By Julie Workman
According to the 2018 Chapman University Survey of American Fears, fear of not having enough money for the future and fear of high medical bills took two of the top ten spots on the list. Planning for the future can help to alleviate these fears, and the sooner you start planning, the better the odds that you’ll be prepared for these things that can severely impact your quality of life during retirement. One of the best ways to navigate the seemingly complex choices of creating a financial plan is to consult with a Chartered Financial Consultant (ChFC), and one of the best ChFC’s you’ll find is Dennis Kagel.
“If you find your passion in life, it’s not like going to work,” says Kagel. “That’s been true for me ever since I chose the financial services business more than forty years ago. The thing I enjoy most about this profession is the interaction with people. I’ve always felt like this was a relationship business first, not a transactional or product business. As a former teacher and coach, I’ve always taken an educational approach to the business. People are so busy with their families and jobs that they don’t have time to keep up with the details of ever-changing tax laws and investment options. It’s my job to communicate that to the public and, of course, to analyze each individual client’s situation, to identify their goals and concerns, and then to make the appropriate recommendations.”
“We aim to give our clients the same type of experience that we would find beneficial and enjoyable if we were the client,” he continues. “The very first item on our list of core values is that ‘People Matter.’ We believe that relationships matter and that our business is relational, from start to finish. ‘People First’ — it’s our prime directive.”
Integrity, communication, and service matter at Kagel Financial Services, too. “Part of the code of ethics for all chartered financial consultants is a commitment to serve as a fiduciary, or one whose highest duty is being ethically bound to act in the client’s best interest,” Kagel says. “Not only do we take the fiduciary trust very seriously, but we also do our very best to deliver extraordinary service to our clients.”
“Our office is committed to standards and procedures that a lot of people would probably consider old school: getting to really know each client through personal meetings, a real, live person answering the phone, returning phone calls in a timely manner, and being available and accommodating to our clients. Our clients deserve and appreciate the personal attention that we offer. Some of the most important things we can discover while we’re getting to know you are your goals and fears about your finances. Of course, we give advice about investments and insurance, but when you boil it down, what we really do is solve problems for our clients.”
There are four main topics that need to be addressed when planning for a successful retirement. Kagel Financial Services has a solution for each of them, and offers customized planning services based on each client’s individual needs for a lifetime income plan, tax strategy, risk reduction over time, and planning for long-term care.
Solution #1: Create an Income Plan
During your working years, the balance of your retirement accounts is what you’ll mostly pay attention to, but the day you retire that is no longer the most important thing. You need to be able to calculate what amount of monthly income can be generated and how long it will last from your total account balance. The fact that you have $200,000, $500,000, or a million dollars is less significant at that point, but whether it will generate $3,000, $5,000, or $10,000 per month for 10 years, 20 years, or more is not. Creating a properly structured income plan helps to alleviate one of retirees’ main fears: that they’ll run out of money before they run out of time.
There is only one way to approach this problem that makes any sense. First, calculate what monthly amount will be required to cover your fixed living expenses (plus a little extra just to be safe). Next, add together all the sources of income you’ll have during retirement. This will probably be some combination of Social Security, pensions, etc. If your income falls short of the expenses, then it’s imperative that you invest a lump sum into a vehicle that will provide a guaranteed lifetime income for the amount of the shortage.
Let’s say you’ve determined that your fixed expenses will be $6,000 per month and your guaranteed income will be $4,000 per month. You need to invest a lump sum into a financial vehicle that’s guaranteed to pay you at least $2,000 per month (probably a little more just to be safe) for as long as you live. Once you’ve made this investment and you’re sure that your basic monthly living expenses are covered, you’ll want to “optimize” the balance of your portfolio. How you accomplish that is a subject for another time, but that’s a decision that will be based on factors such as your age, risk tolerance, investment and legacy goals (if you wish to leave an estate for spouse, children, charity, etc.).
Solution #2: Plan For Minimizing/Eliminating Income Taxes
Over the years, Kagel has noticed a typical pattern of behavior. People usually are encouraged by their employer and co-workers to put money into their company 401(k), and, let’s face it, most people live life by the “follow the herd” mentality. “I certainly strongly encourage people to put whatever amount into their 401(k) that it takes to get the company match. But, hardly anyone stops to consider whether it’s the best place for money above the amount that will be matched,” Kagel says. “What gets overlooked most of the time is the importance of tax planning. This is huge as taxes will be the single biggest expense for most people during retirement.
“Tax laws change all the time,” he continues. “Social Security and Medicare are basically broke. As a country, we are carrying $23 trillion of debt (that’s 23 followed by 12 zeros!). Judging by past performance, Congress has displayed a preference for taxing and spending rather than cutting expenses, so it’s very likely that taxes will rise in the future.”
“People tend to think that they have no choice but to simply pay their income taxes at whatever rate the government dictates, but the truth is that there are options in the tax code to help dramatically reduce or even eliminate your exposure to ever increasing tax rates. These tax implications are so important that we discuss every client’s tax burden with regard to their current accounts, as well as how any recommendations we make will impact their overall income tax situation.”
Solution #3: Reduce Risk as Retirement Approaches
The number-one mistake people make with their money is staying too heavily involved in risk as they approach and enter retirement. Kagel encourages clients to think in terms of the three stages of their financial life:
Starting with our first professional job and up to our mid-50s we are in the “Accumulation Phase.” During this time, most people are working at establishing good savings habits by putting money into a 401(k), an IRA, 403(b), or something similar, and should be focusing on growth. During these “accumulation” years, we can take on more risk, since time is on our side — if the market goes down, we have 20 to 30 years to recover our losses. During this time, most portfolios have something like 80 percent to 100 percent in growth investments and 0 percent to 20 percent in more conservative investments.
Once we reach our mid to late 50s, we need to realize that time is no longer on our side and we are entering the “Preservation Phase” of our financial life. During this phase, we’re just trying to hold on to what we’ve accumulated. We don’t switch overnight from a heavy percentage in growth (more risk) to a heavy percentage in more conservative (less risk) choices, but as we enter the “Preservation Phase,” we should work to make sure that an appropriate percentage of our total portfolio is secured in safer positions.
The third phase of our financial life is the “Distribution Phase” and this begins at retirement or at age 70½, whichever comes first. At this point, people are concerned with the practical things, such as which accounts to draw from first, the best ways to minimize taxes, making their money last for life, and estate planning. During the “Distribution Phase,” people should be 80 percent to 100 percent in conservative accounts.
After all, if you’ve accumulated sufficient financial assets to provide for a comfortable retirement, it doesn’t make sense to take risks with your nest egg now.
Solution #4: Be Sure To Plan For Long Term Health Care
Kagel has seen increasing concern from his clients about the rising costs of healthcare, especially as it relates to handling the expenses associated with long-term care. In the past, the best solution has commonly been referred to as long-term care or nursing home insurance, but today’s “long-term care” options cover choices including assisted living and adult daycare in addition to a skilled care facility.
Regardless of the option that best fits your unique situation, it’s a very expensive proposition. According to longtermcare.acl.gov in 2016 (the last year figures are available), the average cost of a skilled care facility is $7,000 to $8,000 per month, depending upon what part of the country you’re in. With the average stay being around three years, it’s easy to see how one could easily “burn through” $200,000 to $300,000. On the high end, it could run upwards of $1,000,000 or more.
Statistical probability models indicate that someone turning age 65 today has almost a 70 percent chance of needing some type of long-term care, and women need care longer (3.7 years) than men (2.2 years). Between Medicare and Medicare Supplements, only some care is included, and then only for the first 100 days or so.
Traditional long-term care (LTC) insurance is one solution, but there are a couple of disadvantages to this approach.
First, it’s a “use it or lose it” proposition. You could pay premiums for years and years, then die peacefully in your sleep at age 95 and the insurance company would not return a single cent.
Secondly, it’s quite common for an LTC policy to have guaranteed premiums for only a limited period of time, usually around five years. After that, it’s fairly common to see premiums increase. Obviously, you are more likely to need the coverage as you get older, and by that time it’s quite possible that the premiums could have increased to an unaffordable level. At the time you need it most, the rising premiums could force you to discontinue the policy.
Fortunately, now there is a better option, commonly referred to as “Asset-Based LTC.” There are many advantages with this type of plan.
First, regardless of what happens to the plan owner as they age, they (or their family) will receive back more money than they put into the plan. Let’s face it: we’re all either going to live to a ripe old age, die before then, or need assistance with the “activities of daily living” for a while before we pass away. An Asset-Based LTC plan will do the following:
- Pay for health care assistance (up to plan limits)
- Provide a tax-free death benefit to the beneficiary if the benefits haven’t been used
- With the right provision in the right plan, may even give the plan owner an option to surrender the policy and get 100 percent of their premiums back!
Kagel says “I’ve found that most people are not aware of this option, and they are pleasantly surprised to discover that there is an attractive alternative to the traditional LTC policy. Another positive is that the premiums are guaranteed from the start to never increase. It’s easier to plan for the future when expenses are known and predictable.” Whether you are 10 years away from retirement or ten years into it, Kagel Financial Services strives to offer their clients peace of mind.
Information in this article is provided as general information and is not intended to be specific financial guidance. The information and opinions expressed herein are from sources believed to be reliable; however, we make no representation as to its accuracy or completeness. Before you make any decisions regarding your personal financial situation, you should consult a financial, legal or tax professional to discuss your individual circumstances and objectives. Products or services mentioned may be unavailable in your state and/or unsuitable for some individuals.
If you want to be certain you are facing your financial future without fear, call Dennis Kagel Financial Services at 309-454-9171 and spend some time getting to know Dennis and his team. They’ll get to know you and your financial goals,offer solutions, then set you on the path to a secure, successful retirement. Kagel Financial Services is located at 321 Susan Drive, Suite A in Normal or visit them online at www.safemoneywizard.com.
Back to Top