Business Innovators Radio - Interview with Linda Jensen, Principal and Owner of Heart Financial Group Discussing the Risks of Retirement

Episode Date: June 9, 2023

Linda has been self-employed for her entire life. A successful financial advisor since 1994, she has enjoyed all aspects of entrepreneurship, especially problem-solving, sizing up dilemmas, and working through complexities with creative solutions. She is a lifelong learner. In addition, she has a passion for establishing a good rapport with business owners and clients helping them access a wide range of resources. “Business owners are in a lonely place,” says Linda. “I want to develop a relationship with the business owner, offer counseling and serve as a referral service.” Linda began her career in 1994 with Prudential Preferred Financial Services; for three years Linda was an agency leader in Tacoma, Washington.Since starting her own firm in 1997, Linda has enjoyed working with individuals and business owners helping them achieve their financial dreams and goals. She is an expert in all aspects of retirement planning.Linda has lectured widely on financial topics to both the general public and business professionals. She is passionate about helping business owners leverage corporate cash to create benefits for the owner(s), and key employee(s) and to identify estate-planning solutions.Linda calls the Pacific Northwest home. She married her college sweetheart. She and her husband Brad have two children and five grandchildren. Linda loves learning, reading, hiking, sewing, and cooking.Learn More: https://www.heartfinancialgroup.com/Investment advisory services are offered through WealthWatch Advisors, an SEC-registered investment advisor. Wealth Watch Advisors and Heart Financial Group are independent of one another. Please note that registration with the SEC does not guarantee the success of investment advice.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-linda-jensen-principal-and-owner-of-heart-financial-group-discussing-the-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. Today we have back with this Linda Jensen, who's the principal and owner of Hart Financial Group, and we'll be talking about the risks of retirement. Linda, welcome back to the program.

Yeah, good morning, Mike. You know, we all think about retirement. That'll come one day down the road and it'll get here sooner than we know. I realize that, but we certainly kind of take a double take when we hear there's risks of retirement. So let's get started talking a little bit about what some of those risks are. And I'm sure that it has to do with the fact that every time you turn on the TV, you hear about the stock market has some kind of crazy volatility. Oh, yeah.

In fact, right now, what we've got is a situation when we have an inverted yield curve, and I don't want to get deep into the weeds, but this has been a predictor of a recession since 1969, a really firm predictor. And so where are we at right now? Well, you know, the market was going pretty much up from 2009 through 2021. Last year was a really rough year for a lot of reasons. Inflation is probably at the top of that list. And then now this year, what are we doing?

We're going sideways, lots of volatility. And to be honest, Mike, I expected that. And I'm really expecting that the rest of this year. Next year probably won't be much better because it's an election year. And what happens in the market, by the way, is we can get long periods of time going sideways. The last time that happened was 2000 through 13. In fact, the SEP 500, the broadest index, was 1469 January 2000. It was 1469 January 2013.

So we get these periods where we go sideways for quite a long time. And I don't know. I don't think we will know possibly until 2025 the direction of the market. And that makes it really tough, by the way, when you're retiring. Because if you happen to retiring now or in the next year or you just recently retired and we're reaching a period where we're going sideways for a long time and you need to pull money out of your nest egg, that can really be dangerous because you can be subject to a risk called sequence of returns.

What sequence of returns risk has to do about is pulling money out of your nest egg when the market is dropping. And that could be devastating, Mike. If we were doing, if I could show the audience of PowerPoint right now, I would show them 2000 through 2019, a 20-year period. But by the way, the market averaged 5.146%. And the illustration is a guy has a million dollars. He's taken 4% out a year.

So that's below where percent is below the 5.146 percent, right? Yeah. However, however, guess what, Mike? In those 20 years, he lost two-thirds of his portfolio. Why? There were five market years that were down. And so the returns risk is something that's kind of technical, but it's really important that folks that are in retirement understand

because they're no longer working, you see. They no longer have that paycheck coming in. in. Yeah, and you know, I think that it's just as a broad point, it's so frustrating because these are things that are out of our control. We can't control these things. And, you know, like in our working years, we can control how much we make, how much we save and spend and all that.

But here are these things that are external to us like, you know, volatility in the market. And we just sit back on the sidelines and watch it. But we can be wise with some of our choices. Another kind of out of our control thing is inflation. Talk a little bit about what that, you know, does and how we can respond to that. Oh, yeah, inflation is terrible. I mean, food prices are up about 20% in the last couple of years, and they're not going down, Mike. So the Fed raising rates is going to help slow down the pace of inflation, but it's not going down.

And so it's kind of here to stay, probably be here for the next 10 years. And what that's done, by the way, is it's reduced revenue for businesses. about 20% across the country. It's making tougher for businesses. There's been a lot of layoffs. In fact, the Fed doesn't care if we have layoffs, to be honest. The Fed chairman has actually stated that. So it's kind of rough for the economy.

It's rough for all of us. And so it has a real trickle-down effect, doesn't it? So it's hard for us as consumers. It's hard for businesses. It's hard for the economy. And it's not going away. And then I think part of that discussion, Mike, is to understand we're now at almost a $32 trillion national debt.

And that is just unbelievable. The average person can't understand a trillion dollars. I'd love to show everybody this in a one-minute video I have that puts it in perspective. And the nutshell is it would take you 44,000, 25-ton semis holding $1 bills, one trillion of them. you need 44,000 25-ton trucks. Isn't that amazing? And so you see, and with that debt, it really ties into inflation because, see, the government was providing a lot of liquidity from 09 to 2021, and then they stopped. That's one of the reasons why we've got this hyperinflation because they can run out of gas.

And so without that liquidity, keeping interest rates real low is kind of why we have this situation, which I think is going to play into the fact that the only way to fix the debt is to really lower spending, which nobody in Congress is interested in doing, or raising taxes. So a lot of clients, especially if they have a ton of money that's pre-tax, right, in IRA plans. Like I was working with somebody yesterday, and I would say she's kind of a modest investor, and she's probably got, you know, maybe $800 to a million in pre-tax money. And I was running numbers for her, Mike. And let me tell you, it's really ugly. Maybe by the time she's 80, she's taking, I haven't been forced out to take about $150,000 a year and pay taxes on it.

And what is that? Well, that's going to give you an earn a penalty on your Medicare premiums, too, by the way. And so there's all these unintended consequences tied to that. So for a lot of my clients, I tell them taxes could be your biggest expense in retirement unless you have a long-term care of it. You know, that's a, I think that so many times people get disenchanted with the headlines. and they feel like, oh, there's nothing I can do. But I think it just requires us to kind of take a step back and go, okay, there's always a solution.

And sometimes it's just that, you know, taking one step at a time. And the big thing that I feel like, and you can correct me if I'm wrong, but it's on everyone's mind is, will I have enough money to retire? And probably we can put an asterisk next to that phrase because there really should be some detail on that retire because these days with, us taking better care of ourselves and health being, maybe health care being better and we're working out more. We're living longer. So our lifespan is a little bit more.

So, you know, the number you thought you needed to retire was X because you're going to need it for a Y number of years. You might need it for more years. So how does that factor into how you advise your clients? Oh, yeah. Absolutely, Mike. That's a really good point because, you know, and that is the number one where. I think when they do polls is folks running out of retirement.

Because let's face it, what could derail your plan? Well, you know, you have this plan. You think it's solid. You're depending on the market, which is really kind of a crap shoot. I hate to say it. And then what if one of you has a long-term care event? I have a client locally. Her father is paying $13,000 a month in an adult family home.

Like, can you imagine? This is an adult family home. So in your average long-term care experience is about four years. So that can be really devastating for folks. And so there's, you know, there's taxes at play. There's that's a big unknown. You know, think about that when you funded your IRAs, you know, 30 years ago or more. And now you might be paying taxes, you know, 25 years from now.

You have no idea what that tax rate is, do we? Yes. No. And so that's another reason why we've been helping clients do a lot of Roth conversions and taking that money and paying taxes at a known rate. So there's just, there's an awful lot here in, you know, retirement planning is not simple. I think it's pretty complicated. I try to make it simple for my clients. I really believe that I am an educator at heart and I love to give people options so they can make informed decisions based on facts. But there's just, there's a fair amount of things that can delay, not delay, but can derail that retirement.

And these risks are exactly that I was doing, I've been doing seminars for about 25 years. I did a lot in 08 and 09, Mike. Remember, the market lost almost 60% of the value. And I can't tell you how many people I met that wanted to retire and couldn't because they lost so much money and people that had retired and had to go back to work because they had lost so much money. Exactly. And here's the other thing that factors into that, that psychological aspect of I've got to catch up. So they might be tempted to take a little bit more risk than they should to catch up. And then the volatility monster kicks in and might derail that strategy.

Absolutely. Yeah, there's this formula. It's total return equals growth and income. And I think most of my clients, how I would put it is they've taken a fair amount of risk getting up to this point. of facing retirement. And then when they get closer, they're like, you know, I don't want to take as much risk. I want to start protecting my nest egg. And that's a really wise and prudent investor, by the way, to take that attitude. And so really, what's a good plan is to start shifting some of that money

to income, because to have some, especially if you don't have a pension, to create guaranteed pension increasing type income for life. income for life, income that you can't outlive. Because there's something about having that your basic needs covered with income that is really comforting. It just gives you peace of mind, right? In fact, people statistically live longer if they have that income covered.

And so basically, what the most part is create a growth and income strategy. We have growth strategy because you're right. People are living a lot longer. And then also guarantees of income. so that that income is coming in no matter what the market does, no matter what risks we have. Because let's face it, we're talking about what we're facing today. Who knows what we'll be facing a year, five or 10 years from now? Yep.

You know, another one of those factors that you mentioned already, but I want to go a little bit deeper on that might derail or cause that risk to retirement is that long-term care. Because it's like most things, you don't plan for that. But when it does come, boy, there's a huge price tag that comes to that. What are some things that you're advising your clients on to teach them to consider in being ready for long-term care needs? And I will tell you personally, I've had so many clients get in trouble over the years that I bought insurance for my husband and I, 23 years ago, Mike. So I have a traditional plan. It was a 10-year plan. So I've been paid up for 13 years.

I have unlimited coverage. It's going to pay the bills for home care, assisted living, or a nursing. home, right? And I got that covered a long time ago, but guess what, Mike, you can't buy what I bought. And I will tell you, traditional long-term care insurance, it's like homeowners insurance. If you don't use it, you lose it, right? So you pay all those premiums. I have seen huge rate hikes over the years. I saw one for Jenworth, actually, insurance company, 95% increase in one year. Wow. Another was 150% over two years. And you see, what happens with the long-term care insurance is when that was created,

that was created based off of the actuaries and handling disability insurance. And so with disability insurance, they ran the numbers for long-term care, thinking it could be similar, but it isn't. And the differences, there's two really big differences. People that buy long-term care insurance never cancel it. That's number one. And number two, there's a lot more claims experience. So in order to raise rates for an insurance company, they actually have to file with the state that they're raising the rates on and supply all the claims data.

They can't just raise rates arbitrarily, right? So way back then, 23 years ago, all we had was traditional insurance. About half the people that apply, by the way, are rejected. It's tougher to get long-term care insurance than it is life insurance. So I use alternative stuff, by the way. So I have one plan where you put the money and let's say put in $100,000, it's immediately worth $300,000 in long-term care benefits. That's interesting.

And that works a lot like a life insurance, like a long-term care policy, but it has some extra things in it that I don't have in my policy. I have another plan that will pay out 125% of the value. So let's say, and your average need, by the way, is mid-80s into 90s. So let's just say you put in 100,000. M, you know, 20 years later, it's worth a million bucks, right? Great. It'll actually pay out $1.25 million.

And what's good about that plan is you just get a check and you spend it however you want. So, for example, on my policy, I can't hire a family member. I have to go through a service. I can't, like visiting angels. I can't use it for chore services. Like I would like to stay in my house and use it to mow the lawn, clean the house, cook my food, take me to the doctor or whatever. Those are called chore services.

But when you just get a check, guess what? You can spend it however. Isn't that interesting? And that's such a fine detail that I would suspect. Some people that don't know how to properly set those policies up and those products up might miss it. And so you need to make sure you are working with someone that knows exactly how to structure it the right way. Well, I'll tell you what, you get deep into the weeds.

So I'll give you an example, bathing. Probably continents and bathing are your two most common triggers and qualifying for long-term care benefits. But bathing is usually just somebody's in the house available if you have an accident. But there are contracts, by the way, that the trigger is hands-on bathing. So you actually have to give somebody a bath mic. That makes it much harder to collect, doesn't it? Yeah. Yeah.

We all like that freedom and flexibility to be able to. able to get that check and deploy it however we want and not be restricted with, you know, those chores or things like that that you're mentioning. Yeah, that's, that's super important. You know, and another aspect of when we think about retirement and now we're thinking of like toward the end and long-term care, what about what about passing money onto your heirs, whether it's a surviving spouse, if there's one that's deceased or children. Talk a little bit about some of that legacy planning, some of the considerations just to keep in mind. I kid around when I do seminars. I have three kinds of clients. A fair amount of them feel like, you know, kids are doing okay. If something's left over, they can have it. Fair amount, want to leave a legacy. I'm in that camp. I have a handful, by the way, the one their last check to bounce.

So they're not coming anything away, right? But let's talk about spouses first. What's really important to understand is if one spouse dies, their income goes down and their taxes go up. The reason is with a standard deduction, It's almost double when you're married, and it's cut about in half when you're single. That's why your taxes go up. You can only keep the higher Social Security check. And most people that have pensions don't take 100% survivor benefit for their spouse on their pensions. So it's definitely a situation where taxes go up and income goes down. And then for legacy planning for kids, then you want to keep that nest egg intact, don't you? And so I think the way you do that, one of the ways you do that is to make sure that you're

sure you have enough guaranteed income, by the way. You start shifting stuff when you retire to close to retirement from that growth phase to making sure that your bills are covered. And then you have that income coming in. You can take more of a measured risk on the rest of your money. So we have, we're a registered investment advisory firm affiliation with how we do our stock market investments. And we have some really interesting stuff paying very high dividends, you know, getting upside the market with no down. And so we've got totally. to really help people on the growth aspect, but to take more of a measured risk so there's something left over for their kids.

I have some clients, by the way, they don't need their RMDs, and they're actually using the RMDs to pay life insurance premiums. So they'll pass on life insurance premiums to the kids. But what you have to be really careful about with all this planning is estate taxes. I'm in Washington State. Washington State has a very low threshold of estate taxes. And right now the federal limit is quite high, but in 2026, coming down quite a bit. It's going to go from $12 million to down about five. And so estate planning

is another really important aspect that folks need to be doing. And you won't believe this, Mike, but I meet people all the time. And nobody seems to have their estate planning stuff in order. Either it's way outdated or they have nothing, right? We have a very comprehensive process that we take those through. You know, so we do tax planning and estate planning and certainly income planning and retirement planning. It's really, I kid around with people that I'm going to complicate your life because we're not just about managing their money. But we like that because I want to know that everything is going to work together seamlessly

and you're taking in all of those things into consideration. And it's not just the money. We want to make sure that if there's some other external aspect of my life that's going to impact my retirement, I want to deal with it up front. Oh, yeah. And estate planning is especially important. I mean, I think it's important for everybody. I could tell you lots of horror stories.

When I teach my estate planning class, I usually start out by asking folks, has anybody been through probate? A couple of hands go up. And my next question is, anybody want to do it again? And folks start laughing, right? Yeah. So, you know, there's a big difference between having trust set up and probate. And the probate process can be long and drawn out.

The judge is in charge. And there's just, there's stark contrast between them. But with a blended family, it's highly important that you do this because, you know, if you just have a will or you're single, you kind of have a big target on you, you see. And so that's where this estate planning stuff is really, I think, very important for people to consider, especially if you're trying to leave a legacy because you want to do that as much, you know, as tax officially as possible, too. Because if you're subject, if you're by chance, you're subject to federal estate taxes, that's about 55%. Washington state's another 20.

There's not a lot left. Yep. You know, I think this conversation has been really eye-opening because a lot of people think there's a couple, three boxes to check to be ready for retirement. And I think we've now shown that there's a lot of considerations that really have some negative impact that need to be taking care of ahead of time. So if someone is interested in having maybe you give some insight into what they can consider and look at for options, what's the best way they can learn more and then also reach out and connect with you. Sure. Well, they could call the office. The numbers 360-8-8-0-6-5 or send me an email. It's Linda, L-I-N-D-A at Heart, H-E-A-R-T, Financial Group.com. So it's Linda at heartfinancialgroup.com. And Mike, I'm going to apologize up front. Sometimes I'll miss an email. So if you do email me and I don't respond, please call the office. And you've got my apology right now. Well, I know with the technology bugaboos, it might not be you ignoring an email. It might be just that the technology bugs just ate it. So that's a great tip. If you email, make sure you follow up with the phone call.

So Linda, thank you so much for coming back on today. It's been a real pleasure talking with you again. Thank you, Mike. 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. influential entrepreneurs

radio.com.