Business Innovators Radio - Interview with Mehran Rad Founder & President of R & AP Financial Discussing Risks of Retirement

Starting point is 00:00:00 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, Maran Rad, who's the founder and president of R&AP Financial, and we'll be talking about the risks of retirement. Maran, welcome to the program. Thank you, Mike. Good to be here.

Starting point is 00:00:34 Yeah, I'm looking forward to talking with you. I know that it's really neat to hear different people's perspectives on topics. And I know that risks of retirement is a pretty broad topic and can be a scary topic because I want to retire, but I don't want to have any risk. So I'm excited to hear what you have learned in your experience. But before we dive into that, tell us a little bit about your story and your background and how did you get into? the financial services industry? I grew up in North Carolina and went to college on a soccer scholarship in a small liberal school in Greensboro, North Carolina, finished up with business management and a minor in

Starting point is 00:01:19 economics. Like most people after college, I bounced around and tried a few professions. But I did have a stint with my brother-in-law. who was in real estate investments and development. I learned a few things there. But went on to the late 90s, and back then the technology was just starting to flourish. So I ended up working with a telecom company back in 1999.

Starting point is 00:01:50 And then, of course, what brings me to this industry was the result of what happened in 9-11. Had a young family at the time, married three kids. I had a three-year-old and twin one-year-olds at a time when 2001 came around. We were living the American dream kids, a brand new house we had built. And then, of course, after the incident, there were layoffs. So a few months after the September 11th, going into beginning of 2002, I was laid off with no fault of my own. I have never been laid off in my life prior to that. So it was a kind of a big surprise. And during that same time,

Starting point is 00:02:36 the market was tanking. So it was a double whammy. No job, lost a lot of money in the market. So I decided at that point, thank goodness, my wife had her own business at the time and decided that I'm going to go get my life in order, get some licenses. I said, I want to be control of my own life, my own destiny, and also learn how to manage my own money. Didn't like losing all of that. So starting 2002, I created retirement and asset protection. Now is R&AP Financial. That's what it stands for. And for the past 22 years, I've learned a lot, but it's been my passion to help others. If they go through experience similar,

Starting point is 00:03:23 I can't control people's getting laid off, but maybe I can help manage their finances and help them get through the down parts or volatility of the market. So that's how I got into the business. That's a great, great intro. And I know that we can't control a lot of things in life or business.

Starting point is 00:03:46 and we certainly can't control huge disasters like 9-11 or COVID and things that, you know, really hugely impact the markets. But what are some of those traditional risks of retirement that you have found and how do you talk to your clients about them? Well, there's actually several risks. Some we can control and some we can't. We just have to have plans in place to navigate around them. One of the risk that most people don't talk about is longevity risk. What do I mean by that? Is that the advancement of technology in modern medicine has helped all of us to live longer. Traditions, family history, and lifestyle choices, and like diet, exercise, and smoking can obviously alter one's life expectancy.

Starting point is 00:04:37 But so today, average life expectancies of a 60-year-old male is about 70, years and for a female is about 80. Of course, this is for a 60 year old today, but average life expectancy for a 40 or 50 year old, obviously would be much higher. But to put that in perspective, when Social Security was introduced by FDR back in 1935, life expectancy was 61 for men and 65 for women. So it was originally, the Social Security was originally planned to pay only for a short period of time. And in some cases, folks would be passed before social, they were qualified for Social Security. So obviously, we are living longer. So that's something we have to take in account. That's why Social Security, they say, is in trouble, because

Starting point is 00:05:28 they may be paying instead of one or two years, 10, 15, maybe even 20 years. It's the same thing when it comes to our finances. That's at risk. So, but they are a couple of steps that folks can maybe consider to take. And one of them is to try to reduce risk in their portfolios, reduce fees and reduce taxes. This way, they'll have more money left in their retirement plan. And I believe the retirement plan foundation is lifetime income. Because if you have that, it doesn't matter if you live 10 years, 15 years or 20 years, you will have that check coming in, month in and month out. So this income should be guaranteed, even if you live to be a hundred years old. So to me, the longevity risk is not discussed as much as some of the other

Starting point is 00:06:21 risk, but it can throw the whole retirement plan in a spin if it's not planned or designed properly. Yeah, you know, you bring up a huge point there where I'm sure that one of the things you would do with the client is saying, okay, what age do you plan to retire? Let's plan for your retirement funds to last until X age. So here's this time frame. The day you retire and the day you want to, that you expect to not need your retirement funds anymore. And then let's figure out where the gap is because you've got this much money, this much monthly income, this much social security, this much pension, whatever they have. But most of the time, there's going to be a gap. And meaning, wow, you used to plan for age 65, 70 to be the end of the calculation.

Starting point is 00:07:13 Now it could be 8590, and there's some gap there. And so being able to identify that is huge. But I see what you mean by this is a risk because you can't just mentally check off. I'm just going to live on Social Security because maybe you're going to need more. That's a big point there. What's another risk that you find? Well, the more common one that most people are familiar with, obviously, the market risk. One of the things we really don't control, but we can try to plan for or know that is coming and what can we do.

Starting point is 00:07:51 But the first thing that most folks need to understand that there are two financial phases for everyone. One is called the accumulation phase. That's when you're working and saving money for the future, raising kids. then the other is the distribution phase is when you are retired, now you're taking income for retirement. You're not contributing anymore. So the accumulation phase is we can't take some market risk because when we were working and putting money away, we saw the market go up and down and we weren't as concerned. We just kept going because we were getting that paycheck. But when you When you're contributing to your 401k, 457s, TSP, TSA, 403Bs, when the market goes down,

Starting point is 00:08:38 we can actually buy more of the same funds. And when the market goes up, although we have less money in the account, we buy, when the market is going down, we can buy more. But when the market is going up, the whole value is going up. This is called dollar cost averaging, which is a good thing during the accumulation phase. So market correction could actually be an opportunity. Also, if you're five years or more from retirement, you may recoup any losses that you had in those retirement accounts. But if you're five years from retiring or already retired, and depending on income for your retirement accounts for savings,

Starting point is 00:09:18 the priority is reducing or altogether eliminating risk for those accounts. So in distribution phase, you're no longer adding to the savings, as I mentioned, And now you're withdrawing money to supplement your Social Security or a pension that you may have. So a loss to savings at this stage, the distribution phase can be devastating and have a devastating effect on a retirement plan. So kind of what brings to mind kind of the years that I experienced myself, the years from 2000 to 2010 is called the last decade. because after the correction of 2000 to 2002, it took the market 10 years to get back to its highs. So can you imagine if you were retiring or you retired during that timeframe and withdrawing money from those accounts and taking losses? That's why a lot of people had to go back to work.

Starting point is 00:10:18 So obviously, market risk is one most people are familiar with, but there are ways that we can manage it depending on if you're. you're in a distribution or the accumulation phase. And I think what you said there reminds me of, I think, what you even briefly touched on a minute ago, which is, yes, these are some risks, but you can mitigate them by being prepared. So I think that's a great point that you bring up. What about some of the other things that are risky to retirement, even some of the things that, you know, you mentioned we can control some aspects of some things, but we can't control some. You know, like I know that a lot of people are concerned about inflation. How does,

Starting point is 00:11:02 how does that factor into some of the retirement planning? Yeah. Inflation is also something with, as you said, we can control. But just like anything else, inflation and also interest, interest rate inflation comes, you know, side by side. Although rising interest rates, meaning inflation also may hurt us if we're trying to borrow money, it actually can be a friend if it comes to, let's say, savings for retirees. The fixed interest accounts, such as CDs, money market accounts, fixed annuities, they benefit from higher rates. So the best time to shop for a mortgage is when the interest rates are low

Starting point is 00:11:43 or the best to refinance any debt when the rates fall. But you can purchase or renew any of those mentioned to CD's money markets and so on, those fixed accounts to higher rates, same with the older annuities. So if someone has, let's say, an older annuity, it may be a good time when the interest rates are going up, be a good time to compare those accounts with a new generation once with higher rates so they can possibly generate and have more income in retirement. So the purchasing power in retirement, we spoke earlier, people are living longer and they're going to spend more time in their retirement. It could be 10, 15 or more years. So we know what's happened in the price of goods and services in the past 10 or 15 years.

Starting point is 00:12:34 And it's safe to assume that the purchasing power is going to be less in the future as long as especially our government keeps printing money. So our retirement plans have to take in account an allowance for growth that at minimum can keep up with inflation. So just meeting inflation. is the bare minimum standard that we should go for. And an option is to allocate a portion or what I call a bucket in our growth investments that can't be converted or turned on at any time for additional lifetime income. So there's annuities, as example, that have that inflation allowance built into them. Yeah, that's huge.

Starting point is 00:13:20 And you mentioned printing money, which, you know, printing money, which, impacts inflation and we don't want to get into an economics lesson because I think that'll just confuse me and maybe others. But I know that when you think about something else like the deficit, you know, we can't control that. And from what I understand, the only way to tame that deficit is to stop government spending, which probably would never happen or to raise taxes. And doesn't that tie into, you know, another risk.

Starting point is 00:13:52 our retirement because if inflation is out of control, our buying power is impacted. And then if taxes go up, then our retirement is impacted. So how does that work in how you're serving your clients? Absolutely. That's a great point because I was going to actually talk about that. That's another thing that we don't control. As you said, the federal debt currently is at 35 trillion. That's a T. Hold on. Hold on. It just went to 36 trillion. I'm just kidding. You're right. It is going up. But that's how fast it goes. We've all seen those counters, right? Yes, but what do they say? I think $105,000 for every American, which is staggering. So how are we going to pay that back? I don't know if we ever will be able to pay it back.

Starting point is 00:14:42 But there are two options, as you mentioned. One is to reduce our spending or the other one, increase our taxes. And as you said earlier, I don't want to get into politics either, but I don't think any politician is willing to go that route. They just have to get elected. So they're not going to talk about it. So when the taxes do go up, and if and when they go up, it will reduce the amount of income left for retirees because more will go to taxes. One option is to try to convert as much of the taxable accounts, such as the retirement accounts, the 401Ks, IRAs, TSAs, 4 or 3Bs and so on, to a tax advantage accounts like the Roth. there is obviously a certain tax to be paid on that conversion, but do you prefer to pay tax on a seed or on a harvest? So also the conversion should be done in increments and not in lump sum to manage that conversion.

Starting point is 00:15:41 So this will make the payouts tax. The payouts on a Roth would be tax free to you and to your air. So that's for the qualified or investment account, qualified or retirement accounts. Cash value life insurance is also another option to receive tax advantage income. In either case, it's very important to have someone that has the experience and the background to do this correctly for you because it will have big penalties if it's not done correctly. You know, that's a huge point because I think someone can go, oh, I heard this on this interview. So I'm going to go Google and I'm going to call up my, you know, IRA company and I'm going to pull this out and put. it in here. If you don't do things the right way and the right timing, it's just not going to work.

Starting point is 00:16:27 So you need to have that qualified person helping you guiding that process. And then the thought crosses my mind, too, when you're starting to talk about paying tax on the seed, which is now versus the harvest. I know that that calculation needs a little bit of time and runway. So if someone is in their 70s, maybe it's not going to be as beneficial to do that conversion as a it is if someone's in their 40. So again, working with someone that can run those calculations, that'll be the smartest thing. To work with someone. Mm-hmm. That's right. Again, to help guide that process. Right. And then, of course, if someone is looking at maybe non-retirement accounts, you know,

Starting point is 00:17:16 obviously everybody knows about municipal bonds, they can be a good choice because they're free of federal income taxes. But also there's instruments like fixed annuities, but unlike CDs, the fixed annuities, you don't pay, you're not getting a 1099 while it's in deferral. You only get a 1099 or pay taxes when you withdraw the money. So deferring the taxes, if you're not paying taxes on something that you're not using or needing, also can help with a tax risk. Yeah. Great. So then what's one of the first? final risks to our retirement that we need to be aware of. Yeah, another one that most people probably don't spend enough time to consider is a long-term care risk. And, you know, I've looked

Starting point is 00:18:04 out actually to try to figure out the number. According to a place for mom, a team's analysis, this is a company that advertises on TV. I'm sure many people have seen it. The data says that 70% of adults age 65 years older will require long-term care at some point. And that's pretty high. And according to Genworth, the estimated medium cost of long-term care in 2024 is $5,500 per month for assisted living and a little over $10,000 a month for a private room in a nursing home. And due to these costs alone, many well-designed retirement plans can fall apart due to the cost. long-term care event because how do you allocate or plan for a $10,000 a month inside of your retirement plan outside of paying your current bills? And the average stay is about three and a half years, but depending on if you're receiving home health care or you're in a facility.

Starting point is 00:19:05 But how did the insurance, do the clients have insurance policies? Is that the only way to cover that? Obviously, the federal government wants everyone to carry private insurance because Medicaid doesn't cover long-term care. So most people don't have long-term care insurance coverage because they either can't afford it. It's pretty expensive. Or some feel that even if they can afford it, they're blessed to afford it. If they pass away and never use that, they've really have wasted that money or they call it use it or lose it. But if you already have a long-term care insurance policy, you're blessed because you can choose where you want to receive the care and how much you want to spend. The only thing to be aware of is that many insurance companies

Starting point is 00:19:54 give themselves the right to raise their premium sometime in the future. So I have seen policies that doubled in premium in just a few years and became unaffordable to the clients. So are there alternatives, are there other resources? Again, if you are blessed with lots of money, you can self-fund your care. Just pay what you need to out of pocket as you go. But in the last several years, the insurance industry has designed and introduced a couple of what we call hybrid options to the traditional long-term care coverage. The biggest attraction of these hybrids is that instead of being an expensive, to the client, it's an asset for them and their family to be used or passed on.

Starting point is 00:20:45 And one is called an annuity long-term care combo, and the other one is called the life insurance long-term care combination. And by repositioning part of the current asset into one of these options, it is growing, but if you need long-term care at some point, the coverage pays multiples of what you had invested or put in originally. And if you never use the long-term care, then whatever it's left, or if you used it partially, and whatever is left, will go to your beneficiaries, heirs, and family. So again, moving it from an expense to an asset for when it's needed. And by the way, the government does consider the long-term care payouts not to be taxable. So that's another advantage. Yeah. So kind of wrapping up our conversation

Starting point is 00:21:45 here, there are risks in retirement that we sometimes can control little pieces of, but most of the time can't. But what we can do is plan ahead and be prepared as prepared as possible and get wise advice from a financial professional like yourself. And I think that has just been so great that you've been giving us some of the, you know, 30,000 foot view with a couple little tips and ideas, but I know that everyone's situation is different. So if someone is listening and wanting to see what they should be prepared for, what's the best way they can learn more and also reach out and connect with you? The best way, obviously, we have a website. I encourage everyone to go visit, and that is www. www.

Starting point is 00:22:30 At I'm sorry, www. Retirementap.com. And my email address, it's Maron, M-E-H-R-A-N dot

Starting point is 00:22:44 retirementap.com. And if they need to reach out, the number is 602-5-6-1-2-3-2-3. Excellent. Well, Mayeron, thank you so much for coming on today. It's been a real pleasure talking with you. Thank you, 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. www.influentialentrepreneursradio.com.

Business Innovators Radio - Interview with Mehran Rad Founder & President of R & AP Financial Discussing Risks of Retirement

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