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Analyzing the risks and components of your retirement plan is crucial for ensuring you don’t outlive it. You never want to ask yourself: Am I always going to have money in retirement?

That’s where an actuary comes in… They protect your portfolio’s finances from unforeseen events and ensure that all components complement your age (so that your income only grows each year).

In this episode, you’ll discover how to design a retirement plan that outlives you (instead of the other way around) and why an actuary is your secret weapon for a risk-free retirement.

Show Highlights Include:

  • Why ‘life expectancy’ rates cause you to run out of money in your retirement- and how to sustain a lifetime stream of income (with the least amount of risk). (0:55)
  • The two things that calculate your insurance and pension benefits today – and how they play a role in your receiving payments for the future. (8:41)
  • The Life Expectancy secret for making more money as you age (even if you’re in retirement as long as your time in service). (12:03)
  • How to make a retirement plan ‘immortal’ for the family and have a higher spending rate than you ever expected. (14:22)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in, in order to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. Friends today the challenge is no longer the access to information, but rather it's finding the right information. And more importantly, how that applies to you. And that's my commitment here to you each and every week on the Pension Attention podcast, because after all your money matters and knowing how to plan your financial future is vital to your financial success. And to find out more about me or my team here at ONE Fire and Police, you can go to our website at PensionAttention.com or give us a call (805) 409-8150. And if you haven't already, please go to our website PensionAttention.com or anywhere where you download your podcasts, whether that's the apple app or Spotify or SoundCloud or Google podcasts and download Pension Attention and subscribe, leave us a comment, we love to hear the feedback on our show. [01:42.5]

And for those of you who listened to last week's episode, episode 24 on the Pension Attention around significant dates in your life, specifically significant financial dates in your life, I mentioned at the end of the episode, that today's podcast is going to be around what is an actuary and why it matters to you. So let me just start it off with saying that an actuary is basically, look, I'll be honest with you, it's like watching paint dry or grass grow. It is one of the most boring jobs to talk about, but what it does matter. And let me explain to you why, and I'd like to ask you a serious question in starting that, and I promise you I'll try to make a boring topic like what is an actuary and why it matters for things like insurances or your pension plan. I'll promise, I'll try to do my best to make a very mundane job type, no offense to those out there who have actuaries in their families. But let me ask you a question. How long will you live? Do you know? I mean, no one can really answer that question with any conviction. None of us are God here, right? No one knows how long they'll live. [02:42.1]

Now, according to the society of actuaries, yes, that exists. Okay. The average life expectancy in the U.S. is 81 years old for women and 76 years old for men. But these numbers, they're a little deceiving because they're only based upon people who share the same year of birth and share nothing else. In essence, these life expectancy statistics are just based upon a big pool of people with only one thing in common, the year of birth, right? But each person is unique. Each of you listening here today are unique, having their own family history, their own lifestyle habits and attitudes towards life. And by the way, it's not lost on me, that in working with first responders for nearly 20 years, that many of you are thinking right now. Yeah, Brad, but that doesn't really apply to me. You know, the old adage I've heard in the stations where it's at 50 years, the time, the time you got on is your life expectancy. I mean the reality is we really don't know. And I know that you do a job very different than myself or a lot of people that may be in these statistics that I'm sharing with you. [03:43.8]

My grandfather always just say something that I always thought was an interesting topic when it came to health and life expectancy and just things like that. Our genetics load the gun, how we live, pulls the trigger, thought that was kind of interesting. Now the problem with calculating a life expectancy based upon a year of birth is that with each passing year, you're move beyond certain events, right that held the potential cause for your death. For example, you didn't die in childbirth, if you're listening here right now. You weren't a casualty of war, currently, if you're listening right now. You're alive and well, and you've made it, you know, beyond many fateful events in which others may have met their demise. So, as we age our life, expectancies increase. As you get older, you achieve a new life expectancy, a longer life expectancy. So according to the annuity, 2000 mortality table, once you reach age 65, a male can expect to live to about age 85 and a female to age 88. Interestingly, married couples live even longer. [04:42.1]

Did you know if you're married at age 65, there's a 50-50 chance? One of you will live to age 92 and a 25% chance that one of you will live to age 97. So, let's think about that for a minute. Let's say we're retired maybe five or 10 years, and we reached age 65 and you're married. Statistically speaking, there's a one in four chance that one of you will be living in retirement for 32 years. That's a long time. In fact, you could possibly be in retirement for a longer period, or as long as you've been on the job. Pretty crazy you think about it that way, right? Let's remember too, life expectancies are not an average they are simply a midpoint. Half of the people will pass on prior to the midpoint while the other half will live longer. So, it's a little deceiving to think about your own mortality based upon these averages. After all, you may very well live long past your average life expectancy, God willing. Think about this. According to the U.S. census bureau, Yes, I nerd out, went into some deep deep research here. There are roughly 60,000 us citizens who are 100 years old or older. [05:47.5]

By the way, if you make it to age 100, your new life expectancy becomes 103. Now having said that, bear in mind, it is reported that there are about 70 people in the world who are more than 110 years old. And just in case, you're wondering what someone 110 looks like you can Google it. I found someone is just Google the name, Keith Richards. I'm joking obviously, but look at the guy. But why should any of this life expectancy stuff, this nonsense that I'm mentioning right now be important to you? Well, it's because your life expectancy is critically important when it comes to planning your retirement, wouldn't you think? It's foolish to plan a retirement in my opinion or retirement strategy, based upon an average life expectancy. It's prudent, I would think to plan longer. And I've said this many times or any client listening right now, you probably heard me say this in a discussion or a presentation we're making with regards to your wealth forecast. If I can have the conversation with the wholly above, I could have your plan dialed in to have 20 bucks left over to the penny, to rock and roll into the sunset, buying your last double double from in and out. But thankfully we don't have that conversation. We don't want that to be honest. [06:59.8]

So, we need to plan for a longer life expectancy, not an average, right? But your life expectancy and beyond that average, and it's imperative to use income strategies, stuff we talk about heavily in our practice here at ONE Fire and Police or sustainable distribution strategies to attain those sustainable amounts in retirement, then make sure that your drop your deferred comp plan is always there for you on top of your pension in retirement, no matter how long you live. You know, as I speak with retirees in particular overwhelmingly the number one fear that they expressed to me is running out of money in retirement. Let me tell you if that's your fear too, I assure you that if you have a properly designed retirement strategy, we can eliminate that fear. Maybe not in its entirety, because there are some psychological things around money, scarcity versus abundance stuff that we talk about, the psychological behavior we all have around money, but we can definitely eliminate a mass majority of that fear. [08:03.4]

So, if you're thinking that right now, or if you haven't met with that person, sit with a good advisor to walk you through your planning. And if you don't have that person, you can give us a call (805) 409-8150. You can also go to our website, PensionAttention.com and you can set some time with myself or one of our team members. But do that for you, it will eliminate a lot of fear around that. And there's no reason that anyone listening to me right now should be worried about how living retirement savings. Sounds crazy me saying that, right? Again, proactive planning can eliminate those fears, if you have a properly structured retirement strategy. So, who calculates these life expectancy numbers? Well, there's a profession as I mentioned at the top of the episode known as an actuary, and I will read how they will define their job. [08:51.7]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? Go to www.pensionattention.com to find out how we can help. [09:07.2]

I said to you very clearly, maybe not in the best context, but it is what it is. It's more like a grass growing viewing job. It's more like a, Hey, I'm going to sit in a room and watch paint dry. It is nothing toward about, but it's very important. Now, according to the society of actuaries, again, that does exist. And I quote “an actuary is a business professional who analyzes the financial consequences of risk. Zzzzzzz…. I kid I'm going on. Actuaries use mathematics, statistics and financial theory to study uncertain, future events, especially those of concern to insurance and pension programs. They evaluate the likelihood of those events, design creative ways to reduce the likelihood and decrease the impact of adverse events that actually do occur.”. So, there you have it. I'm sure that was clear as mud, right? So let me give you simpler way to think about what an actuary is. [10:05.0]

They're just a person who measures and manages risk and uncertainty, so, let's give you an example. At some point in time, most of you probably own a stock in a publicly traded company. And anyone who works with our firm has most likely either own an ETF or some stock inside of a public traded company. So, let's say that we had a hypothetical 30-year-old person and a hypothetical 70-year-old person who each bought the same dollar amount of stock in the same company. Well, the company would pay them the same dividend, right? The company doesn't care about their ages. The one is 30 and the other is 70. The company only cares about how much money they invested to which they'll give a dividend and each invested the same amount. So, each will receive the same dividends. So, in that transaction, there are only two driving components. How much money was invested and what does the company pays a dividend? That's it, there's nothing more. Just the two components. How much was invested in what the dividend. [11:02.9]

Age had nothing to do with the transaction. The transaction was strictly a financial transaction made possible by financial professionals. There were no actuaries involved, but what would happen in that transaction, that hypothetical I gave you, if there were an actuary involved. Adding a third component here, an actuarial component, how would the actuary’s presence affect the transaction? So, let's think about it this way. Let's take the same 30-year-old. I mentioned, and seven-year-old is two people, but let's say they, each approached an insurance company looking for a lifetime stream income rather than just a dividend payment. And they, again, each gave the insurance company the same dollar amount of money. Well, an insurance company will consider the third component in determining each person's payment. There'll be the same principle earning component as before, but with the insurance company, there'll be a third component, an actuarial component. By the way, it's not just insurance companies, this is also how your pension is calculated. [12:03.3]

Understanding L E as they call it, life expectancy is a big third component to not only how much we're paying and what the service years are. And because of that third component, the 70-year-old will benefit tremendously. You see the insurance company will send the 70-year-old far more lifetime income than a third year old. And why do you think that is well? Because the actuaries believe that they'll pay the 70-year-old for fewer years than the 30-year-old, pretty logical, right? And if you are going to pay the 70-year-old for few years, then you can pay him more each year. Now, many of you are probably thinking this makes sense, because if we work longer, our pension, for example, let's say 25 years versus 27 years versus 30 yours, your pension increases, it's actually an actuarial component. In essence, the older you are, the higher your annual income may or may not be from say an insurance company or a pension company. Now that's not the only the component, as I mentioned, because time of service, especially for your pension has a lot to do with that as well. Again, it's still an actuarial component to distributing retirement income. It's like having a secret weapon, right? This actuarial component. [13:12.8]

And it's the only way on the insurance side of things, the insurance can bring this to your table. They're the only ones with actuarial sound blocks of business. And they have complimentary blocks, actuarial sound business. As you know, insurance companies have life insurance blocks of business, where they are worried about people dying too soon, right? Cause they have a coverage that they have to do, and those are balanced against different annuity blocks of businesses, different types of insurances, right. But each block has an actuarial component and they're complimentary to each other, no different than the pension. Now, once in retirement, your goals should be to maximize your income balance against the income that's coming in for your life i.e your pension. So here at ONE Fire and Police, when we're talking about sustainable distribution strategies, as it relates to your deferred comp plan, your drop, when all your VC and S K and bank hours come through, right when you're in retirement, we look at your cash flows and everything to understand how much do we need, if any, above and beyond your pension. And that's how we build a sustainable actuarial based retirement plan. [14:20.3]

It's using those same functionalities. And as I mentioned before, we want to under assume, and over-deliver right. I'd rather assume you're going to live longer, God willing then shorter because that's how we have a sustainable. And that's how we also are able to answer, quite honestly, the one fear, as I mentioned of Brad, do I have enough money to retire? Am I always going to have enough money to be in retirement? And if you think about the power in that and those questions, if you join the centenarian club, you know, the people who are 100 years old or older, you would still be being paid by your pension. And by any portfolio, if you hired a good manager, who's looking at it from an actuarial point of view, essentially managing your risk, assuming you'll live longer, like over 100 years old, then it's a great power in knowing that your fears and anxieties are calmed. You can live in more of an abundance than out of scarcity, and you'll be able to spend your retirement years focusing on the things that really matter. Family, friends free from the worry of running out of money too soon. [15:23.3]

So, as I mentioned at the top of the show, no one knows how long they'll live. And although we want to live a long life, there's a big financial risk if we don't do it right in living too long. So, the beauty of structuring a retirement strategy with a little bit of an actuarial component, which is why I want to talk about it today, as boring as that subject might be, there's a lot to do with your pension has a lot to do with how we would look at a sustainable distribution rate, a spending rate, if you will, for your deferred comp plan and drop assets. So, it has a lot to do with understanding the risk associated with potentially living longer than you expected. And again, the beauty of structuring retirement strategy with those components is that you can transfer that risk, right to a proper and proactive plan that works for your family, your specific situation. And one quick note, for those of you who are getting close to retirement, maybe towards that drop entrance or in drop understanding your LFPP numbers, the Los Angeles fire and police pension. You know, when I'm at stations, I talk about it a lot. It's a great resource that the city has for you guys. So go on to lfpp.com, take a look at where you are, even if you've got 15, 20, 25 years on understanding where your pension looks good. It's all an actuarial number based on years of service and essentially the way the pension runs is the highest grossing 12 months of service, which usually is the last year of service, but understanding how that works. And if you have questions on that, when you pull those numbers, give us a call (805) 409-8150. You can also go to our website at PensionAttention.com. You can set some time there and there, you can also, again, subscribe to the podcast because we're going to have many more topics on and around pension, deferred comp plan, investing. [17:07.8]

And today's topic although it was again, a little mundane, it's really important to understand that these components behind the scenes are actually really important when you look at it from a planning perspective, that not only encompasses again, your overall retirement plan, but also your investment planning, insurance planning maybe. We talked about it on our one of our episodes, right? Why insurance planning is important, I call it pension insurance. So that's a really big focus as well, but also your tax planning, your estate planning, it all comes underneath the umbrella as to why these things really are important when it comes to your overall retirement plan. [17:41.6]

I want to thank you for listening to pension attention. And again, if you haven't subscribed or download already, you can go to our website at PensionAttention.com, click on the media tab and there you can download it and subscribe. Or again, you can download pension attention on any platform where you download a podcast. Again, the apple app. I want to thank you for listening to pension attention before acting on anything discussed today remember speak with a financial professional near you about your specific information. And again, if you'd like our help, give us a call (805) 409-8150. Or you can go to our website at PensionAttention.com. [18:16.3]

Next week on pension tension, we’re going to be talking about The Big Mac. Ahh, what does that mean, Brad? Well, listen, in next week, you can find out I'm gonna talk about a guy named Bill Sharp was doing groundbreaking work on investment allocation and portfolio theory and how The Big Mac plays into it. And please download and subscribe Pension Attention, share it with someone you like. If you don't like the show, share it with someone you don't like, maybe I don't know, but get it out there. We'd love to hear feedback from you, you can go to our website at PensionAttention.com, you can click on the media tab to download and subscribe, or you can download it and subscribe on any platform where you download a podcast, whether it's Spotify, SoundCloud, the apple app, Google podcasts, and leave us a comment. We'd love to hear your feedback. I'm looking forward to next week until then stay safe. [18:59.9]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [19:23.3]

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