Andrew Rafal: And welcome back to another episode of Your Wealth and Beyond. I’m your host, Andrew Rafal, and it is good to be back. I’ve been on a little hiatus, actually been very busy moving the Bayntree Wealth Advisors’ office just down the street from where we were, but it’s a great new space. We actually doubled in size, awesome lighting, great views of Camelback Mountain. So, we’re very stoked, but today’s show, forget about that.

Today’s show is aimed and geared to those of you that are getting close to 50. I guess I’m in that ballpark as I’m five years away from there. So, let’s call this the show for Gen Xers. And this show is going to be about what not to do as you plan for retirement. Okay, so let’s avoid some of these mistakes that are out there. And this was a couple articles, one of which we’re going to be pulling from the AARP, another one from Forbes, but let’s jump into it, because we’ve been working over the years with a lot of you that are not close to retirement, but almost halfway up that retirement mountain. And so, now, you got some situations to look at, that yeah, you could probably make some mistakes and recover, but as the time goes on, as the years get closer to the top of the retirement mountain, it gets much more difficult to come back from these mistakes.

So, let’s look at the first one, and it’s going to be a top 10 list, almost like the old David Letterman. And I know this is more of audio versus video, but I’ve got my list here in front of me, and we’re going to be throwing it to Shaffer. Wasn’t that his name? Shaffer, the sidekick there. Can’t remember his first name, but nonetheless, let’s go through number one, expecting to work past retirement age. 48% of people retire sooner than they planned, this is due to layoffs or health issues or family members. And a lot of people last year got furloughed or laid off because of the pandemic.

And so, if you’re in late 40s, early 50s, you got time to come back from that. Hopefully, you got back into work. Not furloughed too long, maybe some of you changed career paths, but if we’re 62, 63, we think, hey, my plan is to work to 68, and then all of a sudden, the rug gets pulled out in front of you, and you got no job. We got to have a backup plan. So, we can’t just expect we’re going to be working later, we’re going to hope we are, but you got to have a plan. You got to build that in. You got to build that into your overall comprehensive financial plan to make sure that you can withstand that and have a plan B if you do lose your job.

Now, here’s one, taking on too much risk or not taking on enough risk. And we see both sides of this at Bayntree Wealth Advisors. People start realizing time’s running out. I’ve got to take on, this is a common thought, common thought is I got to take on more risk, but be speculative, right? I’m going to go buy Bitcoin or Ethereum, Dogecoin. I’ve got to double, I’ve got to triple my money. Well, if it was that easy, everybody would be retired on an island. The more risk you take, of course, the more you have the ability to have substantial losses. Okay, so one thing to be sure of is you, no matter if you’re 48, 52, 61, stick to your plan, don’t take an inordinate amount of risk, because then what happens as markets start pulling back, you get emotional and then you sell everything.

And then, a lot of those people will just move to too much safety. So, there’s that, I’m going to take on so much risk and then I’m going to pivot and go into all the safety, whether it’s CDs, fixed annuities, bonds. Bonds have their own set of risks based on interest rates, but that’s the key, is understanding how much risk you feel comfortable taking and then ultimately designing the plan to collaborate with the amount of risk emotion that you feel you can take, plus, how much you need to take. And that’s one of the things we help our clients do. And if you have questions on this, schedule time, talk to us, but we can do a risk assessment, and it’s a really good way to see emotionally what’s going on with you, but then also how the portfolio is doing.

Okay, so here’s a big one, we just turned 50, if you just turn 50 or older, there are some catch-up provisions that a lot of people ignore or just don’t know, one of which is on the 401(k) or if you have a TSP or a 403(b). Right now, for under 50, we could put away up to $19,500. If you’re over 50, you can put away up to $26,000. So, a lot of us, we’re in our 50s, we’re making good income. Why not try to max that out and put away as much as you can? And another mistake people make is not putting some money in if it’s offered, not looking at the benefit of putting some of the money into a Roth 401(k). It’s just a separate bucket within the account. Yes, you don’t get the tax deduction, but the money grows tax deferred and then it’s tax free down the road when you pull that out after 59 and a half, plus, if it’s rolled over to an IRA, there’s no required minimum distributions. So, the catch-up provisions, after 50, more money can go into your 401(k) as well as your IRA or Roth IRA. That’s up to $7,000. So just know that these rules are out there. More money you can put away means your retirement will be more on track.

Number four, oh, this one’s nasty. Carrying credit card debt. How can you retire if you’ve got an inordinate amount of credit card debt, that’s at 14%, 15%, 18% interest. So, you’ve got to come up with a game plan to get that debt paid off before you go on that vacation, before maybe you start saving $26,000 in your 401(k), and design a plan to get rid of that $15,000 credit card debt. That’s just going to keep building and building. Now, if you have built up a lot of credit card debt because of the pandemic or you lost your job or whatnot, one thing and we don’t love this, but if you don’t have a lot of emergency money to pay that money down and you have, let’s say, $60,000 in credit card debt and it’s accruing at 18% annually, the housing market on fire the way it is, maybe you have $600,000, $700,000 of equity in your home. What if you took a home equity line of credit at 4%? What if you took that and used it to pay off your credit card debt? Then, with a game plan of cutting up those credit cards, cut those credit cards up and then pay off that lower interest home equity line of credit. So, just a thought, just something to look at.

Next, number five, taking on college debt. This is something we get a lot of questions on why I don’t want my kid to have loans, but instead of it being on you, why not have your kids take the loans out in their names, help them make the payments as much as you can instead of compromising your own financial security? So, that’s just you thought that if it’s in your name, it’s more risk on you, you can still help them, but loans can be set up and a lot of times should be in the kids’ names versus your name.

Number 6, overlooking health maintenance. Investing time, energy, and money in your health now will help you reduce health-related expenses later. So, here’s the thing, guys, is that you got to take care of yourself, it’s not just about financially getting things in order, but you got to get your mental health in order. You’ve got to get your physical health in order, because without your health, no matter how good you do at accumulating or reducing debt or coming up with a financial income plan, without health, there really is no retirement. So, start now because your 50-year-old body as we get older and older, if we can start now, your 68-year-old body is going to be much more appreciative. Keep the mind sharp, find something that you can do activity wise, whether it’s swimming, picking up cycling, yoga, hiking, these things don’t cost a lot of money. Do some weight training, maybe get a coach, go online, use Peloton, use these online, whether it be an app to hold you accountable. I picked up a road bike over a year ago and I try to ride over 100 miles a week and I use an app called Strava, which not only tracks my workouts, but it’s more of a social as well where it enables me to stay really in the mindset of having others accountable for me. So, all of these different things are at your fingertips, but you got to take care of your health, otherwise you’re dead in the water.

Alright, number seven, not thinking about insurance, different coverages, right? So, life insurance, you may have the kids, kids may be out of the house, you may be an empty nester in your early 50s, but if you and your spouse are working and you’re making a good amount of income, make sure that you have if work offers a group term policy, so cheap, miners will get it and a lot of times, you can add on to it. And again, it’s cheap. It means it’s not going to always be there for you. So, the other thought is maybe have a term policy that lasts another 15, 20 years. They’re cheap policies regarding long-term care and disability. There are and have been some evolutions within the insurance space that allows what we call living benefits or accelerated benefits. That’s where you pay for an insurance policy, maybe a life insurance.

And in the future, if you qualify for disability or chronic illness or you are terminal, now you can take out the death benefit prior to passing or the family can, and it depends on the type of policy. They’re all a little bit different, but ultimately being able to get part of that death benefit while you’re alive to potentially cover home health care costs or assisted living costs. So, these are the things that we have to look at, disability policies, you may have something through work that you can get a short term. I hate writing the check. I write every year to an insurance company, almost $10,000, for a disability policy because I know if I’m not able to work and run the company, I still have bills, I still have employees. So, having that peace of mind, when you think of the insurance side, it’s like the roof of the house. It’s there to protect the whole other planning that you’ve done from the financial side. Without the roof of any house, without a roof, you’ve got nothing. So, you’ve got to get your house in order. And that starts with a sturdy, sturdy roof, and the roof, insurance, estate planning, all those things.

Now, what if we got divorced? So this is a tip not for all of you, but living the same lifestyle post divorce. Well, if you’ve got divorce, it’s a very expensive proposition. You’ve had to split the assets most likely. And now, you’re single, you got single income coming in. So, how is that going to affect your long-term goal? As you may want to look at downsizing, you may need a budget accordingly. These are things that if you are going down that path, make sure to get an advisor that’s working directly with you and that can help make sure that in a sense, a lot of people are starting over when a divorce happens. And so, starting over and being in your 50s, that’s a tough proposition, and then it becomes daunting. And it’s like, well, how am I going to get to where I thought I was going to be? Well, it’s all about designing a plan, holding yourself accountable, setting goals. And if you do that and you maybe have a financial planning team that’s holding you accountable, that’s how you can become successful. Once again, it’s not going to happen overnight. None of this stuff happens overnight. It’s one of those things in any type of planning, it’s like a marathon. You can’t just get to the finish line. It takes time. You need a plan. You need to have things in order. You need to stay within budget, but having a divorce can definitely cause some major, major issues. So, think through all of that and design something that’s going to help stay on track or get you back on track.

Now, here is a big one, failing to update important documents. So, for most people in their 40s and 50s, you would think that they would have their estate planning documents in order, a will or a trust with a pour-over will, and powers of attorney and living wills, but unfortunately, the high percentage of us don’t have those documents. And then, it ultimately sometimes is too late if something does happen to you. So, here’s what we want to have you look at, is create or update your estate plan, review your will, maybe talk to an attorney to see if a living trust makes sense. Who’s your healthcare power of attorney? You may have not looked at that since mom or dad were there. So, what you want to do is make sure that you’ve got the appropriate people that’s there to step in for you if you’re incapacitated or if you’ve passed on.

Also, as your kids get older, there’s certain things that are inside of the will like guardianship. If they’re not 18 yet, you may want to change and pivot from somebody who you appointed years and years ago. So, you always gotta look at a review of your estate planning documents if you have one. If you don’t have one, shame on you because ultimately, if you don’t have a plan, an estate plan, the court, the state that you live in will. I don’t think anybody wants the state to make decisions for them. So, cleaning up, making things simple, I know this isn’t fun to think of our demise. It’s the same thing with life insurance and disability insurance, but if you don’t have an estate plan, please get one, please talk to an attorney, even if you go do it on your own. We’re not huge proponents of going on legal zoom and doing it or something like that. We like to have an attorney part of it so that they can help make sure that they get you in the right type of vehicle.

If you have an estate plan, a living trust, one thing we see a lot of is that it’s not funded correctly. So, what does that mean? Well, a living trust is a document that you have created where you control while you’re alive, how things go. You control your assets, but you’re also controlling, if something does happen to you, death or incapacity, who the successor trustee is. And they get the handle and manage anything that’s held within the estate plan, the trust, but guess what? If your house is not in the name of the trust, it’s in your name, well, most likely then it would have to go through a probate process. See what would happen there is that the house inside, if it’s in your name, inside of most trusts, there’s a pour-over will. The pour-over will states if something is held in your name and not in the trust, it’s going to pour over into the trust, acting as somewhat of a safety net, but in most states, if the value of the asset is over a certain amount and in Arizona, it’s anywhere from $50,000 to $75,000 and combined, then you’re going to have to go through a probate, which is what you’re wanting to avoid.

So, make sure that you do a review if you have an estate plan, a trust that all the assets are funded into the trust appropriately, and that means changing the bank account titles. If you have a brokerage account, make sure that the account is owned by the trust. For retirement accounts, there are beneficiaries. So, normally, we recommend the spouse. So, your partner is the primary beneficiary and then the beneficiaries, if the kids are over a certain age, it normally should be them listed by percentage. It just gives them a little bit more flexibility. A lot of times people put a trust on as a contingent beneficiary, and it can cause some more hoops to jump through. We’re not going to get into the details of a see-through trust, but ultimately, if the kids are of maturity or you believe that they are going to be financially responsible, we usually encourage and Ed Slott’s the same and most advisors and CPAs encourage you to list them individually, like if you have three kids, 33% percent to each of them. That way they can treat their share as their own and make it an inherited IRA. And that means they have to deplete the account, but they have 10 years to do it. So, it’s just much more clean in that regard.

Plus, if you have a life insurance policy or an old IRA, you’ve got to check the beneficiary forms, because no matter if you did an estate plan, if you forgot to change your IRA, let’s say back in the day you had a 401(k) or an IRA and you put mom and dad on there, and then you got married and you forgot to make that change, normally, the custodian will look at that and say the beneficiary supersedes everything. Now, that could be a problem. We’ve seen it in the past where mom and dad take that money that was supposed to go to the spouse or becomes a massive problem, and they fight and contentiousness and the attorneys win. And it’s years in the making. And then they never talk to each other and bring the kids or the grandkids involved. So, just make sure that you do a full diagnostic of your beneficiaries on all of your accounts and do a full review of your estate plan and make sure that the proper assets are titled into the name of the trust. Easy stuff. Not a lot of bandwidth does it take, you just have to do it. A lot more pain is caused by having something wrong, not fixing it, and then something happening to you.

And now, here’s our last one for this top 10 list of mistakes that people make. Drum roll, please, letting the market spook you. Now, here’s the mistake of trying to time the market, we always talk about if you have a plan, you can filter out the noise. Think about last year, March and April, the S&P lost over 30% in 20, 25 days. It was nasty. It was fast. It was the fastest pullback we’ve ever seen. If you didn’t stay true to your plan and stay the course and sold, when would you have gotten back in? Who the heck knows? Probably you would have missed the entire rally and it was a very fast, sharp rally, whether that was caused because the Fed came in and the stimulus package, it doesn’t matter. The markets rebounded very quickly. So, that’s the thing of trying to time markets. And when do I get out? When do I get in? And like we talked about earlier, taking a lot of risk, they’re not taking enough risk. And now, all of a sudden, you just lost a few years’ worth of gains. We still have people come to us, there was some volatility back in ‘16 and then ‘18. Even people in 2007 to 2009, they just wanted to cash in and just missed out on a tremendous rally from 2000 and the bottom of ‘09 and March, all the way up to ‘13, ‘14, ‘15, just a tremendous rally. And it’s just tough.

You look at Wall Street, professional traders, hedge funds, trying to time the market. Making bets is a recipe for disaster, especially for the lame and the one that’s not really in the industry. So, that’s why index funds are important, obviously, have some diversification, but being able to rebalance as markets change, right? So, if the markets took a hit and you had a blend of stocks and bonds and maybe the bonds increased in value and the stocks decreased in value, now we want to rebalance because if we did that, we rebalance, we buy more equities at a lower value, we sell the bonds at a higher value. That is how you can create some alpha.

Now, some professional money managers will add in some tactical components where they don’t go all out, but it’s a dynamic model that can help maybe weather the storm. We are firm believers of both passive investing as well as maybe having for some clients, some tactical overlay that can help minimize risk, but the key is nobody can predict the markets. You turn on CNBC today, there’s going to be a talking head over here and the one over here. And one’s going to say one thing, the other is going to say the other. You open up the Wall Street Journal, you open up MarketWatch, you read stories. Everybody is pontificating and nobody knows. We don’t know if there’s a black swan event that’s out there looming any time soon that could disrupt this market. Eventually, there will be something, and then we look back and say, how did we all not see that? But nobody can predict the future, so that’s why you have to prevent making these mistakes by working towards an end game, knowing it’s not easy, nothing’s easy. If it was, everybody would have a successful retirement. You’re not at 48, 49, 50. It’s not too late to get where you need to be, but you gotta start now and you got to have the right advice. So, make sure if you are doing it yourself that maybe you pay for a plan or to just get a financial plan on track for you. That’s something to make sure, or even just a second opinion, how am I doing? But there’s these little things, making sure that you’re maxing out 401(k), maxing out your HSA, which we believe is one of the best retirement accounts, not using the HSA like a slush fund, but using the HSA as a long-term vehicle that can be there for you when you really need it in the future.

So, here, just 10 ten things of what not to do as we get closer to the age of 50, we’re here for you. If you have any questions, schedule time, you can talk with us. One of my team, our CFPs or financial advisors on the Bayntree side, will be more than happy to chat with you, go over questions that you have, run some analysis, maybe build you out an income plan to see what your probability of success is, because information is power and it leads you to making really good decisions. So, I know this wasn’t our normal podcast today where we’ve got great interviews.

We’ve got some great shows lined up, but I felt it was, at this time, apropos to really sit down with you, go through some things that you can do, and it doesn’t mean you’re 50, some of this stuff will work if you’re 40, 35. It’s just formulating a plan. It’s formulating a plan based on where you are in your life cycle, your work cycle. When you want to retire, these are the types of things you’ve got to be thinking about. The earlier you think about it, the better you are for everybody. So, I hope this was helpful. There’ll be some items in the show notes that you can refer back to. We look forward to our next show and stay tuned later this month for a brand-new episode of Your Wealth and Beyond. Happy planning, everybody.

[END]