Business Innovators Radio - Interview with Jim Billington, Managing Director of Wealth Pilots Discussing the 5 Risks of Retirement

Episode Date: January 10, 2024

I started in Retirement Preservation Planning 22 years ago as the Tech Bubble started moving towards a meltdown and I saw Wall Street throwing out all the fundamentals and taking too much risk with people’s nest eggs. I am a second-generation financial manager as my Father was the Regional Director of the Nation’s largest Brokerage firm. I saw an alarming lack of expertise when it came to transitioning people from the asset accumulation phase to the asset preservation and distribution phase of retirement. At Wealth Pilots we are dedicated to helping clients make the critical decisions necessary to avoid the unnecessary and avoidable risks ofretirement such as longevity risk, market risk, and tax strategies to maximize income.Learn More: https://www.wealthpilots.net/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jim-billington-managing-director-of-wealth-pilots-discussing-the-5-risks-of-retirement

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. And today we have with this Jim Billington, who's the managing director of wealth pilots and we'll be talking about the five risks of retirement. Jim, welcome back to the program. Good morning, Mike. Welcome.

Thank you. You know, I'm sure there's more than five risks, but we probably want to keep them dialed into the five main risks or the pillars of risk. But let's kind of start off with first talking about almost like, why don't I hear this from everyone? Because I know that there's some type of advisors that put your money in the market. And they say, oh, we've got your best interest in heart. But maybe you hear later on that there's another type of a product that does

doesn't expose your money to all of the risks and volatility on Wall Street. So talk a little bit about that correlation. Well, it starts on Wall Street. You hear this overly marketed term called fiduciaries. We're fiduciaries, so we put your best interest at first. And we only make money if you make more money. Well, what they don't address are the five risks of retirement. They aren't really focused on all the risks.

that a retiree may face. They're looking at a broad spectrum of investors where we at wealth pilots specifically focus on retirees. So when we have to protect a retirement plan and a client over a client's retirement lifespan, we have to incorporate a plan that works through the five risks of retirement, that protects them from number one longevity risk.

Number two is market risk. Number three is interest rate risk. Number four is tax risk. And number five is long-term care risk. And the Wall Street fiduciaries that just manage your money with risk in the market don't address any of these retirement risks that are very important. Yet they call themselves fiduciaries that they're looking out for your best interest and make you feel like you would have all these things covered because they are fiduciaries.

And the point, and especially today's conversation and the focus of our business is to lay a solid foundation that does protect a client's retirement plan against these five risks that Wall Street's not talking about. Yeah. And, you know, those kind of people that give that advice, they feel like they're giving good advice because they're only working with the tools that they can work with. So they're not telling you get into extreme risk, but hey, Wall Street has risk. And if it drops and you call me, you know, we're going to tell you, oh, it'll come. back, all those normal type responses, but you're not playing with all of the tools you could be playing with to fully provide that fiduciary support. And like you said, you know, market risk. Wow, there's a certain time. Um, you know, my daughter just got married recently and she's 21.

And she could probably take a little bit of market risk at that age. But at some age, you're going to need to start saying, okay, let's start talking and looking at retirement. We need to start looking at things that are not going to expose me as much to that market risk and volatility. Well, especially right now, we're at the top of a 14-year Super Bowl market. And, you know, the fiduciaries would like the Wall Street type of investment fiduciaries would like you to think that this is just going to go on and on this Super Bowl market. And, you know, if that's retirement money that you can't afford to risk losing, you could live an awful long time in the retirement and you start shifting the focus now from growth to income. Now longevity is, you know, how long is that, that nest day going

last if you have to start drawing income and market risk starts, the volatility of the market risk starts eating away at your principal as you're taking income. That's a key factor that the Wall Street fiduciaries do not address is that downside market risk. that type of volatility will kill income and over time that will significantly endanger the longevity risk of your portfolio and risk, you know, sending your portfolio into a downward depletion or implosion type of scenario. Well, also with longevity, it makes me think about, you know, you look in the news headlines and you read that people are living longer today.

It used to be maybe the tables or the actuaries would say plan for this many years of retirement at whatever ages that would fit into that number. But, you know, we're taking better care of yourself. We're exercising better. We're eating better. There's better health care. So maybe that number is inched out a few years. And now that money needs to last even longer than what you had initially thought, right?

Exactly. A Wall Street type of growth with risk plan is not going to be projected to to, to, provide the longevity of income through age 100 that, you know, a fully designed retirement plan that we have the protection in place against principal loss, that's going to make sure that it provides a lifetime of income regardless of the performance of the market, because, you know, there will be big dramatic market corrections when you're taking income. And that's going to endanger the the longevity of your portfolio. So that's why we put that one is the number one risk.

Number two is, incorporates that because it is, it's still, it's market risk. You know, most people in retirement, they're taking this nest egg and, and if they leave it without,

you know, the fidelity of the world, and first of all, fidelity is not a fiduciary, but say, say we talk about a Ken Fisher or any of these fiduciaries that, that claim to have your best interest at heart and to put your best interest first, what they're not telling you is that

the next big market correction in retirement might not be what you want to experience and you might not live long enough to be able to get that money back, again, especially if you need to draw income from that nest day. Yeah, for sure. So talk a little bit about interest risk. What does that look like. Well, interest rate risk is another risk that, you know, Wall Street doesn't talk about because, you know, for years we've been taught to believe that you can balance out the risk of the equity markets by layering and laddering or investing in bonds and or in bond funds. And, you know, we've heard this goes back to modern portfolio theory back in the 80s. These gentlemen, these economists won a Nobel prize with modern portfolio theory and talked a lot about balancing the equity portfolio,

the part of your portfolio with bonds and that that would reduce the risk so that when equities went down, the value of the bonds would go up and vice versa. They were inversely proportional to each other. And that would help mitigate and balance out, mitigate the risk and balance out that portfolio. But what we found when, excuse me, when interest rates went down dramatically, about 12 years ago after, you know, quantitative easing and the Fed to help us recover from the subprime mortgage crisis, lowered interest rates to dramatically low levels and held them there for over a decade. And that really increased the interest rate risk that when interest rates went back. Not only it did two things, not only did it lower the interest rates that you could get on your

portfolio. So for a retiree who was counting on interest to produce income, you know, that was a risk, but also if they, so they put more money in bonds to provide more interest and more income, then as interest rates could only go up in the future, what that did was that eroded the value of the bonds. you could buy a bigger, a newer portfolio of bonds with a higher interest rate. And that meant that your older portfolio of bonds went down dramatically in value. And we saw that happen last year. Last year was the worst year on record for bonds in the United States history, corporate bonds. It's kind of like if you push down, like a seesaw.

If you push down on one area, another area is going to pop up a little bit, I would suspect. That's right. And so I was telling my clients for years. that when those interest rates went down so far to almost zero level at 0.25% levels, that that was no longer a way to balance the risk of the stock market because as interest rates went back up, that could only decrease the value of your bond portfolio. And for every one point that interest rates go up, your bond portfolio could go down by as much as 5% or 10% in principal value.

and people have been led to believe by these Wall Street fiduciaries that, oh, bonds are going to be safe and you can never lose your money in bonds. You know, their principal guaranteed by these corporations or by the government. Well, you're still in the market. You're just in the bond market. And so when interest rates go up, you're losing principal value. And that's what happened last year. Corporate bonds lost over 13%. Intermediate treasuries lost 15%.

And the long-term treasury bonds, 30-year treasury lost almost 40% last year. And that's what's put banks in terrible positions on their balance sheets. There's hundreds of billions of dollars of net unrealized bond losses from these 500% interest rate hikes that we saw in 2020. to. And so when the Fed mismanages their balance sheet, it trickles down. Now, the banks are suffering with this 500% interest rate hike. Now, it does help savers and retirees in terms of their income, but if they've held bonds for any long period of time, those older bonds or those bond funds that they invested in have gone down dramatically in value. So that's interest rate risk. And that's another way that Wall Street has helped you manage the risk of your portfolio without

letting you really know the whole picture is that that doesn't completely mitigate risk. You're still in the market. And if you're a retiree, that's something that you could experience in your lifetime as a dramatic downside valuation of your portfolio when interest rates get back to an equilibrium, which is they're closer to now. You know, Jim, you mentioned a word that made me think of something mismanage. And, you know, we can, you know, get all the puns and jokes out about government managing. But we do know that the deficit is a huge number growing every moment, every day. And really the only way to defray that is to either control spending, which ties into that word mismanage, where I was going with.

But we know that's not going to happen. You're not going to control spending. It's just out of control. Or how are you going to close that gap? raise taxes. So that leads then to another risk that you mentioned is the risk of tax. And I know a lot of people feel like, oh, in retirement, I'll be in a low tax bracket, but there's no guarantee of that. So how do you advise your clients in that realm? Well, you know, the interest, or I'm sorry, the tax cuts that expire here in two years, give us this window where we probably are going to be in the lowest tax brackets,

at least for wealthier retirees, then we're ever going to, Texas are going to just have to go up across the board dramatically because the U.S. Fed and Treasury has mismanaged the budget to where there is a $34 trillion government debt right now. And just to service that debt, the interest is about three quarters of a trillion dollars every year. and so they're going to have to continue to, you know, print more bombs to pay that interest.

But what that's going to do is drive up taxes to be able to carry that amount of interest to pay on that debt. Taxes are going to have to go up across the board. But those tax cuts from the tax, the Trump tax cuts, those expire in two years. So what we're looking at here is an opportunity to be able to convert. to Roth IRAs and paid the tax now before those taxes go up dramatically and move that retirement money from, you know, forever taxed money, you know, money that we've never paid tax on that we're going to have to start taking required minimum distributions. And we have no control over where those tax brackets will go. We have no control over where those required minimum

distributions will go. You know, there's no other agreement that you would enter into that you would have open-ended liability. Yep, right. But your retirement plan, and this is another thing that the Wall Street fiduciaries, they never help you plan around the tax risk and tax efficiency of a portfolio. How do you hedge against future tax increases and have some diversification in your portfolio by converting to a Roth IRA or even using investment-grade life insurance? as a super Roth vehicle, what it does is it creates tax diversification in your portfolio,

some never-taxed money that no matter what the federal government eventually raises taxes or raises requirement of distribution tables to, you're completely immune. Once you've paid that tax now in the next two years or phase that Roth conversion out over, say, the next 10 years, then you get to a point where you can have a huge nest egg that's completely the growth is tax free, the income, the withdrawals you take are tax free. And if you die before spending all that money, it's going to go to your wife and your kids tax free. So tax diversification is another thing that, again, these Wall Street fiduciaries do not deal with that because they're simply helping you grow your money with risk in the market and

helping you believe that that or making you believe that that's putting your best. interest first, they're really not looking at the whole retirement plan picture, you know, those five risks. And tax risk, if not having diversification against future tax increases, is a huge risk that we talked about. And we help put our clients ahead of the curve and stay in control of where they want their taxes to be over their retirement. And that's such a huge hit, which like a punch of a hole in that bucket, you know, the proverbial bucket where water is flowing in, you know, like money, it flows in, but then taxes, it just flows right out. And you want to minimize that as much as possible. And another one of those is that last one,

you mentioned long-term care, because that's kind of like that thing that's in the back of your mind, like, oh, yeah, well, I don't need that or it probably will never happen and it probably won't until it does. So talk a little bit about how that is a big risk and really needs to be contained because that then is another bleeder of your retirement funds. Well, it is as much as you know, taxes are a huge driver of inflation. If you look at health care costs, they're a huge driver of, you know, medical costs have gone up so much. Long-term care, you know, 10, 15 years ago was less than half the cost it is now. And it just continues to go up. It's one of the sectors of our economy that's hit hardest by inflation as health care costs. And what, again, your Wall

street that your brokers and fiduciaries are not helping you plan with your portfolio is the chance that as you grow older, chances are increasingly prevalent that you're going to have some type of long-term care. And at age 70, the chances are about 70% of us are going to need some type of long-term care. At age 80, chances are about 80% of us are going to need some type of long-term care. and the older we get, the chances go higher and higher. And the average long-term care stay is around three years. You know, even if it's in your home, it's exorbitantly expensive to have in-home health care. Most people do not have this type of risk, you know, diversified against in their portfolio.

They simply are hoping, you know, against all odds that the growth of their portfolio at their, their investment advisory firm is going to help provide that cushion, you know, or, you know, that they eventually sell their home and move out of their home and, you know, move into some type of residential retirement plan community that has long-term care. But those costs are outrageously expensive to move into a residential retirement facility that has some type of long-term care. And so it's a part of a retirement plan. that has to be addressed, that unfortunately isn't being addressed by the Wall Street

fiduciaries that, again, claim to have your best interest at heart and put your best interest first. But if you aren't looking at one of the biggest risk to your portfolio is that a big chunk of it can go in three, four, five years worth of long-term care. And that feeds into all the other risk, too, because if taxes are going up and the market's going down, and you're losing money in other places as you're experiencing a catastrophic health crisis. For example, both of my parents had catastrophic illnesses while the market was going down. My father in 2008-09 lost millions and millions of dollars in the meltdown as he had advanced cancer. And, you know, that accelerated his decline in his health just because of the damage to his psyche that he had stayed in the market too long with his retirement.

And now the catastrophic illness compounded. And the expense, he didn't get really the care that he should have got because he was so sorry about all the money he was losing in the market. Even though he still had millions to pay for the care that he had, that care was very expensive. and he didn't feel like spending that money because he had lost so much in the market by staying with his brokerage firm too long. And so all these risks really feed into each other and compound. And until you've seen it happen, same thing with my mother. She was at Fisher Investments and she had over $3.5 million and just took it for granted that because they're fiduciaries, that they'd always be looking out for her best interest.

and she was so well diversified that she didn't have to worry about anything. But what we didn't know was later in life, her long-term care expenses went over $15,000 to $18,000 a month. That ended up being end-of-life care. At the same time that COVID hit and her portfolio melted down over $300,000 as we were taking distributions of $18,000 a month to pay for her end-of-life care. So, you know, all these things can feed into each other, you know, the downward, downside market risk for staying in, you know, trusting that fiduciary to watch for her nest egg and having the market take a huge bite out of her portfolio at the same time, having, you know, later in life, having their catastrophic illness, not only does the help of the person go down dramatically when they're losing money in their portfolio, but the whole family saw. offers. Like, what are we going to do if the market keeps melting down and we have these, uh, you know, $20,000 a month end of life care expenses? It becomes quite stressful. And people don't think these things through until they experience them. And it's too late. Yeah,

wow. Yeah. We should have done something different. We shouldn't have stayed in the market so long and trusted these people who, you know, are these billionaire fiduciaries that tell us that they're putting their best interest, our best interest first. And in reality, they really aren't watching out for all the risks that a retiree can experience. Well, Jim, I know there's no one single cookie cutter templated solution because everyone's different, but talk a little bit about like one strategy that you would recommend that would help protect against some of these risks. And then we can wrap up with if people are interested in learning more and seeing how you can

fully cover all of these risks. They can reach out and connect with you. but give us an example of one. Well, we think you should have an overall strategy, Mike, where you partition what the purpose-driven money that needs to create a lifetime of income that is immune from downside market risk, that hopefully if we can afford to pay some of the taxes

and do some Roth conversions that can have, that can diversify you around not only the market risk, but also the tax risk. And also, they can have a long-term care lifetime income benefits built into these. So there are more advanced annuities. And I don't really like the annuity universe in general, but there are about one or two percent of all of the annuities that are out there now, these new fixed hybrid, fixed indexed hybrid annuities that perform extremely well, that have principal guarantees, that use options on the upside of the indices in the market.

They have lifetime income benefits. They have Roth conversion ability. And they have double that lifetime income for long-term care. So, you know, we believe that you should have a foundation of your retirement portfolio that is guaranteed against lifetime income. But that covers the longevity risk. that covers the principles guaranteed so that covers the market risk because interest rates are not going to affect that lifetime income. You can only increase the level of income if interest

rates go up possibly and the market goes up. So we're taking into account those three risks of retirement. But then if we were able to do some Roth conversions on those annuities, we can diversify against future tax increases, and that covers the fourth risk, which is tax risk. And then again, they can have those built-in lifetime income benefits that double for long-term care. That covers the fifth risk of long-term care risks. So that's what we specialize in is help people build a very strong foundation of that purpose-driven money that has to be there to last their entire lives. No matter what the market does, no matter what tax.

taxes do, no matter how bad their health, no matter what interest rates do, or a catastrophic illness, you know, these are subjects that need to be talked about and planned, you know, financially to make sure that a retirement plan can withstand these five risks of retirement, or at least we've visited the topics and checked them off to make sure that everyone's comfortable with the portfolio moving forward, as opposed to a Wall Street portfolio. where they will just hopefully grow your money and by diversifying it across a wide variety of asset classes. But when the next big market meltdown hits, you don't have any protection against these five risks.

Yep. Well, I tell you what, Jim, it's been real enlightening to learn of these points and really eye-opening. So what's the best way someone can learn more and then also reach out and connect with you? Well, we give weekly webinars, you know, several times a month. My website is wealthpilots.net. I have a team of fiduciaries, but not Wall Street fiduciaries. We do have investment advisory capabilities there with Wealth Watch, but we're specifically focused on a total holistic approach, a fiduciary approach to preserve, protect, defend,

and grow safely and protect your retirement portfolio from those five risks of retirement that the Wall Street fiduciaries are not talking about. So, WealthPilots.net. And you can come to one of our webinars and learn more. We have several of them a month. Excellent. Well, Jim, thank you so much for coming back on today. It's been a real pleasure talking with you.

Thanks, Michael. I really appreciate being on today, too. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www. www.

influential entrepreneurs radio.