8.25.22: Audio automatically transcribed by Sonix

8.25.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to your retirement. Unbroken with your host Merritstroke. Merritis a licensed fiduciary and financial advisor who always places your needs first. M˝erritworks hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Merritt Strunk.

Merrit Strunk:
Hey, welcome back again. This is the Retirement Unbroken show. I am your host, Merrit Strunk. I am the founder and president of Momentum Financial and Insurance Services here in San Diego. And I'm joined here today with Sam Davis, our executive producer. Sam, how's it going today?

Speaker4:
It's going well. So happy to be on the air again here in Southern California, bringing just such important information to people who really need it right now.

Merrit Strunk:
Absolutely. And I can't agree with you more. What a crazy financial world we're dealing with here. And I want to thank you folks who are listening to the radio show or buy podcast. You've got a lot of things you can do. And, you know, the average listener listening on the radio, let's say they're driving in the car, they're at home right now. And, you know, our listeners are gaining critical information and knowledge that will pay them dividends throughout their life. You know what I'm saying, Sam? The the other folks the other folks driving their car or listening on the radio, listening to something like, I don't know, how about a whole lot of love by Led Zeppelin, you know? Or or I got one or even better. Comfortably numb by Pink Floyd. And and yet we'd prefer that you take your time and listen to this. And instead of listening to a whole lot of love by Led Zeppelin, you've got a whole lot of money by marriage drunk here on the Retirement Unbroken show. And it will pay you again, like I say, dividends for the rest of your life. Can you dig it? Right.

Speaker4:
So I don't know if we have quite the vocal talents of of Pink Floyd, but or Led Zeppelin, for that matter. But I do think that we bring important information to you folks every week that can really make a big difference down the road. So tune in today and we've got a lot for you.

Merrit Strunk:
Yeah. Related to that, the mission of our podcast and radio show is to transform our listeners into more educated and more equipped and more financially savvy individuals so that you can make better financial decisions for your future. So on each episode, what we're trying to do is awaken your mind, educate you, awaken your spirit, give you tools and information so that you can act with intention, and you may unlock what is possible in your financial future. Say, if you've never been to our website, go to WW retirement unbroken dot com and while you're there look up above and the navigation there and there's a button there that says complimentary consultation. This is no cost or obligation by you, but gosh, it's educational. It delivers clarity to the folks we are talking to. You can also reach us by 858521 9700 85852193 700. And if you're listening to us by podcast, please hit subscribe. Check us out and give us a rating we'd love to hear from our listeners. So what are we going to cover today? We're going to hit on some information about the markets, of course, and the economy, what's going on. And then get straight into our Smart Retirement series where we're going to hit again on smart tax, smart rules to follow and smart income stream. Okay. So before we get into that, Sam, would you delight us with the financial quote of the week, please.

Producer:
And now of wholesome financial wisdom, it's time for the Quote of the week.

Speaker4:
Each week we bring different quotes and the words of someone else, typically someone from history, to help illustrate for us some some wisdom typically about finances. So this one comes from P.T. Barnum, American author, philanthropist, politician, founder of the Barnum and Bailey Circus. Perhaps you've attended a Barnum and Bailey circus show at some point in your past. He became one of America's first millionaires. And P.T. Barnum once said, Money is a terrible master, but an excellent servant merits. What do you think of that quote?

Merrit Strunk:
Yeah, I love it because it's like, is your money controlling you or are you controlling your money? Another one goes like that, are you controlling taxes or the taxes controlling you? And I think that's a nice corollary there. Thank you, Sam. I love that. I love it. Good wisdom from history there. Well, that brings us back into our market summary. So stocks rose in choppy trading today as new orders for US durable goods missed expectations. Understandably, this has been a trying time here. And what's happening is that government bonds yields jumped up as investors awaited more clues about the extent of the monetary policy tightening at the Jackson Hole symposium. So, look, if you want to be fun at parties and be popular, you can say Jackson Hole Symposium. And of course, most people won't even know what you're talking about. But what happens at the Jackson Hole Symposium? The Federal Reserve Bank of Kansas City host. Central bankers and policymakers, academics and economists from around the world to Jackson Hole, Wyoming. And what they do, they get together and they talk about economic issues, implications, policies, options pertaining to the symposium topics. So they get together and they chat and form, I guess, a dominant direction about their thinking about what's going on here. So as well, the Dow Jones index rose 0.1% with the S&P up 0.2% and the NASDAQ 0.5 higher at 12,443. Also, real estate, consumer discretionary and communication services led the gainers with all sectors in green by this afternoon. So as stocks attempted to recover from a sell off earlier in the week, you might have seen that the market dropped the day before.

Merrit Strunk:
And lookie here today. People will rush in for bargains and they come in and buy it. And so, you know, it's not up a lot, but it's up a little bit in that counts. So coming up on Friday, that's when Jerome Powell will meet and touch on the central bank's tightening path at the economic symposium in Wyoming. So the probability of a 75 basis point jump in interest rates, interest rates is the lending rates that everything is connected to. And, you know, the point jump in interest rates in September is what they're talking about in and compared to where they thought was 59% thinking, they're going to consensus on 75 basis points and now it's about 40% compared to a week ago, according to CME Group Fed Watch Tool. So my hunch is that, you know, if if the Fed delivers a 75 basis points, the market already has had priced in. If they go more aggressive, that's going to be like, for instance, a 1% increase in lending rates that might be leading to some very bad outcomes. So we'll have to see. That would be more hawkish and aggressive than, say, what the market wants. But when that happens, the market corrects and then it comes back. West Texas Intermediate crude futures jumped 1% to 97.7 a barrel. And then the big one where everybody is talking about is the pending home sales fell by 1% in July versus a 2.6% drop expected in the survey.

Merrit Strunk:
And that's compiled by Bloomberg. And following an 8.9% retreat in June, the National Association of Realtors said monthly index sales were down 20% from July 2021. And an interesting thing is gold was up 0.2% to 1763 per troy ounce while silver was down 0.3% to 18.97. Okay. So that is the market update. Some of that was probably like Swahili to some of you and other ones like yeah, feed me more. That's the kind of data I need. Okay, for all you market nerds out there. So that brings us to our smart tax topic and our Smart Retirement Plan series. Smart, just be informed about these type attempts. These are the tools and education and information that's critical for you to know. Some people intuitively know this stuff. They've been around a long time and some of this is just a refresher. So did you know that different investment accounts are taxed differently? Most of you will say yes. So by understanding different how different accounts are tax, you can ensure your money is working, how you need it and when you need it. And you know, here's the question that I ask everybody when we meet with them is like, do you think taxes are going up or do you think taxes are going down during your lifetime? Just raise your hand, right? Of course. And if you're driving, don't raise more than one hand. Keep one hand on that steering wheel. Most people will say, yes, taxes are going just because of the deficit and Medicare and Social Security and the cost of things.

Merrit Strunk:
And that runaway government spending is, yes, they need to fund that spending with an increase in taxes. Last episode, we talked about the the inflation act that passed. That's not really anything to do with inflation and mostly to do with taxes. And in fact, $20 billion in taxes to the middle class over the next decade when the administration says that's not happening. In fact, that was the Congressional Business Office, a nonpartisan office that does all the number crunching. And they have proved that indeed $20 billion worth of taxes over the next decade to the middle class. So, yeah, taxes are going up. So just imagine right now if you had a blank piece of paper and you're drawing three circles, one from the left, one in the middle, and one on the far right, three circles. You know, they're kind of fat and squatty. And inside of it, on the left hand side, you write Tax now and the next circle. In the middle, you write tax annually. And on the far right circle, you write tax. Never. If I was to ask you to imagine just this is just imagination. You were to get up and everyone said, Hey, line up under the circle that you would like to live under for the rest of your life. Wouldn't most of us, wouldn't most of us line up under the tax never circle sandwich. Would you get up and and possibly line up under the tax rate or tax annually?

Speaker4:
Well, I can't think of many situations in this life where we're where we're never going to be taxed. So I'm going to take that opportunity and stand underneath that circle for sure.

Merrit Strunk:
Terrific. So we're going to talk about some of those things. But tax later would be 401 K and IRA tax deferred type of accounts tax later when? Well, when you start taking money out of those like RMDs required minimum distributions, which are at 72 now. They used to be at 70 half, but RMDs is required minimum distributions. I used to say, who's requiring it? The government is requiring it. Why are they requiring it more like compelling you to take money out of your tax deferred IRA or 401. K. They want their tax money and money. Taxes have never been paid on that money. And that's why they are requiring a date that you have to take it out whether you want to or need to for income, the middle one annually. That's a bank account for your interest that you get your Social Security income, that you're going to get pension income, you're going to get stocks on 1099 taxation and dividends annually. All the never tax never bucket which you know you and I would both line up line up under is certain types of trusts Roth Roth IRA accounts because they're tax free for distribution, cash value, life insurance policies that you could take money from or an income stream, those kind of things. So that's the tax never. So. Question Where does most of the population have their money in which class tax later taxed annually or tax? Never. You probably guessed it. It was the tax later. Write the tax later. Y for one K is traditional IRAs, things like that.

Merrit Strunk:
So talking about tax classes, tax exempt is a big bucket there. And we kind of touched on that. It's the type of account that you contribute to, but not you get taxed when you contribute, like in today's historically low tax rate. Think of a Roth like a Roth 401 K or a Roth IRA. You're paying taxes today and then you're putting it in that tax exempt account. And then when you withdraw it, it's tax free. How long? Forever. So this is a greater benefit in retirement because you don't have to worry about being in a in a different tax bracket. So your income went up for some reason and you're taking money out of your, say, Roth IRA, and that's not taxable. So I used to say I'd love to give Roth IRAs out as Christmas gifts, but you can't. Right. And there are certain things you have to know about Roth IRA that's important. The other one is tax deferred. So you've got that tax exempt and you've got tax deferred. The taxes are deferred. Account gives you the tax benefits upfront so you can put the money to work, but it's never been taxed. So you're putting the gross away and it hasn't it hasn't had the taxes taken out of it. So you won't pay taxes when you contribute, but you will pay taxes on any distributions. Same type of question. For how long? Forever. As long as you're taking money out of that. And we talked about RMDs. So every time you touch it or most people have their money as a tax deferred, so you're going to be taxed at your current tax rate every time you take it out.

Merrit Strunk:
And there is a thing called the IRA tax trap, and it is the definition of insanity. I think I've hit on that in past shows before. But it you take if you if you have all essentially your nest egg in retirement and it's all in a tax deferred account in a tax deferred say for one K that when you quit your job, you roll it down to an IRA. And then you let's just say all your money is there. You don't have any diversification of your investment accounts. And you say, well, we we need 60 to 80000 or 100,000 per year to fund our retirement lifestyle, pay the expenses, pay the bills and so on. Take vacation. And when you take out that that amount of money, then you're going to have to pay taxes. But wait a minute. How am I going to pay the taxes if I spend all that money on my lifestyle? I need to go back to my never been tax bucket, take out the money I need for taxes and make that withdrawal. But what happens there? Well, that money has never had taxes paid on it either. So the money you took out to pay the taxes, you need to go back to the bucket and take out money to pay taxes on that. Did you watch that one? Withdrawal for lifestyle.

Merrit Strunk:
Second, withdrawal for taxes. A third withdrawal to pay the taxes on the money that you took out to pay the taxes. Did you follow the insanity of that? How many of those times do you need to do well until the amount that you're taking out is kind of small? So are we talking somewhere like four or five withdrawals just to pay the the the lifestyle on your retirement? Because that money's never been taxed, folks. That is the definition of insanity. Taxes upon the taxes. Upon the taxes. Right. Craziness. That is why it's so important to have a tax diversification or tax class diversification in your portfolio, in your retirement funds. Super important. That's why I said I would like to give them out as Christmas gifts, but I cannot. So the traditional IRAs, as you know, are tax deferred. This means you're going to pay those taxes when you withdraw. We just talked about that. But you have no way of knowing for sure what tax tax bracket you're going to be in. Right. You have no idea. And a lot of people who retire go, oh, I'm just going to have lower taxes on my retirement than I did in my work life. Well, what if the taxes go up? Are you necessarily going to do that? What if the COLA increase on Social Security? What if you're COLA increase on your pension? All of a sudden you're making more money and the tax rate goes up and now you are paying higher taxes and retirement than you ever thought possible.

Merrit Strunk:
You just didn't plan on it. So you could be looking at a reduced payout if you're in a higher tax bracket. So, by the way, a maximum contribution in an IRA for 2022 is 6000. If you're over 50, it's 7000. You get 1000 catch up. And by the way, so if you're you're contributing to the IRA on the outside of your 401. K and your MAX funding it to 6000 or 7000, by the way, nobody ever got wealthy by putting 6000 in a year. Not really. Not real definition of wealth. So you can't just do that. It'd be great to cram all the money. Max fund your 401. K. Then on the outside, you've got an IRA or a Roth IRA. And to do that, you still need to do more. You still need to think about tax class diversification. You still need to be investing. You still need to be adding to your retirement accounts. Okay. So let's jump back to Roth for a second. It's easier to plan for taxes when you have a Roth Y, because we said tax free forever. Right. All interest, all dividends, all capital appreciation, the growth of your stock holdings inside of that tax free. For how long? Forever. So your so your money goes tax free and any withdrawals are tax free and there is no required minimum distributions on a Roth. They're not going to the government is not going to come and say it's time to take money out like it is on your traditional IRA.

Merrit Strunk:
So it's nice that you don't have to be forced to take money out of an account when you don't want to. However, can everybody have a Roth IRA? Well, it really depends on your income. If you are married and filing jointly, there are these things called income thresholds. The government doesn't really want people who are making high income to be funding the Ross. Why? Because they put these income thresholds in the way here. So the first income threshold really starts at 204,000. Let's say you've got his and hers. They're married and each one of them makes 100,000 plus and they file jointly. And it looks like their magi, their modified adjusted gross income, is over 204. Then they can contribute, but they contribute less. It's titrated down. I like that word titrated. So it's a reduced contribution amount. But once you pass $213,999, you can no longer contribute to the Roth. So after 214, you can't contribute to a Roth. Now here this what I'm telling you this if and this just happened the other day, exactly what I'm telling you. The couple I was talking to, a young couple, they were both highly paid six figures each, but they weren't at the 204 level and they were contributing to well, she was contributing to a Roth 401 k and he was contributing to a traditional 41k. So what does that mean? I immediately told him, Sir, you've got to convert, not convert, but you've got to elect now future contributions into a Roth 401 k and you've got to do that pronto if you get a raise.

Merrit Strunk:
In the meantime, before you do that, you may have lost the ability to contribute to a Roth forever if your income keeps going up and you continue to grow your profession. Okay. And he was in the biotechnology area. So you've got to get that wrath. You've got to have it open. Why? Because you can only have a wrath funded by W-2 or 1099 work income. Work income. So while you're working and you're under 204, get a Roth in your 401. K so that you can have it for what's called a backdoor Roth conversion from a traditional tax deferred account into a Roth where you may be retired and your W-2 income is as low as has ever been. Well, that wraps up that conversation here. We're going to talk about 401. Ks when we come back. My name is Merritt Strunk, and you're with a Retirement Unbroken radio show and podcast. And do us a favor, go to WW Retirement Unbroken, look at the top and click the complimentary consultation button or give us a call at 858521 9700. That's 8558521 9700. And I met with everybody that comes in here. I don't buy it. And when you talk about Social Security, you can talk about 401k. You talk about Roth. Talk about your goals and retirement. And believe me, you have a retirement maybe right now, but it's coming and you need to pay attention to it. Okay. We'll be back in the second half of this segment.

Producer:
You're listening to your retirement Unbroken. To schedule your complimentary consultation with Merritvisit retirement unbroken.

Producer:
The heat is likely not the only thing making you sweat this summer. I'm Matt McClure with the Retirement Radio Network powered by Emera Life. With energy prices soaring and record breaking heat waves across the country, the cost of cooling your home could set you back a pretty penny this year. The Wall Street Journal reports the average American household will pay $540 in electricity bills during the summer months, up $90 from a year ago. An air conditioning can make up a big chunk of that total, especially in hotter and more humid areas of the country. Sarah Baldwin is with the think tank Energy Innovation.

Speaker4:
Because we have a confluence of factors, the increased price for both gas and oil, as well as natural gas in homes and buildings, and an extremely hot summer and likely to be record heat all over the country as well as the world, largely due to climate change. We're feeling the pressures on both sides.

Producer:
But if you think there's nothing you can do to ease the pain, you'd be wrong, Baldwin says. There are some things you can do that will cost you only a little, if anything at all.

Speaker4:
Paying attention to when you're turning on appliances, when you're turning on the AC, if you have a thermostat that you can program setting that thermostat to a modest temperature instead of going straight to really, really cold, looking at what kind of window coverings you have, other.

Producer:
Improvements may be a bit more costly.

Speaker4:
Update your air conditioner to the most efficient unit. A heat pump. Air conditioner is going to be your best bet. You can also look at replacing windows and doors. Those can be a bit more costly but can have huge benefits in the long term.

Producer:
And don't overlook your power company. It could have some programs or incentives to help you cut back on energy use and save yourself some money in the long term, Baldwin says renewable energy is the way to go since prices are much less volatile than things like oil and gas.

Speaker4:
The sun, the wind, geothermal, hydroelectric, other carbon free sources like nuclear are all generally very cost stable relative to their more volatile and spiking fossil fuel counterparts.

Producer:
So how will you survive the summer heat and its impact on your wallet as you plan for retirement? That's a key question to consider as the mercury and inflation keep going up with the retirement radio network. Powered by Emera Life, I'm Matt McClure.

Producer:
Ms.. Part of today's show, Your Retirement and Broken is available wherever you listen to podcasts and online at Retirement Unbroken.

Merrit Strunk:
Welcome back to the Retirement Unbroken show. I am Merritt Strunk and we're talking about different tax class diversification in your assets, your retirement accounts, your 401. K, Ros, traditional IRAs. And we just ran through a lot of different details about those things and why it's so important. And we just left off about the Roth IRA and how important it is, depending on what your compensation is, because you've got to get it and fund it with W-2 while you're below the income thresholds because you want to have a catcher's mitt open for potentially what's called a backdoor Roth conversion. So if you've got traditional IRA or tax deferred type of money in a401k traditional or an IRA traditional, and you retire and you've got all this money that's never been paid taxes on. And like I said, you remember the IRA tax trap that I just talked about, you know, taxes upon tax, but on taxes, you take the money out, pay the taxes and so on. One way to get around that is what's called a backdoor Roth conversion. The only catch is you've got to have money on the outside and an investment account or in the bank to pay the taxes at your current tax rate. It's not an all or nothing, by the way. You don't have to convert everything. You can strategically structure a separate annual Roth Roth conversions. So that guess what? Those can grow and you could take tax free income.

Merrit Strunk:
Nobody's going to force you to take RMDs out of it and think about your legacy. You've got children and you you are legacy minded. Some people are. Some people aren't. Then guess what? That money all goes to your heirs and your legacy, and there's no taxes on those things. Wonderful. How considerate are you that you did that? Okay, so there as we talked about Ross, that's tax free. Now we're going to talk about life insurance. There's all kinds of things about life insurance. But when it comes to thinking about tax free retirement income, there are very few sacred cows in this country that the government hasn't come for to tax you on. They are talking about it, but currently it's not in place that Ross. Tax free income. And there is a way that you can use life insurance to fund tax free income if it's done correctly. By the way, here's a term it's an acronym. It's called lookup lookup. It's it's LRP. It's called Life Insurance as a Retirement Plan. And by the way, very wealthy individuals and people who are familiar with the ins and outs of life insurance are aware of this. How'd you like to have tax free retirement income for the rest of your life and some other benefits? Those are the living benefits of life insurance. So those type of life insurance policies are not for people who if you've been promoted off this planet and the people who are taking the death, it's not for them, it's for you.

Merrit Strunk:
And it can actually do both. So let's get into this conversation about life insurance. You're all familiar with certain types. You know, like term is a big one. So the question is which one is right for you? So life insurance is about in general, it's about supporting your family when you are no longer here. So good for you if that's what you've done in general while your younger prior to 65, you are insuring what you're insuring income and the potential loss of income if that person is no longer here. So let's say the one of the spouses makes higher income and one of them makes either lower or doesn't work, stays home or what if something happens to that person? And there's there's two types of calculations we do, which is, one, we bump you off right now. The worst possible time is right now. You go out and get that milk and you don't return home. This is San Diego that happens with more frequency than you know. It does happen. So then you have to say, well, if that does happen, that's a worse possible outcome. What happens to and I'm just going to give a scenario what happens the momma, momma and the kids, are they out of the house? Do they have to sell the house? Well, the children get education. Are the debts going to be paid off? Is a mortgage going to be paid off? Is a car loan going to be paid off? How about that credit card debt when the income is no longer coming in? So that's the conversation about life insurance and have you done your planning? And then I'm going to call you out here.

Merrit Strunk:
Have you done that for your spouse and why not? Why this is part of your role to make sure mom is okay and the kids are okay. So if you haven't done that, stop procrastinating. Give us a call. Go to our website. Give us a call, 8585219700. So depending on what type of life insurance you choose, it can also give you extra income in retirement. I just said life insurance and extra retirement income kind of equate that in your head if you never heard that before. Life insurance essentially is a contract with an insurer, right? A company, and you are the policyholder. So the contract solidifies a promise to pay a death benefit to the designated beneficiary when you pass away. And speaking of beneficiaries, do you have a contingent beneficiary? Is it going to a trust? That's an interesting conversation we have almost every single day, you know, term life insurance, right. If you're a Dave Ramsey acolyte, which I do prescribe to Dave Ramsey's good old down home knowledge, there's not a lot that you can disagree with with Dave Ramsey, by the way, a rational person would agree to most of his concepts versus a permanent life insurance.

Merrit Strunk:
Right term has a term to it up until a date versus permanent. It's forever for the rest of your life until you're not here. Okay. So it's just differentiated on how long you want and need for the policy to last. So. If you only need a policy for a short amount of time. Right. You might choose term life insurance, by the way. Biggest bang for your buck small, affordable term policies. And you can pay a little bit of premium and get a big death benefit. By the way, men, ladies, if you are employed and you have a group benefits package, which almost everybody does that, that works for a company that is the best deal going. So if you are if you've got life insurance, go take a look. How much will it cost to get 150,000 of term, 200,000, 500,000 group term under your companies benefit package is going to be the best deal you can get. And if you can't, then get one on the outside as well to make sure that it has enough coverage for you and these term policies outside of the group. Not talking about work because you leave work, you lose that policy. It's not portable. It doesn't go with you. These are the terms for life insurance. Go like this. Ten years of coverage. 20 years of coverage, 30 years of of coverage. So permanent compared to permanent, the insurance lasts the entirety of the policyholders life.

Merrit Strunk:
Unless you stop paying premiums, these plans are more expensive because they are permanent. If you have mom and dad or grandma and grandpa specifically the grandma and grandpa and you are not listed as or somebody is not listed as a interested third party where they get notified that something is going on with the policy. Then I hate to say it all the premiums that this person has paid, grandma and grandpa or mom and dad that they've paid goes poof. There is there is a it's called lapsing the policy. And there is a period there where you can come back and and get a reprieve. You're back in and getting insured. But to keep that from happening, my recommendation for you, especially you have a senior in the family is talk to them about auto pay that bill, auto pay that bill and also have yourself as the third party authorized third party, interested third party that can get notified if there's something that goes on with the policy. I have seen it and let's say you've got somebody who's 80 plus years old, maybe they've got cognitive diminishment and all these premiums they paid go poof because they are the only one get notified and that policy is lapsed. Only the amount of premiums you paid for years and years and years and years and years and years is gone. And guess what? The legacy, the estate that the life insurance death benefit plays a role in is now gone.

Merrit Strunk:
Please, please, please make sure those things are in place. If you're driving or listening to this and you and you're hearing me and you know that mom or dad or grandma and grandpa have a life policy that especially the permanent ones. Right. That they've been paying on forever. And you are not there is no third party authorized on there or it's not auto pay. Please talk to them about that. Do yourself a favor. Okay. So types of permanent life insurance. We if you say picture in your mind term life insurance is renting it's renting the coverage temporarily. By the way, ten, 20, 30 years of term policy coverage brings you up to 65 and maybe a little bit later, depending on when you got it right. When do people get promoted off the planet? When does that happen? Normally in the eighties. So does a term policy normally, quite often in general expire before then? I'd say probably most of them. It covers you during the time you're making money and you're working, but it's not there at the time that people most often would need it and they pass away. And there's a mental conversation that happens when somebody grows older and they have life insurance. I go, Well, if I die, all this death benefit goes to my heirs and that's my legacy to them. And they can use it to get a leg up in life.

Merrit Strunk:
Fantastic. Guess what? They live long, longer than expected. That policy turns out there is no legacy and death benefit from there. So they start looking later in life. You start looking at it as a legacy. But guess what? You realize it's a term and then you're too. And you may be squishy inside life. Too expensive to go through the underwriting process again and you may not get insured again. So just realize that renting is term but permanent, lasting your entire life. So the types of permanent policies is whole life. A whole life is a type of policy will accumulate cash value over time. And you can use the accumulated account to cover policy payments if you need to loan repayments or simply for cash. Now the way that that grows is my understanding is it's the dividends from the insurance company itself. And in looking at some of the history of those that. Dividends from insurance companies had just gone down, down, down, down. So yeah, still grows, but not as much as some of the other ones. Universal life is similar to whole life. Universal life is what I'm talking about. So this type of insurance accumulates cash over time. The big difference is the cash value will earn interest, which is nice. And then you also have flexible premiums. So that means you can pay less or more or at different times in the lifetime of the policy.

Merrit Strunk:
And the last one is more like the modern animal vehicle here. And anytime I mentioned this to people, especially if they've been around for a while, they go even if they know investments and insurance fairly well. Many times they don't know if this is called i u l. That's the acronym indexed Universal Life. So it's another type of insurance policy that earns cash value by indexing within a certain index. That could be S&P, it could be NASDAQ, it can be Dow. So it has a chance to grow like those things and it can grow in value and it has a death benefit. Now, it's very flexible. That's a real one. Really cool thing about this animal is that, yes, it has a death benefit and it can have a good one. And many times you can get what's called a chronic care rider on it that if you have no long term care, especially for you ladies, all of a sudden you can get a chronic care coverage on it where you can use the cash value on the inside to pay for long term care if you need it. And there are some carriers that don't charge for this. Isn't that a beautiful thing? So the other one is, okay, so we cover death. It pays a death benefit. We covered illness and care, so you can get that. Now, what if you don't die? And what if you don't get sick? Oh yes.

Merrit Strunk:
The IUL also allows for you can loan yourself from the policy at a very low rate and you can have tax free income during retirement. Isn't that interesting? So very, very flexible. If you're not familiar with those things, give us a call so we can educate you about it. And you might be asking yourself, well, how do I know which one is right for me? How do I know which one? And by the way, I think that's the right question for the entire thing, which is which components of my financial plan for the future is right for me. Investments, tax class diversification, tax efficiency. And now we're talking about the life insurance component and how do we ensure against risk and loss. Right. That's what we're doing. So how much do I need and what do you plan on using your insurance for? What's the insurable interest? So this will impact how much you need and what type of policy you choose. So you'll want to think about how about how much your family would need to maintain the standard of living if you pass away. What are your debts? Do you have a mortgage or are the kids educated? They've gone through college yet. And what the bill is going to be at the very least. At the very least, you'll be thinking about the average funeral cost, you know, to put you on the ground or cremated. Okay. I know it's a morbid conversation, but it is a life conversation and it's one that we we do address, which is, is there going to be enough money when you are promoted off the planet and at the very, very, very, very least, you know, to cover that that funeral expense and the average cost somewhere between seven and 12,000, I've also seen ones that are 30,000, you know.

Merrit Strunk:
So do you have a class funeral situation or something lower there? Hey, for me, I'm once I'm promoted off the planet, I'm headed to a better place and my body is just an empty shell at that point. So, you know, burn me up, put me in an urn somewhere and talk about the good times that I've had with you. Okay, so what factors will affect your premium payments and premiums is a word just basically for the monthly payments you have to make. So it depends. Who are you? Right? Are you male? Are you female? And how old are you when you're applying for this coverage? So age is important because of life expectancy. It's one of the big factors that insurance or insurance companies look at. And then also, as you may already know, your medical history. So your family medical history can impact how much you pay and also whether you smoke. And if you're have a poor driving record, other dangerous lifestyle choices you participate in, are you a are you a private plane pilot? Do you like parachuting those kind of things? Right.

Merrit Strunk:
They're going to play into an insurance company's risk that they take to insure your life and pay. So all these factors come together to determine your risk and your premium payment. So, I mean, point here, are you a cardiac patient? Have you had cancer? Do you have one of those things going on or do you have alcoholism? Alcoholism? Do you have other genetic type of things going on in your family line? So they play into it. So let's talk about the benefit of life insurance. The greatest benefit of life insurance, as you may already realize, is the death benefit paid out to the insurer. But did you know that's also tax free? Many times it's tax free, right? There are some odd situations where the benefit beneficiary may be required to pay taxes on accumulated interest in the policy, but never on the base amount. So when I say, you know, there's very few sacred cows here, the death benefit of life insurance is one of those tax free and probate. Free probate is a fancy word to say. It doesn't go in front of a judge to determine where the money goes. And here's a great phrase for you to remember, which is beneficiary Trumps will, beneficiary Trumps will. So if your will says that it goes someplace and the beneficiary I'll give you the great example. So a man is in the military and he has a life insurance policy and he is married and he puts his current wife as the beneficiary.

Merrit Strunk:
And then later on he gets remarried and then dies. The beneficiary goes to guess who his original wife because he never changed a beneficiary designation on it. So you want to check your beneficiaries and that is something we do when we sit down with clients. We have a beneficiary review and make sure that everything is going on. So like I said, death benefits the biggest one here and the taxes are never on the base amount. So I recommend you divest the IRS from your retirement accounts. With life insurance indexed universal life do a what's called a 1035 tax free exchange of cash value life insurance into an index. Universal life insurance policy is a is a prominent strategy here. And so that's important. So we're going to take a break here and then we're going to go into Smart Rule following. All right. So we just talked about tax class diversification, understanding the taxation on your different accounts and how important that is. And we covered a lot of that. But next, we're going to go into smart rules to follow very educational. And we'll meet you back here after the break. Again, my name is Merritt Strunk and you're listening to the Retirement Unbroken show with Merritt Strunk. Take a look at our website, which is Retirement Unbroken dot com and click on the book a complimentary appointment or give us a call 858521 9700.

Speaker4:
What's the matter with with the clothes I'm wearing? Can't you tell that your ties to white? Maybe I should buy some old type collars. Welcome back to the age of.

Producer:
Are you concerned about inflation, political uncertainty, rising taxes, and how it could all affect you and your family during retirement? If you have an IRA balance over 400,000, you could save six figures in retirement taxes that you would be paying over a 35 plus year retirement. Find out how much you could save today by scheduling your free Roth conversion consultation with Merritt Strunk at Retirement Unbroken.

Merrit Strunk:
Okay. Welcome back again to the Retirement Unbroken show. My name is Merritt Strunk and we just followed up with different types of life insurance. And prior to that it was tax class diversification, understanding how your different accounts, retirement accounts are taxed in retirement. And next, we're coming. A couple of rules here. Handy rules of thumb is what these are. So rules of thumb are just that there are rules. And the first one I'd like to talk about is the rule of 100. That's really about risk. If you take your age and use subtract it from 100, you get this kind of ratio, which is how much I should have at risk and how much I should have as a conservative exposure to market volatility. I'll give you a great example here. So take 100 and let's say the person we're talking about is 70. The math there is pretty easy. 70 from 100 is 30. So that means a 70 year old should be okay with 30% risk and then 70% at lesser risk. So why when you get older, you just don't need to take as much risk and you may be needing that money and your buckets there, your nest egg for the rest of your life, and you go into the distribution years of your life. So again, it's a rule of thumb. We happen to be more quantitative and scientific about it, but that's a great place to start. So, you know, if you were 30 and you subtracted, that means 70% should be more at risk and 30% can be something less exposed to risk.

Merrit Strunk:
I hope that's clear for you. How about the 4% rule? The 4% rule came back in the media not that long ago when we were living in a incredibly low interest rate reality. And why did it come into focus? Well, because the 4% rule says, look, in your retirement, you should be able to withdraw 4% of your assets and sustain your livelihood for the rest of your life. It's a very old rule and it started to be debunked. And at some point they were saying, no, let's lower that to three, no, let's lower that to two. So it's a it's a rule of thumb, and you can start there, but you may actually go to 6% and you can actually do less if you've got other strategies like guaranteed lifetime income that you can count on. And we're going to talk about Social Security in just a second. And that comes into a big factor in that, too. Where is your income coming from? What are your expenses? And and so the rule of the 4% rule is just that. It's just a rule of thumb. Okay. Rule of 72. Rule of 72 is a pretty cool one. Basically the way to estimate how quickly your investments will double in value given a fixed interest rate so investors can take 72 and divide it by the annual rate of return.

Merrit Strunk:
That is hypothetical to get an idea of when your investments will duplicate themselves. So, for example, if you invest a dollar at an annual fixed rate of ten, the rule of 72 states, that it will take 7.2 years to grow your to $2. So 72 divided by ten equals 7.2. An interesting one that I know all the time is that anything earning 8% for ten years will double. That's a nice one too. So it's the application of the rule of 72 related to these kind of things in retirement, Social Security, it's such a big topic. I'm not going to spend a lot of time on it. But what I will say is people are leaving tons of money on the table when they choose to take Social Security. You can elect to take it at 60 to full retirement age right now for for most people a 67. And then you can wait till age 70 at the latest and elect to take it at 70 and you will get a greater amount every year. You delay will get an 8% delayed retirement credit. Did you know, like most people who do take it at 62, you're only going to get 75% of what's coming to you. At 67, you will get 100% of your retirement benefit from Social Security. And if you wait to 70 let's see, 67, 68, 69, 73 years in between eight, 8% delayed retirement credits. That's 8% compound for three years. You get 24% greater a monthly check than you would have gotten at 67.

Merrit Strunk:
Most people do not know that. Most people do not know that. And they're leaving a ton of money on the table. Don't be one of those. Get informed. How do you get informed? How would you know? Well, you ask a question. You go on the Internet, you go on the Social Security website, that's SSA gov. And you talk to somebody like me. Right. Talk to me. Ask the question. Ask questions. Don't be ashamed of asking questions. But the better you do at Social Security, the better you will do over your lifetime. There's a COLA increase, cost of living increase that Social Security can go up by, and it's predicated on inflation. Inflation is a lot. People next year are going to get a lot more increase than they have in the past. So very, very important to solve your retirement income gap. So I went very fast on that. There are so many assets of Social Security that you need to be aware of and that wraps us up. That's all the time we have. I hope that you got the tools to empower you and ask questions. My name is Merritt Strunk and I am the host of the Retirement Unbroken radio show. It's been a pleasure to have you. Please go to our website, check us out. If you're on the podcast, click subscribe and leave us a comment there. We'll talk to you next show.

Producer:
Thanks for listening to your retirement Unbroken. You deserve to work with an experienced and licensed expert who will strategically work to protect and grow your hard earned assets to schedule your complimentary no obligation consultation with merit. Visit retirement unbroken or pick up the phone and call 858521 9700 that's 858521 9700. Advisory services are offered through Momentum, Financial and Insurance Services LLC. An investment advisor in the State of California. Insurance products and services are offered through Merritstruck an independent agent. California license number 07510 Certified Financial Fiduciary as a FINRA recognized professional certification.

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