Plan For 100℠ Podcast logo image

With Tom Hegna

00:00 -00:00

Economist and nationally recognized retirement expert Tom Hegna shares his seven steps to retirement security and identifies the number one risk people face in retirement.


Voice Over: [00:00:37] Thanks to medical advances and healthier choices, Americans are living longer, more active lives well into their 80s, 90s and beyond. Welcome to "Plan for 100," a new podcast from AIG. This podcast series is devoted to educating and empowering Americans to prepare for longer lives and retirements that could last four decades or more. Our podcast aims to help you "plan for 100," no matter what age you are today.

Mike Treske: [00:00:38] Hello, I'm Mike Treske, executive vice president and chief distribution officer for AIG annuities and mutual funds. I'll be your host today for AIG's new podcast, "Plan for 100." I'm excited to be joined today by Tom Hegna. Tom is an economist and nationally recognized retirement expert. He has delivered over 5,000 seminars on the optimal way to retire, and been featured in Business, Forbes, Money Rates, and many other leading publications. Tom has also written four books on retirement including the best selling "Paychecks and Playchecks: Retirement Solutions for Life," and his most recent, "Don't Worry, Retire Happy: Seven Steps to Retirement Security." Tom welcome to "Plan for 100."

Tom Hegna: [00:01:26] Thanks, Mike, it's great to be here.

Mike Treske: [00:01:28] Tom, most people think retirement planning is extremely difficult, but I know you've managed to boil it down to just seven steps for retirement security. Can you share those with us today?

Tom Hegna: [00:01:40] Sure, and when I travel the country, I'd say, you know, this is based on math and science, it is not based in opinion, so step number one is, people need to have a plan. I always say, how can you get anywhere if you don't have a roadmap or a plan on how to get there, and with that they've got to work with a financial professional. Retirement is not a do it yourself project. Step number two, they need to understand and maximize their Social Security benefits. See, for most people, Social Security is the largest retirement asset that they have, and yet most people spend more time planning their summer vacation than learning how to maximize those valuable benefits. Step number three, I encourage people to consider a hybrid retirement. See, too many people are trying to retire too early, they haven't saved enough money, and if we can get them to work a couple years longer, even part time, we can increase their success to retirement. In fact, some of the new studies have shown that there's very little a financial adviser can do that would be better for a person's retirement than to get them to work for a couple extra years. Step number four, they've got to have a plan to protect themselves against inflation. Inflation is like a virus that gets worse over time. So they need to plan to not just have income for the rest of their lives, but they've got to figure out how they're going to have increasing income for the rest of their lives. Step number five is a big one. They need to secure more guaranteed lifetime income. See, when I travel the country, I tell people all the time, the success of your retirement is not about your assets. It's not about the size of your 401K or your brokerage account. It is not about your assets. The success of your retirement is going to have everything to do with income. And I prove to people, guaranteed lifetime income. Step number six is another big one. They must have a plan for long term care. No retirement plan is complete without a plan for long term care. And you know what? This is probably the number one risk that people forget about that can wipe out their entire life's work. Step number seven is a big one, to teach people how to use their home equity wisely. Many people, their house is one of the largest assets they have, and I share in the book some ways that they can do that. And then I normally wrap up with the most efficient way to pass wealth to children, grandchildren and charities. I tell people all the time, don't leave your kids any money. I don't want to leave your kids any money. I want you to spend your money. I want you to leave them life insurance, because you can do that for pennies on the dollar. So really those are the seven steps, and a little bonus one with the life insurance for wealth transfer at the end.

Mike Treske: [00:04:09] So Tom, considering all of those steps that you can take, what in your mind is the number one risk in retirement?

Tom Hegna: [00:04:16] Well, the number one risk, hands down, is longevity risk. And the reason is because longevity is not just a risk, it's a risk multiplier of all the other risks. Think about it, the longer you live, the more likely the market will crash. The longer you live, the more likely you'll take up too much money out of your portfolio. The longer you live, the more likely inflation will decimate your purchasing power. The longer you live, the more likely you're going to need long term care. So what the PhDs who study retirement -- and they are unanimous in saying this -- to retire optimally you must take longevity risk off the table. And so if I could get one thing out of this podcast that your audience would take away, it would be you've got to take longevity risk off the table. Now stocks can't do that. Bonds can't do that, real estate can't do that. Really, only some form of guaranteed lifetime income from an insurance company can do it.

Mike Treske: [00:05:07] Moments ago, you talked about the fact that it's not necessarily about the assets, and in fact, I've heard you say before that assets make people miserable at retirement. Can you explain what you mean by that?

Tom Hegna: [00:05:18] Yeah! Well, it has to do with economics and math and science, but it also has to do with psychonomics, and if you think about it, people got something every two weeks their entire working career, that was a paycheck. And what do they do with most not all but most of their paycheck? They spent it, they paid for their house. They paid for their car. They went on trips, they bought stuff, they got and spent a paycheck every two weeks their entire working career. Well, when was the last time they raided their 401K?. When was the last time they took a bunch of money out of the brokerage account?We can't do that. We got to save it. We got to grow it. We got to protect it. We can't touch it. We got to save it, we got to grow it. We've got to protect it. We can't touch it. OK, you get to retirement. You know, you do that for forty five years. Do you honestly think you're going to wake up on your 65th birthday saying, "By golly, I'm going to blow my 401K today." People can't do it. People cannot spend their assets. They've been psychonomically programmed not to spend those assets, and then they sit in retirement, and they got it in the market. These people are miserable. The most miserable people in retirement are the people who have all these assets. The happiest, most successful people in retirement are those who have guaranteed paychecks. Think about it. Who are your happiest friends in retirement? If you retired military, it's your retired government, it's your retired teacher, it's retired professor. It's people with pensions, those guaranteed paychecks for life. Well, today most people don't have pensions, but they can go out and buy a personal type pension plan in some form of lifetime income annuity from an insurance company. And happiness in retirement is tied almost one hundred percent to guaranteed lifetime income, not assets.

Mike Treske: [00:06:59] Tom, let's segue again back to the idea of a legacy. And again, you had mentioned that for pennies on the dollar, you can leave some assets to your children, grandchildren or even potentially a charity. Can you go a little bit deeper into how that can be done?

Tom Hegna: [00:07:16] Sure, and you know, I speak, I do a lot of seminars, public seminars, and I use me as an example. I say, look, we've got four kids and one day we were sitting around, saying "Hey, how much do we leave the kids?" "I don't know, what do you think?" I said, well, if we bought a one million dollar life insurance policy, name the four kids beneficiaries, they're going to get a million dollars tax free. I mean that's $250,000 apiece tax free. Let's start there. So we bought a one million dollar life insurance policy naming the four kids beneficiary. That policy is completely paid up. Do you know what the total cost that million dollar policy was? $150,000. So now think about this, for 15 cents on the dollar, we've got to transfer a million dollars tax free to our kids. But here's the best part. Who gets to spend the rest of the money? We do. See, I want people to spend their money. I want them to leave their kids and charities life insurance, because they can do that for pennies on the dollar. So if you put it all together, if you leave your kids life insurance, you can then turn your assets into income, you can spend it all, and you can set it up that it will last as long as either your spouse, either you or your spouse is alive. You can spend the money, you can go on travel, and do things that, remember, it's the spending of money in retirement that allows you to enjoy your retirement. It's the travel, it's the cruise, it's the dinners out, it's the bottles of wine with your friends. That's how you enjoy your retirement. And if you use these products properly, you can have an optimal retirement, where you can be happy and successful in retirement.

Mike Treske: [00:08:46] Tom, you have been giving us a lot of information, much to think about. Thank you so much for being our guest on the "Plan for 100" podcast. We appreciate your time today, and certainly hope you'll come back and join us

Tom Hegna: [00:08:59] Thank you, Mike.

Voice Over: [00:09:00] Thank you for joining us for AIG's "Plan for 100" podcast. Guarantees are backed by the claims-paying ability of the issuing company. For more information, please visit our website, planfor100.com.