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Investment News Segment: Planning to Retire Early Thumbnail

Investment News Segment: Planning to Retire Early


[00:00:00] Gregg Greenberg: Antwone, a recent survey showed that one in eight workers plan to retire before the age of 61. As a retirement income specialist, how do you deal with the longevity risk of people out living their money?

[00:00:20] Antwone Harris: (How do you prevent outliving your money?) Exactly. Many people are wanting to retire early, but with advances in health care, they're living longer.

[00:00:25] So it's very likely that many people will be retired longer than they actually work. So one of the main things we do is we try to have them delay social security. That's a very simple thing to do. You have an annuity that's indexed for inflation. That's guaranteed by the U. S. Government that you cannot live.

[00:00:40] So that's one basic thing that we do. Another thing is that you really want to be very reluctant to part with lump sums of money, right? Many people want to pay off their mortgage in retirement. We want that money compounding as much as possible. A mortgage at 7 percent over 30 years, you end up paying a 500, 000 mortgage, you'll pay 1. 1 million over the 30 years. If you allow that 500, 000 to compound, that 5 percent, a lower rate than the mortgage, you end up with over 2. 2 million extra million dollars available for you after 30 years in retirements. We tend to have people not part with lump sums of money so that they have that money available for them for retirement.

[00:01:16] Gregg Greenberg: And how does health insurance factor into those that want to retire before the age of 61?

[00:01:21] Antwone Harris: (How does health insurance factor for those who want to retire before the age of 61?) You have a dollar from that 401k account, you have to pay ordinary income taxes.

[00:01:25] If we build up money outside of the 401k account, I can basically give you money back and mitigate the tax piece and show very little income. That allows some clients to qualify for the affordable care act for healthcare. So I have a client, she's multimillionaire but we're showing very little income and she's getting health insurance from the affordable care act.

[00:01:45] So she's saving a lot of money and then she's until she's able to get to age 65, which he qualifies for Medicare. 

[00:01:52] Gregg Greenberg: So beyond healthcare insurance, are there any other protections that you recommend for your clients?

[00:01:57] Antwone Harris: (What is the alternative to long-term care insurance?) One of the main areas that we focus on is long term care. So a lot of clients have considered long term care insurance. For many reasons, it's become cross prohibitive. So many clients are self insuring. So what we do is we try to build up assets, again, outside of the 401k account, also in Roth accounts to the extent that we can. So they're able to build those assets up as much as possible and then give that money back to themselves tax free from the Roth account. It's very likely that most people are going to have expenses in the hundreds of thousands of dollars toward the end of their life which can totally implode a retirement income plan. So typically a woman will have three years of a long term care event at the end of her life and a man, two years. So we want to make sure we have assets available to kind of, um, handle those expenses toward the end of their life.

[00:02:45] Gregg Greenberg: Any other strategies when it comes to taxes, because if you're retiring at about six at 61, you could live a whole long time.

[00:02:53] Antwone Harris: That's exactly right. (What tax strategies should you apply before retirement?) One thing we want to do is really focus on asset placement and be very strategic about where we're placing certain investments. For example, many clients have dividend paying investments, dividend paying stocks, or dividend paying ETFs. A lot of those dividends are qualified dividends and they're putting them in an IRA account; turning it into an ordinary income tax when you pull the money out. So we want to think about where we're placing assets strategically to mitigate that tax impact. If you have a strong strategic tax plan in retirement, you can prolong the useful life of those assets by up to six years.

[00:03:29] So it's very important to be strategic and think, be thoughtful about where you're placing those assets in retirement as well.

[00:03:35] Gregg Greenberg: And then finally, we've talked about taxes and insurance. What about the emotional side? of retiring early. How does it weigh on clients?

[00:03:44] Antwone Harris: (Why is it necessary to plan for post-retirement activities before retiring?) Well, I have clients all the time that will set a retirement date. It'll be 2022. And then that day comes and then it's 2023 2024. They get very reluctant once it's time to actually pull the trigger. Retirement sounds great, but what we want to do is we want to really be thoughtful about what we're doing to make sure that you're going to be able to maintain those connections; a sense of purpose. And we have to think about it because once you retire, a lot of your contacts and your connections go away very quickly. So if you're planning to consult, we need to start to think about that; map that plan out. I had a client that was a healthcare attorney, he was a partner in a law firm and what we did was when he retired, I had another client that was a nonprofit and they dealt with healthcare for underserved individuals.

[00:04:25] So we matched them together where he could use his expertise, work less and still give back, have those connections and still be productive and have a sense of purpose in retirement. But it was something that we had to think through. We didn't wait until we actually retired. 

[00:04:38] Gregg Greenberg: All right. Well, thanks for coming on and talking about it.

[00:04:40] Antwone Harris: Thanks so much. Good to see you, Gregg.