Risk Management for Retirees

Risk Management for Retirees – Welcome to the Webinar (0:00)

Scott Peterson: Welcome, everybody. It’s good to have you with us today. For those who don’t know me, my name is Scott Peterson. I’m the managing partner of Peterson Walt Advisors, and again, it’s good to have you with us. We appreciate the time you are willing to spend with us today. This presentation was created to prepare our clients for our upcoming appointments, where we’ll focus on risk management.

I understand we have quite a few non-clients joining us today, and we’re glad to have you with us. We believe that you will also benefit from this webinar. For the non-Peterson Wealth Advisor clients, just so you know, we regularly meet with our clients to review their investments, go over their taxes, and help them apply for Social Security or Medicare. We also work extensively with charitable contributions, ensuring our clients make these contributions in the most tax-beneficial way possible. Additionally, we rotate through a series of topics to make sure our clients are prepared for whatever comes their way.

This quarter, we’ll be focusing on the topic of risk management. We’ll share with you what we have found works for our clients and provide some ideas on how to best protect yourself.

A couple of housekeeping items: the webinar will last about 45 minutes to an hour. We’ll have a Q&A session afterward for any questions you have. If you have specific questions related to your situation, you can wait until your appointment with your advisor. But if you have a question that might be applicable to all participants, please let us know. You can use the Q&A feature in Zoom, and some of us will be monitoring that during the presentation. There will also be a survey at the end of the presentation in your browser.

Let me start with a disclaimer. The attorneys make us say this every time, but I think it’s a good idea. The information provided in this webinar does not and is not intended to constitute legal advice. Instead, all information, content, and materials available are for general informational purposes only. We always say this, but this is why you have advisors. Our greatest fear is that you take one little idea out of context and run with it without having all the information you need. If you have any questions, this is the time to reach out to your advisor.

I’ll start the webinar by talking about investment risk, followed by Carson Johnson, who will cover property and casualty. Josh Glenn will then help us with health insurance-related issues. Alex Call will share with you what we are seeing these days regarding fraud and give you some warnings. Finally, Jeff Lindsay will finish the webinar by discussing end-of-life issues and some of the risks we see for those unprepared for this stage of life.

We will not be going into great depth on any one of these topics but plan on doing that during your upcoming appointments on the topics that are of most interest to you. Clients, as we go through these issues, you may want to take notes so you can thoroughly cover the topics most applicable to your own situation.

Investment Risk (4:04)

With that, let me just jump into investment risks. We are the people who manage your money, so I’m sure you talk a lot to your advisors about investments and risks and concerns. I just wanted to take a couple of minutes today to review investment risks. When it comes to investment risk, I always like to ask the question: what exactly is risk?

We know all investments have risks, but they have different kinds of risks. You’ve heard of interest rate risk, liquidity risk, market risk, and all sorts of different risks. The key to a successful investment program is to recognize the risks in your own portfolio and then create a portfolio of investments that limits your specific risks.

To answer the question, “What is risk?” I propose that risk is the loss of purchasing power. I will share with you the three biggest investment risks that retirees face every day and give you some ideas on how to reduce those risks or how they are being reduced for you.

When we say risk is the loss of purchasing power, the first risk I’d like to discuss is market risk. Market risk is when you own an investment or share of a business, and the investment or business goes down in value or maybe even goes out of business. For example, if a business you own goes bankrupt, that’s market risk.

With market risk, you can lose a lot of purchasing power suddenly and dramatically. Most investors confuse market risk with volatility. To be clear, volatility is not the same as market risk. Volatility is actually unpredictability. Volatility, which has neither positive nor negative connotations, is not the same as risk. Risk is where you could actually lose purchasing power. Volatility refers to the fluctuation of account values.

When it comes to market risk, investors can lose money in several ways. Firstly, by not being sufficiently diversified. We often hear about the importance of not putting all your eggs in one basket. Some people are reluctant to give up their favorite stock or have accumulated a significant amount of stock while working, putting them at greater risk compared to those with a diversified portfolio.

Another way to lose money is by investing in the wrong kinds of things. For instance, having short-term money or money needed in the near future invested in long-term investments is risky. If you are saving to buy a car in a year, it doesn’t make sense to put that money into stocks. While it may work out, there’s a big risk if the markets go down and stay down for two or three years, causing you to lose money when you need to withdraw it.

Sometimes, investors are simply impatient. Markets are cyclical and typically stay down for an average of about a year or two before bouncing back up. However, investors may become impatient or even panicky, thinking it’s different this time and they need to get out.

There are proactive steps we can take to reduce market risk. We can mitigate it through diversification, aligning investments with when they will be needed, and educating ourselves about the volatility and temporary nature of markets. Markets always bounce back.

Moving on to the next risk: inflation risk. We’ve heard a lot about inflation recently. Inflation rates have been higher in the past couple of years, and the Federal Reserve is continually addressing this issue. Some of you might remember in the early eighties when money market rates were very high, but inflation was even higher, which eroded purchasing power.

Historically, inflation has averaged about 3%. At this rate, purchasing power would shrink significantly over a 30-year retirement unless investments keep up with inflation. The key is to ensure investments outpace inflation, even if it means enduring periods of volatility. Purchasing equities or stock-related investments has historically been the way to beat inflation over a long period. However, these investments are more volatile.

Over time, the risk of owning equities decreases. Although there are periods where markets go down, over 20 or 30 years, stocks have consistently outperformed other investments and beaten inflation.

On the other hand, keeping money in lower-yielding, lower-return investments over time increases the risk of inflation eroding purchasing power. The longer you hold such investments without keeping up with inflation, the more dangerous it becomes.

Finding the right balance between equities and lower volatility investments like bank accounts and bonds is crucial. Maintaining this balance with discipline is essential to manage risk effectively and ensure your investments grow over time while mitigating the impact of inflation.

And that is the conundrum, isn’t it? We need a little bit of both to make this whole retirement thing work as it should. It requires a very delicate, carefully crafted portfolio that matches your current investments with your future income needs.

So, bottom line, we need to plan. We need to plan to protect your short-term money and your long-term money. You need a plan that matches your future income with your current investment program.

The Perennial Income Model™ (13:02)

Those of you who have been with us know that we use the Perennial Income Model to manage our clients’ money. We created this model in 2007, and it is a common-sense approach for creating retirement income, matching your current investment portfolio with your future income needs. We find the right balance and help you maintain that balance throughout your retirement.

The portfolios we use within the Perennial Income Model are very well diversified. We talked about market risk earlier; one way to mitigate that is through a diversified portfolio. Most importantly, it matches your short-term needs with short-term investments and your long-term income needs with long-term investments.

Having said that, I’m not going to go into more detail about the Perennial Income Model, as we’ve discussed it extensively, and I believe you understand it well. However, I think one of the biggest risks our investments may face is our own investment behavior.

During times like these, with political craziness, high inflation, and volatile markets, maintaining investment discipline can be challenging. There are so many distractions, disinformation, and emotions that can cause us to lose focus and make poor decisions. Humans tend to be shortsighted, prone to panic, and biased in ways we may not even realize.

What we have found is that when investors recognize the reason they own specific investments, understand how these investments fit into their overall financial plan, and know when these investments will be needed to provide future income, they become more rational.

We rolled out the Perennial Income Model in 2007, right before the crash of 2008-2009. During the crash, we had about half of our clients in the Perennial Income Model and half who were not. We noticed that those with the Perennial Income Model made better investment decisions and did not panic. They understood what they were holding and why, and knew they had the necessary money for their short-term needs while waiting for the stock market to rebound.

The Perennial Income Model provides a structured approach that helps investors make rational decisions during market downturns. The decision not to sell during a market decline can be one of the most important investment decisions you make for yourself and your family. The Perennial Income Model can make this decision easier.

For those who are not clients and are wondering about the Perennial Income Model, you can learn more about it on our website, petersonwealth.com, where you can also order my book, “Plan on Living.” Clients, if you have questions about how the Perennial Income Model protects your downside and offers protection from investment risk, please ask your advisor. They can provide detailed information specific to your situation.

Thank you, and I’ll now turn the time over to Carson Johnson.

Property & Casualty Insurance (17:45)

Carson Johnson: Thank you, Scott. Let me just get situated here.

Okay, so let’s jump in now and talk about property and casualty insurance as it relates to overall risk management. Property and casualty insurance, also known as P&C insurance, is something many of you probably already have and will likely not need to make major adjustments to, but it is an important aspect of your overall financial plan, especially as you shift into retirement.

Property and casualty insurance helps protect you and your property from damages and losses. At its core, it provides two types of protection:

  1. Property Protection: This covers your home and personal belongings from damages or losses due to unexpected events such as fires, theft, or natural disasters.
  2. Casualty Insurance: This relates to liability protection, covering you when you are responsible for damages to other people’s property or injuries to other people. Examples include someone getting hurt on your property or causing a car accident that damages another vehicle or person.

Often, P&C policies are bundled together, providing protection against both property damage and liability claims. There are various types of P&C policies, including auto insurance, home insurance, and renters insurance. Each type covers specific sets of damages and liabilities.

P&C insurance works like other types of insurance. If your property is damaged or destroyed by a covered incident, you can file a claim with your insurance company to be reimbursed for the losses. The same applies to liability claims. It’s crucial to understand that your coverage is limited by the terms of your policy, making it important to select the right coverage limits and understand your overall policy.

Retirees often ask about umbrella policies because they are intrigued by the additional protection these policies offer. In retirement, individuals often have more assets than ever before and want to ensure these assets are protected. Umbrella coverage provides extra liability protection beyond the limits of your other policies. For instance, if someone gets injured on your property and the medical bills exceed your homeowner’s policy limits, an umbrella policy can cover the excess amount.

A common misconception is that umbrella policies are essential for everyone. However, your existing policies might already provide sufficient coverage. Often, you cannot get an umbrella policy until you increase your liability coverage on your existing policies. The key to determining if an umbrella policy is right for you is understanding your current coverage and assessing any additional exposure you might have.

When purchasing P&C insurance, it’s important to consider both the coverage and the cost. The more coverage you have, the more expensive it will be. Many people don’t fully understand what their property is worth and how much coverage they have. If you have a home worth $500,000, you want a homeowner’s policy that covers your dwelling for that amount.

The deductible is another important factor. This is the amount you are responsible for paying before the insurance company makes any payments. Generally, the lower the deductible, the higher your monthly premium. The goal is to find a deductible you can afford, with money set aside to cover it, without causing a financial burden.

Inflation is another critical consideration. Inflation can erode the value of your insurance over time. As the value of your property and liabilities rises with inflation, if your policy coverage stays the same, your policy may not cover the full value of your losses.

Understanding and maintaining the right P&C coverage is essential for protecting your assets and ensuring your financial stability, especially in retirement. Inflation can significantly impact the value of your insurance over time.

For example, I encountered a prospective client named Susan a few years ago. Susan, a 72-year-old retiree living in California, was caught up in the wildfires that occurred a few years back. She had lived in her home for over 30 years, and due to inflation, the value of her home and rebuilding costs had increased significantly. However, she hadn’t reviewed her P&C coverage in many years and assumed her initial coverage was sufficient.

When the wildfire caused extensive damage to her home, Susan discovered that her insurance coverage was based on her home’s value and rebuilding costs from over a decade ago. The increased costs exceeded her policy coverage limits, leaving her to cover the excess out of pocket. This situation underscores the importance of regularly reviewing your policy to ensure it remains adequate.

Many of you may be aware that some policies include inflation features, which could have solved Susan’s problem. However, the point here is that changes in your stage of life, such as entering retirement or experiencing family changes, may necessitate a review or changes to your policy.

This leads us to the question: why is this important for retirees? Upon retirement, reviewing your property and casualty insurance is crucial for several reasons. Firstly, retirement often brings significant lifestyle changes, such as no longer having children at home, traveling more, or moving to a new state. Moving to a new state could expose you to different risks, such as hurricanes in Florida compared to living in Utah.

Secondly, retirement usually means transitioning to a fixed income, making it important to ensure your coverage is both cost-effective and sufficient to protect against significant financial losses. Without regular reviews, you may find yourself underinsured or paying for unnecessary coverage, depending on changes in your life situation.

Take the time to review your policy and make necessary adjustments to safeguard your assets and ensure peace of mind throughout retirement.

We’ve worked with many retirees over the years, so we put together some questions you should consider asking yourself or your agent:

  • How long has it been since you reviewed your policy?
  • What does your homeowner’s policy currently cover or not cover?
  • Is your liability coverage adequate given the increased costs due to inflation?
  • How can you ensure that it’s both cost-effective and comprehensive?

To help answer these questions, here are three key takeaways:

  1. Assess Your Needs: Take inventory of all the property you own, the value of your home, and understand what coverage you may need.
  2. Seek Professional Advice: While we at Peterson Wealth Advisors are not licensed agents, we can recommend professionals who can help you find the right policy. Be aware that there are captive agents limited to their company’s products and independent agents who can access the entire marketplace.
  3. Understand the Policy Details: Make sure you understand your coverage limits, deductibles, and ensure they align with your unique situation and expectations. The goal is to have the right insurance that aligns with your needs for peace of mind in retirement.

Now, I’ll turn the time over to Josh to talk about health insurance.

Medical Costs (28:58)

Josh Glenn: Thank you, Carson. When you reach retirement, you face greater exposure to medical cost risk. As you can see on the next slide, I refer to this as the “double whammy” of medical costs.

As you all know, medical costs are continuing to rise. You hear it on the news and see it when you visit the doctor. This is the double whammy because, as you get older, you tend to need to go to the doctor more frequently, dealing with expensive medical costs and more frequent visits.

At Peterson Wealth Advisors, we understand this and do three main things to help mitigate medical cost risk:

  1. Education on Health Insurance Options: Transitioning from workforce health insurance coverage to retirement can be confusing. We help you understand your options.
  2. Excellent Tax Planning: For most people in retirement, medical insurance premiums are subsidized by the government. The higher your income, the lower your subsidy. We help with tax planning to keep your taxable income lower and your subsidy higher.
  3. Connecting with Trusted Professionals: While we don’t know all the medical plans, we know people who do. We can connect you with trusted professionals when necessary.

The education piece is crucial, especially with the nuances of health insurance options in retirement. You could be retiring before or after age 65, or you might have one foot in each camp, with a spouse not yet 65 complicating your health insurance needs.

Retiring Before Age 65

There are three main options:

  1. Staying on Your Employer Plan: Sometimes your former employer allows you to stay on their health insurance plan until you turn 65.
  2. Healthcare.gov Plan (Obamacare): This is the most common option for our clients retiring before age 65. More on this later.
  3. Health Insurance Through Mission Service: Many clients who served missions for the Church of Jesus Christ of Latter-Day Saints can get health insurance through the church.

Retiring After Age 65

Things are simpler. You get on Medicare Part A and B, then a Medicare supplement plan or a Medicare Advantage plan to fill in the gaps left by Medicare.

Health Insurance Costs

Retiring before 65, you take on more healthcare cost risk. Obamacare plans tend to be more expensive and offer less coverage than what most are used to. If you want good coverage with low deductibles, you’ll likely pay a lot more than during your working career. These plans are subsidized based on your gross income. For example, a single person making $80,000 a year might pay $540 a month for a mid-tier plan, while someone making $60,000 would pay $400 a month for the same plan.

At Peterson, we work hard to keep your taxable income lower to reduce your medical premiums. Retiring after age 65 is simpler, with Medicare offering much better coverage at a significantly lower cost.

Working with an Agent

While we are experts in financial planning, we don’t know all the medical plan options or your specific medical needs. A licensed insurance agent can help with this. They’ll know the plans in your area, meet with you to understand your medical needs, and give unbiased advice to get you on the right plan.

Understanding and managing health insurance options is crucial for mitigating medical cost risk in retirement. Make sure to seek professional advice and regularly review your policies to ensure they meet your needs.

And one of my favorite things about these agents that we refer our clients to is that you can use them at no cost to you. Whatever plan you sign up for, the insurance company will compensate the agent, so you don’t have to worry about that.

The last thing I want to talk about today is a story from one of our clients. We had a client who had retired and was getting health insurance coverage from their former employer. It was working great for them—low cost, low premium, and great coverage. However, they had a son with different needs, and they were still paying for his insurance. He was also covered by that former employer. The problem was that his portion of the health insurance was not being subsidized by the employer, so they were spending a lot of money each month on his medical insurance.

When we met with them during one of our semi-annual reviews, we asked about their insurance situation, and they explained it to us. Because we are familiar with how Obamacare works, we suggested there might be a better option for them. In this case, their son’s income was lower, so we thought he could get on an Obamacare plan with good coverage at a very affordable cost. We referred them to one of our health insurance agents, and a few weeks later, they emailed us back, very grateful that we took the time to talk about this. They informed us that they would be saving about $14,000 per year on medical insurance.

This is a great story where our clients truly benefited from us addressing their health insurance needs.

That’s all I have for health insurance. I’ll turn the time over to Alex.

Fraud (39:30)

Alex Call: Oh, there we go, Josh. Thank you very much for that.

So today, what I’m going to be covering is fraud. When we think of fraud, a lot of times we think of cybersecurity. The reason why this is so applicable for retirees is that often retirees can be more of a target for this type of fraud. That’s what we want to go through today.

There are really two types of fraud that we want to look at. One is tech scams. This involves people accessing your information or tapping into your money through technology. The primary culprit here is usually a fraudulent email or a text message. Text scams have become much more common lately.

The next type is people scams. These involve individuals accessing your information by impersonating somebody else, usually through a phone call. They might say they are from the bank, IRS, Social Security, or even send messages about student loan payments. They can also impersonate someone you trust.

I want to go over some things to be aware of so that you do not fall prey to these scams.

First, let’s look at tech scams using the acronym SLAM:

  • S is for Sender: When you receive an email, analyze the sender’s email address carefully. Often, you can tell if it’s fake or fraudulent just by looking at it.
  • L is for Links: Hover your mouse over any link in an email to see the actual URL it directs you to. If the URL and the link don’t match up, it’s likely fraudulent.
  • A is for Attachments: Use caution when opening unsolicited or unexpected attachments. Your default should be not to open them unless you are expecting them or you verify from the sender that they are legitimate.
  • M is for Messaging: Watch for misspellings and out-of-character phrasing within the body of an email. With the rise of AI, scammers are getting better at crafting emails, but there are still signs to look for.

Now, let’s look at a couple of examples using SLAM:

Another example shows a fraudulent email where “D” is spelled with a zero instead of an “O.” The message has an urgent tone, saying, “I need your help and I need it now.” These are signs to be cautious about.

Next, let’s look at people scams using the acronym PASS:

  • P is for Privacy: Shield your personal data online. Impersonators sound more legitimate if they have information about you, like your birthday, phone number, email address, or home address. If your social media doesn’t need to be public, make it private.
  • A is for Authentic: Ask yourself if the scenario is realistic or too good to be true. Would a family member or friend really request money via email? Would a celebrity contact you for financial support? Think critically about the situation.
  • S is for Source: Verify and check the source before trusting. Make sure the request is legitimate by doing your due diligence.
  • S is for Slow Down: A huge red flag is when impersonators make it sound like a life-or-death situation that needs immediate action. Slow down and think through the request carefully.

The goal for most tech and people scams is ultimately to take your money. More often than not, they will do this by wiring your money to an account. When it comes to wiring money, verify before you trust, as wire fraud is often the end goal.

Here are a couple of examples we’ve seen with our clients:

One client had someone impersonating their granddaughter, claiming she needed cash wired to an account because she was stranded in Mexico. The granddaughter conveniently did not want her parents to know about it, asking the client to wire the money directly. Unfortunately, the client sent the money, and once it’s gone through the wire, it’s very difficult, if not almost impossible, to get it back.

Another example is more sophisticated. Someone called pretending to be from the bank’s fraud department, claiming someone inside the bank was accessing the client’s money. They told her not to inform the bank and convinced her to wire tens of thousands of dollars to an outside bank account. This happened over days and weeks. Fortunately, a worker at the receiving bank flagged it, and the client got her money back with our help.

To help you, anytime there’s money being wired to an unfamiliar account, we will always verify and check with you. We also check with the company where the money is being wired. I recommend you do the same: go online, find the phone number of the company you’re wiring money to, and ensure it is legitimate.

Besides being aware and verifying before you trust, the best way to protect yourself online is with account protection. First, protect your accounts, especially your email. Email is the gateway to everything, including your passwords, so it needs to be your most secure account. I’d say your email is more valuable than your social security number in terms of cybersecurity.

Your password should be at least 15 characters long. Think of a movie, game, show, or song—something easy to remember. Length is more important than complexity: think of length as strength.

Another way to protect your accounts is Multi-Factor Authentication (MFA). A great example of MFA is when you pay with your credit card at a gas station, and they ask for your zip code. They’re asking for two ways to authenticate. Set up MFA for your email and other important accounts.

In review, remember these top four things:

  1. SLAM: Sender, Links, Attachments, Messaging
  2. PASS: Privacy, Authenticity, Source, Slow down
  3. Whenever you wire money, verify before you trust.
  4. Protect your accounts with strong passwords (15 characters minimum) and Multi-Factor authentication.

I want to mention a different type of fraud, especially relevant for retirees: family fraud. Working with retirees, we’ve seen everything from helping kids with a down payment on a home to funding their lifestyle. Unfortunately, we’ve also seen outright fraud, with kids taking money from their parents’ accounts, feeling entitled to it as their inheritance.

If you want to give substantial amounts of money to your kids, that’s great. If it aligns with your goals and values, go for it. We can discuss how it affects your plan, your current income, and your future. If there are more serious forms of fraud involving your kids, let us know, and we’ll create a plan to address it.

So working with retirees, we have seen the whole spectrum when it comes to retirees giving money to their kids, whether that’s helping kids with a down payment on their home, funding their kids’ lifestyle, and continuing to send out money all the time to fund it. We have also, unfortunately, seen downright fraud where kids are taking money from their parents’ account, feeling entitled to the money, and justifying it because that’s their inheritance anyway, and they’re going to get that money either way when mom and dad die.

If you want to give substantial amounts of money to your kids, that is great if that’s a goal and a value that you have. We would like to discuss with you how that is going to affect your plan. What does that mean for your income today and moving forward so that you are well aware of what giving large sums of money to your kids looks like? If you think there are more serious forms of fraud with your kids, please let us know, and we’ll figure out a game plan to help get through that.

And now, we’ll turn the time over to Jeff to finish up with end-of-life financial risks.

End-of-Life Financial Risks (54:27)

Jeff Lindsay: Thank you, Alex. And thank you all for sticking with us all the way to the end of this webinar. No pun intended. I’m gonna be speaking on end-of-life financial risks. I know this is a difficult topic for some because we have a hard time facing our own mortality, or it could be a difficult topic because we have to face the mortality of our closest loved ones. There are, however, major financial risks that arise around the end of a retiree’s life, and it’s important to address them.

These are a few of the major risks that we see associated with the end of life. Chronic illness: healthcare was already covered, but often at the end of life, a chronic illness can increase financial strain. Long-term care: if one or both spouses need to spend time in a long-term care facility or bring care into the home, this can be very expensive as well. Often, a stay in a long-term care facility isn’t as long as we might expect. On the other hand, paying for long-term care insurance can also be expensive over time.

Cognitive decline: studies show that our mental capacity declines as our memory worsens along with financial decision-making abilities. Death of a spouse: an important question every retiree should consider is, if you are the one who deals with the money in your household, who is going to help your spouse make prudent financial decisions when you pass on? It is a cruel reality that a surviving spouse must make some of the most important financial decisions of their life immediately after the death of their spouse. This is the very moment when they’re least capable of making any decision at all. New widows and widowers are often in shock, dealing with situational depression, and struggling just to get through each day.

Inheritance risk: when money passes from one generation to another, some of the greatest financial risks exist without a well-thought-out and executed plan. Money can be wasted, lost, stolen, or taxed into a fraction of the size of that gift you intended to leave your heirs or your spouse. It’s true that you can’t take it with you, but you can arrange things in a way that would provide a meaningful legacy to those you care about.

And last of all, death. A list of end-of-life risks wouldn’t be complete without death. I suppose, in a sense, the greatest risk we all face and the corresponding life insurance discussion is probably one of the main things you all thought about when you saw this topic today. Don’t worry, I’m not gonna sell you life insurance today. Quite the opposite, actually.

I wanted to go through real quick and discuss a little bit about life insurance. Insurance is a financial instrument used to cover a specific risk. Life insurance is designed to cover the income of the person who has died. If you’re in a place financially where neither spouse needs to work or if you don’t have anybody relying on your income, there may be little or no need for life insurance.

I’ve got the slide up here that you can see how this kind of works over a lifetime, the need for life insurance. But of course, it’s never as easy as illustrated here. Instead, you buy a term policy that gets you close to or into retirement years. At the point when the term is up, you’re faced with the decision to either continue coverage at much higher prices or lower coverage at similar prices, or else drop the coverage and risk missing out on that big lump sum you’ve been looking at all these years.

If you’ve been saving along the way and you have a suitable investment portfolio built up to cover your income at the end of your life, and you’re still relatively healthy, this decision may not be that difficult, and it may be just a matter of dropping that policy. Think about it: if you were put into a situation where you didn’t have a car, you wouldn’t any longer need car insurance. So life insurance should be seen the same way. When you no longer need the life insurance to cover the financial risk of your passing, you shouldn’t feel bad letting it drop.

Having said all that, if you already have a policy open and you’re paying on that, I’m not telling you to just bust that policy. Make sure you do some financial analysis on this. It’s worth the time to do that. Don’t just crash your policy before verifying that it’s right for your situation.

I wanted to tell a few stories to illustrate the importance of addressing these end-of-life risks. I’ll try to keep them short as our time is limited.

We’ve heard of people who, when one of their spouses passed away, panicked and sold a motor home worth $100,000 for only $19,000. We’ve heard of people selling cabins and homes just for cash flow when they actually had cash flow but didn’t know how to access it at the time.

I know of a man who had a brilliant and long, successful career. He did well with his investments over time, but as his cognitive abilities declined, he was scammed out of his entire life savings. He now lives on the street or with those who will let him stay. This happened because he thought he was making another great investment decision but couldn’t see it as the scam that it was. He also didn’t rely on the support group he had built over a lifetime. By the time his children and advisors got involved, it was already too late.

We’ve probably all heard of situations where relatives or unscrupulous salespeople took advantage of someone when they weren’t in a good place to make sound financial decisions. In fact, I went to lunch the other day with a group of friends and brought up this topic. Every single one of them had stories to tell that were relevant to this situation.

I’ll tell one more example. I had a client who decided to give her IRA away to her church at the end of her life. She met with the attorney, made the change within her trust, but forgot to talk to us about this change. So we weren’t able to change the beneficiary on the account to this church. This created a significant risk of a taxable transaction before the money could be donated to the church. We were able to work with the custodian and the CPA to make sure this was done right, but it took the better part of a year. This could have been solved with a conversation and one signature before she had died.

So what is the solution? Here are a few ideas. A well-designed and executed estate plan can help with many of the issues that come up at the end of life. A trust can often help transfer assets in a tax-efficient manner without involving the court system or other prying eyes. A good power of attorney can help protect assets in situations of cognitive decline. Having the proper beneficiary arrangements will ensure your money is going to the people or organizations you intended during your lifetime.

Having the right type and amount of insurance coverage, including Medicare supplements and other insurances, can reduce risk. This is especially true at the end of life. The cost of life insurance goes way up in the latter years, so keeping too much of it for too long can be a major drain on financial resources.

Effective use of the Perennial Income Model can help during end-of-life situations as well. When one passes away, there will certainly be a document or two that has to be signed, but overall, the surviving spouse can continue on with the plan that was set up when both were alive.

Don’t try to do this alone. Part of your plan should be to find trusted advisors who can help you through this time of life. This could be your financial advisor, your attorney, one or more of your children or loved ones, or a combination of these people. Communicating about who will help with which parts of your life is important. So everybody knows what you want and how involved you want them to be when you want them involved.

Having a child or a loved one involved in meetings with your financial advisor can be a good way to keep everybody on the same page. Do this before you experience significant cognitive decline.

Putting a team together and having the proper plan in place can help save significant portions of your money. Most of you on this call have already taken a great step by hiring Peterson Wealth as your financial advisor. Feel free to use us as the quarterback of your team. We want to help you with the many aspects of your financial life during retirement, including risk management.

We’re not going to get into the insurance transaction, but we can help you think about what makes sense in your situation and get you connected with the people you can trust.

We’re happy when our clients invite their children to come in and be a part of the meetings as appropriate. In fact, in many cases, our clients’ children are nearing retirement and need to set up their own retirement plan.

So hopefully after a whole hour of a webinar here talking about the major risks that retirees face, you can see that we’re helping address the most important ones. During your meetings this year, we want to get into any risks you feel are still unaddressed in your situation to help you create a solution. We look forward to those discussions.

I think we’re almost out of time. We were planning on having some questions. Those that have been monitoring questions, do we still have questions outstanding?

Question & Answer (1:04:55)

Carson Johnson: Yeah, let’s take a look.

Jeff Lindsay: I think if we don’t have anything jumping out, we’re already four minutes over, so we can probably just wrap it up as well.

Carson Johnson: Here’s a good one that I liked that I think Alex answered the question. And maybe Scott if you wanna jump in on this too. The question was how do I measure my investment so that I know that I’m sufficiently diversified? At which point are my investments so diversified that I have weakness in my returns?

So I guess the main question is how do you know if you’re sufficiently diversified? And Scott, do you wanna wanna jump in on that?

Scott Peterson: You know, if we just wanna get real technical, we have investment partners that we can throw your investment holdings into the computer program and it’ll spit out to us exactly what your allocation is. And as far as what duplications you have, I think that’s pretty helpful.

But on the other hand, I think we see more often than not, people just duplicating. You know, they’re buying mutual funds from Fidelity, from Vanguard and they think because they have two separate companies they’ve got it covered, they’re well diversified.

When in reality the Fidelity and the Vanguard fund managers are buying the same stocks. And so it’s kind of hard to know exactly. The solution is not buying four different S&P 500 mutual funds.

So I think it’s hard to answer this question without really looking at what you have, but we’d gladly take a look at it and it just takes us a minute to run it through some of our computer programs.

Carson Johnson: Thoughts about target date funds?

Scott Peterson: Target date funds, they have a place. I think if you’re retiring and you have money in the 401k that could work out well. The Perennial Income Model we think does a lot better job than a target date fund.

And so if you’re not a client, and you’re wondering about what the Perennial Income Model is, I think you need to get the book and read it. And then you can compare that to a target date fund and you’ll see that the model that we use has huge advantages over a target date fund.

Josh Glenn: Looks like one just came through Carson, and I can answer it if you’d like. So someone asked, can you go over the Social Security postponement to save on income? So I think that may be referring to one of my slides and the cost of your, if you’re on Obamacare or something like that, or even Medicare for that matter, if your income gets really high, the cost of your medical premiums are gonna go up.

So if you don’t need Social Security because your other sources of income are enough, it likely would make sense to delay your Social Security so that you don’t have more taxable income and so that doesn’t increase your medical premiums.

Scott Peterson: I would to a certain point, let’s just be clear, Josh was exactly right except for after age 70, there’s no benefit for delaying your Social Security benefit.

So some of these questions, I see we have quite a few questions, but a lot of them, it looks like they would take answering on a more specific basis, I mean, answering your specific problem.

So I just recommend maybe at this point we just go ahead and end this. And remember your question, bring it to your appointment to talk to your advisor about that. They can give you the specifics of your own situation.

Carson Johnson: Okay. Thanks everyone.

Scott Peterson: Thanks y’all.

About the Author
Founder & CEO at 

Scott is the founder and principal investment advisor of Peterson Wealth Advisors. He graduated from Brigham Young University in 1986 and has since specialized in financial management for retirees. Scott is the author of Maximize Your Retirement Income and Plan on Living: The Retiree’s Guide to Lasting Income & Enduring Wealth.

About the Author
Partner, Senior Advisor at 

Jeff is a Certified Financial Planner™ professional at Peterson Wealth Advisors and has also earned the Chartered Retirement Planning Counselor℠ certification from the College for Financial Planning. He holds a bachelor’s degree in Finance from Utah State University with a minor in Economics.

About the Author
Partner, Senior Advisor at 

Alex Call is a Certified Financial Planner™ at Peterson Wealth Advisors. He graduated from Utah Valley University where he majored in Personal Financial Planning and minored in Finance.

About the Author
Lead Advisor at 

Carson Johnson is a Certified Financial Planner™ professional at Peterson Wealth Advisors. Carson is also a National Social Security Advisor certificate holder, a Chartered Retirement Planning Counselor™, and holds a bachelor’s degree in Personal Financial Planning and a minor in Finance.

About the Author
Associate Advisor at 

Josh is one of our Associate Advisors at Peterson Wealth. Josh graduated from Utah Valley University in 2022 with a degree in Personal Financial Planning and is an Accredited Financial Counselor.

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