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

Episode Date: September 20, 2023

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 of retirement such as longevity risk, market risk, and tax strategies to maximize income.Bill says: “At Wealth Pilots we believe your Retirement Plan should include a Flight Plan for all possible conditions. This stands for Future, Lifetime, Increasing Income, Growth, Hedging and Taxes.”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-retirement-flight-plan

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. Today we have with us Jim Billington, who's a managing director of wealth pilots, and we'll be talking about the retirement flight plan. Jim, welcome to the program. Thank you, Mike. Good afternoon. Hey, I'm excited to talk with you because I always love when people kick companies and product names that are unique. And, you know, you're with wealth pilots.

And I want to talk about the flight plan. But before we dive into that, give us a little bit of your background and story. And how did you get into financial services industry? Sure, Mike. Yes. My father started out at Merrill Lynch in 1959 as a stockbroker before I was even born. And, you know, that set the stage for what my career would be to follow in my father's footsteps as I grew up watching my dad hit it out of the park. He was a superstar at Merrill Lynch.

He became manager of the Western region in Denver and then became Western Regional Director, and managed 57 Merrill Lynch offices on the West Coast, Hawaii, and Japan. So, I quickly realized through college that my father was probably going to want me to go to work at Merrill Lynch as a stockbroker. As time went on and we went into the 90s and saw this huge dot-com blow up in the market. And that's right about when my dad said, hey, this would be a great time for you to come and work at Merrill Lynch. I saw all the fundamentals of the market going just completely off the charts and then throwing out all the basic fundamentals and taking these companies public that had no business going public. They had no earnings whatsoever. And I decided I'd rather go towards the safe retirement.

reservation planning phase. That's where I've taken my career and been there ever since 2000, 2001. Neat. I always like when I hear stories like, you know, I noticed this and I didn't like it, or I was looking for something and I couldn't find it. So I rolled up my sleeves and I did it, or I created it, or I improved it. And that's exactly what you were describing there is you, there was a process that you just, it just didn't resonate with you. You wanted to serve your clients best. And so you went this direction. So, let's talk a little bit about that retirement flight plan. So talk a little bit about how you approach

retirement through the lens of a flight plan. I guess first define it. What is a retirement flight plan? Well, a flight plan, our acronym for flight is future lifetime income with growth, hedging, and taxes. And the T at the end is also transition because this is a retirement transition plan where people have been in the asset accumulation phase of their life and, you know, saving and saving for retirement. And now they come to us. And they want to plan to help them preserve and protect and grow safely, yet distribute this money for income and plan how to manage the taxes. And, you know, there are risks that are associated to retirement that an asset accumulation plan, that the plan they come to us with doesn't address.

And so the flight plan addresses those risks. And there are five basic risks of retirement that we want to address with this flight plan. Yeah. You know, kind of from a nautic or aviation theme kind of makes me think about like the pre-flight check. And I'm sure that you can go into a lot of little areas about, you know, oh, yeah, once we have the flight plan in place, we want to make sure that this is in place and we're always checking this. And so I love all of those specific aspects that you just mentioned with, you know, income and inflation and taxes because each and every one of those as a standalone entity,

they're very powerful. And if you don't have things dialed in the right way or ready to address, like you don't know when inflation is going to rear its ugly head again. It might be today, tomorrow, the next day or 10 years from now. but when you have a plan in place, you know when the indicators come up, then you're going to address it. So let's kind of start breaking down a few of those aspects in the flight plan. So the first one, future, that means specifically as it applies to their plan. Is that right?

It does. Inevitably, Mike, people come to us when our clients bring all of their assets, their statements, they have a wide array of accounts spread out from old employers, their 401Ks, 403Bs. these 4-57s, whatever they may have depending on what type their employers sponsored. And that's how they accumulated. They've got the company match. And that's the past. That's how they've-

Traditional. Assets, that's not their future plan. Now, because they're not in the asset accumulation phase anymore. Now they need to shift gears into, so the F standing for future, meaning we need to, you when we're driving a car, we see that the rearview mirror is a very small piece of glass that looks through the back. The windshield is a very large piece of glass that guides us forward. So the future of our retirement, how long do our clients see themselves living in retirement? Longevity is the largest risk, the risk of them running out of money.

And their old plan in the past isn't going to get them. They can't navigate forward in retirement looking in the rear view mirror. So longevity risk. And we've got market risk. They've accumulated these assets by building them up, you know, in mutual funds. And they're usually overweighted in the market for what their goals are now that they're getting towards retirement or in retirement. And so they've got too much market risk, which is a huge problem. We've had a 14-year Super Bowl market that we've seen the last couple of years since COVID has had some dramatic downside volatility as of late.

in 2020 we saw a big meltdown from COVID. And then last year we saw a pretty major correction due to the interest rate hikes. So market risk is another issue that the flight plan addresses. And then we've got inflation and interest rate risk. We typically have used these financial plans in the past have used the 6040 or the 50-50 or 70-30 asset allocation where we're balancing stocks and equities with bonds. And that's the old way of doing things, the future way of doing things. It's been proven that that 60, 40, 50, 50, equity to bond ratio hasn't really mitigated the risk

because when interest rates went down to ridiculously low levels after the Great Recession, that meant that bond prices could only go down when interest rates went back up. at the same time stocks kept going up and up like they have for the last 12 years before COVID. And that meant that they were directly correlated, that stocks weren't, weren't inversely proportional to bonds anymore, that they were directly related. So last year, we saw a correction in all asset classes. When interest rates went up, the value of the bonds went down as well as the stocks. So that's the old way. All those percentages and templates and calculations and strategies seem to fare well until they don't, right, until the rules of the game change.

Exactly. And those rules changed about 10 years ago. So that, again, that F for future stands for designing a portfolio of the future where their retirement is going to last an awful long time. We can't afford to have unnecessary risks that market risk is the number one risk right now. as well as longevity risk. And then we look at interest rates. If interest rates continue to go up and you're stuck in a bond fund, then you're going to watch the value of those bonds go down.

So that's another risk in inflation. As interest rates go up, they're going up because of inflation. So we need to be able to deal with the erosion of the purchasing power of our retirement savings. That's another big risk. Tax risk. We know that taxes are going to have to go up dramatically. We've seen, you know, all these baby boomers are coming of age now, and we've seen trillions of dollars of unfunded government liabilities from all these entitlement programs as well as trillions and trillions of dollars of deficit spending. We know it's going to have to come from somewhere to fund all these entitlement programs.

Medicare, Medicaid, Social Security, and everything else, the Inflation Reduction Act and the infrastructure. plan and there's, you know, so many unfunded liabilities the government has committed themselves to that taxes are going to have to go up dramatically. So in 2026, taxes are scheduled to go up. So that's a major risk. And long-term care risk. Our clients typically don't have a plan for long-term care. They come to us with asset accumulation accounts and they don't have any type of protection should they end up, you know, in some type of assisted living or nursing home or, you know, with a catastrophic illness. So these are some of the risks that the flight plan is designed to navigate around. And so we navigate around those risks with the flight plan, which is future lifetime income with growth, hedging, and taxes, transitioning.

And so we could break that down a little. Yeah, let's go to the next one. The next letter, L is the lifetime. Talk a little bit about the significance there. Thank you, Mike. So lifetime is that longevity risk that we have. How long do you see yourself in retirement? Is the first question that I asked my clients.

What's your family longevity? Have you planned for, do you have multiple streams of income that are guaranteed to last the rest of your life? And if you don't, you know, what is that gap? What are your desired spending goals? So this is a critical area. And it's the number one concern of baby boomers and retirees is, am I going to have enough guaranteed lifetime income? So that's one of the major critical areas that we plan our clients to be able to deal with this flight plan.

And the next is the income. And the income has to be designed to rise with inflation. So it's really the eye in flight plan, it stands for income that increases with inflation because you have to be able to stay ahead of inflation. These days it didn't used to be something we had to deal with in a financial plan until the last couple of years when we saw all of this COVID relief spending drive, you know, interest rates to record high level. In a record short period of time, they went up by 125 basis points or 5.5.

five and a quarter percent. Exactly. And then we have growth, the G. So growth, the next, the G and the acronym for flight is growth. So we have to have growth to stay ahead of inflation and we can't afford to take risks with that money. This is retirement money. So it has to provide that lifetime income and it has to be purposed.

You know, most people come to us with the smattering of accounts and they aren't purposed for a reason. For example, they don't have a dent. dedicated income plan, and they don't have their dedicated growth plan. It's just all in a smattering of growth balance with bonds and these old asset accumulation accounts. And for asset preservation, we'd like to organize these accounts and purpose them, purpose the accounts for income that increases with inflation, with growth. And we also want to have a certain portion of their money that they're comfortable having in the market. That's their performance.

money. They're comfortable having risk, then there are wiser ways to risk that money and get higher rates of return than just staying in a long-term buy-and-hold mutual fund strategy that they've had in the past. So we've covered future lifetime income and growth. What is the H stand for? The H stands for hedging, which means we take the downside risk out of our growth plan. So if we're going to have growth to stay ahead of inflation for income, growth for the dynamic upside potential that we want in our performance-driven account. It wouldn't matter if it's our income or our growth account. We still want to have downside protection.

We've all heard of that word hedging and these fabulously wealthy hedge fund managers. And it's because they've learned how to take the downside risk out of a portfolio. is why we hear so much about these and how well-paid these hedge fund managers and hedge fund owners are because there are more advanced strategies that these hedge funds use and these insurance companies use to take the downside risk out of accounts. If it's retirement money, it has to have a more sophisticated strategy than just trying to balance the risk with the bond portfolio, which is the traditional way that financial advisors. And when clients come to us, that's what their statements reflect.

is these old, you know, 60, 40 or 50, 50, you know, stocks and bonds. That doesn't have any hedging whatsoever. We saw that last year when the market went, when the stock market went down and the bond market went down at the same time. There was no protection. You know, the old saying, well, we've always done it like that. That is not a good saying in any circumstance, but especially in your retirement accounts that are, you know, based on old, tired, maybe could have been a good strategy a couple decades ago,

but boy, it just takes that refreshing. I think that you're bringing up such powerful points here because we're dealing with indicators and market moves that we've not seen in continuity in progression in the last few years. There are new aspects, in other words. There's new triggers that make the market do different things. And it's not like, you know, oh, well, we just done one plus one equals two. So I think this is a really big aha that people need to think about. And let's now talk about the last letter T in the flight planning process.

What is the T stand for? Well, the T, Mike, stands for taxes and it also stands for transitioning. So we need to transition our flight plan for retirement to account for what taxes. We've talked about the entitlement programs. We've talked about the unprecedented amount of deficit spending and the level of government debt right now is approaching $34 trillion. So again, we know that taxes are going to have to go up dramatically. And if your retirement plan does an account for these tax increases and the ability to take advantage of the opportunities right now, taxes are relatively low.

We'll probably never see them this low again in our lifetime. So if you have these accounts that are all pre-tax accounts from these qualified retirement plans, the next two and a half years is an opportunity zone for you to be able to take. and to partition that income money and even that growth money that you don't want to have forever taxed and you'd like to have never taxed. Then we look at Roth conversion strategies and you don't have to worry about how much money you're making. You don't have to have income to do a Roth conversion and there are no limits to how much you make when you're converting to a Roth.

It's only if you want to contribute to a Roth. upper limits on your income that curtail your ability to contribute to a Roth. And you do have to have earned income to be able to contribute to a Roth. But you can convert as much money as you're comfortable paying taxes on. So we help our clients strategize on what their most effective and optimum tax bracket is to stage these conversions over the next two and a half years to move that money across the toll bridge from taxed to pay that tax to make it never taxed. And that's that transition in the T for taxes to multifaceted approach that addresses our

client's goals and how much their desired spending goals are, how much their required minimum distributions are going to be if they don't take advantage of these Roth conversions and what their legacy goals are, if they have any. You know, I think we could probably do a five-hour episode just on legacy goals alone, but let's kind of land the plane. I say this a lot. So I know we're talking about a flight plan, but I say let's land the plane and it just fits right here. But let's land the conversation with legacy and mention this. When you've put together and worked with yourself with this finely tuned flight plan and everything's in place.

And you're monitoring so it's not set it in free. get it, you're always making sure everything is set. That legacy planning is so important because then that could potentially trigger a whole cascade of other negative things when you're transitioning your money from yourself after death to family members. So you want to make sure that then taxes and everything are in place there. So talk a little bit about kind of the 30,000 foot view of legacy planning. And once you've gotten everything put together and then now what do you need to do? with the legacy idea. Sure.

Thanks, Mike. Well, the legacy is really an important piece to the puzzle that the flight plan addresses because the taxation, when you go to convert, if you don't convert this money to a Roth, and you leave this to your children, it's the most inefficient way to pass on money whatsoever. It is forever taxed money. And that's what qualified retirement plans are. It's forever tax. So when your kids inherit that money, they have 10 years to distribute that money.

They used to have their entire lifespan to be able to continue to defer the growth and the distributions. But with the Secure Act of 2020 and the Secure Act 2.0 of 2022, they reduced that stretch IRA of an inherited IRA to a 10-year maximum. There are a few exceptions to that, but as a basic rule, your inheritance, your heirs have 10 years to force those distributions out. So if we take advantage of raw conversions, that's not a problem. They don't have a certain limit of time. Because the taxes were paid as you converted it, but the government needs their money at some point. So they're being kind, air quotes, to say you got 10 years, but at some point they want to be. want that trigger to hit so that the taxes are incurred. Exactly. Now, if you prepaid that tax

with a raw conversion, then of course, they have a tax-free bucket. Another way is with life insurance. There are investment-grade life insurance plans that allow you to participate in the upside growth of the market and lock in those gains and the cash value. Funds a very nice death benefit for your children to inherit, and that money is never taxed. So many of our clients have very large required minimum distributions that they'll never spend. And if they're willing to take out a life insurance policy, they can magnify that inheritance either for their children or for a charity. We call that charitable giving, impact giving. So you can set up a very large life insurance policy to benefit your favorite charities and leave a much larger legacy for your charity in an

impact giving an investment-grade life insurance policy that's going to leave a dramatic death benefit and really make a huge difference to these causes. I have a client up in the Seattle area who doesn't have any heirs, but her two favorite charities are the Michael J. Fox Parkinson's Foundation and the American Lung Association. Those are her two favorite charities. She already leaves hundreds of thousands of dollars of highly appreciated stock to every year. And when she passes away, those charities are going to be out a substantial benefit from what she gives every year. But what she'd like to do now that she's still relatively young and healthy, she's 70 years old, is take some of those excess funds that she has, you know, millions of dollars that she'll never spend, put those

in an investment grade policy and leave a much larger death benefit to these charities. And that's what we call impact giving. That's another part of that, you know, the T and taxes, that transition towards that, you know, our later stage of retirement planning, what we aren't going to spend in retirement, we can leave, we can leave it much more tax efficiently if we put a plan in place now. Excellent. Well, Jim, it's been such a pleasure hearing all about your retirement flight plan. I love that acronym and just how you button it up really nicely. If someone is interested in learning more about the flight plan and reaching out and connecting with you, what's the best way they can do that? Well, our website is wealthpilots.net. You used to have to put the WWW in front of it now.

You can just put in wealthpilots.net. You can schedule an appointment there. You can also call me at 360-567-5697. And our team does get back to you very quickly and gets you on our electronic calendar. we set up a complementary analysis and do a diagnostic on your plan, a risk score calculator to find out where your risk is and compare it to what your goals are. And propose a flight plan to transition into this very important stage of retirement, the asset preservation and distribution stage. Excellent. Well, Jim, thank you so much for coming on today. It's been a real pleasure talking with you. Thank you, Mike. Appreciate it. You've been listening to Influential Entrepreneurs with Mike Saunders.

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