The New Challenges to Retirement: Where Have All the Pensions Gone?

 Joe Yocavitch explores the evolution of retirement planning over the past 30 years, emphasizing the shift from pensions to 401(k)s, the importance of guaranteed income, and strategic investment approaches for a secure retirement.

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SPEAKER_01 0:00

Welcome to the Heart of Your Money with Joe Yakovic, president and founder of JML Financial Group. We hope today's show can help you on the road to your financial wellness. Now, here's Joe Yakovich and the Heart of Your Money.

SPEAKER_02 0:14

So, Joe, I'm just gonna jump right in with you and ask what would you say is the biggest change to retirement over the past 30 years?

SPEAKER_00 0:24

I think the number one change uh people are starting to realize that the no longer days of getting a pension and uh and living on the pension and your social security is gonna make it. It doesn't work that way any longer. Uh too many things have gone up in pricing. We all see that. So uh a number of years ago, and I'm gonna say 30 plus years ago, the the pensions uh unless you work for the government, a different story, but uh the old guaranteed pension for life, they're a they're a dinosaur. And now people have to fend for themselves, which is a really interesting saga. When when this started to take place some years ago, people now have to understand the market, interest rates, volatility, um, small cap, large cap, value, portfolio management, rebalancing, et cetera, et cetera. And they have to do it under kind of an umbrella of a thing called the 401k.

SPEAKER_02 1:24

When you started in this business 40 plus years ago, was there as much talk about the market and the volatility, or people didn't pay attention because they had these pensions?

SPEAKER_00 1:33

You know, no different than what it is today. I mean, with politics, I mean, I never talked uh the things uh politically to any of my uh friends or uh my family members. Now, because of uh social media and uh you know TV and marketing, uh it's uh it's a conversation everywhere. And unfortunately, people don't really understand it, and it's very complicated. You know, I do my best to make it simple. I mean talking simple, simple, simple. And it is simple. If you sit down with someone that understands the mechanics of not only, you know, putting money away the right way, but preparing themselves for the downside, for the volatility issues, for you know, having buffers, you know, and so forth. And we'll talk about that today. But more importantly, you know, what to do with their money as they invest it. Uh, I mean, just recently I'm talking to somebody and uh we're working out and and said, uh, yeah, I have all this money. I did really well in the market. And uh unfortunately her her husband passed uh many years ago and left her quite a bit of dollars in real estate and so forth. And she said, Yeah, I earned this much on my portfolio. And don't forget, she's in her 70s. I said, When are you plan on um spending any of these dollars? And she looked at me like, What do you mean I'm gonna spend it? I said, You made 40%, and you're telling me you made 17 and on here and and you have uh Microsoft and you have all the I go, Okay, you're doing all this stuff, but you're 70 plus years old. What when are you gonna plan on taking a distribution? You know, start spending some of these dollars. And she says, in the same conversation I'm having, she said, Yeah, my my doctor said I better prepare my uh you know, my my estate. I go, why so? She said, uh I just had uh some years ago, I had um cancer. I said, Well, so uh what I want to uh get across is that you know we have these uh situations, all of us are faced with different situations. But when you're going into retirement, you really have to have a game plan, you really have to have a plan of action, whatever it may be. In this case, you know, she has enough enough money to retire comfortably because of her age and because of what she has acquired. I said, and she has no children. So her her her late husband sent and gave her all this these uh inheritances um and she has no no children at all. So I said, you know, the question becomes do you have a plan of action? So what we want to do with this type of conversation with our clients out there is we we want to be able to open up uh that floodgate of the ability that it doesn't have to be complicated. That's the question. It becomes very complicated what people think. They watch too much information and too much things have been thrown at them on some of these um these uh shows on TV, and the social media, like you mentioned, like everyone's on social media all the time, and there's constantly messages and imagery coming at us. Correct. And and I'm saying to myself, I mean, you you can't listen to it, and it's all snippets. Every person's different. I mean, everything that we do is pretty standardized in in what we do and how we do it. Uh for but for me, it's how to spend money, it's the spending mechanics of what we do. I mean, we we get to the top of the mountain of putting money away, and most advisors, and I say most, do a really decent job doing that. But when you get to the top of the mountain, this is five years before you go into retirement, and five years after, this is where the re the red zone comes into play, where you can't make any mistakes going into retirement, and for the next five years after retirement, it can really be devastating to a portfolio. So if you don't put proper planning in place, it could cost you. It could cost you of dollars running out sooner than you would run out yourself. So my question becomes you know, do you have a plan of action and do you set it up correctly? And and are you faced with these things and are you understanding where the income will come from going into retirement?

SPEAKER_02 5:38

Talking about no pensions and now it's our responsibility with the 401ks, but if our companies aren't offering pensions anymore, Joe, what is our next best option as far as getting guaranteed income? Because if anyone's listened to the show before, they know that's the name of the game.

SPEAKER_00 5:55

Well, no one in the world would be against a guaranteed lifetime income, similar to a pension or social security benefits. You know, we use and we all know the theory of the three-legged stool back in the day. I used to talk about it. You know, you have that traditional sources of retirement income being a pension, or you have Social Security, which is again like a pension plan if you think about it, uh, or a pension itself, and you have personal savings. But what would happen if one of those legs um were shortened than the other two? Well, it would lack and represent uh a lack of stability, and we have to understand going into retirement, we need to be somewhat stable. We don't want to be in a situation where we're second-guessing where our money's located. We want to make sure we have growth, but we also want to make sure what is the required dollar amount that you need to go into retirement, and that's where we focus our time and effort on. You know, how much do you want going into retirement when you do step into that arena? Uh a lot of folks will continue to work as long as they can, but at the end of the day, if you're not physically able to, or you know, job-wise, you need to have a plan of action, and and that's where we come into play. We rather actually sit down and very simple, just to ask you some fundamental questions. You know, how much do you want going into retirement? And how long do you want it to last? These are really important questions, and that's where we find the dollars. You know, how much are you are you going to take out of your portfolios? Because most of the people have been putting money away. But we have to carve out, and this is all PhD economic uh conversations with clients that we have. We really want to make sure they have a lifetime guaranteed income. Now, you're I I work with a lot of different advisors, and I work and I listen to a lot of different people in my business. You know, Dr. uh David Babbitt, Dr. Wayne Powell, uh, Dr. Michael Finyon, uh William Sharp. I mean, these are Nobel Prize winners, and every single one of them says exactly the same thing. You need to have annuities play a fundamental role in planning for retirement. Now you're dealing with facts, you're not dealing with opinions, and no one in the world would be against to have a guaranteed income. And that's what we focus our time on. A portion, they're talking about between 20 and 40 percent of your money going into retirement should be focused on what you're gonna receive every single month.

SPEAKER_02 8:27

Because if you go back to that three-legged stool and you talked about it being Social Security pensions, and then what you've saved, for a lot of us, that pension hasn't been shortened. I mean, that one got kicked right out from underneath us. So you've got to find that third leg to make it stable again. And I think that that's where you're talking about, you know, a product like an annuity could come in.

SPEAKER_00 8:47

Correct. We pull out because no more uh situations such as a pension. So therefore, we start to take a portion of their 401k or their 403B and convert those dollars into guaranteed incomes. We also can convert, and which we'll talk about a little down the road here, about how to convert those dollars into Roth 401ks or Roth IRAs. And this is important on a taxable situation. So we want to make sure a portion of their money, number one, is in a very tax-efficient strategy, and number two, have a guaranteed income for the rest of their life and their wife's life and her spouse's, and possibly for their children's life, also. So it depends on how we structure some of these annuities. And these annuities have been around for a long time. So we're able to pick and choose the right annuities, and when you take that in consideration going into retirement, a portion of your money has to be put together for yourselves of what you want and need each and every month. If you say, well, Joe, I need three or four or five thousand a month, we need to have enough dollars to do that. And the older you get, the way these pension type of annuities, older you get, the more money you would receive. So it depends on when you're going to do get the money and go into retirement full blood. I mean, think about it, you you can partially do this part-time, and people, you know, they work part-time a couple days a week to keep themselves active. But at the end of the day, if you go into retirement and you go 100%, you know, in the retirement world, you've taken all the money that you saved as an asset, and now you have to turn a portion of that money into an income. Because you can't have an asset giving you enough income. Real estate won't do it, stock portfolio won't do it, Muni bonds won't do it, bonds itself won't do it, crypto will not do it. You're only able to receive a guaranteed income from an annuity, and you have to design it just the situation for what you're dealing with today, either guaranteed money being the 401k to 403D, which we convert to a Roth. So you can basically get a guaranteed income tax-free for life if you set it up correctly. But again, this is a great way to make sure people have that portion of their money in the guarantees where they at least can feel comfortable that every single month that income is going to come in every single month.

SPEAKER_01 11:18

Securities and investment advisory services offered through Integrity Alliance LLC, member SIPC. Integrity Wealth is a marketing name for Integrity Alliance LLC and is not affiliated with Integrity Wealth. Joe Yakovich is an investment advisor representative and registered representative with Integrity Alliance LLC, a registered investment advisor and member SIPC. Integrity Wealth is a marketing name for Integrity Alliance LLC. Integrity Wealth is not an affiliated company. Opinions expressed on this program do not necessarily reflect those of Integrity Wealth. The topics discussed and opinions given are not intended to address the specific needs of any listener. JML Financial Group does not offer legal or tax advice. Listeners are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against the loss in a declining market. It is a method used to help manage investment risk. Fixed annuities are long-term insurance contracts, and there is a surrender charge imposed generally during the first five to seven years that you own the annuity contract. Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation if any of a stock market index. Such contracts have substantial variation in terms, cost of guarantees, and features, and may have participation or returns in significant ways. Investors are cautioned to carefully review an indexed annuity for its features, cost, risks, and how the variables are calculated. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxes, ordinary income and if taken prior to 59 and a half, a 10% federal tax penalty. Converting an employer plan account or traditional IRA to a Roth IRA is a taxable event. Increased taxable income from Roth IRA conversion may have several consequences, including but not limited to a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Rebalancing reallocating can entail transaction costs and tax consequences that should be considered when determining a rebalancing reallocation strategy.