Ep 36: 5 Things About Decumulation

On This Episode

So much focus in the financial world revolves around accumulating money. There’s all sorts of advice, how- to guides and guardrails in place when it comes to saving and investing, but a lot less resources out there to help retirees navigate the period of time after retirement. This is known as decumulation, the spending down and managing of the assets you’ve accumulated through your life.

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Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Hey, everybody. Welcome into the podcast. Thanks for hanging out with us here on Retirement Planning – Redefined with John and Nick and myself once again chatting about investing, finance and retirement. We’re going to talk about decumulation, five things you must know about decumulation to retire successfully. We’re going to get into that in just a second.

 


Speaker 1: Of course, if you’ve got some questions, need some help, reach out to John and Nick at PFG Private Wealth. That’s PFGprivatewealth.com. That’s the website you can stop by at, and gents, what’s going on? John, how are you buddy?

 


John: I’m good, I’m good. I know it’s been awhile since I think we’ve done one of these sessions here.

 


Speaker 1: Enjoying the summer, I guess, right?

 


John: Yeah. It’s been a busy summer for myself, and Nick can speak to what he’s been up to, but yeah, it’s definitely been busy. But my little one started kindergarten, so I’m adapting to that life of drop-off car line and pickup, which is fun.

 


Speaker 1: Yeah. I don’t know if you remember this movie or not, but do you remember this Michael Keaton movie, Mr. Mom? If you haven’t seen it, you should go watch it because you could probably relate to it. The whole car line drop-off thing is hysterical and that was from like the ’80s.

 


John: I’ll definitely go check it out.

 


Speaker 1: Yeah.

 


John: Yeah. Right now my wife’s, she’s studying for her boards, so I’ve been helping out with all that stuff and yeah, it’s been interesting.

 


Speaker 1: It’s a great movie. It’s a great old ’80s movie, but yeah, you could probably really relate to some of this stuff right this minute. Especially when you mentioned that car line thing, it made me think of that because he just, he has the hardest time understanding and getting his mind wrapped around the whole car line thing. It’s pretty hilarious. Yeah, definitely check it out.

 


Speaker 1: Nick, what’s going on with you, buddy? I know you’ve been traveling and running around.

 


Nick: Yeah. I was a recently up north hometown in Rochester, New York. I’ve got a lot of friends, family and clients up there, so did my yearly pilgrimage. Just kind of catching back up from being back and readjusting to the heat, so all good.

 


Speaker 1: Yeah. Got you. All right. Well, good. Well, I’m glad you guys are doing well and yeah, let’s get into the five things we need to know about decumulation.

 


Speaker 1: First of all, it’s a big fancy sounding word, but really it just is the spending of your assets, right? I mean, we’ve accumulated the money, now we’re going to decumulate it. It’s just kind of a fancy way of spending down what we have saved.

 


Speaker 1: On this episode, let’s point out a few items that people might want to think about to retire successfully. Let’s start with the first one. Nick, I’ll give this to you. Just a lack of support. I think if you go in, obviously if you type in any kind of a financial something or another, you’re going to get 18 billion hits on Google, and a lot of it is about how to accumulate money versus not too much necessarily about the decumulation side.

 


Speaker 1: But I think if you think if you’re working with a good financial professional or an advisor like you guys, obviously that’s where some of that support is going to come from, a lot of that support is going to come from. But there is a real lack of that it seems like if you’re just trying to do it yourself.

 


Nick: Yeah, it’s interesting. The perspective that people tend to have for this phase of their life, as far as whether you refer to it as decumulation or the distribution phase of life, is oftentimes kind of ingrained in them from their parents a little bit.

 


Nick: What we’ve seen a lot with people that are really entering or soon to enter into retirement, and I had this conversation recently with a client is, hey, we know what our expenses are. We have an idea what’s going to be coming in from social security, and we just want to protect our principal and go ahead and just take interest in dividends from our accounts, because that’s what we know from our parents, and that’s kind of… That just makes sense to us.

 


Nick: The conversation that we get into and we take them really have to force them to go and review the plan that we’ve put together because the plan will really lay out how this is going to be structured and the underlying components can be a little bit confusing.

 


Nick: As an example, when I explain to somebody that brings that up that that’s what they want to do and help them understand that, hey, on average your dividends on the stock side of your portfolio might be around 2%, if you want solid stocks. Then from an interest rate standpoint, maybe you’re looking at 2 or 3% as well. If we’re looking at a million bucks, we’re talking a total of 20 to $30,000 a year and that will often send them right into a panic attack.

 


Nick: Understanding how these things tie together, understanding that with the advent and the prevalence of things like exchange traded funds and mutual funds where we can do fractional shares and we can break accounts into a short-term, mid-term, long-term bucket to help us try to preserve some principle over time via growth, but also have a safe withdrawal rate and strategy is really important. It’s hands down the most misunderstood, but important thing when it comes to retirement planning.

 


John: Yeah. I think what we’ve seen a lot of advisors and client, or a lot of advisors individuals focus on just accumulation, so it’s really just kind of building, building it up and they never, as Nick mentioned here, there’s never a strategy for as far as how do you actually start taking that money out?

 


John: It all comes back to you don’t want to start planning for that once you retire, that really needs to be as soon as you can, but in reality when you hit that red zone of 5 to 10 years from retirement, I would say more towards 10, you should really start considering, “Hey, what is my distribution strategy?”

 


Speaker 1: Got you. Okay. Yeah, and I think a lot of times we do kind of get wrapped up in the accumulation thing and we tend to forget about these other stages and it leads me really into the second topic guys on this, which is it’s funny, maybe not funny, but it is interesting how the fear of spending is really real.

 


Speaker 1: At first, when I first started, I’ve been doing this now for a number of years, talking with advisors all across the country and you think, hey, you get to retirement. You’re looking forward to finally spending your and having a good time and so on and so forth and enjoying your golden years. But many, many, many people are truly afraid of actually spending what they’ve saved.

 


Speaker 1: I think a lot of it probably comes down to just confidence, but it’s a real thing getting over that hump and getting comfortable saying, “Okay, it’s okay to spend this money we’ve saved for the last 40 years now.” What do you guys see?

 


John: Yeah, no, we see the same thing. It really is, again, back to the accumulation phase or savings phase in this scenario. They’re just so used to getting a paycheck, saving it, and then they live off of their paycheck. Well, now your nest egg is now retirement that providing that paycheck for you, and the biggest fear for retirees is not running out of money. With that comes, can I spend this much? What will my assets, or what does my plan look like if I continue this spending or if I go buy this?

 


John: It’s important, and we’ve had scenarios where the plan really does give clients confidence of when they look at it and say, “Okay, if I continue my current spending rate, I have X amount at the end of the plan.” The cool thing about some of the stuff that we do when we get to see our clients see it is we’ll show, “Hey, what if you spend an extra 10 to 15 grand over the next 10 years for a vacation?” And we’ll model it out and they get to see how does that affect their overall plan, and is there still money left at the end? Is there enough money left where you feel comfortable?

 


John: We find that when people see that and there’s two versions of it. One’s a very detailed kind of actuarial cashflow number, which is kind of boring to look at. But then we also have a chart form, which just makes it easy to understand and it’s, “Okay. You know what? I can go spend that money,” and it just provides a nice peace of mind.

 


John: We’ve had scenarios where people see that and then they go do some of their goal, whether it’s buy an RV, do this vacation, spend time with family. It’s the fear is definitely real, and it’s important to have a plan to give you some peace of mind, to see if you… That you’re not going to outlive your money.

 


Speaker 1: Yeah, and I think definitely it’s that confidence factor, right? Because oftentimes people that are in good shape, they just don’t really feel comfortable that they can go through that transition period. I think that’s a lot of the value that you guys bring to the table by saying, “Okay, now we’ve built a plan. I’ve showed you this is going to work, and then you’re there as that kind of coaching sounding board to say, “No, it’s okay. We can get over this hump together. You’re going to be able to enjoy this because that’s what you’ve built up and worked towards.”

 


Speaker 1: Now we know obviously we’re living longer and there’s more things to be… There’s more risky stuff out there, and not even talking about the crazy kooky world we find ourselves in right now, but just risks in general. If we’re talking about the de cumulation phase, which is when we’re into retirement, the risks in general become more numerous, especially financially speaking.

 


Nick: Yeah, so one of the things that can impact a retirement plan or this phase of somebody’s life, this decumulation phase, is what’s called the sequence of returns. Essentially, what that means is that on a typical case, people think in terms of average rates of return, and that’s understandable because that’s how most people are taught.

 


Nick: But there can be an average over a 10 year period, a 15 year period of, you can call it 6, 7, 8%. But if the… Even though it averages that number, if the losses are incurred early on and they’re significant, that has a much greater impact on how long the money will last than if those losses come further on down the road.

 


Nick: That’s why it’s important to really have a strategy, to understand that the plan should be consistently updated. And what ends up happening, especially in one of the things that we’re starting to see a little bit is, the markets have been up for the last 6, 7, 8, 9 years, so there’s a little bit of, I don’t know if you euphoria is the right term, but a little bit of a sense of invincibility for some people. Where it’s like, “Hey, I keep taking money out and it keeps going up and that’s great,” and that is good, but it doesn’t always happen like that.

 


Nick: When we have these risks of AC goes out, child loses their job and you help them financially, you get grandkids, there’s a change of social security, you have a health issue, all these different things. We’re trying to prepare for all uncertainties, and so making sure that your investment strategy is really lining up with your overall plan is important even in good times, which is what we’ve had for quite a while.

 


Speaker 1: Yeah, no, I definitely would agree with that statement for sure. You know, and John, listen, hey, they’ve passed another trillion dollars just a few weeks ago at the time we’re taping this podcast, now they’re talking about another $3 trillion. So focusing on tax consequences has probably never been more important than what it’s going to be over the next couple of years. Whether they sunset, they do nothing and leave them alone, and they sunset back to the old means here in a couple of years, or they make some changes, you got to have some focus on taxes.

 


John: Yeah. Taxes are definitely an eroding factor on your money, especially going into retirement. Because that for the majority of people, that’s their… The IRA pre-tax money is typically their biggest part of their nest egg and they’re pulling it out. Every time you pull out a hundred grand, you’re getting whacked with taxes on that. It’s important, again kind of that red zone area, even before that you want to start planning for what you think your tax situation is going to be. But also you want to start planning to have the flexibility to adapt to any type of tax environment so you can basically limit how much taxes you’re actually paying.

 


John: So example, Nick mentioned some risks where let’s say you have a health event, you need to pull out 30, 40 grand. It might be nice to have some tax free money, AKA kind of some Roth money that you can pull from so you don’t really jump into a higher tax bracket and just start paying enormous amount of taxes that you could ultimately have avoided.

 


Speaker 1: Yeah. I mean, again, it’s not what you make, it’s what you keep. It’s all those kinds of things we know, we hear about it, but if you’re not talking about taxes as you’re preparing for retirement, I mean, I’ll go out on a limb and just say you’re doing it wrong. Right? You’ve got to make sure that you’re factoring that in there and having those conversations, and if you’re not, well, then that needs to be a red flag as well.

 


Speaker 1: So that at the end of the day, we’ve got these five things I mentioned. Here’s the fifth one, guys, just leveraging the lifetime income. We got to replace a paycheck, whether it’s for 1 year, 5 years, 15 years, 25 years, 40 years. It’d be easy if we knew exactly how long we’re going to live, but we don’t, so you’ve got to have that thing ready and you’ve got to leverage that income for life.

 


Nick: Yeah. It’s one of the things that we try to emphasize with people and one of the keys to planning is that everybody’s situation is different. When you talk to your brother, your sister, your friend, your neighbor, whatever, and when I was just up north, I’m reminded about, I was reminded about how much people love to talk about just everything. Being down in Florida, people tend to be a little bit more private from what I’ve seen. People are, “Oh yeah, I did this, I did that. I did this.”

 


Nick: One of the things that I try to emphasize to people on a consistent basis is that sure, your sister may be doing X, Y, and Z, but maybe your sister has a pension. Maybe your sister’s mortgage is paid off. Maybe your sister didn’t have kids, and so her situation and all of the decisions that line up with that are very different from yours. Because you don’t have a pension, your house isn’t paid off, you did have children that cost you more money, and let alone the risk tolerance from the standpoint of the market, that’s a whole different ball game.

 


Nick: When we evaluate things, one of the things that when we go through a plan, one of the things that we typically go through with people is just looking at options from the standpoint of a guaranteed income. In reality, the only way to get guaranteed income is through annuities, and a lot of people have a certain perception of annuities or they don’t like them. We always try to remind people that, hey, our job is to make sure you understand what options are out there and available for you. Make sure how you know that they work or would work for you in your situation. Then if it’s something that you don’t like, then we just don’t do it, and we move on.

 


Nick: But when we factor in social security, whether or not somebody has a pension and/or whether or not they want to have some form of guaranteed income in the future, it can really make a significant difference. Not only from just a pure planning standpoint, but also from a peace of mind standpoint.

 


Nick: One of the things that is probably underestimated are how people emotionally respond to different things that happen in the market, and how that can impact their decision-making. No matter how many times somebody, says, “Hey, I know I need to invest longterm. I know I need not to be reactionary,” when it hits the fan, it’s really hard not to be.

 


John: Nick, I’m going to stop you for a second. A perfect example of that was actually when Coronavirus hit. I think we had a true indication of how much risk some people were willing to take.

 


Nick: A hundred percent, and so this is that whole… I referred to it a little bit earlier, this level of euphoria over the last year is that, “Hey, everything’s going well.” Or we’ve had conversations with clients where maybe they’ve used some sort of annuity or some sort of guaranteed income product. It’s like, “Well, hey, if I would’ve kept it in the market, it would have done this, this and that.” It’s like, “Yes, but what we did was we separated that money and we gave it a certain job, and as long as that does its job, then we have a lot less pressure on everything else, including your brain and your emotions, and that cannot be underestimated.”

 


Speaker 1: Yeah, absolutely. Well, those are five things, folks, that happen or can happen during the decumulation phase, which again is a fancy word for the spending of the assets that you’ve accumulated through the years to get to retirement. Hopefully, that helped you a little bit, gave you a couple of useful things to think about.

 


Speaker 1: As always, if you’ve got some questions, we talk in generalities here on the podcast, make sure you’re checking with your advisor or reach out to qualified professionals like John and Nick before you take any action. You can find them online at PFGprivatewealth.com, that’s PFGprivatewealth.com.

 


Speaker 1: Don’t forget to subscribe to the podcast while you’re there on Apple, Google, Spotify, whatever platform you like to use. We put these out quite often here, so you’ve got definitely a lot of content. You can go back and listen to some past episodes and, of course, get notified when new episodes come out as well.

 


Speaker 1: So guys, thanks for hanging out with me. I appreciate it. Glad to have you back in and chatting with me and I’ll see you guys in a couple of weeks. We’ll be getting ready for football season.

 


Nick: Yes, sir.

 


John: Right.

 


Speaker 1: We’ll catch you next time here on Retirement Planning – Redefined with John and Nick from PFG Private Wealth.

Ep 24: Importance Of Risk Management & Asset Protection

On This Episode

When it comes to retirement planning, many people focus on filling in an income gap, or making sure they will have enough money to get them through retirement. While this is fundamental to the plan, it’s important to make sure your assets are protected. John and Nick will explain what investment vehicles have some sort of protection and will also give a hypothetical example.

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More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Hey, everybody. Welcome in to Retirement Planning – Redefined with John and Nick of PFG Private Wealth, serving the Tampa Bay area. Thanks for tuning into the podcast. As we talk investing, finance and retirement, and we’re going to jump in and get started with the conversation. Guys, I hope you’re doing well. We were kind of laughing right before we started the session recording here that John’s been doing some swim lessons with his kids and it’s been going really well. And I wanted to make the joke that Nick, you finally learned how to swim.

 

Nick: Yeah, no, all joking aside, I can swim and swim well, but besides that-

 

John: You’re welcome, Nick. We’ve been doing some Zoom swim lessons [crosstalk 00:00:41].

 

Speaker 1: Zoom tutorials on swimming.

 

Nick: Yeah. I get in the bathtub with goggles and see what happens. But no, I’ve been doing well. Things are starting to slowly get back to normal from the standpoint of, I want to say last week I went out to dinner for the first time at a restaurant outside in a few months, so that was pretty cool. So things are slowly starting to get back to normal, although it’s going to be interesting is some of the numbers seem to spike here, how things will adapt over time, but no complaints, no complaints here.

 

Speaker 1: Yeah, it will be interesting to see as this cluster bang of a year continues to wobble on. So we’re about halfway through 2020 at this point. So we’ve still got a lot to go, so we’ll see how it shakes out. But that’s good. Glad to hear that there’s some good positive spots here and there. So let’s jump into our topic. So let’s review the importance of risk management and asset protection. Let’s just start with a basic overview, Nick.

 

Nick: Yeah. So for those that are listening that have been through our class that we hold at the local colleges, this will sound a little bit familiar, but we’ve had a couple of things pop up with clients and questions from friends and things like that. So we thought it would be a good topic to re-review where oftentimes people get focused on the fun or more exciting aspects of planning, which may be investments or talking about retirement and those sorts of things, but really risk management is a super important part of overall planning because really the objective is to increase your probability for success by reducing your risk. And then ultimately, overall the goal by doing that is to do it while keeping your costs down. So when we go through the planning process with clients, we do review their property and casualty insurance. We’re looking for how their accounts are titled. We’re looking and analyzing things from the standpoint of, “Are we making sure that things are protected?”

 

Nick: So we always like to make sure that people do realize, because it isn’t necessarily something that is top of mind and oftentimes, when you talk to people, the reality is that when they’re shopping out their homeowners insurance, their car insurance, they end up having been with the company for a long period of time. Usually it’s price dependent. So we’ve seen where people made a change to cut costs, six, seven, eight, nine, 10 years ago and now they’re in a completely different financial situation and they haven’t made adjustments to correlate to that from a risk management standpoint. So we just kind of want to walk some people through that.

 

Nick: So one of the first things that we review and talk about and help people to understand are that, there are certain assets that are creditor or protected in the state of Florida. This is something, again, we’re not attorneys, we’re not property and casualty agents, but these are topics that we review. And this is one of the perfect examples of something there where we can provide feedback, give you help, provide you with questions to ask and then help connect you with or you connect with an existing relationship that you have with a property and casualty agent, with an attorney if there are legal documents that need to be involved, that sort of thing. But in the state of Florida, it’s important and many people know that you can declare your primary residence as your homestead.

 

Nick: And there are a lot of protections built into declaring your home a homestead. So many people just focus on the tax benefits and that’s one thing, but really it provides a creditor protection and asset protection for your home. So that’s a big deal. If you own non-qualified annuities and/or have life insurance that has a cash value component to it, those are protected in the state of Florida. Qualified accounts, so in other words, 401k, IRA accounts, those accounts are protected in the state of Florida. One kind of caveat to that where we’ll have some people say, “Well, hey, I’m 60, 70 years old and I’ve got these accounts and my home, why do I need any sort of additional protection?” And one of the things that we like to remind people are that those qualified accounts, you do have to start taking money out at a certain point. And at the time that they go from qualified to non-qualified that becomes something that could be available.

 

Nick: From the aspect of different types of trusts, there are certain types of trusts that can be set up to provide protection for assets that’s absolutely 100% in the realm of working with an attorney. John’s going to talk about one of the misconceptions that a lot of people have when it comes to trusts. And just a basic thing that is important for people to consider, let’s say you own a business and you are not structured as an LLC, you could be putting yourself a little bit of risk from that standpoint.

 

Speaker 1: Yeah. Certainly there’s a lot of pieces in there. So again, homestead, annuities, qualified accounts, LLC, certain trusts, some of these things are the protected assets or at least in Florida. John, what are some of the non protected?

 

John: Yeah. So some of the non-protected assets would be cash accounts or your bank accounts, things like that, CDs, non-qualified investment accounts. Someone might have a brokerage account that they’re just putting money into monthly, or just maybe just put a lump sum in there. Just understand that just because your retirement accounts are invested and you have investments there and they’re [inaudible 00:06:27] protected. If it’s in a nonqualified account with investments, it’s not protected.

 

John: One other thing with the qualified accounts is to understand that there are limits to what is actually protected. So actually an ERISA plan, which is a 401k, 403(b) type plan, it’s typically fully protected, no matter what the amount is and IRA, and this does go up, it used to be a million, and I believe right now it’s about 1.3 million if an IRA is actually credit protected.

 

John: And then a recent rule change in the past few years, inherited IRAs are no longer credit are protected. So it’s important to understand that if you inherit an IRA from somebody, it is not credit protected at all. Something that will come up, Nick mentioned with the homestead where your primary home is credit protected, any secondary home you have is not. So that’s a misconception we see sometimes if you have a rental property, or let’s say your, like a second vacation home, it’s not credit protected. And then with the businesses, if you’re a sole proprietor and you never develop any type of LLC, so example I have a [inaudible 00:07:32], but I’m not LLC, that is not creditor protected. So that’s why it’s important to, if you’re working with an attorney, you want to ask these questions, “Hey, should I create an LLC with the business?” And you definitely want to have them help you draft the documents so they’re done correctly.

 

John: One of the biggest questions we get when we’re doing planning and part of the planning is we look at the estate side of it. We don’t draft any documents, but we are knowledgeable enough to have people ask the right questions and point them in the right direction. But it’s with trusts. A lot of people feel like, “Hey, if I set up a trust, does that protect my assets?” And if it’s a revocable trust, the answer’s no. So a revocable trust basically just get to the meat of it. You still have control of that trust. So you either are owner of it, or you make decisions of it. And basically with that, it’s still considered part of your estate [crosstalk 00:08:22] and for that reason it’s not credit protected.

 

Nick: Yeah. And just for further emphasis on those protections kind of tend to kick in after you pass and the trust stays, but while you’re alive, it’s includable in your estate and it doesn’t provide those protections. And one other caveat or thing to consider think about are for those non-qualified accounts, non-qualified investment accounts or non IRA, if you hold them jointly in the state of Florida using Tenancy by the entirety for those types of accounts, if you hold it with a spouse, so it has to be with a spouse to use that, that does provide some additional level of protection. Although it’s not the same as like a retirement account per se.

 

John: Definitely, as you can tell, it gets confusing. So you definitely want to ask the right questions if you’re wanting to know what is and what isn’t and just asks the right people and adviser will know enough, and attorney would definitely be the best resource.

 

Speaker 1: Yeah. I’m definitely say if you’re working with an advisor, obviously bring the conversation up with them, have them bring the attorney in and so on and so forth. And of course, John and Nick can help you in that arena as well. Now you mentioned property and casualty, so let’s do a quick review of that as well. What are some things to consider?

 

Nick: Sure. So the main types of property and casualty policies that people are going to have are going to be their car insurance, homeowners insurance, and maybe an umbrella policy. So one of the examples that we tend to give from the perspective of a car insurance policy is, really just walking you through a scenario. So when you look at your car insurance policy, you’re going to see that there are limits that are provided, that are referred to liability, and then you will see a designation for what’s called uninsured motorist or UIM.

 

Nick: So the example that we usually use is, let’s say John and I are both driving down the highway and we get into an accident. So we’re both in our late 30s, business owners, our incomes continue to go up. John has a family, I don’t, but if something happens to me, I do have assets going to parents and brother and that sort of thing. So let’s say we’re driving and we get into an accident and because John likes to multitask a lot, he was texting and it’s his fault. So we’re going to blame him. So I have the-

 

John: Wait, wait, wait, full disclosure, I never text and drive. I do multitask, but I do not do that.

 

Speaker 1: Good [inaudible 00:10:57].

 

Nick: That’s good. That’s good. So we get into an accident. I have damages, fairly serious damages and I’m going to go ahead and I’m going to sue him. There’s kind of a negative connotation oftentimes with the whole aspect of suing somebody, which the reason that we use this example is because, here we are, we’re friends, we’re colleagues, in many ways business partners, that sort of thing. But the reality is, is that if there’s damages and mistakes happen and mistakes are made, ultimately my responsibility for me and family is to try to become whole again, from a financial standpoint. So I go ahead, I sue him. The first thing that’s going to be reviewed and looked at are going to be his liability limits. So the liability limits protect him from lawsuit, from somebody else when he is at fault, essentially.

 

Nick: So let’s say he has one of the most common levels of coverage that we see is what’s called like 100/300. So what that means is 100,000 per person in the accident, a total of 300,000 in the vehicle. So in this instance, in this situation, I’m the only person in the vehicle, so the maximum amount of his car insurance company is going to pay out that they’re going to send their lawyers to deal with this lawsuit, the maximum amount that they’re going to pay out is 100,000. If I happen to have other people in the vehicle, that’s where that 300,000 limit would come into play. But let’s say my damages are 250,000 and the most his insurance company is going to pay out as the 100. So, now what? So at that point, what’s going to happen, there’s going to be kind of a different phases. So I’m going to have an attorney. And my attorney is going to look at, “Hey, does John have additional assets that are not protected, like we talked about earlier that are available through suit?”

 

Nick: So that’s something that he’s going to request, some sort of inventory, financial inventory, asset balance sheet via the lawsuit. The other thing that they’re going to look at is, “Hey, Nick, do you have uninsured motorist coverage?” And luckily because I do this sort of thing I have planned ahead and I have uninsured motorist coverage. So what uninsured motorist coverage does is it protects me in the case of having damages that are above and beyond what the person who inflicted the damage has. So in this case, my limits for uninsured motorist, let’s just say there are 250,000, I can essentially sue my own insurance company to fill in that gap, to get me up to that 250,000, so that coverage has protected me.

 

Nick: So the liability limits protect the person at fault against the person having damages and not having enough coverage. So, because we do see people oftentimes outright reject uninsured motorist coverage, and knowing that, especially in the state of Florida, people are often underinsured or uninsured, having uninsured motorist coverage is something that we think is important to have a level of protection.

 

Nick: So the same scenario, I was injured and John had coverage and I had substantially much more significant damages. Let’s say that I was permanently disabled and I wasn’t going to be able to work anymore, so the amount that the amount of protection and coverage that I’m looking for is going to be substantially more than the 100,000 that John has, or even the 250,000 that I have in the uninsured motorists. And that’s where something like an umbrella policy could come into play. So what an umbrella policy will do is, it’s a type of coverage that essentially goes above what you have for the auto coverage.

 

Nick: So an umbrella policy can be both liability and uninsured. So in this example, what we’ll use for the example is we’ll say, “Hey, Nick has an umbrella policy. And because my damages were a million dollars and John’s insurance company has paid out 100,000, my insurance company has paid out 250,000, there’s still a gap of 650,000. Essentially, I can go ahead and sue my insurance company from the standpoint of the umbrella to try to fill in that additional gap. So if John had had an umbrella policy, they would have tried to use that for protection. But in this scenario, me having an umbrella policy and being the one that had the damages really comes to the point of being able to protect me in my assets.

 

Speaker 1: Yeah. And certainly it’s important to review your risk management, your asset protection, because something like an accident can certainly derail retirement plans, it can really wreak a lot of havoc and other things that you had going on as well. There’s countless stories out there along situations like that. So if you’ve got some questions or concerns about this week’s topic, and you need some help, reach out to John and Nick, and of course they can help point you in the right directions for some of the things they don’t do as mentioned earlier. It’s always important to review and have these conversations about all these little assets. It’s not just about income, which obviously that’s super important in retirement, but there’s all these other little facets. So this week we focused on some risk management and asset protection when it comes to some of the things that are protected in Florida, not protected and a bit about the property and casualty as well.

 

Speaker 1: So reach out to them if you’ve got questions on these topics at 813-286-7776, to have a conversation about your own situation, 813-286-7776, or share the information with a friend who might benefit from that well and go to pfgprivatewealth.com to learn more about John and Nick and their practice, pfgprivatewealth.com, a lot of good tools, tips, and resources. You can also click on the podcast page, you’ll see that right at the top. And you can subscribe to us on whatever platform you like to listen to. And we would certainly appreciate it. Guys, thanks so much for your time this week. As always, I appreciate all that you do to help us out here and continue to do a good job with those swimming lessons there John.

 

John: Thanks.

 

Speaker 1: And Nick, maybe one day, you can take the floaties off, you’ll be good.

 

Nick: Hopefully.

 

Speaker 1: All right, guys, have a great week. We’ll talk to you soon. Stay safe, stay sane, and we’ll see you next time here on Retirement Planning – Redefined.