and welcome back to How to Retire. I’m Jackie Post here at How to Retire headquarters in Middletown, Connecticut, where I am once again joined by Ben Fuchs. He is the owner of Fuchs Financial. We meet here every week to talk about everything you need to think about when you are thinking about retiring. Ben, it’s good to be back. I’m honored to be here as well. I feel honored as well. Okay. I think we have a little bit different layout today, right? Yes. I love it, by the way. I love the guest aspect, so I think it’s going to be a lot of fun. Well, I would like the guest aspect if I wasn’t the one having to host, but you threw me in there. I did. You didn’t want me to. I wanted less work. I respect that. Yes, I gave it to you. They’re working smarter, not harder. Yeah, exactly. I’m distributing responsibilities. So today we are tackling a topic that can make even the most… prepared retirees a little bit uneasy, and that is risk. Okay, so people get nervous probably just even thinking about the word. We’ve got market swings, longevity risk, inflation, healthcare, sequence of returns, all these terms and craziness, right? It gets people all in a tizzy. All right, so let’s start at the top. Why do losses early in retirement do so much more damage than losses later on? All right, so that’s what people call sequence of returns risk. What you see is a lot of people, it depends on how they’re allocated. It doesn’t have to make a big difference if your money is in the right places. But if it’s not, it makes a huge difference. And the best example that I can give you is 2000. So 2000, 2001, 2002. We had three years where the market just went down. So, you know, we all hear the… the advice from people oh the market drops don’t worry about it just hang on it’ll eventually come back well let’s say you’ve retired and it’s 1999 and the market has gone up by like 20 percent for the last three four years and you have all of your money in the stock market and your broker is like hey you know we’re gonna leave it here don’t worry we’re just gonna we’re gonna let it grow and it’ll be ups and downs but you’ll be fine so the first year the market goes down by 10 percent whatever you had down by 10%. So, you know, you have a million dollars, you’re down $100,000. All right, listen, I understand. I’ve dealt with this. I can live through it. And then the next year, the market continues to go down by another 13%. So now you just consistently see money losing. And you’re white knuckling a little bit, but you’re like, listen, I know we’ll get through it. It’ll bounce back. They always say it comes back. And then the following year, the following year, it drops by another 23%. so now we have 900 days where all you’re doing is seeing the money that you’ve worked so hard to save your entire life just dwindle dwindle dwindle dwindle and if you don’t touch that money and you had a million dollars in the beginning you’re down by over 400 000 at the end of that period and if you’ve taken that money because you have to live off this money it’s even more of a problem and so that’s why sequence of returns become a big issue that’s when people start to begin pulling that money from the account and then it makes it very very difficult to come back up and listen if you’re in that scenario and you’ve just seen your portfolio go down by almost you know by more than 40 percent you’re done with the market right how do you deal with something like that what do you do yeah so the first thing and the most important thing is that when you are retired or you’re approaching retirement two five years away from retirement you don’t have all of your money in the stock market And it’s very hard to convince people right now not to do that for the last couple years because they say, oh, my account’s gone up by 15%. My account’s gone up by 25%, which is wonderful. But that’s really the time when we need to pull back, take some of those gains off the table, and start to make sure that you’re secure. If we have money in the right buckets, in the three distinct buckets, in the bucket that generates your monthly income, the bucket that is long -term growth that we talk about all the time for inflation, and the bucket that is your safety net. you can withstand significant, just like that, market downturns and not have it affect the way that you live. My goal as a financial advisor is to make sure that those people who are retiring can retire with the expectation that this will happen again. Let’s hope that it doesn’t. Right. So obviously not the best idea then to put everything in one bucket. Well, that’s the problem, right? So we talk about the different buckets because we always want you to have money in the stock market. You know, it doesn’t matter if you’re 49 years old or if you’re 75 years old. I always want you to have some money in the stock market. That’s your bucket that is there for… I mean, listen, I think we’re old enough to say that we were around in 2019, right? Yes. And in 2019, the amount of money that it took to buy a car is so much less than it took to buy a car today. Right. And so if all of your money was safe throughout that period, right, you went the opposite direction and everything has been safe, then you’ve lost buying power. That money that could have bought that car six years ago cannot buy that car today. You need it. a lot more and so we need to make sure that we have that’s why we talk about the different buckets just like you know the money that goes to pay your mortgage isn’t in the stock market that’s why we have to have those different areas is that not fair did i answer your next question you did you did and you didn’t so um a little bit so we’re going to break it down um you know some of the things that sort of play into that cash for near-term expenses which you kind of just led into a little bit with the car situation but um let’s talk about that and how that plays into what we just talked about. So when I took the CFP almost 10 years ago in 2016, the rule of thumb was you need, if you’re on your own or you’re the one household that generates all the income for the family, you need six months worth of expenses. So you lose your job, something happens, you can’t work for, you need six months worth of expenses in your back pocket. That’s your near-term, short-term safety net. To cover basic things, right? Roof, boiler, car, tires. I mean, I felt like every time I was trying to save money in my 20s, something would happen. You know, all of a sudden tires were five times more expensive than you ever thought they would be. Or brakes that, you know, when you hear the metal on metal screeching, that’s always fun. I need some brakes right now, actually. It’s such a good time. Yeah, but it’s like, oh man, like these are the things that I did not budget for that are in there. So that’s what you have that six months of expenses for. Because if you don’t have that, then your only alternative is that. right then your only alternative is credit card debt and then you have to work to pay off 25 30 interest and that’s something else that can get you further into a hole so the idea is that if we have these things set up ahead of time we don’t fall into that that pitfall absolutely i like the idea of buckets it kind of it’s a visual for me and it helps and i think it probably helps bring in buckets i mean next time we should i love i love props okay i love props so yeah so the growth bucket is to fight inflation long term really you retire today congratulations you need four thousand dollars a month from your retirement account we know in a few years you’re going to need five so that stock market is there to give you that long-term growth but we don’t want to have to say you know we need this tomorrow be able to have some time three five six seven years down the road where we can pull from that and change the structure of it to give you more income so this can be very emotional for some people because it’s nerve-wracking right you you save all your life you retire and then the market goes crazy or whatever happens to kind of put you in a financial deficit so what are the biggest emotional mistakes that retirees make when the market gets bumpy yeah and so we see people pull money all the time people that have always been comfortable in the market that understand that they have to take risk understand that sometimes you have to white knuckle it they’ll pull right they’ll just say i can’t deal with this anymore let me take my money out i’m not comfortable and so for us the reason that we have those different buckets is to keep people from feeling that way And I think one of the best things that we can do for our clients is to help them understand why we have the money in the different buckets, right? Just because it’s safe doesn’t mean it can’t grow. We can get some very decent growth in that. But we also need to have money in the stock market for that long-term growth because if we can get, you know, 5%, 6%, 8% in some years in the safe bucket, there may be times when we can get 30% in the market. We don’t want to miss out on that. But when we make those knee -jerk reactions, right? Like I don’t know if anybody’s ever had a manager if that’s us like here’s something and then just automatically reacts like hang on let’s take a breath Let’s let’s have a conversation about what’s happening. We don’t need to make any sudden movements Let’s reevaluate the plan and make sure that we’re all set. Because a lot of times you don’t have to make those sudden moves. Right. And every time you talk about this, I just think to myself, well, get yourself a financial advisor and then they can do the worrying for you. You think that’s a good idea? Yes, I do. I think it’s a good idea. Someone like you who does it for you. You can just peace of mind. I think that’s what it does. It brings peace of mind. The reality is that this is what we do day in and day out. Right. You know, I mean, there’s a reason that we’re going to talk about estate planning on that. Right. I know enough to be dangerous, but man. somebody that’s an elder law attorney, they really know what they’re doing, right? There’s a reason that you have professionals that do this all the time. Right. And we understand, like, listen, we expect to get you more growth. People, oh, I don’t want to pay a fee. You’re probably going to save a lot of money by paying that fee. Right. And there are a lot of studies, even by Vanguard, the company that’s well known for paying as little fees as possible, on why having an advisor will make you more money in the long run. Right. I agree. I agree. All right. So it’s all super helpful. And you just mentioned estate planning. It’s really, estate planning really is something people… avoid, they put off, they put off, they put off until they actually have to do it. So actually what we’re doing today, we’re handing the reins over to you to be the host for a little bit. Are you okay with that? I don’t know. Maybe we’ll see how you do. Are you going to be behind the camera making fun of me? I don’t want you to take my job, okay? Don’t take my job. It would be good if I just talked to myself all the time. I think that would be great. Everybody would be very comfortable. It would be entertaining for sure. So we have Haley Allaire coming in from Allaire Elder Law. to talk about how she helps people navigate the estate planning world. But we talk about wills and whether or not they’re enough for people. So what are your thoughts on that? So I think in a lot of cases, wills are enough. And that kind of goes counter trend to what a lot of attorneys say. And I think to be fair, a lot of attorneys make their money just on creating trust. And there are definitely reasons why trust is really important. But again, because Haley’s going to be here. I don’t want to speak too much on that. I’m definitely going to ask her that question because I think that it’s better to hear it from somebody that, again, does this day in and day out. I know enough to be dangerous. I’m very comfortable with recommendations that I make. And, you know, I’m okay with her either countering what I say or confirming it. But I think it’s an important conversation to have with Haley. Absolutely. Let’s leave it to the experts. Is that fair? Yeah, that is totally fair. Okay, so I’m excited. When we return, Ben is going to take the reins and sit down with Haley Allaire. Stay with us. Congratulations, Nancy and Mark. You’ve been chosen to play the retirement game. All right, first question. How long will you live? Too slow. Spin the longevity wheel. Nancy, will inflation eat your savings alive? I hope not. Let’s spin the slot machine and find out. Which strategy will you pick? At Fuchs Financial, we don’t spin wheels. We build real plans. Personalized, adaptable, and clear. Thank you, Jackie. I am excited to be bringing my friend Haley in to talk with us today. So we do a lot about estate planning. People want to know about wills and trusts and powers of attorney. And I know a little bit, probably enough to be dangerous. But I think that we should probably have an actual real professional that does this every day, have a conversation with everybody at home. You want to tell everybody what you do? Absolutely. And don’t sell yourself short. You know a lot. So I do estate planning and care planning. elder law as an all-encompassing thing, which of course includes documents, the building blocks we need to do what we want to do. And it involves care planning, care coordination, making sure you get what you need in the least restrictive environment possible, which is hopefully home, while protecting your assets along the way. Cool. All right. So listen, I think the big thing that always comes up is, do I need a will? Do I need a trust? Do I need an irrevocable trust? And I’ll tell you what I say, and then you can tell me why I’m wrong. And we can go, is that fair? I’ll try. All right. So one, I’ve just never been a believer that everybody needs a trust. In my world, all the documents that we have, the IRAs, individual accounts, joint accounts, they all have named beneficiaries. So they avoid probate anyway, correct? Correct. Okay. So if you’re in a scenario where all of your money is in your 401k, your IRA, and you want to avoid probate, that’s going to do it regardless. We don’t need a trust for that, right? I fully agree if that’s your only goal. So when is the point when you need a trust? when you need like a living trust Okay. So living trust typically is going to involve revocable, but it doesn’t have to. But in any event, a living trust is appropriate if you are trying to delay someone else’s inheritance, or if you happen to be some of the lucky few that are in a taxable estate, that will soon mean over $15 million of net worth, in which case a revocable living trust can help your beneficiaries mature a bit before they really get their hands on future inheritance and avoid unnecessary. So we’re not going to let like a 12 -year-old care. Exactly. So even without a trust, by default, no one under 18 is going to make their own choices. But what if the surviving parent is not someone who’s very fiscally responsible? You probably want to say who’s in charge. Fair enough. All right. And so a lot of what you do ends up on the care side of things, right? It ends up on the irrevocable trust side of the world. So give me the difference really quickly between a living trust and an irrevocable trust. So funny enough. Or did I not? Sorry. A revocable and an irrevocable trust. Exactly. So living just means you made it while you were alive, whether you put money in it or not. Bottom line, revocable helps you protect other people from pitfalls that they may have when they learn how to use money. And revocable avoids probate. Any trust avoids probate. It’s not a person. It can’t pass away. All of them do that. Irrevocable trusts help protect assets from whatever’s happening to you in your lifetime, which is usually sick, sued, divorced. Bottom line. Sick, sued, divorced. Yep. Okay, got it. So what about long-term care? So if I’m going into a long-term care facility where I’m worried about losing all of my money to a nursing home because they’re $15,000 a month, why would I need an irrevocable trust? Sure. It’s a place to park assets. An irrevocable trust is somewhere you can safely put what you want to protect and through certain mechanisms potentially get access back to it. And if you put your assets in that type of thing at least five years before you or your spouse need long-term care, none of those assets are considered if you are asking the state to pay for your long-term care, which could be at home, could be a nursing home. So can I translate what I hear as lawyers speak? Yes. So if you put it in and it’s there for five years, the state can’t come and grab it? Correct. Okay, got it. So here’s always been my argument against irrevocable trusts. And again, My favorite thing is you tell me why I’m wrong. I will, because these trusts are my favorite thing. Great. Listen, this is your world, and that’s why you’re here. So the argument has always been for me. Once it’s in an irrevocable trust, you have an appreciated asset, like a second home or a primary home, and you paid $100,000 for it, and now it’s worth a million dollars. And if the parent passed away and left it to the kids, they could sell it, and they could pay no taxes at all on capital gains. But when it goes into an irrevocable trust, This is really nerdy. You’re transferring the bass. Right. So then the trust inherits. It’s if that asset gets sold, the trust has to pay the taxes. Correct. Depends on the trust. Tell me more. So there are two main types of irrevocable trust. One is going to be completed gift trust, which is what most people think of as irrevocable. Can’t change it. Set in stone. That’s that. And that obviously scares a lot of people off of the topic. But there’s also something called an intentionally defective grantor trust. Sounds illegal. It’s the loveliest thing in the world. So what it effectively means is for tax purposes only, we act as if there is no trust at all. So if you have put an asset that has appreciated and you have passed away. Well, we act as if that was yours. It is still included in what we call your gross taxable estate. It’s not going into probate, but in any event, it means we can get a step up in basis so that your heirs will not pay capital gains taxes if they go to sell the house or the stock that they just inherited from a trust. And how, like, in the world, so this is just from a pure curiosity standpoint, how difficult is it to do an irrevocable trust versus an intentionally defective irrevocable trust? Did I get that right? So in terms of the planning and the paperwork, is one way more complex than the other, or are they both the same? No, it’s just the rules you put into it. You just have to be cognizant of what you’re doing. So if you go to LegalZoom.com and you say, I want an irrevocable trust, sounds great, you know, don’t want to give it to the nursing home, you are probably going to get a complete… trust you are going to cause higher taxes you are not going to avoid taxes you could have avoided so what you’re saying is that everybody should just go to chat gpt and bypass the attorney right and ask what is an intentionally defective grant or trust they’re going to do great basically it boils down to did you retain the right to change it Now, this is also the best thing about this type of trust. You can change it. Irrevocable just means, under this circumstance, that it’s a one-way street from you to who you want to get this thing with a layover inside of the trust, as long as you say. And by the way, you can divert it, which means you can change your beneficiaries. That’s what’s defective. You didn’t put all the bricks in the wall. You retain the right to change things in the very end. So it’s not just set in stone, and it’s not something we have to worry about. Not about your beneficiaries making you angry. In my family’s case… Well, it is for me. Fair enough. Those kids of yours. Like every other day, my 11-year-old is out. But please, no, please keep on. In my family, my grandmother had to cut my uncle out only because he got sick. He got sick, right? He didn’t do anything wrong. But that’s why. So instead of his inheritance going to the state, his inheritance went to his children instead, even though he was living. Okay. Got it. Flexibility. So I think that’s right. Because one of the things that I misunderstood for a long time, and I hate to admit when I’m wrong, but this is one of those scenarios. is that I’ve told people you’re really too young to be putting money into an irrevocable trust. And so that’s always been the concern. Hey, you’re 63 years old. You want to put things into an irrevocable trust. You may want to sell this house later. It may be more difficult for you to get the house out of the trust. Is that accurate or is that… It’s fairly accurate. Between the ages of 65 and 75 is when I do like to see people do these things. But there are concerns. You can sell a house that’s inside of a trust and you can use the proceeds to buy the next place. That’s not the problem. It’s… It’s the loaning issue, financing. So if a house is inside of a trust, you’re not going to be able to, you’re a vocable trust, you’re not going to be able to get financing, a home equity line of credit, a reverse mortgage, a bridge loan. And when people are still in the years where they’re buying the vacation home, they’re buying the bigger home potentially, well, you need to be… of that. And there is definitely a period where after you’ve retired, you’re not fully settled. You’re not sure if you’re going to stay in Connecticut or you want to go to North. I’ve had plenty of people go to Florida, come back, go to North Carolina, come back. So it’s one of those scenarios where I’m hesitant to have somebody lock something in too soon. But if there are mechanisms to get out, that’s great. But we often use a line of credit to avoid taxation and a lot of different scenarios. We’ll get to the taxes later. All right. So I wanted to switch topics for a minute. There is a number of clients that we work together on. one in particular, and I don’t want to lay the found work for their scenario because I’m not an attorney and I don’t want to get in trouble and I certainly don’t want to throw any names out, but can you kind of lay the found work? And I want to have a conversation about this particular topic because I think it’s one of the things that a lot of people worry about. So I know you’re basically mentioning the case where we have an individual, a spousal situation. One is already inside of a nursing home. Whether or not that’s going to be permanent is not the question. For now, it is the situation and there’s no coming home for now. So often we get involved in a crisis like this where we get a phone call. We’re about to be discharged from the hospital. We’re heading towards rehab. What’s about to happen? Am I going to lose my home? And so a lot of people will bring up the case of, oh, well, can I just divorce him? Can I just take my share? Which was the conversation, right? Yes. Now, years ago, there was sort of a half and half spousal spend down where spend half, you get to keep your half. But it’s not like that anymore. And so when these people came in and said, we truly love each other, we want to be together, but… for financial reasons we should separate i was able to tell them no you do not need to do that and in fact it’s strategic not to because there’s a rule under medicaid that says you can give your spouse anything at any time which means i can get around the five-year look back oh as long as we can either have him sign over his half of the house and assets or she has power of attorney to take them well then we’re in good shape we can protect everything Now, it’s not quite that clean. We’re going to have to rearrange it on her end. But bottom line, we’re going to be able to save what they have for the future. Got it. So what you’re saying is that if you’re really worried about this kind of thing, you should just try to do it on your own and hope for the best. Yes. That’s where you’re going to save the most money. Don’t pay the attorney fees. Just spend down all of your money and you’ll save a lot of money. Exactly. And every once in a while, you see those people walk in and, you know, I bite my tongue. I don’t want to tell them we could have helped. We could have helped. But for those who haven’t gone down this road. we can help we can save money if you are at all close to spending money on care it’s time to talk just be clear i’ve worked with haley for a long time by the way her name is spelled h-a-l-l-e-y i pronounced it wrong for like a year and a half and because she didn’t think the relationship would last that long she just didn’t bother to correct me until one of her paralegals did which i’m grateful for by the way But if you’re in a situation, like first of all, we trust Haley with our clients. And so we’ve sent a lot of clients to Haley because they take good care of their people and they do the right thing. And that’s really important. Another thing that your firm does that is important to me is that you can be a trustee on these trusts. Now, I can’t do that because I have a conflict of interest. If I’m a trustee of somebody’s trust and I’m denying somebody money, they might think it’s because I don’t want to give out the money that I’m charging a fee on. You don’t have that problem. Right. Yeah, we do it all the time. And it’s not a requirement, of course. But with this type of trust, just like a special needs trust, you need to have an independent party, someone without skin in the game who’s going to be following the rules and nothing else. So that often does happen to be me, but it could be a niece or a nephew, a friend. But I always encourage people to pick a younger person, which might be my best characteristic. I’m simply younger than most of the attorneys right now. Well, it’s fair. But also, I mean, we run into a lot of scenarios where there’s one child, the child of special needs. They have issues. There’s nobody else that we really trust to manage the money. And so here’s an opportunity for you to be able to take care of that and to be the trustee and to be that trusted contact that, you know, takes away it off people’s shoulders. Great. Haley, thank you so much for being with us. How do people get in contact with you? Thank you for having me. I can be found in Bristol. I’m at 860-259-1500. Great. Thank you so much. See you soon. We know the market is going to get worse from here. This is the biggest monthly decline in 10 years. My investments are tanking. My retirement isn’t going as planned. I can’t believe I let my kid talk me into buying crypto. I mean, what is that anyway? This was the fourth worst contraction in history. So how are you two doing? Your financial future doesn’t have to be uncertain. Plan your retirement right. Call now for your own complimentary portfolio review and tax analysis. Welcome back to How to Retire. Ben, great job. Oh, really? Thank you. Yeah, I’m going to offer you the position. You can be the host if you want. You were that good. I’m on it. Now, what people don’t know is that as I was doing this, as I was taking the chair, Jackie was right behind the camera going… Did I have that face on? No, no, no. Yours was much nicer. I thought it was more fun. They call that something. I don’t think we can say it on TV, that face. Oh, I have no idea what you’re talking about. You know, yeah, you don’t. Sure. I wouldn’t even know any of those things. Yeah. So you listened to it. Was there anything I said out to you that was like, hey, I’m not sure if I recalled. I don’t know if I would have picked up on that. Yeah, I mean, I think the whole trust thing is very interesting because I went through it with my own parents and whether or not they should do it. irrevocable trust i mean i think they were a little too late late in life so what was interesting to me that um haley said was the 65 to 75 age range is really when you should start thinking about that you don’t want it to be too early and you don’t want it to be too late and i think in in our situation it was a little too late so it’s interesting to me because i always felt like 65 was too early you know but i think that it also is life dependent right we talked about um you know if you’re moving somewhere and you’re checking out you don’t necessarily want to do an irrevocable trust right right you move there because, you know, things could change. But if you’re situated and you’re comfortable, I think it was interesting how 65 could work so much better if, well, if you have the right estate planning attorney to set things up correctly. It’s true. And actually another thing that stood out to me was the fact that you might not be able to get a loan, which I thought was very interesting. So the loan part was… never thought about it. So it makes sense now that she brought it up. But what she’s talking about is a home equity line on the house, right? Because it’s not your asset. The trust can’t get a home equity line of credit. And so a lot of times when people are moving from one house to another, they need the down payment. And we’ll often get that from a home equity line. If we take a $100,000 loan from the 401k, you can’t take the loan that much. And you have to pay taxes on all that money you take out. Right. And then it’s going right back. Right. But you typically don’t have the time frame for that. So I thought that was really interesting, too. I’m glad that you brought that up. What is your takeaway from what Haley said and just in general relating it to your own clients? I think that it’s the same information with me, right? When people are considering retirement, I firmly believe that they should call us. But call a financial advisor. Let’s get an understanding of where you need to be. Let’s make sure that you have all your ducks in a row. And I think the same thing goes with her. Let’s not try to like, listen, I think Google is valuable. I think ChatCPT is great. But I also think that you need to talk to a real person who has lived through this and understands the nuances. And there’s a big difference between what I can learn through the CFP course, through the CPWA courses that I’ve taken, and passed, knock on whatever you got. Thank goodness. Right, the delegations that I have. versus an attorney that’s been doing this and her family’s been doing this for years and years and years. that would be the biggest takeaway is that you do need to pick up the phone sometimes and talk to somebody that knows exactly what they’re doing. Yeah, I mean, I just think it’s more about the fact that they’re following everything in that industry. You’re following everything in your industry. And so why do I have to be the expert, right? I don’t want to be the expert. I want to leave it to you guys. I want you guys to take care of that for me. For sure. And like, even like through the course of the firm, right? You know, Medicare is a big part of retirement. I don’t want to be the expert. We have somebody else that does Medicare. Taxes, a huge part of retirement. I want to know the impact of the investments that I’m making, but that’s why we have an accountant on staff that can handle that part of… I am a big believer in getting actual professionals to do the jobs that you want them to do. Same case here. Absolutely. All right. Well, that was a great little segment. I liked it. And you did a great job. I have some tips, though. I’m sure you do. Yeah, I’ll give them to you off camera. Oh, really? Okay. All right. Can’t wait. All right. Well, we will have more next week. But as always, if you are feeling overwhelmed, you don’t have to go it alone. Call Fuchs Financial at 860-461-1709 and get a plan that fits your life. Until next time.
