9.9.22: Audio automatically transcribed by Sonix

9.9.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Matt McClure:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Prosperity Principles with your host Ed Cruz. Each week, Ed and his company seek to educate Americans like you by providing real strategies for protecting and growing their hard earned money. Get it for a full hour of financial information and economic news affecting your bottom line. Ed wants you to reach the financial freedom you've worked so hard for. So now let's start the show. Here's Ed Kruse.

Edwin Cruz:
Welcome to Prosperity Principles. I'm Edwin Cruz. And our goal here each and every week is to cover your financial concerns. And if that's part of your plan and listening in, I welcome you. And what we'd like to do is cover ways that you might be able to increase your returns without adding any risk. Safety that you may want in your portfolio. Reducing taxation in your portfolio. But before I get too carried away, let's welcome in my co host Matt McClure. Matt, how are you?

Matt McClure:
I'm doing great. Ed, how are you doing?

Edwin Cruz:
Great. Doing great.

Matt McClure:
Awesome. Well, yeah, we got a lot of great stuff coming up in the show today of course. And we do. Yeah. Really think our listeners for tuning in because as we often say, without our listeners we wouldn't have a show, we wouldn't be here in the first place. So very, very important thing to do is to thank all of you out there who are tuning in. We also have something that we want you to know about that is on the Web and it's wealth. The website for the show, My Prosperity Team, it's my Prosperity Team dot com. And you can go there to book a free online book, a free consultation. You can do that online at the website. And it's very, very simple. You can also subscribe to the show wherever you listen to podcasts so you don't have to necessarily tune in and catch us live. You can listen at your convenience and once again, that's anywhere you listen to podcasts. We love hearing from our listeners, so feel free to give us some feedback there. Send a message as well. But yeah, add a lot of great stuff coming up in the show today. We're going to help our listeners make sure that they're prepared for retirement. Right. So we're going to talk about some misconceptions about retirement that seem to be very prominent. And then we're going to talk also about some risks that every retiree and pre retiree should consider. So a lot to talk about.

Edwin Cruz:
Plenty to talk about. And of course, for our listeners out there, we want you to know that when you call in to 3862285, seven, six, nine or visit us on my prosperity team, we want to offer you the Annuity 360 book, and it will teach you all you need to know about annuities. So we want to keep our audience informed. That's what we aim to do and that's one way that we can help.

Matt McClure:
Absolutely. And we're actually going to hear a little bit from the Annuity 360 book just a little bit later on in the show. So that will give you kind of a bit of a preview at what you could enjoy and some of the knowledge that you can gain by calling in. So, yeah, absolutely great stuff there. And talk to our listeners first of all, as we get started with the show here and about that free full retirement plan consultation that you offer, what's that initial sort of contact with you like?

Edwin Cruz:
Well, the initial contact is is a simple consultation. We want to know where your assets are, how they're performing for you, what type of fees you're paying. And so as we get to know your situation, I'm able to analyze anything that you may have that's not working for you. And we'll also compliment you on the things that are working for you. Because, you know, I'm not going to say that all portfolios out there are completely imperfect. I've run into some very good situations where I recommend it to people. The only thing that we might be missing here is maybe some safety in your portfolio, but not the end of the world because they've had great performance. So, you know, you never know what you're going to run into. So we're just there to examine that situation. It could be securities. And if you're involved in bonds, you know, are you paying for something that's not performing for you? It could be a variable annuity. What are you paying in fees? You know, most people don't know all the different fees that are involved in in a variable annuity. And I've discussed this before because, you know, when you start talking about all the different fees inside of a lot of these securities, you know, you're looking at things from mortality fees. You know, who would ever think you have some type of death benefit fees in there? Administrative fees, sub account fees, just your annual general fees that are in there, your advisor fees. So these are all things that we want to make you aware of.

Edwin Cruz:
And if you have a fixed annuity, is that fixed annuity really working for you? Is is it an old model? You know, what what indexes are involved inside of that that inside that annuity that you may have, you just have a fixed annuity, an old one that's only paying 2 to 3% today. You could get yourself for four and a half, close to 5%. So, you know, it's not just one thing that we look at. We look at everything. Right. Social Security, income planning, it's a big part of what we do. So we want to see where you are today, income and what you may expect in retirement in the form of income. And if you haven't done a good job of creating those income streams when you retire, well then it's time to have that conversation because you need that time. You need to just like I remember in the mortgage industry, you need source and seasoned funds, right? You need to make sure that that money has been sitting there, that it's been growing the right way. There are income accounts that will guarantee you seven, 8% per year for ten years. Is that something that that is going to help you in retirement? More than likely. So these are conversations that we need to have. So again, we'll compare your current situation and then we'll just take a look at what the future could look like and if it's of benefit to work with us.

Matt McClure:
Yeah. So there you go. It's it's a free, comprehensive consultation and no pressure, no obligation there, but absolutely free for you, free of cost. And as I say, free of obligation as well. My prosperity team dot com is the place you can go or call 3862285769. And that's a big point there is it's obligation free at.

Edwin Cruz:
That's right. And if you haven't heard from your advisor lately, you know, talk to us, get a second opinion. We want to help you reach that financial freedom.

Matt McClure:
And now for some financial wisdom, it's time for the Quote of the Week.

Matt McClure:
Yes, it is that time once again where we do share some financial wisdom and we do that through the words of someone else. And this week, it's through the words of Daniel Kahneman, an economist and a psychologist. He also won the 2002 Nobel Prize in Economic Sciences. So definitely somebody who knows what they're talking about. And the quote is, Money doesn't buy you happiness, but a lack of money certainly buys you misery. I think that one is very true.

Edwin Cruz:
Then of course, it takes a psychologist. Right, to come up with something like that. Of course. And you know, and during this time that we're facing inflation, you know, it was already bad enough. In fact, I just saw I think it was on CNBC on the Financial News Network there, and they were talking about how approximately 60% of Americans are actually facing some sort of hardship today. So, you know, it's we mentioned this this this quote, but, boy, are we in in some tough times right now in America.

Matt McClure:
Yeah. Speaking of buying new misery, you know, a lack of money when the spending power of your dollar doesn't go as far as it used to. That's a that's a lack of money that you have. And so that can definitely buy you some misery there. So I think that's that's very appropriate for for this week. And, you know, it was funny because it reminded actually reminded me there was a country song that came out a few years ago that said something to the effect of the lyrics for something that money doesn't buy happiness, but it can buy me a boat I thought of that was that was actually pretty true as well. It can buy you a boat as long as you got money. You got to have the money, though.

Edwin Cruz:
That's right. And I will also add to this misery. It's not just the USA going through this misery. You know, if we look at Europe right now and we see that for the past week or so, we see this this natural gas pipeline being shut down. And and you see Europeans now are saying that their energy bills are up five times from where they were. So, you know, if we sit back and think it's happening over there, can it happen to us now? I think we have a lot of energy that we can unleash. But think about our our average bills. If we're at $200 and we multiply that by five, $1,000 electric bill, what would that do to us? So these are things that we have to seriously keep in mind in this country that things can go wrong and they can go wrong very quick.

Matt McClure:
Yeah, absolutely can. At the drop of a hat, things can really change and can really go wrong. You've got to be prepared for that. And that's a big part of I know what you do each and every day in your business and here on the air as well. Well, I mentioned it a little bit earlier. We're going to talk about some of the common misconceptions about retirement. We actually have about nine of these here we're going to talk about, and we're just going to kind of go down the list that we have. And actually, the number one most common misconception about retirement is where it will start. And this is an interesting one. You know, people think that their effective tax rate will dramatically decrease once they stop working. But that's a that's a big misconception.

Edwin Cruz:
It sure is. And I think we may have covered a little bit about this here a week or two ago, but I run into people over my 24 year career. You know, I have people that just flat out tell me, well, you know, once I retire, don't taxes stop? And I tell them, no, they don't stop. They never stop. The IRS is always coming after you. And now that we're about to add another, what, 87,000 agents, do you really think that you're going to get away with anything? I think they're going to be watching our our returns very closely. In fact, the IRS is creating an e-filing system so that you can file directly with them. Now, I don't know who thought that would be a good idea, but I surely wouldn't file directly with the IRS. I'm not picking a fight here with the IRS, but I think I'll stick to my my tax person here. But yeah, I mean, think about it. If you're if you're currently working today and you and your spouse are making about 80,000 a year, let's just use that example in your your your marginal tax rate is 12% and you retire now.

Edwin Cruz:
And let's say that between Social Security and the other income stream that you may be able to develop, here are about 50,000 a year. Do you know that your tax bracket is still the same? Or let's go a step further. If you're sitting there as a as a couple today making 150,000, and you're fortunate enough that in retirement you're going to earn about 85,000 a year to 90,000 a year. Did you know that your marginal tax bracket remains at 22%? So when you think that just when you think that you're going to get away from the tax man, you're going to get that type of relief. You're really not. And that's why we need to sit down and talk about the conversion of your nest egg into a reliable income, because what type of income are you creating? Are you creating a tax free income or are you creating a taxable income? How is that going to impact you in the future? These are all things that when we sit down and talk, we're going to be able to discover this and. We're going to be able to make changes that are appropriate for those retirement days.

Matt McClure:
Yeah, absolutely. That's definitely a big misconception there, that people think that their effective tax rate is going to go down big time once they stop working. The number two big misconception about retirement here, Ed, is that, you know, people think that that Medicare covers long term costs. You know, I don't know of any aspect of retirement that at least I have heard over the past several months since I've been doing this. Now that people have more questions about than than Medicare, I think people just tend to be very confused. And long term care is one of those things that people think is covered by Medicare. But that's that's not the case.

Edwin Cruz:
It happens all the time. People get injured or whatever the case may be. They need a surgery and the hospital wants to keep you there for three, five days. And they want to discharge you if they can discharge you the same day, trust me, they will. They're there for a short term care, not long term care. And if you don't show any signs of improvement, they'll just kick you right out of there and right into where a rehabilitation center or also known as a nursing home. And we know we don't want to go there. But yes, Medicare does not cover for long term care costs and you'll never be able to depend on the government for that. So understand that there are solutions to this. There are annuity, hybrid solutions to long term care. There are life products that will help you with long term care and there are flat out long term care policies. So, you know, pick what's best for you, but just don't depend on the government covering that for you.

Matt McClure:
Yeah. And then, you know, folks get confused about what's in Medicare Part A versus part B versus part D to me, like the only one that really the letter makes sense with the coverage is part D because that is, you know, D stands for drugs, right? That's the prescription drug costs. But then it's like part A and part B really should be what part? Part H and part P because it's part A is the hospital costs in part B is physician costs. Right. So yeah, they could have made that easier. I think.

Edwin Cruz:
It's confusing. It will always be for anyone just coming into the system. But again, you could always get that information from from not just Social Security, but go on, go on the medicare.gov site and and start educating yourself on these on these specific areas that are going to affect you when you retire. Why not get the information sooner than later? You know, if when you come to find out late. Well, it's just that it's too late.

Matt McClure:
Yeah, absolutely. Well, and this is another one that's a big misconception about retirement. And it's people thinking that the key to retirement is acquiring one big magic, number one huge lump sum of money.

Edwin Cruz:
Yeah. And just like I said a couple of paragraphs ago, you know, the key to to having this big old nest egg that you've created here is how are you going to convert that now into a reliable income, into a guaranteed income stream? And there are no no ways out there to create a guaranteed income unless you are involved with some sort of annuity, whether it be a variable annuity, a fixed annuity, a fixed indexed annuity. But no, the difference is between all of those, the one that most people are flocking to at this point. I will say I will say a large, large percentage are the fixed indexed annuities. Why? Because they provide you the safety without adding any risk to your portfolio. And so the goal here is know what you need in guaranteed income and the rest of it. If you want to set it aside and you want to go gamble in Vegas or you want to travel the world or whatever it is that you want to do, do it knowing that you are at least covering all of your life, your household expenses, your lifetime expenses with with a guaranteed income. So, you know, having one big lump sum is a great problem to have. It's better than not having the lump sum. But again, just because you have a lot of money doesn't mean it's going to last you forever. And I've seen people abuse their assets thinking that they have more than enough. And when they hit their late eighties, I've seen I've seen couples really struggle because they've blown everything and never took care of that guaranteed income. So it's a real problem that's out there. I've seen it personally and we don't want you to make that mistake. So therefore give us a call. Let's sit down and let's talk about what you're. Future needs to look like.

Matt McClure:
Yeah, 100%. And that phone number once again, folks, is 38622857693862285769. Or you can go online to my prosperity team dot com and part of that you know we're just talking about that misconception that people thinking that they need to have this one huge nest egg number in retirement. And you know what the the reality is, is converting it to an income stream is really what's more important. And that whole concept, you know, part of part of that consideration as taxes. And talk about a Roth IRA, if you will, really quick here, Ed, because I think, you know, folks seem to sort of realize that when it comes to taxes, a Roth IRA can be a really helpful thing to to have when you're going into retirement.

Edwin Cruz:
You know, just like just like any type of tool that you have in your tool belt, you need to use every tool to make it more convenient, right, for the job that you're that you're taking on tackling. And when it comes to taxes and income, obviously, it's it's it's a very important subject to touch on. It's not just, you know, having that income stream again. It's also what your tax exposure is going to look like in the future. So when we think about a Roth IRA, we are taking it could already be an IRA that you have and we could just simply convert it over to a Roth IRA or we can earlier in our years, we can start up a Roth IRA so that when we reach retirement, all the growth inside of this vehicle, this tool has grown tax free. So that's going to give you the the access to one source that you have available to you for tax free income. And what this will also do for you that a lot of people always fail to think about is that it's going to reduce the taxation on your Social Security, because even though that was a tax while you were working, Social Security and retirement can also be taxed. So a Roth IRA will help you shield from that excess taxation. But we do have other tools as well.

Matt McClure:
And that leads us perfectly into the next misconception about retirement. And that one is number four, that some people think that all seniors receive the same Social Security benefit. But it's not just a blanket payment that everybody gets the same thing.

Edwin Cruz:
It's not. And, you know, that's based off of your or at least 35 years of of earnings. And I've seen where people say, well, you know, I used to earn the same amount of income that, let's say my brother in law or my or my sister or we we always made about the same amount of money. But for some reason I'm getting that much more and they get less or vice versa. And I said, Well, let me ask you this. You are making about the same, but how were you claiming this on taxes? You know, if you're self employed, you may have been making about the same amount, but were you taking those extra write offs at the time? You know, there's an effect to all this. And when I speak to my self employed clients, I also like to I always like to cover that fact that, you know, it's nice that we can shield X amount of income, but how is that going to affect your Social Security at the end? Right. And I've actually had some of my self employed clients up, what they're actually showing to the IRS, let's say, and not shielding as much. Why? Because they get it. You know, maybe for the first 20 years they didn't care from the age of 30 to 50, but from 50 on on up, trust me, they care because they don't want to receive $1,000 in Social Security. They want to get up there in the 21,500, 3000 range, if possible. And so there's only one way to find out what you're doing and what's affecting you. You get the reports from Social Security like I have, and and figure out if if you need to make a plan when you when you want to take this. So, yeah, just because just because one person gets so much in Social Security doesn't mean that you're going to receive that same amount in Social Security.

Matt McClure:
Yeah, absolutely. Well, and, you know, people also right along those same lines might think as number five on our list of misconceptions about retirement says that people think that they're stuck with the same Social Security benefit. But that's that's not true either.

Edwin Cruz:
No. In fact and we've mentioned this several times, Matt, and we know that because of inflation this year, that Social Security recipients are going to receive one of the largest increases in Social Security history. And so. You know, when you think about incomes and I say this all the time to my clients, when someone tries to offer you a product and they're telling you the income that you're going to receive, is that going to be a stagnant income? Because, you know, ten years ago, if we look at what $100 would have got you at the grocery store and you look at that today, obviously you're about half cart short today. So, you know, you don't want to be there. And so you always want some type of cost of living increase. And Social Security does provide you with cost of living increases.

Matt McClure:
Yeah, absolutely does. And as a matter of fact, I think this is a good spot, actually, ad for us to share with our listeners. That piece that I put together recently about the cost of living adjustment in Social Security this coming year, because the cost of living adjustment is going up potentially by a record amount. Let's have a listen to this. And we can continue with our list of misconceptions about retirement. On the other side, Social Security will get a big cost of living adjustment next year, but there could be some consequences you might not have considered. I'm Matt McClure with the Retirement Radio Network powered by a merrill Life. A new report by the Senior Citizens League says Social Security beneficiaries could see a cost of living adjustment or COLA as high as 10.1% next year. The reason? Inflation running at a 40 year high.

Recording:
This is a very, very unusual and unprecedented pattern of inflation that we're experiencing.

Matt McClure:
Mary Johnson with the nonprofit group, told WTTW TV that surveys show inflation has caused about half of Americans to spend their emergency savings and people are carrying more debt on their credit cards. So the highest jump in Social Security payments since 1981 would be a good thing, right? Well, Johnson says it's better than no increase, but there are some things to be aware of.

Recording:
In fact, you can get penalized if you think your tax liability is going to be 10% more next year than you're paying now. You can be penalized if you don't send in estimated payments or have more money withheld.

Matt McClure:
She told the TV station the increase would not be enough to cover a jump in Medicare Part B premiums, which are taken directly out of Social Security checks. And she says higher incomes mean some seniors could no longer be eligible for some other government benefits.

Recording:
And then a whole 15% were made ineligible because they were their incomes increased over the income limit for food stamps or rental subsidies or the programs in their area.

Matt McClure:
So what should you do? Johnson says. Prepare now. Talk to a financial adviser to help you get ready ahead of time and contact local nonprofits if you need help paying bills. So are you prepared for the unintended consequences of a larger Social Security check? That's a key question to consider as inflation impacts all our lives with the Retirement Radio Network Powered by a married life, I'm Matt McClure. So that was a look at the cost of living adjustment in Social Security and how big it could possibly be next year. But as we heard there, you may or may not come out ahead dependent upon your your tax situation. See, there it goes back to taxes again and a lot of other factors in there. So, you know, 10% cola cost of living adjustment in Social Security sounds like a lot, but you could actually end up being behind. So a lot of weird sort of dynamics working in in in our favor, rather, and against us as well.

Edwin Cruz:
Yeah, you blink, it looks good. You blink and then it's gone.

Matt McClure:
Yeah, absolutely. That's right. Well, let's continue now with our list of the biggest misconceptions about retirement that we have found. And number six on that list, we've got nine of them here. We're at number six now and that's that people think that taxes will remain flat during their retirement years. That is actually one of the biggest misconceptions, I think, that that we hear a lot and yeah, no. And taxes are not going to remain flat.

Edwin Cruz:
And not at all. In fact, just like I said before, I have a lot of clients that think that taxes are supposed to pretty much stop once you retire. But that's not true. And just because your income doesn't change much doesn't mean that your taxes aren't going to change. That all depends on what Congress passes into law. Right. And so did you know that between 1960 and 1963, the current 24% tax bracket was actually 56%. That figure is 8% higher than two times of the same tax bracket. Imagine if this were the case today and you withdrew $10,000 to go on vacation with your family, the government would get 56. $100 and you'd be left with $4,400. I don't see that in any way, shape or form fair. But again, Congress sets the tax law. And and so we have to pay and, you know, tax brackets shrink. Sometimes they expand. And that's what's going to make a difference when when it's time for you to pay the tax man. So anyway, you need to do everything you can to tackle that misconception that taxes will remain flat during retirement. And again, that's why a smart tax plan is part of our financial or smart financial plan.

Matt McClure:
Yeah, absolutely. And you've got to be smart about your retirement. And that's what we talk about a lot here on the show. Well, moving on here in our list of misconceptions about retirement, number seven is that people assume that they'll die before they turn 90. So they only plan to live that long. But actually, you know, people over the years now and of course, this has changed a little bit because of COVID and the way that that has affected the life expectancy rates over the last couple of years. But by and large, over the past decades, we've been living longer and longer and longer. So 90 is not all that rare anymore?

Edwin Cruz:
Oh, absolutely. And for all of us that know the Queen of England or have seen her on TV, we know that she just here recently passed away at the age of 96. And so, you know, we have to we have to know that the human life expectancy over the last 200 years in the US has more than doubled. And and I've mentioned this in the past when Social Security was first introduced, you know, we were our life expectancy was in the mid to upper sixties. And so the government thought they had a free lunch box there to spend away. But now we see the consequences of what our government has done inside of Social Security. But that's because of longevity. So longevity risk is a real thing. And if you don't plan for for living longer, you know, I've seen people again, they've they've they've had large sums of money, well over $1,000,000. And I've seen over the 20 year span how they've drawn that down, not respected a guaranteed income source. And so therefore they run out before they before they pass away. It's a sad thing to see.

Matt McClure:
Yeah, absolutely.

Edwin Cruz:
Did you also know that the CDC says that if both spouses live to be at least age 65, it is highly likely that at least one of them is going to live to be over 90 years old. So we need to plan for retirement to last as long as we do.

Matt McClure:
Yeah, 100%. Well, number eight on our list of misconceptions about retirement is when it comes to my portfolio allocation, I can set it and forget it. And you know, retirement planning in general, you got to be active in your management of it, right? And you've got to have somebody on your side who's, you know, keeping an eye on things for you as well.

Edwin Cruz:
Yeah. I don't care if it's securities. I don't care if it's a fixed asset. You should always, always look into how you can improve, right? I never suggest that people just set it. Forget it. You should be encouraged by someone at least to inspect what they have in their retirement plan so that they can plan properly for their retirement future hopes, not a strategy. And we can we can help you make sure that your portfolio is managed properly. We want your money working as hard for you as you work for it. Right. That's that's the goal that we have. And because you did work hard for your money, I bet that you've worked even harder to save it. It's and I say it all the time, it's disciplined. If if you're not disciplined and saving it, obviously you're spending it. And and those are those are all habits and that we just need to learn how to break out of one habit and and break into the into a good habit. Right. So that's where I stand on that.

Matt McClure:
That's absolutely right. Well, there you go. I build those good habits. Well, number nine, rounding out our list of the biggest misconceptions about retirement is that people assume they can handle their retirement planning by themselves. I think a lot of folks find out. I think they do believe that. And then maybe when they kind of go into it, they'll get overwhelmed and frustrated and confused because there is a lot that goes into it that maybe people don't consider.

Edwin Cruz:
Yeah. You know, I get those people that call me now in their seventies and once we discuss planning and it's implemented and it's in there for a couple of years, what's one of the things that I hear all the time and I mean all the time? Oh, what? I wish I would have met you ten years ago, 15 years ago, 20 years ago. And unfortunately, again, it goes back to habits. Right? They thought that they could handle this. So they decided, I'm going to take care of this. But they didn't know or they don't know that there are better ideas out there, better plans for them out there, and they don't know because they're just sitting there following some some robo advisor or whatever it may be or reading things that in general sound good, but in real life they just don't play out well. And so assuming that you can handle your retirement by yourself, it's like they say fool's gold, right? If you pass away and you've been personally handling all of your own retirement and financial planning, and then all of a sudden your spouse has the responsibility of settling the affairs and taking care of themselves. We need to do everything we can to set both spouses up, not just one, but both spouses up for success during retirement. That's another that's another. Good point. You know the man and it's. It's like that 99% of the time. The man, he's sitting there, he's taking care of everything.

Edwin Cruz:
It's all over the computer. The wife has no idea where the money is at. I've discovered funds a year later when a statement comes in and the wife calls me back and says, Oh, I just got another statement of something. I don't know what it is. Can you come and see this? So again, handling your finances, if you're doing that, first of all, inform your spouse, have a written list of where everything is, you know, be wise about it. Don't just leave it all up to chance that you're going to outlive her because chances are you're not going to outlive her. And so, you know, make sure that you are sharing everything. But more importantly, you should always have someone there for a second opinion if you want to handle a lot of it. You know what? I'm not here to tell you what to do, but I'm sure that there are there are things that you're missing out on, and we can help you with a small part of it, and you could handle the rest. That doesn't bother me, but at least that way somebody else has some more information. And generally, again, when the when the gentleman passes away, which is most of the time before the wife, then I'm there to help the wife through a very smooth transition, not a hectic transition that's stressing her out and and at times actually leads to to health issues.

Matt McClure:
Yeah, absolutely. That's right. And as you say, you know, women statistically live longer than men and you see that all the time. And so you've got to be prepared for that as well. So there are the nine biggest misconceptions about retirement that we see. I hope you learned something about retirement and maybe you had the misconception about some of those things or maybe you're like, Oh, hey, I knew that I'm smarter than I thought I was. So there you go. Either either side of the equation you fall on. I hope you got something out of that. Well, Ed, as we move on along here in the show, I wanted to talk a little bit about bond replacement with a fixed indexed annuity because we've got a section I teed this up a little bit earlier on in the show. We've got a section of the book Annuity 360 that I want to share with folks in just a moment. But before we do that, before we hear more about bond replacement via the book, sort of t t this up for us, if you will, and what are the benefits of replacing bonds with a fixed indexed annuity?

Edwin Cruz:
Well, and, you know, I will say that not just coming from my mouth, we have several several economists that have come out and have talked about replacing bonds with fixed indexed annuities. And why would you do that? Well, you would you would simply do that because with with an fire, you're going to receive a market like return versus bonds, which generally tend to underperform from 2 to 3, 4%. And you have annuities out there that have no fees versus bonds that are going to have fees built into them. You're also going to have advisory fees. So we want to get away from that. And again, we want to protect your hard earned asset. Right, right now, your bond while while rates are rising, your bond is losing value. And so why would you want to go into an underperforming asset? That is losing value. You don't really have the safety. It just doesn't make any sense. And for income, can you really generate a steady income from a losing asset from a bond? I don't I don't believe so. Because if you're doing that, are you really if you're following the, let's say, the 4% rule, are you really bringing down your income when your bond asset is losing value? People don't do that. So again, you can't I don't see how you create a consistent income with that. And growing your money tax deferred inside of a fixed indexed annuity is one of those benefits that I think is irreplaceable. And if you're inside of a inside of a bond with non qualified funds, obviously you're probably going to receive some type of a 1099 at the end of the year. And so again, not only are you not receiving much of a return, you're receiving a 1099 on top of that, I don't I don't see that being helpful. And again, last but not least, and I touched on this, but let's eliminate advisory fees that you pay on on bonds. So you're receiving an income, but you're paying out a fee to an advisor. I think these are things that we can improve upon.

Matt McClure:
Yeah, well, there you go. And let's actually hear more about it from Forde Stokes, the author of Annuity 360. This is actually a chapter from the audiobook version of Annuity 360. It's on bond replacement with fixed indexed annuities. Let's listen to that and we'll chat a little bit more about it on the other side and tell you how you can get a free copy of the book. This is Ford Stokes from Annuity 360.

Recording:
Chapter 15 Bond Replacement With Fixed Indexed Annuities. Big idea. Historically, bonds have seen volatility when the market is volatile. Fixed indexed annuities are not subject to the same volatility, which makes them a much safer investment. You might have heard a financial advisor talk about replacing your bonds with annuities to protect your wealth and grow your retirement funds. Am I firm? Active Wealth Management. We believe this is a smart way to protect your future. Many people have learned that bonds are a safe way to invest your money, but there are some downsides to bonds that should make you think twice. We'll talk about some reasons why you should consider replacing your bonds with annuities first. Here's some information on the history of bonds in the United States. Historical bond volatility. The 1900s saw two secular bear and bull markets in US fixed income. Inflation peaked at the end of World War One and World War Two due to increased government spending. The first bull market started after World War One and lasted through World War Two. The US government kept bond yields artificially low until 1951. The long term bond yields were at 1.9% in 1951. They climbed to nearly 15% in 1981. In the 1970s, globalization had a huge impact on bond markets. New asset classes such as inflation protected securities, asset backed securities, mortgage backed securities, high yield securities and catastrophe bonds were created.

Recording:
Early investors in these new asset classes were compensated for taking on the challenge. The bond market was coming off its greatest bull market coming into the 21st century. Long term bond yields declined from a high of 15% to 7% by the end of the century. The bull market in bonds showed continued strength in the early 21st century, but there is no guarantee with our current market volatility that this will hold. See Chart 15.1 to see the incredible difference of investing in a fixed index annuity versus investing in bonds. Why you should consider replacing your bonds with annuities. The first question you should ask yourself is this Why would you take market risk with your bonds when your bonds can lose their value? If you just look at the history of loan. You can see how uncertain the future of bonds is. Inflation and fluctuating interest rates play a big role in bond yields. Interest rate risk of bonds. Bonds and interest rates have an inverse relationship. When interest rates fall, bond prices rise. Due to the COVID 19 pandemic, investors have moved their money to bonds because they believe it is a safer investment option. However, this has caused bond yields to fall to all time lows. As of May 24, 2020, the ten year Treasury note was yielding 0.64%, and the 30 year Treasury bond was at 1.27%.

Recording:
Reinvestment Risk of bonds. This is the likelihood that an investment's cash flows will earn less in a new security. For example, an investor buys a ten year $100,000 Treasury note with an interest rate of 6%. They expect it to earn 6000 a year. At the end of the term, interest rates are 4%. If the investor buys another ten year note, they will earn 4000 instead of 6000 annually. Consider the possibility that interest rates change over time when deciding to invest in bonds. Systematic Market Risk. This refers to the risk that is inherent to the market as a whole. It will affect the overall market, not just a particular stock or industry. This can be unpredictable and it is impossible to avoid. Diversification cannot fix this issue, but the correct asset allocation strategy can make a big difference. Unsystematic Market Risk. This type of risk is unique to a specific company or industry. Similar to systematic market risk. It is impossible to know when unsystematic risk will occur. For example, if someone is investing in health care stocks, they may be aware of some major changes coming to the industry. However, there is no way they can know how those changes will affect the market. There are two factors that contribute to company specific risk.

Recording:
Business risk. There are two types of risk internal and external. Internal refers to operational efficiency. An external would be similar to the FDA banning a specific drug that the company sells. Financial risk. This relates to the capital structure of a company. A weak capital structure can lead to inconsistent earnings and cash flow that can prevent a company from trading. Reduced advisory fees. Investors who trade individual stocks may know how much commission they are paying their broker, but individuals who buy bonds often have no idea what type of commission they are paying. Bond dealers collect commission on bonds. They sell called markups, but they bundle them into the price that is quoted to the investors. This means you are unaware of. How much commission you were actually paying. Standard and Poor's estimates of bond markups is 0.85% of the value for corporate bonds and 1.21% for municipal bonds. However, markups can be as high as 5%, up to $50 per bond. Bonds have finite durations. Bonds only provide income for a finite amount of time, unlike an annuity which provides income for life. You must reinvest your money if you want to continue generating interest with bonds. However, reinvesting with a bond can sometimes come at a loss. As we discussed above, annuities will provide you with an income you can never outlive.

Matt McClure:
And you just heard a chapter from the book Annuity 360 by Ford Stokes, and that was the chapter on bond replacement. So that was a very good thing to share. I think as far as our conversation goes today we've been, you know, talking about a lot of misconceptions about retirement. And we're going to talk a little bit more about some risks that you need to watch out for in retirement momentarily. But, Ed, I know that you like to give folks a copy of that book, not just that one chapter that we just listened to, but the whole thing. Annuity 360 tell the folks how they can get a free copy of that book from you.

Edwin Cruz:
Absolutely. You know, when you call in to 3862285769, that's 3862285769. We'd be more than happy to get a annuity 360 book out to you. And you can also go on the web to my prosperity team dot com to receive this book.

Matt McClure:
There you go. Well, that's easy as it is, folks, to get a free copy of Annuity 360 and get a free consultation with Edwin Cruz as well. Well, moving on here to our last segment of the show where we're going to talk about the risks that every retiree and pre retiree should consider and why it's important to have a smart retirement plan. The first sort of prong in this this very sharp, sharp sword that we have that we're working with here, these risks we're going to talk about. The first one is market risk, systematic and unsystematic risk. And this has to do with more of the investment side of things. But if you're taking risk into consideration, you have to determine if you are willing to take a lot of risk in your retirement. Right. And how much risk you're willing to take when you're investing.

Edwin Cruz:
Absolutely. You know, the the stock market, the real estate market, they both go through periods of volatility and uncertainty. Interest rates, as we see now, are going up and they're always subject to change. And adjustments have shown to have significant effects on American families and the economy as a whole. Then we look at inflation, right? The spending power and and we've lost a lot of it here lately. The US dollar has decreased over time due to an increase in the money supply as well as the supply chain issues. Then we look at public policy and taxes. Obviously we just spoke about that with Congress. You know, taxes can have a strong effect on American families, budgets, timing. You can't control when the market is going to go up or down. You can get close at times. I've been fortunate enough to to do that. But you're going to lose, you know, nine out of ten times. You're going to lose that battle. So you can't take control of when the markets are going to go up or down. But you must consider what to do should you choose to retire in a bear market versus a or a recessionary market. And, you know, when you when you plan this way and I'll touch on that a little, you know. A bear market or a recessionary market. If you're sitting inside of of a portfolio, a market portfolio, obviously you strongly need to consider what you're doing when you're going to do it.

Edwin Cruz:
But if you have done the pre planning and, you know, three, five years out before you retired, you sat here and you played by the rule of 100 and you put your assets in a certain area, you took care of that guaranteed income. You won't have to worry about timing. And this is what we're talking about when we sit down and we look at your assets. Just a year ago, I sat down with a gentleman. He kept telling me he was going to retire. And I said, Well, have you taken care of your guaranteed income when you retire? He says, I'm not really understanding what you're saying. And so we got down to it. We went over it, and when I saw him about just a couple of months ago and he told me, Hey, Ed, I finally retired and and I said, Well, you never called me for the, you know, to get your incomes going. And he said, Well, I don't actually need it yet. He had so much time left over where they're paying them for several more months. But here before the end of the year, I think it's November, we're going to start cranking on the guaranteed income streams, so on and so forth. So again, timing is one of those things. Don't leave it up to chance, because that's all you're doing.

Edwin Cruz:
When when when we talk about timing, liquidity, you need to have sufficient access to your savings and assets in order to fund your expenses and meet your goals. So we want to make sure we, we, we discuss liquidity and retirement sequence of returns. And boy, can that make a difference again, if you're if you're retiring in a year or two from now and this market continues to go down, can you truly afford to retire? You know, a downturn in the early part of your retirement could really destroy what you have 20, 25 years from now. So learning what sequence of returns will do for for you in retirement, that's another process that I go through with clients. I actually have some literature on that that clearly demonstrates sequence of returns, longevity, risk. We're all living longer as we spoke about earlier. So you want to ensure that you have enough money to last your lifetime, excess withdrawals and not paying attention to the outline here. I spoke about that. But I've seen people abuse their dollars. And and so you're not earning enough, but you're pooling too much. And we have market downturns. And before you know it, you're you're just you're out of money. Here you are in your late eighties, 90 years old. And what do you do now? Now, fortunately, in my in my 24 year career, I haven't seen much of this, but I have seen a few heartbreaking cases.

Edwin Cruz:
And you really don't want to go through this, your health expenses. I always say you should budget, you should have some money set aside, budgeted for health expenses because retirement is more expensive than you think it's going to be. And medical costs are typically the largest expense for a retiree. And you want to make sure that you have a medicare plan, Medicare plan in place that covers you and your spouse for the rest of your lives. And then, of course, one that that is. Quite difficult to speak to when you're talking to a couple. The loss of one of the spouses, obviously, one of the social securities are going to disappear. Sometimes a pension disappears because they took it for one life only and not two. So that's a that's a big risk. And how have you planned to replace that income? Do you need to replace that income? These are all things that we'll cover. And the last one which nobody wants to talk about is re-employment. You know, if that's a risk you're taking, if you don't plan properly, the one thing we never want to talk about is having to go back to work during the golden years to pay for your living expenses. So, you know, these are all these are all risks that we take in retirement.

Matt McClure:
Yeah, absolutely. And that's a look at that list of all of those risks there and important information for you all to know. Well, just a couple of minutes here left in the show for us. Ed, I wanted to remind our listeners, though, before we move on too far here, that, of course, the show is Prosperity Principles. The website is my Prosperity Team. It is my Prosperity Time.com, the website there. And also the phone number I'll share with you is 38622857693862285769. And you can either go to the website or call the number for a free consultation. Absolutely. Risk free. It is obligation free. It is completely free of any cost to you to get that initial full retirement plan consultation from Edwin Cruz. And as you can tell, listening to the show today, he's got a lot of knowledge and experience that can go to work for you and work hard for you because, hey, you worked hard for your money. You want to put it to work for you in your retirement as well. It's this week in history. Well, there were some things that happened this week in history that we're kind of fun. And then one definitely that was very somber. So we had some big celebrity birthdays a few days ago. Adam Sandler was born in 1966, back on September 9th. So just a few days ago, on the 10th, Bill O'Reilly, the conservative commentator, was born. Alex Trebek took over as host of Jeopardy on September 10th of 1984 as well. And he, of course, sadly passed away back in November of 2020 after battling pancreatic cancer, which was just, just terrible. Of course, the big one was 21 years ago. I cannot believe it was 21 years ago now. September 11th, 2001. The anniversary was just a couple of days back here. And Ed, we wanted to definitely mention this because it's one of those days I will never forget where I was and what I was doing on that day, because really, literally, everything changed in the blink of an eye.

Edwin Cruz:
Yeah. This weekend I was just speaking to some friends and that's what we did. We reminisced on where we were that day, what we were doing. Obviously, it was it was a work day. And I was about to do a presentation in front of a in front of a crowd when this occurred. So very sad day in history. And of course, we want to say thank you to all of the first responders and and all of our military, because, you know, we get days off. They never do. And so we want to salute them.

Matt McClure:
Absolutely. We do 100%. Well, that will just about do it for this week's Prosperity Principles. But Ed, I want to thank you once again. I have really enjoyed being a part of this show, as always. And I will talk to you once again next week, sir.

Edwin Cruz:
Thank you and thank everyone out there.

Matt McClure:
Thanks for listening to Prosperity Principles. You deserve to work with a financial and insurance expert who can offer strategies for protecting and growing your hard earned money to schedule your free no obligation consultation. Visit my Prosperity Team dot com or pick up the phone and call 3862285769. That's 3862285769.

Matt McClure:
It's not affiliated with the United States government. Edwin Cruz does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. A married life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness, or of the results obtained from the use of this information.

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