On this week’s show, some helpful tips for taking control of your finances as we approach 2023. He also talks about how to pay-off your mortgage so you can save more for retirement.
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12.12.22: Audio automatically transcribed by Sonix
12.12.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Producer:
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 set. 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 Cruz.
Edwin Cruz:
Welcome back to another Week of Prosperity Principles on Edwin Cruz, along with my co-host, Matt McClure. And I know that we have a lot on the plate here today, but I want to get started by saying, you know, that for 24 years now or a little over that I've had a lot of clients that, you know, call me back or refer me to other people. And and the reasons that they do that are because I'm able to show them how to convert an income into a or an asset into a reliable income. I showed them how to protect their assets through the through the idea of safety. You know, we're able to increase their returns without adding any additional risk. So if if that's one of our listeners out there, you know, I'd like for you to call in and let's see how I might be able to help you and you can call in to 386 228 5769. And that's my little promo this week. Matt, and let's turn it over to you.
Producer:
Hey, it's a good one. It's a good promo to share all the time. And, you know, in these days when the markets are up like they had been this past week on some comments by the Fed chairman. Well, last week, I should say. And then you go, you've got markets down more often than up, of course, here lately with all that volatility there, that safety that you talk about. Oh, boy, that's something that's really important to a lot of folks. So that's a that's a great spiel to open up the show with because it means a lot to people, I feel like.
Edwin Cruz:
Absolutely. You know, when I when I'm out there visiting people now, what am I running into? I'm running into triple digit losses in client portfolios. And so, you know, it gets to the point where throughout all the years you've accumulated, you've built up that nest egg, you're ready to retire, and then all of a sudden you get hit with with a dose of reality of what the market can do. And, you know, a lot of people have become somewhat spoiled because we went on a very long run in this market where people just saw all the gains. And and I think sometimes for some reason, people forget that the the hard times are ahead. You know, if you don't plan and be beat it to the punch. Well, it's it's going to give you a little kick in the rear.
Producer:
That's very. That's very right, you know. You've got to watch out and plan for what could be coming down the pike here. And, you know, there's uncertain times as far as the economy goes. So that's what we've got to watch out for. And we do have a lot coming up on the show today. And I also wanted to mention the website as well. It's MyProsperityTeam.com. And as Ed mentioned folks the number is 386 228 5769. And of course you can go to the website by the way that I just mentioned and you can get the podcast there. You can listen to us as a podcast, go to the past episodes and see we talk about a lot of great stuff having to do with your money, your retirement planning, your financial planning, all of that each and every week here on the show. So a lot of great stuff to come in this episode, but I had to give that plug for the website and the podcast as well. And just a reminder, I think here for people, you know, this show, the first airing of this particular episode of the show is on Wednesday, December 7th. And so we are right at that deadline for the annual enrollment period of Medicare. So, you know, people have some people I think may have been sleeping on it or said, hey, I just I'm fine. I don't need to check out things. You pretty much just about missed your chance, if that's the case.
Edwin Cruz:
Well, you know, I think we mentioned it multiple times. I see it on TV all the time. So hopefully if anyone needed to make those changes or at least get informed on what they could do to improve their situation, I hope they they did. And now it's now we're looking forward to the holidays coming up right. The the last month of the year. And you know, what I say is there has to be some type of resolution that you want to make, some some improvement that you want to make going into next year and going forward. So now's the time. Now's the time to start planning for the improvement going forward.
Producer:
Yeah, and that's a big part of the show today. You teed that up nicely here just after our Quote of the week. In a moment, we're going to check out some New Year's resolutions that actually we can help you keep on the show. And then we're going to talk about something that retirees fear the most. I think that is, you know, a big thing to talk about because we talk about all the uncertainty in the markets and that leads to a lot of fear. Well, if you're in retirement, if you're in that de-accumulation phase that we talked about a few episodes ago and you're drawing down money from your retirement accounts, whatever bucket of money that you have there, you got some fears. And we'll talk about that. We'll reveal what the biggest fear is for retirees. We're going to have a cost cutter of the week and much, much more to come, all depending on how time goes. We got a lot we're trying to cram into this episode a lot of great information. But so all that is coming up. But first.
Producer:
And now for some financial wisdom, it's time for the Quote of the Week.
Producer:
And our words of financial wisdom this time around and come from a guy you may have heard of named Dave Ramsey. He said, quote, You must gain control over your money or the lack of it will forever control you. And when I first read that quote from Dave Ramsey, I thought, oh, that was especially my my financial situation in, say, my twenties, early thirties especially. It's like I didn't know how to control my money. So it controlled me or the lack of it controlled me, that is.
Edwin Cruz:
Yeah, trust me, you're not alone. We've all lived through that, right? Even even though you get advice sometimes you just don't wish to take it and you just go ahead and keep chasing your tail until you finally figure it out. And but yeah, Dave Ramsey, there's a lot of lessons that you can learn from him. There are some that obviously I don't agree with. We can't agree with everyone 100%, but he definitely has some good material for anyone out there that's in debt. So I definitely would encourage everyone to to think about that quote because it's just so true. If it's like they say, if you don't have some money working for you, then you're always going to have to work for it. So we have to take these lessons of life, you know, at face value.
Producer:
Yeah, absolutely right. And that's right. We can't always agree with everybody on everything. But hey, that's what makes life exciting. If we all agreed all the time. Yeah, it would. Everything would be boring, you know, And we'd all know we don't have all the answers to everything, too. So that's. That's why. That's why you're here. To educate all of us about things to do with retirement and money. And we also wanted to mention something here that has to do with the retirement red zone. What do we mean when we say the retirement red zone and what? Should people in that red zone do?
Edwin Cruz:
Yeah. You know, it's a term I don't I don't really use, but I should use it more often because we, you know, I speak to a lot of these people and the retirement redzone means that you plan to retire in the next five years or you have just retired within the last five years. And if that's the case, please give us a call so that we can help you strengthen up your financial plan. We want to help retirees in the red zone to manage their sequence of returns risk. And, you know, we always talk about the different risks that are out there. And you mentioned how a lot of people are are scared, you know, worried about many things. And there's a long list of risks that we can talk about here. But being in this retirement red zone, if you fall into that wrong sequence of returns risk, you know, it could mean running out of money far too soon. And so, you know, with what's going on in the in the markets right now, obviously this is this is of great concern. But if you had done a little planning just prior to this, you would have you obviously would manage much better. But we can still help you going forward.
Edwin Cruz:
Why? Because, you know, if you listen to economist today, they're still talking about that. What we've seen so far, we may not even be halfway through the the so called non market recession that we're in. But the stock market does tell us a story and whether whether or not we're in a recession, if you have money in the stock market and you've taken these tremendous losses so far, let us show you how to recoup from that. You can actually recoup from that quite, quite quickly. And the other thing is that when you invest in the right way and that is creating an income stream and and you're pulling from your assets to create that, we can show you how you can have 15 or 20% less in assets and still generate the same amount of income. So basically a discount in retirement income. So let us show you how to to create this and. You know, you can't afford to lose much more at this point. I'm sure over what's happened over the last week and say 12 months now, because it started at the beginning of the year. So, you know, let us show you how to protect and grow your money because that is key to your to your retirement.
Producer:
Yeah, protection and growth really, really important, especially as we've been saying in times like these with so much uncertainty out there. Definitely something for for folks to keep in mind and if they're striving for it, if you folks out there, wherever you're going, if you're out running some errands or if you're even at home with the radio on or listening to the podcast, go to MyProsperityTeam.com and you can learn a lot more by talking to Ed, get a free consultation and we'll have more details on that coming up as we go through the show here today. So we teed this up a few minutes ago and I want to get into it. These New Year's resolutions, you know, we're just kind of in the first part of December here, but a couple of weeks, you know, you blink and the new year is going to be here. So let's talk about some of these New Year's resolutions. We've got, I believe, eight of them here. And for folks to kind of keep in mind and their financial New Year's resolutions and things that I think people might kind of have fly under the radar for them. So let's go through them, starting with with number one.
Edwin Cruz:
Yeah. Number one, be in. Calculate your net worth. And you know, when I ask people, they just don't have a clue. Most of the times, you know, what is my net worth? I think it's approximately this. But they never stopped to consider some of their debts. Some people undervalue things. They don't have debts. So we, you know, we sit down and and we make it obvious, You know, you'll know when we're done calculating everything, you will know what your what your net worth is. And how do you do that? You start by totaling your assets, your account balances, any additional real estate that you have, anything of value, antiques, if you have a boat, multiple bikes, whatever you might have, and then subtract all your liabilities, anything that you have, like mortgages, credit card debt, anything that you owe, and that will create a clear picture of what your net worth is.
Producer:
Yeah. And it's important to know as well, because it's like it's almost like, you know, you have to know where you are first and know where you want to go and then create the map to get from point A to point B, right? So it's like, that's really a great place to start. Know where you are, know where you stand, where you stand, rather, and get that full picture of what your your net worth is. And I think number two is something that is probably near and dear to your heart here that people probably need to do more often, and that is to check up on their retirement accounts.
Edwin Cruz:
Absolutely. You know how many times you hear people say, you know, I haven't been looking at my statements. I mean, it's just something that I just, you know, just had that situation a couple of days ago. Someone says that they haven't even looked at their statements. And that kind of surprises me when I hear that. But, you know, be sure to take advantage of any contribution matches that that you have offered with your employer's retirement plan. If you're over 50, you can contribute an additional 7000 a year in your 401. K, but oh, I'm sorry, you can contribute up to 7000 in an IRA. I know that there are some limits going up in 401 ks. I don't have that in front of me. These things change in some cases annually, so but we have all the information. There's a lot out there. It's constantly changing, you know, Sep IRAs, you know, if you're self employed, you know, maximize what you can put into your into your retirement plan, create your own pension, you know, and why not know what you have. Don't don't just sit on things, not look at them. You know, a lot of times, you know, I'll tell people if your if your job offers you a 401K and and they match you up to 8%, well take take, you know, make those contributions up to 8%. It's 100% return that you're receiving by receiving matching money. So why not take advantage of that? So check up on your retirement accounts. Don't sleep on them.
Producer:
Yeah. Very important. And check up on those contributions as well, because, you know, as you say, those employer matching funds can make a huge, huge difference in your retirement years and the amount of money. And then therefore later on the amount of income that you have to make it in retirement. Number three is something that we talked about, knowing where you are and kind of where you want to go. This one has to do with setting some of those goals, particularly your savings goals.
Edwin Cruz:
Yeah, that's right. You know, just because you receive a raise that shouldn't open up the door to say, I can spend this much more, you know, again, saving is difficult unless you prioritize it, right? As I always say, saving is a discipline. So determine how much you plan to set aside each month for your future. You know, Warren Buffett says don't save what is left after spending, but spend what's left after saving. And so if you make this a habit, it's not that difficult. But, you know, you just have to you have to set that goal and say, och, you know, I received whatever it might be, a 10% raise, a 7% raise, a 5% raise, and know what that number is and say, you know, I can afford to set aside an additional $40 per pay period or whatever it might be over the years that will add up to be a substantial amount more money.
Producer:
Yeah, absolutely will. And one of the things that I sort of like to do now, because I've just learned over the years my the type of discipline that I have to have for myself and the kind of habits that I have to to establish for myself is to really just kind of automate that process, you know, be like, All right, I can set up my bank account to every time I get my direct deposit from my employer, a certain amount goes into my savings account or it goes gets transferred over. Into a retirement account, for that matter. It's easy to do that, and it's almost like one of those things that on the old infomercials, they used to say, set it and forget it, you know? That's kind of what you can do. And it'll you'll enjoy it much more than that roast turkey or whatever it was they were making on those infomercials.
Edwin Cruz:
Yeah. If you don't if you don't see it, it's more helpful because once you're looking at it, you're like, Oh, I've got to give this away. You're not giving it away. You're actually investing in your future. And that's the way you have to look at it.
Producer:
Yeah, you're paying yourself, you know, in the future, you will really appreciate that. Well, number four on our list of New Year's resolutions that we can help you keep is make a plan to pay off your debts. That one is one that I think a lot of people might be like, oh, gosh, this is going to be too hard. But, you know, it doesn't have to be really.
Edwin Cruz:
It's super important. If you're going to make it to retirement with debt, you're going to make things just more difficult on yourself. And there are ways there are there are things that you can do systematically to help you mentally chew that chew that debt down and and make it less painful for you. And Dave Ramsey has the system where he says take the the your debts, line them up from what you owe the least to the most. Start paying off the ones that you owe the least two. Once that's paid off, it just feels good. If you had six debts, you paid one off, you're down to five. Take the next one, you're down to four and just put everything you can into that. Give it your best effort. And, you know, early on, I figured out, you know, carrying credit card debt is not your is not a friend of yours. So you want to get away from that. You want to start paying it down. You know, I remember when I finally got down to just having my mortgage, how good that felt. My vehicles were paid off. Everything was paid off.
Edwin Cruz:
And then I just concentrated on my on my mortgage and wipe that thing out a lot faster than I ever thought I would be able to do. So it's amazing what happens when you just start with that the smallest debt and work your way up to the biggest one. Because what happens is if you're taking that money that you were putting into that one, now you're maximizing all of that, plus what you were paying here. And it just becomes an effect that you just have to and again, it's about discipline just because you just paid off that one. Now, take whatever you were giving to that one credit card plus everything you were paying over here, the maximum and apply it to the next debt. Don't get away from that. So decide how much you're going to how you're going to pay these debts down. But again, I think that's where I say I agree with the Dave Ramsey system. I like taking the the smallest debt and moving to the next one, the next one until you're completely out. And it'll be a great feeling when you're done doing that.
Producer:
Yeah, absolutely. You know, being out of out from under all of that debt, especially that, you know, compound interest situation that we've talked about here on the show before, where you've got those high interest credit cards and you leave a balance on them each and every month and then you're that interest is added to the balance and then you're paying interest on the interest. And it just compounds, compounds, compounds. But you can be in a bad situation before you know it. And so getting out from under that. So, so helpful. Now, that doesn't mean you can't ever have a credit card. It just means you have to use it wisely. You have to use it properly. And that takes a lot of discipline to, you know. That's right.
Edwin Cruz:
And I always say credit cards pay me. I don't pay them. I use them the points. And at the end of each month, you pay it off. But what do you have? You have rewards. And those rewards can be used for a whole lot of things. And so when you learn how to use, use the credit cards, you know, it's not evil, but you have to learn how to use them.
Producer:
Yeah. And do it the right way, as we say there. Well, so that's making a plan to pay off your debts. So number five, in our New Year's resolutions that we can help you keep rebalance your portfolio, I think that's something that people get kind of overlooked or maybe overwhelmed by. They think that maybe that's just me guessing anyway and knowing about my own life and attitude, they might be saying, okay, well, maybe this is one of those things I can just set and forget. You know, like we were talking about a minute ago with that savings and not not quite so much.
Edwin Cruz:
That's right. You know, the stock market has its ups and downs. We all know that some sectors overperform, some sectors underperform here in 2022. You know, it has been pretty grim for for most of them. And, you know, rebalancing your portfolio to its original or updated asset allocation, you can take steps to lock in gains from sectors with the best returns and and purchase shares in the sectors of that that have lagged behind. Listen, I've tried doing this for a big part of this year, and it doesn't matter what I tried rebalancing in. It just wasn't working all that well. You know what I would say to people? There's also a time to kind of sit it out. You don't always have to think about rebalancing your portfolio. And trust me, some people think just because they have a portfolio that has bonds on one side and stocks on the other and mutual funds, they think that it supposed to rebalance itself automatically, but or that that asset class will help balance out the losses. You know, this is a year where and it's an anomaly year, I would say where the bonds are down, the securities are down, everything is down. But if we look at some some key some key indicators out there, when the Fed's raised the interest rates, you know, there were areas to, you know, to position your assets. And if you need help, you know, and knowing how to look at these things as they're happening, you know, that's what we're here for. Give us a call. 38622857, six, nine. And and we'll help you rebalance in a whole different way. And and I think you'll appreciate that.
Producer:
Yeah, definitely. I think a lot of folks will and 386 228 5769. Once again is that number the website is MyProsperityTeam.com that's MyProsperityTeam.com. All right so we're kind of getting toward the last toward the end here of these New Year's resolutions the last three number six is pay down your credit cards. We sort of mentioned this a minute ago about getting out of out of debt, but it's a big one. And with anything with a variable interest rate right now, you've seen those go way up and you have even less money in your pocket because of it.
Edwin Cruz:
Yeah, And it's not just credit cards. It's revolving debt in general. Right. You have high interest rates as as those interest rates rose throughout the year, that created a much higher interest rates for all types of debt. Right. And credit cards, any type of revolving debt, it's going to do it to you. You know, no one has ever become rich off of airline miles and hotel points. Right. You just have to you manage it. It helps to pay for certain things. You know, I use a lot of my points for all the shipping that I have to do with the post office. And it works out great. I don't have to sit here and and really pull out of my own account. It's just constantly going to the USPS, all my points. It's a smile on my face. I didn't pay for it. The credit card companies paid for it. But you have to learn how to manage these things. And the big thing is make a goal to pay off your balance each month. If you know what you can afford to pay off, don't spend beyond that point on your credit card. You have a credit card that that will that will help you in an emergency situation. Just have it there for emergency. Don't use it for any other reason. Have a purpose for it is what I say. You know, be sure to have 3 to 6 months of of expenses set aside for unforeseen emergencies. If if you can accomplish that, obviously that's that's the first goal when it comes to emergency funds. But too many people use their credit cards as an emergency fund. You know, that should be your your your your your B, you know, your A is having your your your cash assets be is that credit card. And if you learn to treat it that way, you won't get yourself into trouble. But too many people look at their credit card as option A and and that's a big mistake.
Producer:
Yeah, definitely so because if you've got cash stored away somewhere for an emergency that you're not not going to be paying the interest charges and all of that on that money after you use it for an emergency, it's it's there and you use it and you're done. You don't have to worry about then paying it back, plus interest in all the other things that go along with that credit card debt. Well, number seven in the New Year's resolution segment of the show here, review your credit report. And, you know, this is one I think it's very important for folks not not only to review the credit score, which I think a lot of people do these days, because there's there's an app for that. As the saying goes, there are several apps for that, really reviewing the credit report as well and get a bigger picture.
Edwin Cruz:
Yeah, right. Make sure that your credit report is looked at regularly and take steps to repair any negative aspects that show up. There's no excuse for not reviewing this important information because errors are not uncommon. And like you said, there are plenty of apps out there, but you even have free, free credit report dotcom where you can get I think it's just one per year. I do have a service where I can look at it regularly, but, you know, look at it, make sure that everything on there is appropriate. They may have made a mistake and put an old hospital type bill on. There might be yours, might be someone else's, but get it cleaned up if it's showing up. If they're if they're underreporting what you're paying, make sure that it's that it's corrected. Just, you know, the better your your your credit report, the better your credit score, the better your credit score. The the you get a break on on on interest rates. Right. Whether it's for a house, for a vehicle, whatever it might be. So, you know, taking care of one thing has a domino effect on how you're treated on the other end. So, you know, this is something that you should be looking at, at least on an annual basis.
Producer:
Yeah. Yeah. If not more often. Right. So that's that that's your credit report and the very last New Year's resolution number eight on our list here is to review your life insurance needs. I think that that one is one that's very important. But but we'll get overlooked some because people are like thinking that all life insurance may be the old kind of of death. Insurance really is all it was. I paid a death benefit and that was kind of really all there was to it. But this isn't your grandfather's life insurance that's available these days, necessarily.
Edwin Cruz:
Oh, that's right. You know, as you move through your career, your life insurance and disability insurance needs will continue to change. You know, give some thought as to how much protection you may need and consider investing in an IUL, which is an indexed universal life policy. If you're still in your forties and fifties. These type of policies are one of the only ways to generate a truly tax free income. And so, you know, when we speak about this, you know, a lot of people, like you said, they just think about, well, you know, this is just when I die. And I tell people, boy, that's a grim way of looking at it. You know, you should look at the different aspects. What if you are disabled? Does your policy cover any form of disability if you're in an accident, if there's some sort of dismemberment, if you need some type of long term care, some type of rehab? Does your policy provide any benefits for that? So life insurance can cover a lot of things. And the one thing that we speak about the most today is how to generate a tax free income from that. So can't look at life insurance as just something that's going to be used when you die. There are a lot of living benefits, and if if you've never received any education in this area, please reach out to us. We'd love to help you see what all the different benefits could be and and how little it might cost for all of the all of the benefits that you may receive. So get in touch with us so that we can help you build and navigate your financial plan. When it comes to something as important as your money, we want to provide you, your spouse, a one on one opportunity to ask us questions about your specific and unique situation. Give your money the attention it deserves and needs in order to grow for your future.
Producer:
Yeah, and the first step in that, of course, is picking up the phone or going to the website. The website is MyProsperityTeam.com and the phone number is 386 228 5769 to get in touch with Edwin Cruz and when they do that for the very first time, something that we offer complimentary here to listeners of prosperity principles is a full retirement consultation. It's absolutely free no cost to you and no obligation to continue on with anything else. If you don't like, you don't like what you hear, you, you know, you say, Oh, this guy's crazy, which he's not, by the way. But but if it sounds crazy to you and that's fine, you know, you don't you know, nobody's going to force you to work together. So talk about that. Talk about what the situation is. When people do initially reach out and seek that full retirement plan consultation.
Edwin Cruz:
Yeah, absolutely. You know, and everyone has areas that they're more interested in when they contact me for a full, complimentary consultation. But the bottom line is, regardless of what you're coming in for, we're going to go over the different steps. You know, where are you a little short when it comes to protecting some of your assets? Are you following the rule of 100? How's the rule of 72 working for you? The 4% rule. How does that apply to you? We're going to go over some of these key, let's say, definitions that will help you to and through retirement. We're going to find out, you know, are your assets protected from probate? Again, going back to the long term care issue, what type of protection do you have there? If something happens to you, how much is this going to cost your family? How well informed is your wife? If something happens to the two of you, how do these assets go to your heirs? There's a lot of important topics that we will go over, discuss, and. You know your income. What's your income gap? Do you know what that means? Do you have an income gap? Do you have an income surplus? If you do have a surplus, how do you plan on? How do you plan on moving forward with that so that it helps the next generation? Or do you have ideas for that? So there's just so much that we can cover. We can't discuss it all here, but give us a call and let us help you. It's free. You will. I promise you, you'll learn something. I've been called a teacher many times. I don't want to be looked at as a teacher. I'm a good educator. Let's leave it at that. But let's get together and. And let's. Let's see if we can address one of your main concerns.
Producer:
Yeah, absolutely. And your finances are so important, especially as you plan for retirement. So don't hesitate to do that. It's free. Literally have nothing to lose there. MyProsperityTeam.com is the website or call 386 228 5769. Okay. Now I teed this up you might think okay well Halloween was a while back so why aren't we still talking about fear and spooky things and all this? But it's important and it has to do with money because what retirees fear the most is our next topic of discussion here. And that is running out of money in retirement. And there are actually, I think, a few ways that that could happen and a few fears that people really do have.
Edwin Cruz:
And I think we all, whether it's friends, family, whatever it may be, we all know people that are struggling in retirement. And, you know, the funny part is we look at that and we think that our our time horizon is is so far out there that this can't happen to us. But unfortunately, it surely can. And there's a lot of risk out there. Let's talk about Social Security and the cutbacks. Did you know that in 1940 there were 40 workers per retiree and today there are only three workers per retiree, and this ratio is expected to become 2 to 1 by the year 2050. Remember, if you've been listening to us, we've been telling you how by 2030 to 2032, it's expected that we will have about one out of every five of us will be over the age of 65. So, you know, there's a there's a growing population when it comes to retirees and how are we going to fund that? I truly believe that there has to be some type of Social Security reform. And, you know, this is going to affect me, but I'd rather see it get decreased on my end versus it disappear at some point here. We don't want to see that. We also know that tax increases, we've seen taxes go up, we've seen them go down.
Edwin Cruz:
Our national debt is at a point where we've never seen it this high and it's growing by the second. It's no fun to look at for anyone that pays attention to that. But. You know, historically, tax rates are lower than what they used to be. If you remember back in the late eighty's late nineties. Yeah, late nineties we had tax brackets that were I think approaching somewhere in the 70% range for the high end earners. I mean I think that's thievery. But I do expect that with the increasing national debt as I just mentioned and government spending that tax rates have to go up in order to to meet the nation's budget requirements and demands. This is not going to stop. We're facing an unprecedented time of inflation. You know, the cost of living adjustment reflects a 14.6% inflation over the last two years, and some experts believe that true inflation has been much higher. And it depends on what you're purchasing, of course, and how much of it you're purchasing. If you have a child, a baby at this point, I couldn't imagine I was expensive enough when I had my kids going back 30 years ago, 25 years ago. So I can't imagine what parents today are going through and what they're feeling and then looking at portfolio balances going down too quickly.
Edwin Cruz:
Again, we spoke about this a little bit sequence of returns. It can be devastating to to your retirement and anyone that's in that retirement red zone, again, that's five years prior to retirement or five years after. Preservation of assets is key in order to fund a long term retirement. Another thing that we've discussed here, longevity risk. You know, people are living longer and longer. The the fastest growing group of people when we talk about in in decade segments is are the people that are between 90 and 100. It's the fastest growing group of people. So how do you plan for that? You have to have lifetime incomes. Just having a lump sum of of cash is not going to protect you if you live well into your nineties. And I believe with medical advancements we might start seeing 100 and beyond. So we have to prepare ourselves. Number five market crashes. You may want to consider reducing the risk. And again, this goes back to the rule of 100, reduce the risk that you're taking with your current portfolio. You know that from 2000 to 2002 or I should say, if you remember that time period from 2000 2000 to the market, the S&P saw three straight years of decline.
Edwin Cruz:
You know, we had 9/11, we had a recession, and we also had the tech correction back then, if you remember that. So, you know, these and these things are not going to stop. You know, they're not going to stop. And if we look at the years again, we just talked about 2000, 2000, two about 2008 when we had the housing market collapse. That was no fun. You know, on average, we saw 37% decreases in the market. In 2018. We saw a quick mild flash crash, as I call it, when it all settled out, about 4.4% on the negative. And then we lead up to this year, 2022. And I say, thank God it's almost coming to an end because the losses this year are on average when we look at the major indices around 17% year to date. So it's no fun. Again, sequence of returns, something super important to to consider if you don't don't know what that is. If you want a little history, if you want to look at some charts to show you how that affects you, we have those. And so give us a call and and we'll discuss this.
Producer:
Yeah, absolutely. And that number once again, 386 228 5769. You know, and we're talking about all of these things that could lead to people potentially running out of money, running out of that income that's so important during their retirement years. I think one of the things that is really real, and especially when you talk about longevity risk, people living longer, living well into their nineties and all that health care expenses, boy, they're going to they're going to just keep on going because the longer you live, you're not necessarily going to be healthy and spry at 100. Hopefully you are, but if you are 100, 110, you know, then chances are you're going to have some issues. And the longer that you live, the longer those issues potentially go on, the more money you'll have to spend.
Edwin Cruz:
That's right. You know, health care expenses, you know, that's another huge area that that retirees fear. In fact, I am preparing. A long term care policy for someone. At this time. Why? Because their kids live out of state, right? Especially here in Florida. You have so many parents that moved to Florida, but their kids are up north. And so after watching her husband, which was also my client, watching him deteriorate and eventually passing away, she was the caretaker. She now realizes, well, who's going to take care of me? And so health care is is going to be under tremendous pressure, as we see as as I said, the population continue to rise. And so between prescription drugs, common procedures, long term care expenses, a couple retiring in 2022 may need to spend upwards of $315,000 on health care in retirement. Where is that coming from? And I you know, I like to tell people when we discuss this, you know, there are ways to take, let's say, part of your assets and make that three times the amount for your long term care needs. So now all of a sudden you've taken the pressure off of needing not just the income, but needing these lump sums for long term care. There are ways there are solutions to to make this happen, but you have to reach out to us. You know, your stockbroker is not talking about this. They're just interested in keeping your money in the market. But if you if you reach out to a true retirement planner, someone that is interested in more than just looking at your your lump sum of assets under management, that's what we're here for. We're here to show you how to lessen that burden into your eighties, into your nineties. And you must do that because if not, you'll probably end up facing Medicaid. That's no fun. You're being told what to do. You have no choice. So if you want to maintain that choice, if you want to maintain that freedom, reach out to us. 386 228 5769.
Producer:
Yeah, and yeah, it's something very important to remember. Of course, all those health care expenses that that really add up caring for a loved one also that was one that hit hits home for me because, you know obviously not in retirement here. I'm not I'm not they're not quite there yet But in my forties here, you know, my dad got got ill and eventually passed away And so that's something else too that that could be unforeseen or, you know, a lot of people do as we as we get older, as I just said, that have those health issues. And so if it gets to a point where you have to care for somebody, that could be something that you really need to to plan for in in the future, because chances are it's going to probably happen at some point in your life.
Edwin Cruz:
Absolutely. You know, I, I was in that situation where we had to take care of my my mother in law. And of course, we did it graciously. It didn't bother me one bit. It actually bothers that person. You know, they want to have that independence, that freedom, but having to care for a loved one, there are expenses that come with that, right? It doesn't come with with without any expense. So, you know, think of it this way. Prepare for the worst. And if it doesn't happen, you're going to live a much better life.
Producer:
Yeah, absolutely. At least you're prepared in case it does. MyProsperityTeam.com once again folks is the website and 386 228 5769 is the phone number.
Producer:
Here's the cost cutter of the week.
Producer:
Yeah so in this time of inflation of course we like to try and save you as much money as we can where we can. And so a good cost cutter idea this week is to pay off your mortgage completely. I know that. And you had mentioned doing that very thing earlier in the show and how good that made you feel. I know that's got to be a great, great burden off your shoulders.
Edwin Cruz:
You know, it's quite an accomplishment because when you first buy your your home, you're thinking, wow, a 30 year mortgage or a 20 year mortgage. But if you really put your mind to it, as they say, you can accomplish a whole lot more. And and it's true. The happiest people that that we meet with for their annual reviews are the ones that have paid off their home. You know, if you have to pay a monthly mortgage during retirement, it can absorb the entirety of of one of two social securities. Sometimes that plus a plus part of a pension. So, you know, we don't we don't want you to go through that. And so. For married couple again, if it takes up your Social Security, you know, you start thinking, especially if all you have is Social Security, no pension and you have assets. You know, you start thinking of, am I going to have enough to live on? Why? For most people, they haven't come up with an income plan. So again, let us help you there. But we strongly encourage all of our prospects and clients to pay off their mortgages in a smart way. That said, trying to avoid paying off the family home with your IRA money is not a good idea because you will owe taxes on the money withdrawn. And I've seen that. I've seen people say, well, you know, I'll just take this lump sum and pay this off.
Edwin Cruz:
And then we start talking about the tax consequences, and that's when the light bulb goes off and they remember, you know, you wouldn't pay a 20% real estate commission. So you don't want to have to pay 20% in taxes when you pay off your mortgage on your family's primary residence either. Right. So we encourage our clients to use money in their investment accounts, withdraw cash value from life insurance plans or savings accounts. And you could also consider selling collectibles are an extra vehicle. And I've made that recommendation, believe it or not, or a separate piece of real estate to raise funds necessary to pay off the family home. You want to do it with funds that are not going to cost you too much in taxes because the trickle effect happens. Now, you don't have the money to pay off all those taxes. So now you're having to take out from some other asset just to pay that tax debt off. So you don't want to do that. The tax burden on the sale of these types of investments is minimal to zero. So housing is among among the biggest cost retirees face. Eliminating your mortgage removes a sizable monthly bill from your retirement expense, and you will still need to pay taxes and maintenance costs for your home. But that should cost significantly less than your mortgage.
Producer:
Yeah, it should. And boy, that I can just imagine not having that. Generally speaking, the the housing cost is the most expensive payment that anybody makes every month and having that burden being lifted off your shoulders, as I said, boy, that's got to be a good, good thing. So a great cost cutter there to mention here. So what we want to do now is talk a little bit about bonds. And we mentioned the bond market earlier in the show, Ed, and it's something that's been suffering this year. And so a lot of people might be considering bond replacement. Right? So what we're going to do is actually play just a couple of minutes here from the book annuity 360. It's everything you need to know about annuities really in a in a very nice and easy read but with a lot of great information in it. This is going to be chapter 15 called bond replacement with fixed indexed annuities. You'll learn a lot here in these next couple of minutes and we'll talk about it coming up on the other side.
Ford Stokes:
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. And my 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.
Ford Stokes:
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 alone, 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 24th, 2020, the ten year Treasury note was yielding 0.64%, and the 30 year Treasury bond was at 1.27%.
Ford Stokes:
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 business risk.
Ford Stokes:
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 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.
Producer:
So that is chapter 15 of the book Annuity 360. Bond replacement with fixed indexed annuities. A lot of great info there that.
Edwin Cruz:
Absolutely. And if anyone wants a copy of that book, call us 386 228 5769. But, you know, when we talk about bond replacements, there's a lot of benefits to to what we like to offer you and and make that replacement with. And that's a fixed index annuity. And fixed indexed annuities provide a lot of benefits. Obviously, the one that we speak about all the time, it provides you with 100% principal protection, which means that you can never do worse than zero. As we say, zero is your hero. And why not enjoy market-like gains without the market risk? Participate in the gains of an index. And so, you know, when people start talking about low-interest rates or fixed rates on things, they're thinking that all they're going to make is two or 3%. We could show you how to do far better than that. And why not put yourself in a position to have an income that you can never outlive? Why not lower your fees? You know, some of these products have no fees. So if you're one of those that are very fee adverse, we can help you there. Liquidity, You know, some people think that, oh, gosh, an annuity. My parents had an annuity back 20 years ago and they had no liquidity. Well, we actually have annuities that have great liquidity and compounding liquidity. And we could also show you how to take your your savings and and grow that money tax deferred. Because if it's sitting with your broker, you've got you have $200,000, you made 10%. That's 20,000. Now you're going to get a 1099 for 20,000. Is that what you really want? Let us show you how to decrease your taxes and some of these products. They offer bonuses. And for a lot of people today that have taken large losses. How nice would it be to get five, seven, 10% of a bonus to make up for some of these losses? And we actually have some some other cases that are a little more net. So anyway, give us a call and we can help you.
Producer:
Absolutely can. 386 228 5769. Or you can go to the website MyProsperityTeam.com. Well, that'll bring us here to the end of the show. But you know it has flown by once again a lot of great information here. I look forward to learning more next week when we see each other again.
Edwin Cruz:
Absolutely. And we have, I'm sure, another amazing lineup to talk about.
Producer:
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 MyProsperityTeam.com or pick up the phone and call 386 228 5769.
Producer:
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. AmeriLife 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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