the newest episode of Make It Last Radio, Wednesday mornings at 11:00, on 1450 Talk Radio. Investment Advisory Service is offered through Palante Wealth Advisors LLC, a New Jersey and Pennsylvania registered investment advisor.
Victor: Hey, everybody. Welcome back to Make It Last. I’m going to transition here a little bit because we were talking about ways to handle incapacity planning. Now I want to talk about the three worlds of money. I’m going to introduce this topic because I think we’re going to hit on this a couple of weeks in a row just to make sure that we’ve got everything covered on it.
The idea here, by the way, is I want to talk about different kinds of financial vehicles and how they should be integrated with your retirement planning. The way that you might want to think about that is that when it comes to creating a blueprint on something to follow, there are going to be different elements there together, maybe different specialties.
You can’t build it all out of just one of the specialties that are in there. You can’t just have a builder versus a plumber, versus an electrician. All three of those things need to work together in order to have a house that works the way that you need it.
If for instance, you don’t have the electricity set right, it won’t set the air conditioning running. If your insulation isn’t right, then you’ll be kind of throwing stuff out of the window.
So, you need three of these things to be working together. When I talk about the three worlds of money, I’m really talking about the difference between the banking world, the insurance world and the Wall Street world. The idea is that all of these things work together.
The first question to ask is what you want your money to do for you. Because we all want our money to grow, never lose any value, and be able to write a check on instantly. We want those three things. We want growth, we want security, and we want liquidity.
I’m here to tell you some good news and some bad news. The good news is you can get growth, safety, and liquidity from different financial vehicles. You can, in fact, get what you want. But the bad news is, there’s not one single financial vehicle that will do all of those three things at the same time.
With that, I draw this out for clients to help them understand as I create circles that overlap onto one another. Sort of a Venn diagram. Take one circle on the top right‑hand side and another circle on the top left‑hand side. Kind of look like ears but there is a little overlap. I put a head overneath there and then some overlap in that as well.
If you did that, if you wrote that out and you put growth, safety, and liquidity in each one of those boxes, what you’ll find is that there’s some overlap on two of those.
There’s no product that’s going to give you the overlap where you have all three of them. What do I mean by that? If you want something to be safe and liquid, those are products that are inside of the banking world, so a checking and a savings account are safe and liquid. They’re 100 percent available to you. They’re never going to lose any value.
Instead, if what you want is growth and liquidity, so they’ll be able to write a check on something and have it grow a lot, then that’s the stock market or The Wall Street world. You could sell a stock anytime you want. It may be for a loss but you can sell it whenever you want and you can get money whenever you want.
The last one is, if you want growth and safety, then we’re talking about products in the insurance world. Those are ways of achieving some of those goals. Like I said, you are not going to be able to get one financial vehicle or product that will get you all of these things at once.
There are some steps that you need to go through to try to figure out where your assets need to be allocated so we need to start with a plan. I know that it stresses a lot but income, a cash flow, learning where your check is going to be coming from, is really, really important in today’s retirement.
So much so by the way, that it is the first thing that I think people should start from is understanding where they’re going to get income in retirement and leave things that are related for growth, legacy, and other stuff to the next level. What we’re trying to do is trying to create security in and around that.
We’ve spoken in other shows how to do that. You’re going to be looking at your social security, any pensions that you have, looking at your budget and your expenses. There are a lot of ways of getting there but the point is that we want to see what your needs are. Once we understand that, now we can start to allocate assets across that.
Remember, no financial vehicle’s going to do all three things at once. You probably need three things in your life so how do we allocate that around it? Going back to the banking world, remember, the banking world is safe and liquid off of that.
We know that interest rates being as low as they have been, or for quite some time they still are, we know that we’re not going to get a lot of growth in a bank or a credit union. Some of the accounts that you can access at a bank or credit union include things like checking and savings, money market accounts, or certificates of deposits.
Now, what’s nice is that many banks are insured by the Federal Deposit Insurance Corporation or what you all recognize as FDIC. That’s an independent agency of the US government. The FDIC will insure up to $250,000 per depositor, per member institution. That means that you can have $250,000 in a bank account and if the bank fails, the FDIC covers your losses.
So much the FDIC, a credit union account can be insured up to $250,000 as well, if the credit union is a member of the National Credit Union Administration or NCUA. That one doesn’t quite roll off the tongue the same way as FDIC insurance but what’s important here is to understand the banking world is just a piece of the puzzle.
It’s probably not going to have all of your money because in my opinion, you’re going to lose money due to inflation. If your money doesn’t grow at least to keep pace with inflation, then $20 that you spend at the grocery store today will not go as far as when you spend it 5 or 10 years from now. You can’t neglect it because we need safety and liquidity.
When we talk about growth potential and safety, that’s the stuff in the insurance world. Look, the insurance industry gets a bad rap a lot but it can serve several purposes when it comes to your dollars. That growth safety also can translate as to income and a legacy. However, what we have to understand is that there’s always one thing missing.
I talked to you about the fact that bank products tend to have missing in their growth. Insurance products are going to have missing in their liquidity. It’s really important to educate yourself about what you’re putting your money into.
One of the main products that are recommended in retirement ‑‑ I hear about them all the time in terms of the way that they’re recommended improperly. I hear the good and the bad on them ‑‑ but one of the things that we talked about here is the annuity.
Remember, I am putting together for you the ABCs of fixed indexed annuities which is a form of an annuity. If you want that, what you do is you text ABC to 609‑554‑5936. Take out your phones, type in the phone number fields, 609‑554‑5936, and then just type the letters, ABC, and send. We’ll get you that free report talking about fixed index annuities.
I want to open your mind for a second and, hopefully, make you think about an annuity in a different way because we believe that there is a place for those in people’s retirement accounts. It’s a little different than I think the way that most people approach it, most financial advisors approach it.
They either think that a hundred percent of your money should be in there or zero percent of your money. I think the answer is probably somewhere in between, and not right in the middle. I want to talk to you about why.
If you want to think about annuity in a different way…Let me see if I can take you on this journey. I want you to think about whether or not you like restaurants. If I were to ask you if you like restaurants, you’re like, “Yes, I like restaurants.” I’m sure that you have a favorite restaurant nearby that you enjoy going to.
I know that when my wife and I get a rare chance to be out without kids, we want a reliable product at the end. We want something that we’re going to have a great experience with them. We’re going to go to that restaurant. On the other hand, there are some restaurants that we’re not too fond of. Probably, this is the same way for you.
I want you to think about annuities that they’re like restaurants. There’s a wide variety of them. You just have to figure out which one fits you. An annuity is a contract between you and an insurance company in which the company promises to make some payments to you, starting either immediately or sometime in the future.
You buy their annuity either with a single payment or a series of payments. Those are called premiums. There are different kinds of annuities. You can get one that’s immediate or deferred. Deferred annuities can be fixed indexed or variable.
All of a sudden, just in those last 15 seconds of describing them, I probably got your eyes to roll in the back of your head because of the complexity in here. It is important to work with an advisor that not only understands them, has a particular philosophy about how to use them, but spends the time to educate you about which ones are going to be right for you.
Here’s the thing about those annuities, every one of them. There is a growth potential in there. There is safety in there. However, there is the chance that they may not be as liquid as you need them to be. There is one exception to that. A variable annuity tends not to have as much of the safety function of that.
Which is why, as I said in the earlier part of the show, tends not to be on our recommended list. If you’re going to go into the insurance world and get the benefits of that, being the growth and the safety, and lose something called liquidity, by gosh, you better get both of the growth and the safety components of it. Don’t be in a product that doesn’t give you those options.
When we talk about insurance, by the way, there are also other products related to things in a life insurance. You can get all kinds in there like term, whole life variable, universal, indexed universal, variable universal, long‑term care insurance. There’s a lot of them.
Here’s the thing, just like the banking world, the insurance world is meant to help you solve another piece of the problem. If you’re not fortunate enough to receive a pension, and you want a lifetime income stream, you can purchase a form of a fixed immediate annuity that does that.
If you want to leave a legacy when your loved ones pass away, form of life insurance is going to give you an opportunity to do that. If you want to protect yourself, if you get sick or ill, or from depleting your nest egg, long‑term care insurance might do that. You have to understand that insurance is also a great place for some of your money, but not all of your money.
Do keep in mind, while annuities offer many benefits, they can be subject to fee‑surrender charges, holding periods, which vary from company to company and product to product. They are designed for retirement or other mid to long‑term needs.
Life insurance and annuity guarantees, they’re all backed by the financial strength and the claims‑paying ability of the issuing insurance carrier. There is no FDIC insurance for annuities or other insurance products.
The final world is the one that people are probably most familiar with, most popular, exciting, and that’s the Wall Street world. They offer growth potential and liquidity, but it is limited in their safety. I know that people are going to argue with me, and tell me that the Wall Street world offers some safe places like at bonds.
I challenge them to look at bond performances in 2008, or any time when the stock market had a large drop. Not only that. Remember that bonds have an inverse relationship with interest rates. Meaning, that as interest rates go up, bond values go down. We know how low interest rates are right now.
Interest rates likely only have one way to go up from here, and that is up. This in return, by the way, will lower the value of the bonds if the future interest rates rise. The safety related to those bonds, probably lower than what you expect off of it. I want to stress this idea that I do not believe, I do not believe that Wall Street has any safe investments off of them.
They have a number of places to invest your money including stocks, bonds, mutual funds, exchange‑traded funds or ETF, REITs or Real Estate Investment Trust, commodities, futures, ADRs. Most of these investments are meant to grow your money, and are liquid if you decide to sell them. Remember, it’s not safe.
It’s a great place when you’re young and looking to grow it. The Wall Street world is not meant for all of your money. That’s a big problem that I see in my office. I’ll sit down with a prospective client, and find that most or all of their money is still sitting somewhere in the stock market.
When I ask them how they feel about loss and whether or not they want to lose money, it’s very common that they don’t want to lose money. That’s very common occurrence because people have been very successful with what they had in the past.
When you get close to retirement, I believe you need to start thinking about reducing the risk in your financial portfolio and making some changes. It’s OK to have some money in the stock market for growth and liquidity, but it may not be necessary to have all of your money there.
The reason why I want you to consider all of these three worlds is that I want to open your mind, and understand the importance having money in all three of those worlds because each world serves a different purpose. Whether it’s the banking world, the insurance world, or the Wall Street world, it’s important to understand that your exact financial circumstance has specific needs.
You can address those needs by having money in each of those worlds, and you need to build a plan based around those needs. It’s no easy task but I’m here to help. It’s my job to help, to work with people like you. If you’re interested in having a consultation with us about your retirement planning, we can do that with you.
We are available at 609‑818‑0068. Call us at 609‑818‑0068, or visit us at www.palantewealth.com. It’s P‑A‑L A‑N‑T‑E wealth dot com. We can give you more information as well as opportunities to learn what you need in your specific retirement circumstance. Sped through all of that, we may hit it again in the future.
There’s a lot of stuff in that insurance world that I have not yet talked to you about, and I want to be able to do that. What you have to do, though, is stay a listener of the show.
Check us out at 11 o’clock in the morning every Wednesday on WCTC 1450 AM. Or, if you don’t want to be married to the radio, you can subscribe to our podcast.
Victor: Our podcast is available everywhere where podcasts are available, whether it’s Apple, Android, Spotify, you name it. Search for Make It Last. You will find the podcast link, subscribe to it. Every episode will be automatically delivered to your inbox.
Hope this has been good for you. This has been great for me. I’m really excited for today’s show. Otherwise, we’ll catch you next week on Make It Last, where we help you keep your legal ducks in a row, and your financial nest eggs secure. Catch you next time. Bye‑bye.
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This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions nor should it be construed as advice designed to meet the particular needs of an individual situation. The host of this show is not affiliated with or endorsed by the US government or any governmental agency.
The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable but accuracy and completeness cannot be guaranteed.