Business Innovators Radio - Interview with Jonathan Leonard, Founder of Leonard Financial Solutions Discussing Longevity Risk

Episode Date: January 31, 2024

Jonathan founded Leonard Financial Solutions out of his strong desire to improve the lives of everyone he meets. For the majority of his career, Jonathan has worked for non-profit companies and in church ministry. Seeking a change of career while still passionate about helping people, Jonathan branched into the insurance and financial services industry to provide his clients with access to all of the best products available with holistic strategies to tie everything together into one comprehensive plan.It is Jonathan’s main focus to build his practice based on honesty and integrity. He cares more about serving his client’s best interests rather than making a “sale.” If you have an existing policy or plan that already suits your needs, Jonathan will always let you know that you are in good hands. He prides himself on ensuring every client he meets finds value in investing their time with him.Learn More: http://www.leonardfs.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jonathan-leonard-founder-of-leonard-financial-solutions-discussing-longevity-risk

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 Jonathan Leonard, who's the founder of Leonard Financial Solutions, and we'll be talking about longevity risk. Jonathan, welcome to the program. Hey, thanks for having me, Mike. Appreciate it.

Hey, you're welcome. Hey, I am interested in learning about anything that's risky because I want to learn about it and avoid it. So I'm excited to learn from you on this topic. But first, let's get started with a little bit of your story and background. How did you get into financial services? Oh, you know, just like every boy growing up, they want to grow up to be a financial planner of sorts. Yeah, Dr. Lawyer, Fireman, Financial Planner, right? No, I'm just kidding. So yeah, for me, it was more of a not the most orthodox of the past,

but actually when I first got out of college, I always knew I wanted to help people in some way. So I actually got into ministry at first. I was a pastor for almost 10 years. And then while I was towards the end of times when I was pastoring, and I worked as a missionary as well for a little bit. I just remember I was growing up and even certain things that happened while I was in college with my parents and their financial planning.

I saw them getting taken advantage a lot and they weren't adequately prepared for retirement. My dad and my mom did, they did very well for themselves too, but especially when 2008 hit that crash we had in 2008, my dad lost almost 40% of his portfolio.

And then he also lost his job. He was 60 years old. And I just remember the worry that they both had. And that's when I started scratching the surface of, you know, looking into this line of work. In about 2013, that's when, you know, I got licensed and started, you know, doing it in a part-time role. And then in 2017, I branched off into full-time. And I started my company then as well, too, in 2017. You know, it's neat.

What you did not say is, you know, I was looking for the industry to make the most amount of money and the least amount of time. So I took, you know, you came from a ministry and missions and serving and giving value. And then one of the things that comes to mind is, you know, scripture teaches hundreds and hundreds and hundreds of times all about money. And money has a ripple effect on us. And that was probably on the forefront of your mind. And then here comes what you described with your dad.

So it just really is neat to see your heart of wanting to serve people now in financial services. And then, you know, the word risk. You know, we're talking today about longevity risk. And like I said, when I kind of brought you in, I don't like risk. I want to learn about, you know, what risks are. So what let's first start with. Let's define what is the risk of longevity. Yeah, in financial planning, we look at it mostly as outliving your money, right?

That's usually one of the first things that people come to me about is just, well, I don't, I don't want to outlive my money. You know, I don't want my money until I last me until I'm 80 years old and I end up living to 85 or 90, then what happens? And I don't want to be a burden to my children or my grandchildren, right? So one of the first things we look at is setting up a strategy and a plan for our clients that it doesn't matter how old you live. You know, because life expectancy right now in the United States is about 79 years old. Okay.

I think for females, it's about 81. Males, it's about 78, 79. So we can just call it 80 years old, right? But the reality is, Mike, you know, we're both believers as well. but we don't know how old we're going to be. You know, we don't know how long we're going to live for. I believe that only God knows that. So I always tell my clients,

I like the plan as if you're going to live to be 150. I want to set up a strategy and a plan for you that's never going to run you out of money and you can still live adequately off of what you need to live off of comfortably in your retirement. Okay. So that's something that my team and I, we put together for our clients to take out that longevity risk,

You know, so the biggest longevity risk is, yes, running out of money, you know, while you're still alive. Yeah. You know, you mentioned about lifespan. And I know there's like a whole science behind that. And I know in decades past, you know, the lifespan was younger than the numbers you gave because we're living healthier. We're taking better care of herself. We're eating better. And maybe you have better health care.

But I know those numbers are such that you, it's a moving. target. We don't know, but you got to pick something. Like you said, and if you overplan, like lift plane for 100, well, then if you don't make it to 100, then we've definitely had enough money. But it brings to my mind the gap. So if here's what you have at retirement, at the age you want to retire, and then here's the age that we're choosing together to get you to, there's that gap. And now we've got to figure out if there is going to be that money left. So what do you do to help advise your clients to help really clarify that gap? Yeah, and that's just setting up a strategy for them.

And a lot of people don't have a strategy or a plan in their retirement. You know, they might have a managed account with an advisor or they might be self-managing it themselves. And they're just riding the highs and lows of the market and just hoping that they have more good years and bad years, right? And then they have the mentality that, oh, well, the market averages, you know, six, seven, eight percent. And I'm only taking out four or five percent, then I'm going to be. winning two or, I should be up two or three percent every year. But the problem with that, I think that the markets aren't linear. And we're going to have down years like we had in 2022, like we had in 2008.

Or, you know, they might be more substantial down years than normal, let's say. But when we're taking money out of a managed account in a down year, we're compounding that loss and we're making that loss even greater. and that's where people run into trouble in retirement. So one of the things that we like to do for our clients is have a two-bucket approach where we can't have a manage account, but then we also have a bucket that's protected where you can't have losses in that bucket. And that bucket we're using primarily for the income purposes while we're allowing the other bucket to fluctuate and have its ups and downs in the market.

So that way we know this eases the longevity risk because we know that we're taking money out of a bucket that isn't able to lose money. Yep. You know, when you're thinking about that lifespan to then put that strategy into place like you're mentioning, and I want to go deeper on that in a second. But what about the, I mean, because I know the, the point comes to my mind, health, the health of their client and their family history, you kind of almost feel like you're a health care provider asking questions like that. And you also feel like you're a life Coach, when you're asking questions like, what does retirement look like to you? But as a financial professional, you really have to get into that depth, right? So what are some of the nuances of

health and family history that you bring to your client's attention to make sure that they're really dialing that in right for that expected lifespan? Yeah. So, I mean, there's obviously, you know, a few things to do. You know, one, there's the Medicare piece, right? So from a Medicare perspective, we look at it, you know, once they turn 65, you know, we want to put them, we want to get them the best coverage possible. And then from the long-term care piece, it varies on the client depending on if they have long-term care policies set up for themselves already or not. Usually if some clients were proactive and they bought a long-term care policy, you know, 20 years ago in their 40s, then we say, okay, you know, let's take a look at that policy.

So you see kind of the benefits of it, if that's something we want to keep in place or not. Usually depending on their circumstances and situations, you know, we might set up, you know, a bit of a side account where we're using an account that will be used for the intention that they did need long-term care needs. But, yeah, I mean, I think everyone's different. You know, some people come to us and say, you know, both my parents had Alzheimer's, you know, and got it in their 70s. And I just, I'm fairly certain I'm going to get it, you know. And is it a guarantee they're going to get no, but let's always prepare for the worst plan for the best, right? So yeah, just depending on the client's situation of what they're looking at. But those are usually the things we try to do.

Usually to get someone into a long-term care policy in their 60s or 70s, it's going to be very expensive. And the benefits you get out of it are going to be very minimal because they've changed those policies around quite a bit in the last 10 years. So we usually just try to take the perspective of let's set up some sort of side account that we're going to use in the event of if, if God forbid, you did need this money. Yeah. You know, when we think about that gap, like of here's the age that you're planning to retire. Here's the age that we're planning on needing the money to last to. Here's the gap to make sure that there's coverage. And you put your pencil to paper and here's the plan and the strategy.

you brought up something that in my mind is kind of like one of these things that often are missed, literally, long-term care. Because I think a lot of people just think, here's my money, here's the time, and A plus B equals C, but if and when long-term care needs hit, that's a pretty big hit to that bucket and outflows a lot of expenses that you weren't planning on. And like you said, let's plan for the worst. And if you don't need it, then wonderful, we'll, we'll, we'll, put a secondary plan in place to use the funds because we don't need it. But I think what are some

of those things that tend to hit like long-term care that really impact how long that money lasts? Yeah, I mean, long-term care is going to be one of the biggest things. So if there are, you know, if you don't have something in place like a long-term care or, you know, kind of a side account that we can have for you, yeah, that could be the biggest strain on your expenses, you know, very quickly. Depending on the long-term. level of care that you need. Now, there are things that, you know, of course, Medicare will cover, but, you know, if someone's needing to go into some kind of nursing home, you know, facility like that, that's when things get really expensive because, I mean, nursing homes usually cost, you know,

an average one with about $10,000 a month. So if we aren't needing some type of around the clock, around, you know, care like that. Now, there are other alternatives that you can do kind of, you know, if you see those commercials like visiting angels, you know, you kind of get nurses to come into your home, you know, where it might be $20, $25 an hour. Medicare will fill in some of those gaps, but, you know, I'd say they usually fill in about eight hours or so of care a day. So if you're needing 24-hour care for a loved one or you know, or for yourself, you know, you're looking at about, you know, 12 to 16 hours a day at $20, $25 an hour to fill in those needs.

filling those gaps. And then what if you need specialized care because I'll bet that there's different levels, you know, hey, here's this basic care, but what if you need, you know, heightened care, maybe dementia care or things like that, that could change those numbers, right? Right. And that's where things can get very expensive very quickly and hurry. So that's why it is important to have some kind of account set up, whether it's a long-term care specifically or, you know, we're going to just use this account, this managed portfolio just to let it grow as much as possible. And we don't touch this unless it's, you know, an emergency where, you know, we're going to have to use that to pay for so-and-so's care. So. Yeah. I also would think that some of the

unforeseen things that we don't know how to plan for could be taxes and inflation. You know, obviously we read the news and in one day inflate or, you know, one year inflation, you know, creeping up in one year. It's not as much in the news. So those are the kind of things that impact how our money can last. But what do you do to give like a 30,000 foot overview to your clients on, you know, here's some of the things to be considering given here's how long your money needs to last. Well, we don't really know what the tax rate's going to be, tax brackets and all that. Yeah. So kind of like I said before, I mean, that's why we used a two-brocket approach. So it's not all in everything's in one place where it can get penalized or hit or hurt.

Like, yeah, there are things that we don't know. We don't know if taxes are going to go up or down in the future. We, again, we always like to prepare for the worst, right? So we assume, yeah, taxes are going to go up. You know, we look at the national deficit. It's at $34 trillion right now. So, yeah, we assume that taxes are going to go up. Now, how much will they go up?

I don't know. I like to think that it's not only the tax rates, but also the tax thresholds, right? Because we know that they can change not only the thresholds, but the income, the taxable amount as well, too. So, you know, they like to say on the news a lot, you know, oh, we're just going to tax the rich more. You know, but then again, the question is who's rich? That's a subjective term, right? You can say, oh, the 1% is the rich. Okay.

But what if it's the 10%, the 20%, the top 50%, you know. So it all comes down to not only just the tax brackets, but the tax thresholds. And they can change those thresholds around two. So, you know, they can easily say, okay, everyone over, that makes over $100,000 is taxed at 40%. There's nothing holding them back from doing that. So, you know, those are pretty extreme scenarios. is hopefully we never occur those in our lifetime, but we always have to, you know, prepare for the worst. Yeah, I can't, I can never tell someone in confidence. I know what tax brackets are

going to be during the next administration or, you know, whenever that happens. So, you know, we just say, like, let's prepare for the worst. And, you know, we don't know what the tax brackets will be at, but let's assume that they're high. You know, one thing I think we can be assured of is, the deficit grows. We've all seen those tickers where it's just growing at astronomical amounts. And the only way to compress that and deal with that

is to lower government spending, which I don't really know that that's a viable option to hope for. And then the other is raise taxes. So I feel like we don't know what taxes will be or brackets or thresholds, but we know that. that it can't get better than what it is now.

So having that plan in place just to make sure that that's being considered is better than ignoring it all the way altogether. Yeah, I think it's something that we're, we have to be cognizant of. Is it something that to fixate on and obsess over? No, because at the end of the day, I always say there are things that we can control and there's things that we can't control, right? So the things that we can control, let's do our best to try to control them. The things that we can't control, you know, we can prepare for them.

But let's not allow it to completely consume us in a negative way either, right? 100%. You know, you've mentioned your two bucket strategy. So I want to just kind of clarify that just a little bit and have you explained what that looks like specifically. And then as you were talking about longevity and lifespan, I know that you mentioned that women are typically living a little bit longer than men. Does your strategy adjust and compensate for the wife that might live longer than the husband in those kind of calculations? Yeah.

So when we're planning, you know, let's say for a married couple, we plan it in a way, the plans for both them. Because usually, you know, they're sharing their assets, right? So even though the IRA might be in his name and the 401k might be in her name, we know that we're, the assets are all, you know, combined. They're all, you know, for the both of them, right? So, yeah, when we're doing the planning, we're doing it, you know, based upon both of them and the needs for the both of them. And we do realize that one of them will die first and they probably won't need the same level of spending, you know, for one person as they do for two. but however, you know, the one person might then need more for their care, let's say, if things can deteriorate.

So, yeah, when we usually plan something out, you know, we plan it for the long haul and we make the number the same and consistent for both when we, we include inflation and we also include a, you know, a slight increase every year, knowing that, you know, there might, there might be more and more needs for their care as they get older. Now, traditionally in retirement planning, we see, you know, we call it like, the go years and the slow years. So usually in their 60s, maybe early 70s, people are wanting to travel more, you know, see the world, see the country, you know, if they have kids in other states, you know, they're going and visiting them a lot more. Usually by the time people are

hitting their late 70s, especially into their 80s, they're not moving around as much. They're not as, they're not traveling as much, you know, hopefully they are if they want to. But they start to slow down a bit. And then it begins. becomes more of where the Medicare, the medical needs are picking up more and more than at that point if they're still alive. So, yeah, so when we're building our plans out, we're assuming that both of them are still going to be alive. And like I said, we plan as if they're living into their hundreds. And the strategies we set up with them is in a way that they never run out of money. And in those buckets, without getting into detail, because we don't need to.

But the thought crossed my mind that probably how you are recommending those buckets be structured would change given the age. So if you started working with someone in their 50s, the bucket structure might be completely different as another client who's in their 70s because just the time between then and when they need to access them is going to be different. So is that just part of like your annual review is to say, here's our buckets? And here's where we were last year. Now, as we get closer to this age, let's make these adjustments. Yeah, it's more of what is their income need going to be? And at what age are we looking to start that at?

So, yeah, traditionally, Mike, with someone that we work with in their 50s, yeah, they're probably going to be working another five to 10 years. They might not, they might be working until they're 65 or so. But, yeah, the way we divide up the buckets is just more. depending on how much they need an income and like you said and when and how long they want that to last. Usually we call it our growth bucket and our protected bucket. In our protected bucket, we want to have enough money in there that's going to meet their income needs for about 15 to 20 years. While we allow the growth bucket to go up and down and have its fluctuations, and then at the end of those 15 to 20 years, you know, we divide that bucket up again.

we move money out of the growth bucket into the protected bucket. And that's why, you know, we know that they're never going to run out of money this way because that growth bucket, we know if we're not taking money out of it for 15 to 20 years. You know, it's probably going to grow somewhere between 6 to 8 percent as an average rate of return, right? Because that's usually what markets are averaging over time. Yeah. And that's why we build it out that way where, you know, we know that this is a sustainable process. And it's not something that we're just crossing our fingers for and hoping it'll work.

You know, we know that this will provide the income that they need and they'll give them the adequate growth that they need too for their assets as well. Well, I tell you, Jonathan, this has been really enlightening the breadth of longevity. Everything that goes into that, you know, and really at the core is really probably one of every retirees biggest fears. will I have enough money to make it through retirement? Not just two, but through. So these are some really great principles you've laid out. I love your caring, educational approach to making your recommendations. Obviously, you're not saying to every client, this is the path.

We're doing this. It is, here's what an option is. And let's guide you in that process. So I just love your approach there. And I would wonder if someone is listening to this thinking maybe I should learn more, what's the best way they can learn more and then also reach out and connect with you. Yeah, sure. So for, you know, if you want to get in touch with me and hear more about how we help, you know, serve clients, go to our website. It's leonardfess.com or you could type out the full thing, Leonard Financial Solutions.com. And right there on the homepage, you'll see a link to my calendar. And you can book in any time or hour that's open. You can book a time slot for a free consultation. Excellent. Well, Jonathan, thank you so much for coming on. It's been a real pleasure talking with you today.

Sure. Thanks, Mike. Thanks for having me. 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.com.com.