029: How to Find the Right Retirement Planner For You with Jamie Hopkins
Jamie Hopkins is soon to become the Director of Retirement Research at the Carson Group – and he holds virtually every designation under the sun. He has been the Co-Director of New York Life’s Center for Retirement Income, a Professor of the Retirement Income Program at the American College of Financial Services, and helped to create the Retirement Income Certified Professional designation.
He was one of my professors as I was getting my education. He’s been featured in Forbes, Kiplinger, and served as a Retirement Mentor for Marketwatch. He’s contributed to dozens of journals on tax law and retirement income planning, and his newest book, Rewirement: Rewiring the Way You Think About Retirement, explores the difference between – and the different mindsets needed for – retirement income planning and saving for retirement.
Today, Jamie joins the podcast to talk about the lessons he learned as captain of the Davidson College swim team training alongside Michael Phelps (and how they shape his work as a financial planner), what he considers to be the greatest accomplishment of his life, why almost everyone is holding some form of digital currency, and how to find a retirement planner who isn’t just good – but a fit for your specific needs, situation, and challenges.
In this podcast interview, you’ll learn:
- How Jamie applied the lessons he learned from training with Michael Phelps in college to financial planning.
- Why most people don’t need to be millionaires to retire.
- Why Jamie blames tax professionals for the underutilization of Roth IRAs.
- The difference between accumulation and retirement income specialists.
- How to utilize life insurance for tax-free income and long-term care coverage.
- “Practice doesn’t make perfect. If you practice poor technique, if you practice poor behavior, you just get really good at doing something the wrong way.” – Jamie Hopkins
- “What I got to experience was the process it took to be great at something. Not really good, not kind of good, but truly great. Michael Phelps is the most famous swimmer and the most decorated Olympian athlete of all time, and really, truly amazing. It came from a bunch of things coinciding at once, but we had a great coach, a great program, and great history. We were able to build off of that and create a process that was repeatable, putting out 1-2 Olympians every year.” – Jamie Hopkins
- “Most people don’t understand things until they do them. Once we’re done with retirement, we’ll understand it, but that’s a little too late.” – Jamie Hopkins
Jamie: Yeah. Thanks for having me on, Casey. Yeah. Wade’s a hard act to follow. He’s a really brilliant person.
Casey: He is a really brilliant guy and I know he’s quickly become one of our most popular podcasts that we’ve released just due to the extensive research that he’s been able to conduct and I know you partnered with him on a lot of that research and a lot of different projects over the years. You’ve worked on these things together and so it’s really exciting and I’m really excited to have you here as well and dive into some of these different topics that you’ve worked so hard on. But as we get started here, I recently noticed something on your LinkedIn and it was something about running and I was pretty astounded. It sounds like you’ve been a pretty big runner for an extended period of time. You just ended a 3,004-day running streak this year and before we got started you said that you got three children pretty soon that are going to be under the age of three. You spent over 150 days a year, 100 days a year in a hotel. How did you accomplish that running streak?
Jamie: Yeah. The running streak was tough. At one point, this is probably the most interesting thing about me is that I’ve just done something a whole bunch of days in a row. But, yeah, ended up running for 3,004 consecutive days, at least 1 mile outside. That was over eight years, about eight years and three months ended on March 24 this year and decided, people say, “Well, why did you end it?” For a long time, I just wanted to keep going and you mentioned the reason actually why I ended it. I have two kids at that time and I’ve got a third one on the way and I said, “You know what, I want to be able to walk away from this and not be dragged away from it.” That many days it’s not necessarily healthy for you. I mean, I ran in 115-degree weather in Tampa, Arizona. I ran in blizzards and hurricanes. I’ve done crazy things to get that streak in place. Now, I ran the Boston marathon during that time period too. Actually, I also ran the year when the bombings went off there and, yeah, it’s a very tragic event. Also, it brought me very close to the sport of running. I wasn’t a runner originally but I’ve connected to it over the years now and runners are very passionate about it. It’s a whole group of people that live and breathe it and do it every day and I was glad to be part of that. I’m taking a little bit of time off right now but I might get back into it at some point.
Casey: I think it’s a real expression of your passion and commitment and near level of commitment to things once you set your mind to it. I’ve never met anybody that has ran that many days, except for one of the employees here at Howard Bailey has actually put in over 6,000 days and I said, “3,000 days?” I thought, “Wait, there was no way she got 3,000 days,” and I had to call her up and recognize that, “Hey, how many days have you ran?” It was over 6,000. I couldn’t believe it, but it just shows such a great level of commitment and I understand that you’ve maybe not been a runner forever, but you’ve been an athlete maybe your entire life, and at one point, you’re a big-time swimmer and you actually got to know one of the most famous, if not definitely today, the most famous swimmer in history, Michael Phelps.
Jamie: Yeah. So, that’s what I did before. Yeah. I didn’t start running to, really, I started that streak. I swam most of my life. I swam growing up in Baltimore. I had the luck and the pleasure to actually swim with really the best team in the world, NBAC. When I was there, we had a couple Olympians right before Michael, but Michael and I are the same age. We’re a month apart and so we grew up together. We swam together, went to the state meets together, shared hotel beds, stole each other’s food, all of those fun things. And, yeah, when I always talk about that, it’s fun just to hear about it and talk about gold medals and funny stories most by Nintendo and Mario Kart and stuff, Super Smash Brothers was a big one too when they come out with that.
Casey: Oh, yeah. I think we’re about the same age. I think we experienced that at the same time.
Jamie: Yeah. And those were fun. But what I’ve kind of taken away from that besides friendship and good stories, when I got to experience in my life was the process it took to be great at something. Not really good and not kind of good at something but truly great. As you mentioned to me, Michael Phelps is the most famous swimmer and the most decorated Olympic athlete of all time and really truly amazing. And it kind of came from a bunch of things coinciding at once but we had a great coach, a great program, a great history before us and we’re able to build off of that creative process that now is pretty repeatable. I mean, they’ve continued to put out one to two Olympians every year with Michael from that same team and some of the best names out there too but our coach really talked about process in the sense of you often hear that practice makes perfect and you say, “Okay.” Everyone just buys into that saying because you’ve heard it a bunch and our coach said, “Practice doesn’t make perfect. Practice makes habit.” And so, if you practice poor technique, if you practice poor behavior, you just get really good at doing something the wrong way.
And so, what he really instilled is the details matter and one of those details was actually training on Sunday. Most swimmers train six days a week and Sundays off, but we ended up, our coach decided we’re going to train Sunday too. Why? Why are we not going to take a day off? That’s 52 days a year. We get to go to work when your competitor is sitting at home. Over 10 years that’s 520 days-ish, right, that we had to go to work and your competitor is sitting at home. Well, Michael ended up winning. I think four of his gold medals in a combined total of less than two-tenths of a second. So, that’s about as fast as you can click a stopwatch three times so try to click your hand three times in a row. That’s what he won four gold medals in. So, and I look back and then I say, “You know what, if he had taken that extra 500, 800 days off, you think he would’ve won those?” The answer is probably not. And so, could you take something that was pretty good, change the process, and actually make it great? And you know, that stuck with me for everything I’ve done, making it 3,004 days in a row, you have to have commitment. You’ve got to come up with a process that works because things happen in life. People will say, “How did you do that with travel?” Well, I was set. Any day I was traveling I ran before I was traveling. Some days that required me to run at 2:33 AM in the morning and I was getting back to a hotel at 11, getting up at two or three in the morning and running outside and that takes a level of commitment, maybe a little crazy too but it was well worth it. I appreciate the experiences from it.
Casey: Well, how did you apply or I guess I should say did you apply any of those lessons that you got from your coach or from Michael Phelps, these swimming experiences that you had, were you able to apply any of those to the families of the clients or the people that you’ve worked with over the years, the retirees that you’ve met over the years, and even in your research and the things you’ve conducted? How can a retiree apply those lessons to what they’re getting ready to as a step into retirement or if they’re already there?
Jamie: Yeah. So, what I tried to apply there is process like stories are interesting but most stories tell you do we have something that you can repeat that you can take from it? And that to me was process. Do we have a process that works? And so, when we talk about retirees and their families and their situations and you get to retire, well, what worked for you? That’s a good question. What did you do well over your work career? Was it investing in yourself? Was it paying off debt? Was it not accumulating debt? And I like to learn about those things. What worked well for you? And then a great question is what didn’t work? What did you wish had you done differently? Now, a lot of people might just say, “I wish I would’ve saved more,” or something like that. Well, some of that we can’t change. That’s just in the past but are there things that you didn’t do well that you’d like to do well in the future and how can we start practicing those? How can we start that today that are process? And retirement is an interesting time period. We talk about it like retirement and like going to college. College is four years or hopefully. I guess today it’s often a lot longer, but four years, five years, three years, two years, it’s a very defined period of time.
Retirement 30, 35 years, 40 years, how many other time periods in your life did you sit down and plan for a 40-year time period? Probably never, right? You probably never did it. I know I haven’t done it. I don’t think I know anyone that’s done it. So, we’re going to plan for a truly unique time period and so we need a process that works. And so, figuring out the things you did well, you didn’t do well, and putting that into a process is going to carry you through the next 40 years is crucial. And that’s kind of what I took away from my time as an athlete is being committed to a process. We often hear stay on the plan, right? If you’re in retirement or the markets jumping around, stay in the plan, but that means you have to have a plan to stay on. Often, I hear that and say, “Well, most people don’t have a plan and that’s why they’re not sticking to anything.” So, we need a plan and a process in place that’s going to get you there.
Casey: Well, what is this idea of doing the things you did well, figuring out the things you did well, the things you didn’t do well? Can you give us some examples of what these things might be?
Jamie: Yeah. So, often what I hear from people is they say, well, what did you do well? And they said, “Well, we’ve paid off our house. We had our kids through college. We took care of them and we started saving a lot at the end,” and we did well there. We got here. We feel happy about what we did. And we say, “Well, what didn’t you do well?” And they say, “Well, maybe we didn’t pick the right investments.” They start doing stuff like that and they might have some regret. They’ll tell you a story. Well, I have my neighbor, “I wish we would’ve bought in that Bitcoin when it went up.” You get stories like that. Now, everyone is very different. Some people you get the other side and they say, “You know what, we really took on too much debt over our life. We never did a good job managing it. We’re out to retirement and we still have a mortgage. Maybe we even took on some personal loans at time period. We do have some savings, but we took on a lot of debt.” So, what that tells me about that person is, “You know what, we didn’t budget well.” He had a good income, but somehow, he had spent too much so we’ve now figured out something you didn’t do well. So, we got to start figuring how to get you on a budget in retirement because we can’t just rely on debt anymore. We might use debt to some degree but we’ve got to figure that out.
Now, the other side when somebody told me they took care of their kids, right, and they paid their college, well, that tells me a lot. What it tells me is family is incredibly important to them. Taking care of their kids, not being a burden on their kids is very important. So, then conversations I want to have with them is long-term care. I want to have legacy conversations because this is a group of people that spent their own retirement money to get their kids through college or pay off debt. It tells you a lot about who they are and where their priorities are just as if somebody else who took on a lot of debt didn’t pay it off. They told you a lot that they might not have the best budgeting, but they also probably have lifestyle things that they want to hold on to. They’re going to spend money. They always have. They’re going to continue to spend money. So, we’ve learned a lot about them by kind of asking them what they thought they did well, what they didn’t do well.
Casey: So, if you develop these habits over say a 30, 40-year timeframe on the way to retirement, you’re probably going to continue to do these habits over the following 30 or 40 years and that makes a whole transition process, that planning process a little bit better because you figured out what those things actually are. If you’re a day trader and you lost a lot of money in the stock market and you’re kind of addicted to that, you might continue that gambling behavior and in retirement we have to figure out to say, “Okay. We know you’re still going to do it. Let’s isolate 2% of the portfolio and set that aside. That’s your gambling money. If you lose it all, we can replenish it every five years.” I think that’s really insightful into both prioritizing and figuring out the things we need to pay attention to. If we’re not good at budgeting, we need to get really good at budgeting because now we’re on a fixed income. One of the things I read about you it was I think in your 40 Under 40 award, you had said that your biggest accomplishment was the development of the RICP course, Retirement Income Certified Professional, which I went through myself and really found a lot of value in but I’m curious why you feel like this is, I mean, you’ve done a lot in your life. You’ve got a law degree, you’ve been the director of retirement research, and continue to move really good direction. You’ve had a lot of great athletic accomplishments. Why is this your biggest accomplishment? Because that’s difficult to define for most people.
Jamie: Yeah. It’s a very difficult thing to define and honestly, so that was probably a couple years ago I said that I guess maybe the good or bad thing is that that’s probably still true today. So, I don’t know if that means I haven’t done enough in the last couple years but the RICP designation that we built at The American College, my co-developer there, David Latel, we built something that to me, really moved the needle in a way that’s very hard to do. And you said I’ve done a lot of things in the past and I’ve done some things. I worked in the Appellate Division and worked on a case there wherein one afternoon I basically found one case and wrote away about $300 million worth of clients. Now, I say maybe from a financial impact that was the biggest impact you’ll ever have, but I’m not sure the RICP doesn’t have a bigger financial impact than that. So, at least as of today, we have about 6,000 RICP graduates, talking to one here. They’re all over the place and we have about 11,000 financial advisors enrolled in the program today. That’s 17,000 advisors that have now in some shape or form learn from this program. Well, start thinking about that and how many clients they might have.
And, you know, what we often hear is the RICP was very practical that we learn something about social security, about 401(k)s, IRAs, Roth, reverse mortgages, home-equity, Medicare, and we’re able to apply that with a client that week. I hear that from almost everyone. That was very practical. So, think about 17,000 people impacting 100 or 200 clients. That’s a lot of impact. That’s scalable. It’s something really impressive, and that was important to me. So, I came to the colleges. They’ll build out that program. So, I grew up in a family and personal information here that I talk about. My dad passed away when I was eight. I’ve got four younger sisters. My mom ran a construction company, didn’t graduate from college. Self-employed person didn’t have a retirement plan. So, when I was working in the wall and this opportunity came up and somebody sent me something that said, “Hey, look, The American College is trying to build this retirement income program. They’re looking for an attorney who’s got some ERISA background and knowledge there,” and I said, “You know what, that’s really interesting because I can see in my family situation.” I can see with my mom that she’s not ready for retirement and never really fully will be, never had a retirement plan, didn’t have a background in the financial literacy there, and that’s concerning.
So, I had this kind of personal connection to it and I could just see this budding world. When I watch TV, I see commercials on it. When I read newspapers, you see articles on it, but nobody was really training people on it yet. They weren’t educating them and so I just thought that was an incredible opportunity, and so far, the program has been successful and I think it has a meaningful impact on individual’s lives. That’s why you’re happy announcing it. That’s why it has an impact. It wasn’t an impact for me in the sense of accomplishing a 3,004 running day streak. Well, honestly, that didn’t help anyone but me. That was a personal thing. So, having an impact on other people’s lives in a positive way is why that’s been so important to me.
Casey: Well, I think some are going to be confused because there’s 1,000,001 designations out there and we just added one more and it happens to have four letters in it. So, if we go, what are all these designations? And it kind of becomes overwhelming. Why do we need one more? I mean, everybody tells us we just need to work with a certified financial planner. We’ll be just fine so one of the things that you cited in your book was a study that said, “Those with high levels of financial literacy didn’t have comparably high levels of retirement income literacy.” And so, explain that to, see, we’ve got all these certified financial planners, why would we need a CFP that’s also an RICP? Shouldn’t a CFP cover all of the things that this advisor is supposed to know? Does it have something to do with this quote?
Jamie: Yeah. So, we can go down a dangerous path here too but I’m in agreement. I think we have a lot of designations out there. Now, I think often the focus becomes on that. Why do we need another designation? Well, really, what’s behind a lot of the designations, not all of them, but The American College which is an accredited, been around for 91 years, degree-granting institution, really what’s behind it is the education. That’s really what’s important. The designation is again something for the advisor to promote but it’s really the education that’s important. So, do people need retirement income education? I think the answer is definitely yes. As you said, one of the research projects we do is we test people on retirement income literacy. What we found it is even very literate high net worth people who had financial literacy understood investing compound interest, the basic financial literacy questions, didn’t have good retirement income literacy because they’ve never done it before. This is going back to what have you been good at? Well, you get good at saving, got good at investing, dollar cost averaging. You just kept putting money in and you understood compounding interest. You didn’t understand withdrawal strategies, you didn’t understand social security, you didn’t understand Medicare, long-term care. Why? Because you’ve never experienced it. You never had to make decisions or interact with that.
So, we really can’t expect people to get that yet. Most people don’t understand things until they do it. So, once we’re done retirement, we’ll probably understand some of those things, but that’s a little too late. And CFP’s great. I have a CFP but what I view CFP as is what I say is a generalist designation. Now, it’s kind of the gold standard, but it’s general. It teaches us the financial planning landscape. And on top of that, we often specialize in something. So, if we’re going to specialize in high net worth clients or business planning or estate planning or retirement income planning, then we need to go out and get the education or training in those specific areas and I think that’s why kind of new education programs are always going to occur and be important because, as the market changes, as we get cryptocurrencies. Now, I don’t know if that many people are specializing in that today but something like that or the FANG stocks. They were understanding technology stocks. Well, there are accountants that specialize in those two areas. There are attorneys that specialize in those two areas. So, we’ll have that in financial planning too where we specialize and we create that niche market for ourselves and that’s once again we’ll need the education and training.
Casey: Well, I was going to go there, yeah, but in your book, Rewirement, you have brought up the worth of a financial advisor and towards the end, you kind of talked about how to find the right financial advisor. And along those lines, as you talk about different specialties that different advisors have, I don’t think that most individuals realize that advisors actually have specialties. They kind of assume, “Well, it’s a financial advisor. They all do the same thing,” and not realizing that some specialize in different areas. You had said in your book some advisors focus on wealth accumulation, while others focus on retirement income planning. And I think to me those are the two biggest areas that advisors specialize in. Either they specialize in getting you to retirement and other specialize on making that transition and getting you through retirement but how do we actually recognize who’s who because you walk into an advisor’s office, they’re going to say, “Yeah. We do that.” They don’t want to let you walk out the door. It’s on the client or the prospective client. It’s their responsibility to figure out who they’re sitting across the table from, how do they go about that?
Jamie: I mean, that’s actually a really tough thing. There are some great resources out there that give you some questions to ask. One thing I always say is, and this doesn’t mean there aren’t great advisors that don’t do this, but if I was talking to a client, what I usually say is would you go get legal advice from an attorney who didn’t go to law school? Would you go get medical advice from a doctor who didn’t go to med school? The answer is probably no. So, would you get an advisor that didn’t have education in advising? The answer probably should be no again, right? So, whenever I would be looking for that, I would want somebody who is committed to the industry, committed to themselves, and learning like I want that from somebody. Now, as you said, a lot of different designations out there. It could be hard to shift through that alphabet soup. Obviously, CFP is the most well-known kind of generalist designation. CFA if you’re looking for that accumulation investment person, that’s kind of the most well-known one there. RICP is kind of, I mean, I wouldn’t say it’s been around nearly as long but on the deaccumulation side kind of the leader on that one. If you’re looking for insurance, CLU has been around for 91 years. Those are the big ones in financial planning. They’re kind of the four-ish powerhouse ones, but they mean different things.
And as I said, if you’re looking for that accumulation investment picking your portfolio, that’s different than the person who’s going to help you get through retirement and help with long-term care and life insurance and business succession planning. Those are different skill sets so we need to ask about that. We need to ask like what does your clientele look like? Are you a fiduciary? Do you get paid? Do you get commissions? Can you deliver products that are outside of your company? Are you a captive agent? Those are all things that just I rattled off a bunch so you might have to get all those down at one time. But it doesn’t mean that any one of those people are bad advisors, bad agents. It just means it might not be right for you in that situation so you’re trying to figure out what do you need but as you kind of mention, it’s really hard for consumers to figure out. It’s kind of one of the reasons I went to a college originally was can we impact the whole world? In my view, we got to raise it all up. So, when you can’t distinguish between advisors, but they’re all pretty good, if we can get to that level, I’d be much happier. I don’t think we’re there today, to be honest. So, I often talk in my experience about advisors to attorneys. I went to law school. I said I’d hire probably 80% to 85% of the attorneys I know. That’s a pretty good number.
Casey: That’s a high number.
Jamie: Yeah. About 15% I would not. I’d say with financial advisors it’s probably closer to 20% to 25% of them that I would hire him for myself. Now, that’s a little unfair because I’m kind of been expert in that area. I know a lot.
Casey: You were an expert in law as well.
Jamie: Yeah. I was but I’ve kind of left that so I think I’m more willing to delegate that now. It does tell me something. It does tell me you need to be very sure about your decisions. You need to look at this. You need to talk to people. You need to feel comfortable with the person you’re working with. So, it’s something. Yeah. I’m not really sure what the takeaway from that is but we’ll ask the right questions, talk to the right people. You don’t have to sign up with the first person you talk to like you’ve made that example. They don’t want you to leave that office. It’s okay to leave and come back. They’ll still be there. They will still help you a month later. They’re not going away.
Casey: Well, I mean, to me, you said what came from that and I just hope that you continue to push and make something happen with your involvement. I think you can do that on the legal side. I mean, that’s where I think we need to see some major change, I mean, as you said, attorneys have to pass the board. If we look at the doctor, they have to pass their boards. Now, why don’t financial advisors have some type of minimum educational requirement over and above the license that takes them a couple of weeks to get and I talk about it all the time because it’s one of my number one frustrations with this industry is that it’s just ludicrous that there is no minimum educational requirement, but it’s going to take decades to get there because there’s billions of dollars that are being spent to make sure that never actually happens.
Jamie: Yeah. I mean, we got closer when the DOL rule was almost there. Then it was going to require some level of care that was probably going to raise up the bottom. Now, that had its own problems too and you said a lot of money is being spent to keep that from occurring. You know, I would love to see that too. I’d love to see kind of a minimum standard and whether that ends up being something like the CFP or State Bar exams or whatever it is, but some minimum that raises up everyone. As you said, other professions have that, right? Attorneys have it. Doctors have it. Accountants have it in the shape of the CPA. Like other professions have this. So, if we want to be a profession and not an industry, we’ve got to make that move because today we’re in the financial service industry. We’ve got a lot of segmented pieces but we’re not a profession. It’s actually why The American College was started 91 years ago, was to help professionalize the life insurance industry. Well, I also tell people the college is still here 91 years ago. If it succeeded in that completely, it wouldn’t be here anymore. But it’s not there yet. It’s moved, it’s better but some of that goes back to just how all this developed. It kind of developed in an odd shape that we actually developed kind of with specialties and the generalist planner came around later.
So, most people think CFP is a standard. Well, or the gold standard and that’s who you should go work. Well, CFP didn’t exist until I think late 1980s. You think, “Okay. That’s only been around 30 years. It’s not a long run, to be honest.” We’ve been doing financial planning, insurance, investments, Investment Advisors Act, in the 20s. All this stuff developed beforehand, life insurance, stocks, bonds, and they didn’t get put together really until the late 80s and that was in part due to ERISA that we then started having retirement plans and money, and the need to be managed by fiduciaries and we needed somebody to develop that could put a plan together. And so, that’s still a developing thing. Now, we’re trying to figure out how does this like kind of fiduciary advisor fit into the world of the products and strategies and how do we pull them all together in something that works to help the consumer, that client end up in a better place?
Casey: Well, and I’ve got to make it very clear to our listeners that I did not pay Jamie to be here and actually, we have not spoken. I did not tell him what to say prior to this interview and I say that because Jamie just listed off every designation that I have, RICP and independent advisor and I did not pay Jamie to be here and say that. I want to make that clear. But I appreciate that you went through that and before we get too far off track here, there’s a few things that our fans wanted me to make sure that we got to today that came from some of your latest articles that you wrote for Kiplinger’s as well as Forbes and that you’ve meant, I want to start here with cryptocurrencies because, well, it seems like we’re getting asked these questions more and more today, should we be investing in cryptocurrencies? What is a cryptocurrency? Does it make sense to put money there? Is this a bubble? Is it not a bubble? And you wrote an article in Kiplinger’s saying that they may actually replace stock exchanges at some point in the future. So, what are your thoughts on cryptocurrencies and maybe you can just start with a brief explanation of what it is in the first place?
Jamie: Yeah. So, I appreciate the disclosure before I’m not paid. Now, I do always disclose that I own cryptocurrencies so whatever that may entail there. Now, I don’t trade cryptocurrencies. I also have the idea, almost everyone I meet owns cryptocurrencies or digital currencies is what I’m saying. So, typically I actually did this in a room of financial advisors about 300 about less maybe two or three weeks ago and I got up there and I said, “How many of you are invested and have money in digital currencies?” and I had about two people raise their hand out of 300. I was like, “Okay. That’s not that shocking. We have an older group here,” and one of them was another millennial. I saw him. I was like, “Okay. He’s got them.” And then I said, “How many people have credit card points? How many people have airline miles? How many people have hotel rewards points? And almost the whole room put their hand up and I said, “You own digital currencies.” Digital currency has been around a long time. Marriott points. Are those anything other than a specific company’s digital currency? No. That’s it. It’s Marriott dollars. They get redeemed for some version to regular US dollars of value. Technically, the IRS says that those are taxable. Now, they also, later on, said that airline points and those things, unless you’re turning them into cash rewards, you don’t have to pay taxes on them right now but technically still taxable income. That’s an interesting thing. You have those already.
Now, what most people think about aren’t those assets. We’re thinking about Bitcoin, Ethereum, Litecoin, Ripple, the ones you’re hearing on TV. They started being viewed as some type of investment. Now, some people made a lot of money kind of putting money into cryptocurrencies, Bitcoin, and Litecoin and etcetera, and then right now, we saw at the end of 2018 kind of in through November another big downturn in kind of value there. I don’t view digital currencies as investments. So, I think that’s a very important thing. The government really use that more as a good, not as a currency, not as an investment. The SEC, though, is kind of right on the fence of saying our digital currency, initial coin offerings, are those IPOs, are those initial public offerings that should be treated as such. So, it sounds like the SEC will eventually move down that route and regulate that. They’re not quite there yet but that’s kind of everyone’s impression and so that got me to that article that you talked about is that I view digital currencies as very powerful because we’ve been using them. Everyone uses them. As I said, go to the hotel, airline, Amazon points, we have them. Now, what’s the true value behind this stuff? That’s very hard to come up with a model for. I don’t know…
Casey: That’s my next question. You know, you talk about credit cards and rewards points, well, I know what my credit card buys. I know if I’ve got X amount of Marriott reward points, I know how many nights that I can stay. How do we determine the same thing with the cryptocurrency?
Jamie: Yeah. And so, that’s basically on exchanges and so you can exchange it for dollars and other cryptocurrencies but there’s been a tremendous amount of volatility there. Tremendous, meaning it means they’re moving 10% on days. That’s a scary proposition as a way to store value or viewed as an investment. So, as I say, I don’t view that as an investment. You can use that as a speculation fund and put some money just to be part of it but I don’t view it as an investment, because they’re not, for the most part, they’re not real companies behind this. They aren’t earnings. There’s no growth in the same sense of a company growing. It’s usage and there’s no real way to model whether or not usage is going to go up for a particular currency or not. So, again, if you’re going to be in that market, if you just can’t keep yourself away from it, I would advise most people to stay away from it in any sense of investment. But if you can’t then diversify, we can’t model this stuff today. We really don’t have any good idea where this is going. They don’t have earnings. They’re not like investing in a company and the government treats it as buying a good. So, it’s like going and buying being a flower and hoping that the flower becomes more valuable over time. Well, maybe if there’s a flower shortage, but otherwise, it’s probably not going to appreciate a lot.
But what I do see is very valuable is, one, I think we’re just moving away from traditional currencies. I don’t have dollars in my wallet anymore. I don’t use dollars, I don’t use coins. That seems all very outdated today. We use credit cards which is essentially a digital currency backed by the US government now but we’re moving away from that. Now, what I find really interesting about digital currencies is really what you’re buying is access to a platform. So, when I buy a Bitcoin, Ethereum, Litecoin, what I’m getting now is an access to a platform where I can use that. Now I own some asset of, well, why wouldn’t I just have my Microsoft stock as a Microsoft coin? And I don’t have to go to an exchange like a stock market to buy it. I just go directly to the coin offering and that’s where I purchased my stock, and really what that does is it cuts out all the middlemen in existence. There is no need. You can just go buy directly whatever is available and they create exchanges.
And so, that’s kind of where I’ve been thinking about. I don’t think the threat is to currencies in the sense of dollars. I think the US and other countries will eventually move their dollars to closer to digital currencies but because we’re close there anyway. But I think the real threat out there is actually to the stock exchange. Why would I do an IPO on a stock exchange when I could do one through a digital currency that has perfect accounting, I’m watching? It’s actually kind of hard to argue against that I think and we started to see in California some companies go that route where their IPOs really now are initial coin offerings. There’s a thousand coins. All the owners own one coin. You get a thousand people to buy in and that’s your ownership structure and that’s where essentially instead of having stocks, you own digital currency that owns the company. So, it’s not a tremendous break from what we’re doing but how we’re doing it is a big change.
Casey: So, the risk as to the intermediaries you feel long term and as far as these coin offerings go, it wouldn’t be that you’re buying a Bitcoin. You’d be actually buying that Microsoft coin.
Jamie: Yeah. So, I think we’re seeing some of that today where companies are doing that but I think that’s the real kind of because the people are trying to figure out, well, where’s the real disruption here? Like is Bitcoin going to disrupt the US dollar? It’s not going to disrupt the US dollar. It’s just not going to happen. The currency systems are too big, too massive, but what we could disrupt are the stock exchange because essentially, right, a middleman, well, we needed to take paper. They still use paper at stock exchanges too. Well, it’s just kind of crazy. But move it to a digital platform and really that’s what blockchain allows for, the backend technology is kind of a perfect accounting system to run a bunch of transactions and quickly. And so, as that technology still kind of improves and involves, I expect to see that move to more and more company ownership structures and eventually maybe threaten the stock exchanges. I’m always hesitant, though, to fully say large established places ever fully die off. They find their own way to adapt. So, you could see the New York Stock Exchange go completely blockchain and digital currency. That’s not out of the realm of possibility, either.
Casey: Well, I could probably continue my questions on that point for the next 30 minutes, but I’ve got some other things that our audience really wants us to get to and one was I think it’s your second most recent Kiplinger article on Roth IRAs and I thought it was something. I mean, nobody talks about this. Everybody just says, “Well, if you’re young, you’re 20, 30 years old. Heck, if you’re 15, I mean, if you’re a young saver, you just need to be making contributions to Roth IRA, your Roth 401(k). You shouldn’t be contributing to a tax-deductible IRA or tax-deductible 401(k). You should be putting it in a Roth. That’s a no brainer,” and you argued that that isn’t a no-brainer decision. Not just everybody if they’re young as a default should be contributing to a Roth IRA. I mean, on myself, I think I fall prey to that and I have over the years where I go, “Well, you know what, it’s better to contribute to the Roth IRA because taxes are probably going to go up in the future and your income is probably going to increase in the future. So just go ahead and put in the Roth IRA and you’ll get it back later.”
Jamie: Yeah. So, to kind of start that, I’m a huge fan of Roth accounts too. I love them. I use. I have money in Roth. I like the idea from a retiree’s perspective that you know how much money you have then like you get to retirement 500,000 in a Roth. Guess how much money in that? Give $500,000. You go and have that money is what the government has. Now, also though, I hate defaults. I hate things that you just say, “Well, here’s what we default to.” Well, those usually aren’t the best strategies. The default strategy is not the best strategy and so I wrote that article really to kind of push back against some of that where all I see is articles saying, “If you’re a young person, you should be in Roth.” Well, yeah, sometimes, but the reality is once and now we’re getting millennials that are high earners, that are in their mid-30s, that are making good money. You know what, Roth might not be the best idea for you anymore that deferring that tax out because in retirement, most people’s taxes come down even if tax rates as a whole increase, which I expect, that you expect at some point just looking at government spending and tax revenue, at some point taxes need to go up, but retirees will probably still pay less in taxes. So, deferring taxes out when you’re paying lower taxes is still a good thing.
There’s also a behavioral thing and this behavioral stuff is always interesting, but always debated heavily. It’s kind of not an exact science even though we have two Nobel laureates now for behavioral finance. But when we look at behavioral stuff, one of the things we added to deferred money is that 10% penalty for early withdrawals that we actually kind of lock money up because there’s a penalty for touching. Roth doesn’t really have that which is a plus and a minus. That’s one of the reasons I argue for Roth as an emergency vehicle is when you need your Roth IRA money, you can pull out your contributions any time without penalty. The downside is you can pull out your contributions at any time without penalty. It’s double-edged there. It’s both a benefit and a downside. I think for people who you might be more inclined to spend too much is probably better to lock the money up to leave it maybe even in the 401(k) because we have less…
Casey: That’s kind of a double-sided argument that you kind of made in the article itself, right?
Casey: If you have debt, then maybe you’d be better off getting the deduction and putting those extra dollars towards the debt. But if you have debt, you’re probably going to get debt again in the future. You get not the best at managing your money. And so, maybe you should be looking at not doing it or contributing to an IRA or contributing to a Roth. I think it’s just there’s two sides in every coin.
Jamie: Yeah. And that’s what I said. The defaults don’t work. So, what do we need? We need to look at every individual situation. We need to put a plan in place for you or if you’re doing it yourself and you’re listening to this, hopefully not, but then that means it’s a lot of work that you have to figure out what’s best for you now. And I said Roth isn’t always right. The tax deduction, the tax-deferred savings, sometimes better. Sometimes Roth is better if you’re going to need access. As I say, we don’t like to spend the money. We have a bad term for that. We call it leakage. And everyone’s like, “That sounds terrible,” and I’m like, “Because it is bad.” We don’t want money leaking out of your retirement accounts. So, leakage, it’s a great thing. It sounds terrible. We don’t want that to happen. We want to have retirement funds set aside but the reality is people live paycheck to paycheck. People don’t have a lot of savings. So, what we can do double duty with something, building an emergency fund and retirement savings, sometimes that’s still helpful. I’m not going to say that that’s not useful, because reality is you’re making $45,000 a year living in DC or New York. You’re pushing it and you might have a kid or a spouse that doesn’t work like that’s not a whole lot of income for three people and that’s I think about the average is like $58,000 a year, the average family income in the US.
Well, when we start looking at that, that’s pretty tough to get by. I can’t expect you to pay all of your debts, buy the house, pay the kids’ college, save for retirement, have the right insurance. It’s tough. You got to make sacrifices there. Now, when we’re talking about advisors and their clients, they look a little bit different. We tend to service, these advisors, a little bit higher net worth than kind of the below median group. Now, not every advisor. Some people have broader-based practices, but that’s where the trade-offs are. There’s different things for different people and different areas of their lives.
Casey: Well, I think the best advice you gave was at the end of the article as you wrapped it up. You said, “Do both,” and that’s something that I have done in my own financial life. Well, I don’t know which ones better. I don’t know if the IRA is going to be better. I don’t know if the Roth is going to be better. I don’t know which way taxes are going to go in the future. I have my feeling that Roth is probably going to be the better move, but it’s not a guarantee and one of the things you said in the article is the pretax savings is more of a sure thing. You’re getting that deduction today and on the other hand, you talk about diversifying your investments, well, diversify your tax buckets at the same time, why not? And one of the things you said in your book, Rewirement, was something that I actually experienced myself when it comes to Roth IRAs and doing Roth conversions and you say you’re a big fan of Roths, I’m a big fan of Roths, and you say in your book, why do you blame tax professionals? So, in your book, I wanted to ask, you said that you blame tax professionals for the underutilization of Roth IRAs. So, why do you blame tax professionals for the underutilization of Roth IRAs and does this apply to Roth conversions as well?
Jamie: Yeah. It actually applies the Roth conversions too. So, when you work with the CPA, now, this isn’t every CPA, but when you work with CPAs, you’re mostly paying them for annual advice. You actually aren’t engaging them to deal with your taxes generally speaking, for the rest of your life. You’re dealing to help with this year. So, what is their goal this year? Their goal this year, make sure your taxes are filed on time appropriately and they get you tax savings what year? In five years and 10 years and 20 years and 30 years? No. They’re not trying to get you tax savings in 30 years. They’re trying to get you tax savings today. You hired them for this year, not for 30 years from today. So, where can I get you more tax savings? Well, we get a tax-deductible IRA right now or you could use thereof. Well, let’s put in the tax deductible. You might have been paying – I see this where people are paying effective tax rates of like 8%, 9% and they’re going into a tax-deductible IRA. To be honest, that makes almost no sense. If we can be in a Roth then at that lower rate, of course, we should. That gets a little bit easier, but you’re saving $100 or something this year if we’re going in the IRA. That’s silly. It’s not doing anything. Let’s move that elsewhere. But that’s just based off of the agreement between you and the CPA.
Now, Roth conversions equally as bad, because Roth conversions also aren’t going to save you, right, like you could make the argument that putting money in a Roth isn’t really costing us taxes today. We pretty will. It’s my last example. Well, it’s kind of de minimis. Now, if we’re doing Roth conversions, we’re doing $20,000, $30,000, $40,000, $50,000 in a year bumping up to the next tax bracket. Well, we might be paying $12,000, $13,000, $15,000 in taxes. You know, who does not want to encourage an extra $15,000 in taxes? Your CPA, because again that tax savings isn’t coming for 10, 20 years down the line when you actually start taking money out. So, you’re paying me to help you through taxes today, not save you taxes in 30 years and that tends to be the mindset. The other thing is most CPAs look at the world in that world, in your kind of annual tax planning world, not in a financial planning picture, which is why it’s very important that you have somebody as I call the quarterback, the coach, the centerpiece of your plan. We need the CPA, we need the attorney, we need the insurance specialty. We need all that stuff but we need somebody to coordinate that plan together so that we know our accountant is working within the confines of the plan, that we’re doing strategic Roth conversions to bring down our taxable income in retirement from R&D, that we’re working with the attorney that has the right end of life plan in place, that we’re working with the insurance person after a property, casualty, house, life insurance, long-term care insurance in place. You need somebody to coordinate that and that’s hopefully what your advisor is doing is coordinating all those pieces together.
Casey: Well, developing habits over time is what we all are guilty of and bad habits and good habits and I have this experience with the CPA. They come to one of our events. I explained to him how Roth conversions work and he came in and wanted a second opinion on his investments. He was doing a pretty good job managing his investments and he was doing a great job of managing his taxes judging it by the CPA scorecard, which is the 1040, how low can I keep that taxable income each and every year? And the reality was he was in his 50s, sold the tax practice, and he was keeping himself in within the 15% tax bracket and that he had seven figures in his tax-deferred savings accounts that were someday going to push him into the 25% bracket, the 28% bracket. He had a huge opportunity that he was missing out on each and every year. We think, well, wouldn’t the CPA do that? But it is kind of ingrained, well, I need to keep my taxable income as low as I possibly can this year, because that’s how I get the biggest hugs and kisses at the end of the year when you come in and file your tax return. Unfortunately, that’s just the way it is. So, I appreciate your input there and there is a question that I want to get to from one of our fans, and I want to make sure that we cover this for him. Make sure he listens and watches every single episode. Jim Schneider asked the question, “At what age should you consider purchasing long-term care?”
Jamie: Yeah. So, there’s some debate out there on that. I say in your 50s and I’ll give you some reasons for that. I think having the conversation in your 40s and if you can get somebody to buy, even better. The reality is I don’t think most people get that mortality event, that long-term care feeling until they’re in their 50s. 60s, it starts to hit in a little bit more. 70s, it’s there, but it’s very hard to become qualified. You actually get through underwriting in your 60s or 70s. 70s, it’s almost over. You really can’t get coverage. 60s, underwriting actually gets more than twice as difficult to qualify once you kind get into your 60s as 50s so if you want coverage, the best time to do it is in your 50s. The other thing was there. I want to talk about long-term care. Insurance is obviously one option that you buy something that’s specifically designed to cover long-term care costs. You buy it in your 50s. Mostly there you have ongoing annual premiums for the rest of your life until you start using it. The other options are out there today. We call it asset or hybrid approaches. Now, those are really important and we need to understand that moving forward. Now, last year 2017 and then 2018 I haven’t seen the numbers yet but it will probably be similar. 2017 the number of hybrids in asset-based policy sold doubled up the number of standalone long-term care insurance policies sold. They’re more than twice the size now and that will probably be true for 2018 also.
Now, what are asset-based policies? Well, those are life insurance policies was essentially an add-on. That’s a long-term care benefit and they kind of fall to two different categories, 7702b and 101(g). Now, those are code sections nobody needs to know them, but essentially under the law, there are two categories. One is really an accelerated death benefit. So, what really is happening, you might already own this policy and I tell people this all the time. You might have your long-term care plan in place and don’t know it. You might have a life insurance policy that when you need assistance with two activities of daily living and typically permanent. Then all of a sudden you can access the death benefit. Now reduced down, maybe it’s 80% of the death benefit so you’re giving up some death benefit but you get long-term care coverage at the end of your life. That’s a valuable thing. The other one is really adding on a true rider that kicks in benefits for long-term care expenses. So, those are the kind of the two general categories out there but I say look at those.
One is I mentioned you might already have your policy in place. Two, if you have an existing life policy, you can exchange it 10, 35 exchanges which I’m sure you’re well aware of and use an existing policy into a hybrid approach. So, you might’ve had a large life insurance policy. You were sold, bought at one point and now you’re in your 60s and don’t need it anymore, don’t need that large of a death benefit. Well, maybe it’s a good time to exchange it over to a policy that provides long-term care coverage also. So, again the simple answer was definitely look in your 50s. If you’re into your 60s, as I said, maybe hybrid approaches can help you out because now you might already have the funding source. Underwriting for some of those, I should just say underwriting is different for some of those hybrid approaches. Sometimes it’s actually easier to qualify for than a traditional standalone long-term care insurance policy. So, if you were turned down once for uninsurability through a standalone, it doesn’t mean you can’t get coverage. It means we got to look at other products now so hybrid long-term care and life.
And then there’s actually another one that’s a hybrid annuity and life in long-term care insurance so annuity with long-term care. Now, not a whole lot of those are sold yet today. They can actually have the easiest underwriting because we’re actually kind of mitigating to risk there. Like, if you live just a really long time or you get long-term care early on and for an extended period time, it actually kind of mitigates out the risk for the insurance company in the underwriting, so they’ve actually been able to kind of give essentially a little bit more preferential long-term care rates under that product. So, again, another thing to look at when you start thinking about long-term care planning.
Casey: It seems like people like these options more because they don’t have to worry about premium increases. They don’t have the use it or lose it nature of traditional long-term care insurance. But at the same time, it’s a little bit confusing because now we have all these different options. Do you find that these hybrid options are more expensive or less expensive? I guess the bottom line for someone that’s evaluating these things is how do we even go about comparing these different solutions and finding the one that’s right for me?
Jamie: Yeah. So, comparing products to other products is incredibly difficult. Life insurance with writers on there is very hard to compare them to another product. There’s basically one product though that dominates the market. We don’t need to go into who that is but they’re a Pennsylvania-based company and their hybrid is like 80% of the market. They’re the dominating one. Now, almost all the large mutual companies now have products available. They’re not terribly different but it’s very hard to compare. Are you getting a good rate, good cost? Very difficult to do. When you asked, are they more expensive? That’s always a hard question to ask so I always say like I do know that a Lexus is more expensive than a Kia like I know that. Everyone kind of gets that. Do I get a better deal when I buy a Lexus or a Kia? That’s a different question like I know one is more expensive but is it a better deal? Am I getting value for what I’m paying? Fiduciaries are more expensive than non-fiduciaries but I would say I get a better deal when I buy a fiduciary service that I personally would probably say, “You’re probably getting a better car when you buy a Lexus than a Kia.” Now, Kias have improved I know over the years. That’s a better car today. With the hybrid approaches, I would say from a pure long-term care insurance standpoint, you don’t get as much leverage for your dollars you would with the standalone policy. You just don’t.
Now, if you compare that, that your true concern is having a large bucket of long-term care insurance coverage that you would call it cheapest but the best leverage of your dollar is going to be in a standalone policy. However, as you mentioned from a behavioral side, do I feel more comfortable though ensuring some death benefit for my estate, some life insurance, and some long-term care insurance and I don’t have to worry about rising premiums, I don’t have to worry about the affordability in this because we can pay it off in a lump sum over 10 years or five years. Some set number of payments where I don’t have to worry about premiums the rest of my life increases and I don’t have to worry about paying into insurance that I don’t use. Now, I always push back on the insurance you don’t use. I’ve got car insurance every year. Anyone who has a car has car insurance every year. I hope every year I do not have to use my car insurance. I don’t want to be in an accident. It’s a good year if I paid to my car insurance and don’t use it. That’s true with all insurance. It’s great if I buy long-term care insurance and I live a very healthy retirement at age 95 and never need it. That’s good, right? Like, what we want to do is kind of plan for the worst case scenario and then hope for the best. That’s the worst case. Worst case is we need a very long period of institutional long-term care. Best case is we don’t need it and we paid into the insurance policy. Okay. I can live with that and then I passed away and I didn’t need it. That’s okay but if you wanted to make sure something was there for the estate then you can look at those hybrid approaches.
Casey: And I think comparing them side-by-side is difficult but if you know the basics of each and you really identify what your priorities are as you’re going into this purchase, is it the flexibility to get my money back. Is it knowing that I never going to have to pay another dime? Is it knowing that it’s not use it or lose it? Is it having the biggest benefit I can possibly have? If you prioritize those things that make that decision a lot better and what you said in regard to price, Warren Buffett I think said this. He said, “Price is what you pay and value is what you get.” I think that’s a really important point. Now, along this we’re talking a little bit about life insurance here so we might as well continue on into one of your recent Forbes articles where you talked about four ways to maximize life insurance and retirement income planning, and I think the typical retiree is going to go, “Why do I need life insurance and retirement? And what you mean life insurance and income planning? Those two things seem incongruent, life insurance is for when I pass away, not for income while I’m living.” So, let’s talk about that a little bit.
Jamie: Yeah. And I would say this is an area that my views have been constantly changing. I know some areas in life I feel like I’m pretty set on my view and I might not move. I know it’s not always a good thing that there are areas where I’m just getting set on. This is an area that I say is constantly evolving and I was in that boat for a little bit. Why are we having life insurance as part of retirement income plan? That’s not a good thing. You know, the more you start looking at it, what it does is going back to a concept that we talked about before, diversification. Diversification of income, of assets, and a whole life insurance is an asset, as a value to. We start building up cash value and we often hear what people should do buy term and invest the rest. Great. Most people don’t invest the rest just like you should rent, not buy a home. Okay. Great.
Casey: And invest the rest.
Jamie: And invest the rest. Well, we track these people so there’s a lot of research on this that actually tracks people who buy whole life or buy a house and then actually hold constant for income levels, for wealth, for education, and what happens over time? People who buy whole life and people who buy houses their wealth outpaces their comparable counterparts over time, and why? Both of those two things work as automated savings because I have to pay the premiums and I have to pay my mortgage. So, what it actually causes me to do is invest in something. Now, I’m not getting market returns there. I’m not getting 8% average returns there but I might be getting 3%. It’s not so bad, right? And if I’m doing the other things with my 401(k) and my IRA and I am taking on market risk, I’ve now diversified. I’ve diversified across a lot of different things and so it does seem to help you. Now, we get to retirement. That was kind of accumulation side. Now, we get to retirement. Well, reality is a lot of people just have permanent life insurance and they might have bought it for a number of different reasons, but I always say we’ve got to also deal with the clients that we had. Clients that we have, have life insurance. There’s billions, maybe trillions of dollars sold every year. There’s a lot of life insurance out there. So, we’ve got to plan around that.
Now, life insurance can provide if we have a non-net policy, non-modified endowment contract and we’ve got a whole life policy with cash value. We can withdraw that cash value in a lot of meaningful ways. We can help pay for college education, not impact FAST Fund. We can pull it out, not impact our taxes. So, if we’re getting close to a tax rate, we can take some money out and not bump us into the next tax rate but still meet our spending need for that year. So, a lot of strategies there. I also talk about 1035 exchanges. We have an existing policy. We bought it for some reason. Maybe we thought we were going to need a state cost. And now we really don’t. Our estate might have shrunk for some reason. We gift away assets. We don’t have a big taxable estate. Well, can we use that life insurance policy for something else? Let’s take it and exchange it to an annuity. Let’s take it and exchange it over to one of the hybrid policies we talked about. So, there are strategies out there. I’ve also been somebody I’ve learned more and more over the last maybe three or four years about secondary market. Now, secondary markets probably I’ve learned a lot about three or four areas that are just like have really bad reputations. Secondary markets for life insurance being one of them. Oh, somebody’s going to come in and try to pay for pennies on the dollar for life insurance policies.
Sometimes that’s true. There was predatory stuff that occurred in there but it’s also something we should have on kind of the back burner. It’s an option. We have policies that have ongoing premium payments. We’ve seen ones that have balloon payments. Well, you might be able to sell that policy to a secondary market for more than the cash values and for more than the next premium payment is going to be. Well, for some people, that’s the right decision. Now, I think the starting point is we should always start with, should we keep the policy in effect, and if there’s some reason why we shouldn’t, that should be one of our options. One person gave me a great idea about this one and had to think about. They said, “Imagine if you bought your home and the only person you could sell your home back to was the original builder. Do you think you’d get market value out of that or do you think if you could you sell the whole market, you’d be better?” Well, that’s kind of what the secondary market is. You have a life insurance policy, you can redeem it, essentially turn it back in for cash value meaning you’re only selling it back to the insurance company or you go to the secondary market and anyone can buy it. Well, sometimes you’re going to get a better price when everyone can buy this thing. So, again, it’s something to look at as part of your plan.
Casey: Well, you talked about term policies, talk about whole life, but there’s a couple of different types of policies out there. You’ve got to index universal life, you’ve got variable universal life and you talk about tax-free income as one of the uses for life insurance and the whole life insurance. What are your thoughts on IULs and BULs?
Jamie: Yeah. So, I mean, if people aren’t that familiar with them, the simplest way to think about them is life insurance chassis with some type of investment kind of vehicle built with it. So, there’s very preferential tax treatment there from the tax code on these policies. We get this cash, it’s kind of tax-free build up inside which is very interesting. Now, again, I think you have to make sure that you have a true need for those in your plan like why are we using them? Is it because I’m afraid of the market? Now, there is some reality in that, some of the index ones. It gives you some market upside in there but not kind of full market downside. So, you’re kind of trading off some upside, some downside. You’re kind of doing what we say is like a collar strategy in the investment world. But for somebody who is uncomfortable with being fully in the stocks, index itself can work like that can give you this benefit of some upside and downside without losing. Variable though, you’ve got to again have a real reason for that and typically a long time horizon. So, I always say with those two, you got to be thinking about these again, not in one or two or five year or even 10-year clots but long periods of time. We need a lot of runtime for those products.
Same thing with the variable annuity and indexed annuity products. We need to think about those as long time periods. Short time periods, research doesn’t support a lot of that stuff. Long time periods, we see for young people can be beneficial but again you have to understand what you’re paying for, the value you’re getting, and definitely compare those to other things because we do get one there with very high-cost structures, surrender charges, fees billed into them. That kind of erodes some of the benefit over time.
Casey: Sure. Well, there’s a lot of different complex vehicles out there for mutual funds, the IULs, VULs, FIAs. See, we’ve got these all these different acronyms out there and I think we just got to be cautious about what we do as we’re stepping into retirement, the type of advisor we get. There’s just so many important decisions that we have to make that would make sense to take your time, pick up your book, Rewirement, and make sure you’ve got an idea.
Jamie: Yeah. Always handy. It’s got apps and everything.
Casey: Well, yeah, I read. There are some good stuff in there so I did really enjoy your book and I think it offer some good step-by-step information to help people get ready for retirement and get the engine started, get them thinking about what’s important, who they should be working with, and taxes, and you discover a lot of the most important topics that people need to keep top of mind as they step into retirement and usually I have my stock question here. What does retirement mean to you but I want to know what rewirement means to you.
Jamie: Yeah. So, actually, we had a great time to step in this back in the beginning and, well, this will round out nicely. I talk about the beginning that what we do is we develop habits over our life. We practice good and bad things and develop habits and that’s actually kind of where I came up with the name, the cover, the brain, and all of that was when we get to retirement and we’ve got to do income planning, we’ve got to change the way that we think about retirement, that average returns don’t matter anymore. The account moving up every month doesn’t matter anymore. What we need now is income and we need sustainable income for an uncertain period of time and that’s what we have to change the way we think about things. Risk mitigation matters now. Diversification matters now. Sequence of returns risk matters now. I’m sure Wade when he was on here, talked about that one. That’s one of the great 4% discussion and that stuff matters, but it’s different than what we did for the rest of our life. When we put money away, we put it away. We had a paycheck coming from an employer herself. Well, now we’ve got to develop that paycheck from our savings.
And so, it’s a total switch in our mindset. It goes back to some of the research I’ve done. People have learned about basic financial literacy, but don’t know how to create retirement income. Those are different things and that’s the idea of rewirement. We’ve got to change the way we think about our finances at this time because it’s a new time period for us. The risks and challenges are different. We talk about different advisors, focus on different areas and we really do need advisor that knows retirement income planning, not just how to save to get us to that point but how do we get through the next 30 years.
Casey: Well, thank you for all your input. We covered so many different topics and I was given a challenge before we got started here by our Vice President Marshall. He said, “If you make it through all of these questions you have, this is going to be one epic podcast,” and I think we made it one epic podcast. We did miss a handful of things but hopefully, I get to have you back someday in the future. Thanks so much for joining us, Jamie.
Jamie: Yeah. Thank you so much for having me on and thanks for everyone for watching too.
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