Tom Hegna: Bubble Wealth and Retirement Planning

Tom Hegna joins Coach Pete to discuss the idea of bubble wealth. They consider how changes in asset values can affect the way people think about retirement savings and income. Call 800-661-7383 or text PLAN to 600-700. Transcript Automatically transcribed from this episode; timestamps are approximate. 00:00 Each and every week I talk to very interesting people and the most important part is that I shouldn't be the only one hearing it. I really feel that if these people make sense to me that everyone out there needs to hear it. So stay tuned folks and I hope you enjoy this newest weekly segment on Coach Vessence. Well folks we've got a really good guest today. He's a return visitor. He's been on the show numerous times over the last 10 or 15 years. He's one of my great buddies in the financial world. His name is Mr. Tom Hegna. If you've seen public TV you've probably seen his special Don't Worry Retire Happy. He even has a book called Don't Worry Retire Happy which is really neat as well and a DVD. And we've got a copy of this. We've got some copies of this. 00:46 We're going to talk about how you can get your hands on these in the future. But more importantly we have Mr. Tom Hegna right on the line. Tom welcome in. Hey coach. Great to be with you again. It's beautiful these days the technology. So a lot of folks are listening on the radio but a lot of folks are also watching our TV show at the same time. The beauty of the technology these days is we're able you're sitting in your office and I'm sitting in North Carolina. You're in Arizona I think. Are you in Arizona this week? Yeah Arizona this week. And I'm in North Carolina and it's spontaneous and instantaneous what we can talk to each other and see each other. It's beautiful. So let's talk about something. I heard you say a term the other day and I wanted to talk to this talk to the audience about it. It's called bubble wealth. What is bubble wealth? Well you know I listened to a podcast with Dr. Michael Finca and Dr. David Blanchett. 01:34 Now these are two of the smartest PhDs around the subject of retirement. And they were talking about this concept of bubble wealth. And all it means is that right now the market's up. You know crypto's been up. Real estate is up. And everybody feels very wealthy. And they're making plans. They're quitting their jobs. They're retiring. They're doing all this stuff based on this bubble wealth. But when this market goes on. And the reason it's a bubble is because all this money that's been printed. The trillions of dollars of this bond buying by the Fed. And the trillions of dollars being spent by our government for COVID. And all this other stuff. And all this money's going into the market. And it's driving prices of everything. And we're seeing inflation. But we're seeing asset inflation too. And much of it is really a bubble. And when everybody heads for the exit at the same time. 02:22 Because at some point the market's going to go down. Crypto's going to go down. It's going to get really ugly. And then people are going to be stuck with whatever they have left. And what I'm trying to encourage people to do. Is turn their bubble wealth into real wealth. And that's what I've been talking about a lot lately. Okay so step number one. And identifying if we have too much bubble wealth. We also call this paper profits. Many times if you have a lot of wealth. Maybe it's time to realize some of that wealth. But what's step two. If you realize you're in way too much risk. But you have a lot of gain. What's the step two to re-diversify I guess. Well I mean I'll use me as an example. I'm not just talking the talk. I'm walking the walk. You know I kind of announced my retirement last year. I'm about 70% retired. But I have been converting my IRAs and 401ks to Roth. Okay. And many of those Roth are in income annuities. 03:09 So they guarantee me now tax-free income for the rest of my life. I've been moving more of my personal wealth. Out of my brokerage account into cash value life insurance. Which may sound boring to some people. But it's a way to secure your wealth. Because it's not going to go down when the market crashes. And yet it can still you know have some upside potential as well. Plus it gives me tax-free income in retirement. And I think having tax-free income in retirement. Is going to be so important. Because with all this spending. You know it's not free. And when they get up and say oh this is free. It's not free. Somebody's got to pay for it. And it's going to be taxes. And we're 28 going on 29 trillion dollars in debt. The debt's climbing at 4 billion dollars every single morning. We have 200 trillion dollars of unfunded obligations. For social security, medicare, medicaid, government pensions, military pensions. 03:56 Taxes are going to go up. So I believe these are the lowest tax rates I'm going to see for the rest of my life. So I'm trying to lock in my bubble wealth into real wealth. In ways that I can get tax-free income in the future. You identified two financial termites here. Taxation and too much risk. Those can eat people alive when they're not really paying attention. And so what do you tell the person that says well Tom I love the idea of realizing some of this gain. This big gain. But I don't want to pay capital gains tax. Well okay so there's ways you can tax harvest. You know I know the market. The indexes are near all-time highs. But I've never seen so many stocks. Individual stocks that are down 40, 50, 60, 70, 80%. And these are companies that were boomers. Like you know Peloton and Roku and Square and PayPal. And you know I mean these are real stocks. 04:43 And they're way down. And so I know in almost every one of your listeners portfolios. They have some winners. And they have some losers. This would be a great time to sell some of your losers. And then you can sell your winners. And if you sell the equal amount you don't have to pay any taxes. So you can harvest some of your gains by taking it against some of your losses. And I would recommend looking at doing that. That's the ultimate strategy right there. But if we don't. After all. If we still have a bunch more of gain we haven't realized. Because we've gone through all the tax harvesting. My next point is I'd rather pay tax on a gain than have a write-off on a loss. And if we wait too long. Like you're talking about. You mentioned all those great companies were skyrocketing a couple years ago. And now they've hit the ground. We don't want to watch our wealth disappear like that either. And pop in that bubble wealth. 05:29 Right. I always tell people you don't want to let the tax tail wag the dog. You know I've had so many people who said well I don't want to sell because I have to pay a lot of taxes. So they don't sell. The market crashes. And then they don't have any gains anyway. So you know it's better to pay tax on a gain than to you know have more losses. Well when we talk about that that seems to be a very important ingredient to a happy retirement. When you're not worrying if you have number one less taxation. But number two income streams. Let's talk about income streams. Yeah well the you know the Wall Street Journal had the headline. The secret to a happier retirement. And friends neighbors and a fixed annuity. And they were talking about an income annuity. That the happiest people in retirement are the people surrounded by their friends. Surrounded by their families. Who have guaranteed paychecks every single month. At Time Magazine found the same thing in Great Britain. 06:16 Lifetime income stream key to retirement happiness. Towers Watson. They're not even in the insurance industry. They did a whole white paper on annuities and retirement happiness. The American College wrote a whole article on how annuities help with happiness and retirement. So we found that people who incorporate annuities in their portfolio. Number one their portfolio does better. It lowers the risk and increases the returns. Number two we found they're happier. And now the new research shows they're likely to live longer as well. So you know for those reasons I own 11 annuities. And there's this movie that came out. This baby boomer dilemma. Dr. David Babel in that movie disclosed that he owns 14 annuities. And so he's one of the smartest people ever to study retirement. 07:01 And he had 14 annuities. I've got 11 of them. And you know all those PhDs and researchers. They're the ones that own the annuities. Because the math and science says you should have one. Great story about Dr. David Babel. I think it was 2009 I had him on my show. And he was getting ready to retire. And he was very adamant about researching annuities. And so he was I mean he was researching for himself. But he's also turned into a research project. And he's been very successful in his retirement strategy. Yeah I mean unfortunately he died in May. But yeah but he explained his entire strategy in that movie. The baby boomer dilemma. And there's even some extra footage that the director made available. That even once you watch the movie there's some extra footage. If you want to watch it on his full interview. 07:47 But yeah he's in all my books. You know he's in paychecks and playchecks. He's in don't worry retire happy. And he's one of the smartest people in the subject of retirement. Well I'm sad to hear that he passed away. He's a really good guy. I mean it's amazing when you start hearing about people that. I guess we're getting older Thomas. We start hearing about people dying that we used to know. And that's not fun. But we don't want our income to ever die. And so let's talk about this. Why is there a negative connotation or negative words. And negative articles about annuities from other planners many times. Well I you know I just did a post today about these fake fiduciaries. These are financial advisors who say they're fiduciaries. But they don't use annuities life insurance or long-term care. They can't be fiduciaries. I mean that's ridiculous. They may be investment fiduciary. 08:33 But they're not retirement fiduciaries. Well I mean I think the insurance industry did a little bit of it to themselves. Because as you know 15 years ago there were some bad annuities out there. There were annuities with you know long surrender charges. High surrender charges. Paying high commissions to advisors. I don't see those anymore. I think they've been pretty much weeded out. But there's still some bad aftertaste from some of those. But then there's you know these people on TV who have agendas. That they want you to invest with them. Because they have high fees. And they don't want to you know they can't compete against Vanguard or Fidelity. So they pick against annuities. But the difference is if your broker has high fees. And you lose money. I mean you lose money. But in a variable. And it's really only the variable annuities that have the high fees. The other annuities are not even fee products. 09:19 So the variable annuities do have fees. And they are higher than a mutual fund. But it's because they guarantee that you're not going to lose money if the market crashes. I mean what's that worth? You got to look at the value. Not at the fee. And then you know the fact that most annuities are not fee products. A single premium median annuity is not a fee product. A deferred income annuity is not a fee product. A fixed annuity is not a fee product. A base fixed indexed annuity is not a fee product. They're called spread products. And so really it's only the variable annuities and some optional riders that have fees. And I think that's a big misconception among a lot of people. It's funny when somebody writes about annuity. They're digging up the old ones that don't exist anymore when they want to be negative many times. And so yeah it's very important to know that a planner who's a true fiduciary has everything from risk to safety. And if you're not offering safety then you're not really a fiduciary. 10:05 There's a planner I saw on a website. He has a $10,000 annual fee. He charges his clients and then he manages their money for another fee. But his fee is $10,000 based on your assets. And he is totally negative about annuities but he claims to be a fiduciary. How is he a fiduciary? Yeah I think the fiduciary. See there's not a good fiduciary standard. That's the problem. And until they start you know convicting some of these people claiming to be fiduciaries who are not using annuities or life insurance or long term care insurance. They've really got to do enforcement actions on those people because they're not doing what's in the best interest of their clients. The research is clear. You know Dr. Moshe Malevsky in the movie says economists argue about everything. They argue about inflation, interest rates, you know unemployment, what level is good. But they don't argue about annuities. The only thing they discuss about annuities is what type and when and how much should go into an annuity. 10:56 You're not going to find economists and PhDs who are against annuities. You're just not going to find it because the research is clear. Well it just means when I saw that when someone has a $10,000 minimum annual fee, it could be more, every single year. Are you really doing the best thing for the client when you're starting them negative $10,000 every single year? I don't think so. Right. Let's talk, we've got about one more minute here in this segment then we're going to have you on for another one to talk about the movie you're talking about there and everything. And I want to talk about Paychecks and Playchecks, the first book you wrote and how important it is to have that retirement paycheck for life. We call it a financial fill-up strategy. But what inspired you to write the Don't Worry, Retire, Happy book? Well I had given the Paychecks and Playchecks presentation down in San Diego about eight or nine years ago at a big industry meeting. And there was somebody there from PBS and they said, Tom, we want to do a PBS TV special. 11:42 People need to hear this. But we're not sure they'd really understand this paycheck and playcheck thing. We would need a simpler title. So I wrote the book, Don't Worry, Retire, Happy. And the difference is, Don't Worry, Retire, Happy is broader. It talks about having a plan, working with a financial professional, maximizing social security benefits, considering a hybrid strategy, having a plan to protect yourself against inflation, the importance of guaranteed income and retirement, having a plan for long-term care, using home equity wisely, and then using life insurance as the most efficient way to pass wealth to children, grandchildren, and charities. You're supposed to spend your money, not leave any money. Don't leave any money to kids. Spend your money. Leave them life insurance because you can do that for pennies on the dollar. I had a client one time. I said, well, you know, why are you flying first class all the time? He said, if I don't, my daughter will. So basically someone's going to spend the money. 12:29 You need to enjoy your money, that's your life, your retirement, make sure that you're set, and then if and when you pass away, your spouse is taken care of, and then when both of you are gone, everyone's taken care of. And so, folks, if you're interested in finding out more about the true strategies of a total fiduciary plan, Thomas is going to tell you how you can do that right now.