February 2023

Dispelling myths, rumors and misinformation is an ongoing battle for financial advisors. Estate planning is a topic especially prone to myths and misinformation. In this report, I’m going to dispel 10 common myths about Estate Planning and give you the real facts — facts that could be critically important to helping protect your financial future.

Myth #1: “I’m too young to need an estate plan.”
Statistically, that statement may be closer to true if you’re in your 20s and 30s. The problem is, many people still believe this statement in their 50s and beyond. As a result, a lot of people who intended to create an estate plan “eventually” end up dying before they get the chance. The result is often a legal and emotional nightmare for their families.

Myth #2: “Only wealthy people need an estate plan.”
Technically speaking, an estate is defined simply as “all the property owned by a particular person.” In other words, if you have property and assets, you have an estate and need an estate plan. Your estate includes your savings accounts and investments, naturally, but it also includes your home, boat, collectibles, heirlooms, and even items of sentimental value.

Myth #3: “An estate plan is only concerned with assets and property.”
That’s wrong because estate planning is also very much about emotions, relationships, and deeply personal matters. In fact, in my experience, that’s the greatest risk of not having an estate plan. It’s not the legal or financial chaos that often ensues, but the emotional fallout. I’ve seen families torn apart by arguments over who gets what, or over what to do with a parent on life support. A comprehensive estate plan could have helped prevent these arguments. That leads us to myth number four.

It’s no secret that Americans are living longer than ever. While that’s great news, it also creates many personal and social challenges. According to the Centers for Disease Control, for a couple in their mid-60s, there is a 50% chance that at least one of them will live into their mid-90s. That means Americans planning to retire in their mid-60s need financial plans that help ensure sufficient income and savings for up to 30 years and account for any potential unforeseen expenses. One of the most significant of these is the necessity for long-term care. Statistics on the subject are telling. According to a report by the Kaiser Family Foundation:

• 70% of seniors will, at some point, need long-term service and support because of a physical or cognitive impairment, and the average length of time that assistance with daily activities is needed, in these cases, is three years.
• Because of the size of the Baby Boomer demographic, the number of Americans needing long-term care will reach an estimated 27 million by the year 2050, more than double the number (12 million) in 2010.
• 48% of people aged 40 or older predict they will need long-term care as they age, but only 35% say they have set aside funds to pay for their long-term care needs.

That last statistic is the most important and relevant to this report, which is intended to illustrate why considering the potential impact of long-term care (LTC) in your income-based financial plan is so important. To put it simply, the impact of a long-term care event on your retirement income could be massive. According to a 2010 study by Genworth Financial, 88% of retirees paying for long-term care said it reduced their household income by an average of 34%.

That number has likely risen significantly in the past 10 years when you consider the current national average monthly costs of various types of long-term care, as determined by the 2021 Genworth Cost of Care Survey:3

Traditionally, the key to a financially solid retirement plan has been to save early, ideally from the day you start working. It’s always been good advice to live by, but today’s retirement is more complex. It requires a different approach.

It wasn’t always this complicated. There was a time in the not-so-distant past when you worked 30 years for the same employer. When it came time to retire, you had a pension and Social Security to depend on. Now, most of us are facing challenges that are making it harder to achieve a more comfortable retirement lifestyle. Living longer, carrying more debt, family dynamics and healthcare weigh heavily on many Americans. Market volatility and fallout from the pandemic have only exacerbated the situation.

Retirement can be the most rewarding and exciting phase of your life, but today more than ever, it’s up to you to make that happen. To do it, you’ll need the right strategy.

The information in this guide can help you better understand what that strategy should look like and how to go about creating it. More specifically, you will find solutions that may assist you in offsetting lower-than-expected income sources; creating streams of renewable income; and guarding against market volatility. But let’s start with some basics.

How much will you need?
Estimating your retirement budget can give you insight into how much money you may need to fund your retirement.

Since many of today’s financial advisors got into the business in the 1980s and 90s, during the best stock market in U.S. history, most have become stock market specialists. Frankly, if they do fixed income, it’s usually an afterthought, and most will simply take the easy way out and invest their clients’ money in bond mutual funds.

What many people don’t realize is that bond mutual funds carry risks, costs, and tax implications that can be reduced, or even eliminated, by investing in a diversified portfolio of individual bonds, or other fixed-income securities.

That’s because when an investor buys an individual bond, they receive two important guarantees. First, they’re guaranteed a fixed rate of interest for the life of the bond. Second, when the bond matures, they’re guaranteed their principal back—assuming there have been no defaults. With that assumption, an investor knows what they’re going to earn on the bond if they hold it to maturity. They also know the maturity date and the name of the company they are invested in. But what about bond mutual funds? How do they compare to individual bonds?

For starters, both guarantees that come with individual bonds are “off the table,” so to speak, when it comes to bond mutual funds. Bond mutual funds don’t pay a fixed rate of interest. The interest they pay fluctuates. What’s more, bond mutual funds never mature; your investment in the fund will continue until you decide to liquidate it.

You try to protect your car, home, and your health with insurance, but are you trying to protect your retirement income? With the potential for tax-deferred growth and a guaranteed income stream, annuities can be important in helping meet your retirement objectives.

How Annuities Work
Very basically, an annuity is a contract between you and an insurance company. The contract allows you to contribute money to a tax-deferred account. In return, you can get regular payments from the account as income. Many aspects of an annuity can be tailored to a buyer’s specific needs. Besides choosing between a lump-sum payment or a series of payments, you can also choose when to start receiving payments. An annuity that begins paying out immediately is
referred to as an immediate annuity, while one that starts at a predetermined date in the future is called a deferred annuity.

The duration of the disbursements can also vary. You can choose to receive payments for a specific period or for the rest of your (or your spouse’s) life. Naturally, a lifetime of payments may lower the amount per check. However, it helps ensure that you don’t outlive the asset, which is an annuity’s key selling point.

Not all financial advisors are created equal. Many say they specialize in retirement planning, but only a select few have the tools or training required to make them a true retirement “Income Specialist.” How can you tell whether your advisor falls into this elite category? Here are 10 signs to help you identify a true Income Specialist:

1: He listens to your concerns
If you’ve asked your financial advisor to move your assets into more conservative investment vehicles, such as bonds and bond-like instruments, and he didn’t fight you about it, then you might be working with a true retirement Income Specialist. Income Specialists know that as you approach retirement, there is a very important “shift” you need to make in your finances, which involves shifting your strategic focus from investing for growth, or capital appreciation, to investing for income. Failure to make this shift is often the reason people fall short of reaching their long-term financial goals.

Unfortunately, since many of the advisors working today first got into the industry during the 1980s and 90s, in what was the fastest-growing stock market in U.S. history, many became stock market specialists focused on chasing growth. Since their clients were participating in the market through mutual funds, many of these advisors also became overly dependent on mutual funds. Few know how to invest for income the right way through interest and dividends.

Many advisors today would prefer to keep your money invested in a mutual fund, where they can sit back and let the fund manager do all the research and heavy lifting, while the advisor collects a fee or commission for simply placing your money into the fund. In other words, the advisor might be more concerned about setting up streams of income for himself rather than you. That brings us to item #2 on our list.

Most of us look forward to retirement, imagining that we’ll get to relax and enjoy activities we haven’t had time for such as traveling, reading, and exercising. However, as pre-retirees transition into full retirement, many don’t realize they are crossing the threshold into an entirely new way of living, one in which they’re increasingly vulnerable to risks that are unique to retirees. After spending decades working toward a goal, too many retirement plans are set back by these 7 Easy-to-Avoid Risks.

Risk 1: Longer Lifespans
In the year 2000, 50,000 people lived to be age 100 or older. By 2050, that number is expected to reach 1 million.1 With life expectancy rates higher than ever, it means that most people will need to plan for a longer retirement than they might expect. According to the Centers for Disease Control, for a couple in their mid-60s today, there is a 50% chance that at least one of them will live into their 90s. What this means is, to be safe, retirees today must plan and strategize for up to 30 years of retirement income.

Risk 2: Spending Principal
Spending principal in retirement has never been a smart strategy, but with the average life expectancy rising, it’s more of a slippery slope than ever before. To understand the potential dangers of spending principal, let’s consider a 30-year retirement like a 30-year mortgage, only in reverse.