0:00:00 - Speaker 1
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor. Cambridge and Greenway Wealth Advisory are not affiliated. It's time to dive into some insider secrets of investing and retirement planning To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash.

0:00:31 - Speaker 2
Hey everybody, welcome in to the podcast. Thanks for tuning in and hanging out with Sherry and I here on Money Chic where we talk investing, finance and retirement, and on this podcast we're going to talk about Minding the Gap, and I'll explain what that is in just a second. But first let's check in with Sherry, See what's going on how are you dear?

0:00:49 - Speaker 3
What's been happening? Fantastic I'm. The kids are back in school, so all is well in the world. So we are happy in our household, very good.

0:00:59 - Speaker 2
Well, we're into, this is our September podcast. So, basically, we are into the our month, right, and we're into September, which is you and I are some gruggos. We're going to talk about that on the next podcast as well, so that'll be kind of fun, but it's also Labor Day weekend About the time we're doing this. This should be coming out either just right before or right after Labor Day, so hope everybody has a good one. You got any plans for Labor Day, sherry?

0:01:21 - Speaker 3
Going to go to the beach. Spend a few days up there and soak in the last of the sunshine and have some fun.

0:01:29 - Speaker 2
Well, hopefully, hopefully, not the last of the sunshine, but well last of the summer, the summer, the warm sun.

0:01:34 - Speaker 3
There you go, the summer sun. I like that.

0:01:36 - Speaker 2
So let me ask you a question have you ever been to London?

0:01:39 - Speaker 3
I have. I actually studied abroad there.

0:01:42 - Speaker 2
Oh see, look, we learn something new all the time here on the show.

0:01:44 - Speaker 3
Yes.

0:01:45 - Speaker 2
So did you ever ride the tube, as they call it?

0:01:48 - Speaker 3
The tube.

0:01:48 - Speaker 2
The tube.

0:01:49 - Speaker 3
Very, very often. Okay, yes, this one works out perfectly then.

0:01:53 - Speaker 2
So you've probably saw these little signs that they have, and I don't know if we have them I haven't been to a place with a subway here in the States in a long time but we basically have little signs that say you know, watch your step, things of that nature. I think that's what we usually put, but over there they used to put or they did put, mind the gap when you're talking about the transition from train door to you know, station platform, that kind of stuff. Do you remember seeing that?

0:02:15 - Speaker 3
Oh yeah, and it's very polite too when they announce it when you get onto the train. It's just a nice polite reminder to mind the gap Fantastic.

0:02:25 - Speaker 2
So what better way to talk about you know finance, because there's a lot of gaps that we run into in retirement planning process and financial world in general and since you've been there now, we've just got this even better connection here to talk about this. But I think often, sherry, people think of just the one gap, and this is my first one. We're going to bring this one up first because I think this is the one everybody kind of focuses on or gets fixated on, but there are others as well, so we'll touch on a few of those along the way on the podcast. So let's start with the simple one, the one everybody thinks about when you stop working well, you no longer get a paycheck. So now you got a paycheck gap. How do we fix that?

0:03:00 - Speaker 3
That's right. There is a paycheck gap and now we have to focus on, since we're in retirement, we have to look at the assets that you've been accumulating and now move to decumulation. So take the mentality of savings and now turn it into spending or paying yourself. So that's exactly why I have my bucket strategy that I create with my retiree and pre-retiree clients, where we look at how much money do you need coming into your household to pay expenses, to travel, to do what you want to do in retirement. We look at how much money you need to have coming in.

We then look at what's coming in already social security pensions, if you're lucky enough to have one, but also when are you going to take social security and are you going to start your pensions and what payout plan will you have for your pensions. So that's also part of the bucket strategy process and everything that's coming into your house no ifs ands or buts that you don't have to think about or worry about. Social security, pensions, annuity income I call that your base income and then the gap is essentially what you need and the difference between what you need and that base income, and we essentially need to use your investments to solve for that gap, solve for that difference. And base income can differ year to year, depending on when you're taking social security, when you're taking pensions. If one spouse is still working, one spouse is retired. So we then, year by year, will then fill in that gap with your investments.

0:04:38 - Speaker 2
Okay. So that's kind of the common one, and I think most people stop there. So let's go into these other pieces that can add to or complicate the situation. And since you mentioned social security, let's go to that one, because many people and COVID has kind of expanded this or expanded upon this where people are maybe saying you know what I'm done, I don't want to go back, I don't want to deal with the mess or the or all these different things that are happening or whatever the case is. And so people have been thinking about retiring early anyway, and we've been seeing that over the last several years. So let's say, you want to retire at 60. And we'll just use that as a simple number. Well, now you're going to have a social security and a Medicare gap because you can't activate either one of those for at least a couple of years.

0:05:17 - Speaker 3
Exactly yes. So if you are 60 and you decide to retire, like you just said, you can't start social security until 62. And even then we would make the argument that you probably shouldn't start taking it at 62. Anyway, you want to wait as long as you can so you can get the maximum benefit that you can from social security. So now we have to look at your investments, what you've saved, so your retirement investments, as long as you're accessing them after age 59 and a half, because if you access prior to 59 and a half you pay that 10% penalty on top of taxes. So you can look at your retirement investments. Any after tax money that you've saved may even work part time, have some part time income to fill in that gap. So, filling in the gap between social security and those few years, you're really again depending on yourself, the same way you were with filling in that paycheck and your savings to get you to that social security age.

0:06:22 - Speaker 2
Right, and then the real sticking point can be the whole medical thing.

So if you're talking about five years, let's say, just using that example without being able to activate Medicare. Well, you're going to have to come up with the money on that, and that could put a wrinkle in your overall strategy for longevity, right? So that's five years worth of money that you're paying out to keep yourself covered medically, and so that's something that you really need to strategize about whether that's going into the marketplace. Looking at Cobra and it's funny because people think, well, we have this thought that Cobra is super high and it used to be, but if you go look at it now, it's actually not that bad of an option considering what's going on. So that's another huge place where you've got to be stressing this and talking about this with your advisor, sherry, right? So that you guys can plan to figure out how to fill that medical gap for five years.

0:07:08 - Speaker 3
Yeah, and it could be a very expensive gap to fill.

So it really is a big consideration if you're going to retire prior to age 65, and you need to figure out what you're going to do for health coverage. Cobra you mentioned this is the least disruptive option you have because you can just continue your current employer's insurance plan, so you don't have to worry about learning a new plan, the ins and outs of it, switching doctors, all of that stuff. But it could be expensive. So that is something to consider.

Another option and I see this happen often is to just go onto your spouse's health insurance. So one of you may retire before 65, but someone else the other decides to keep on working mainly for health insurance. So switching over to your spouse's health insurance is another option. You could look at the Affordable Care Act marketplace plans, but again, your eligibility there is based on your taxable income. So taking withdrawals from tax-free Roth accounts and taxable accounts, you have to take a look at that because it does look at your taxable income for that. And then another option is to use, if you have an HSA, a health savings account to pay for the out-of-pocket expenses.

0:08:36 - Speaker 2
Right yeah, and it can get costly. So again, strategy becomes really important when trying to retire early in multiple facets, not just from the do I have enough money to make it last for the longer time, but there's all these other little components to factor in. So that's that gap we're trying to cover there. Now, what about the inflation gap, sherry? So this one is the one. Again, we all know about inflation, but this gap, especially lately, it's been growing and getting a bit bigger.

To me this says a lot, if you're on the fence, about how you feel about inflation. Whether you're buying the transitory thing or not or whatever. The fact that social security is doing a cost of living adjustment a pretty high one, between four and six percent is on the radar. That's for something done that in a really long time. So if that doesn't tell you something about inflation, I don't know what does.

0:09:22 - Speaker 3
That's right, absolutely yeah, I mean historically. We say inflation is about 3% a year and, like you said, social security was not keeping up with it and now they're giving even more than that. So I think that that that does speak volumes and typically, health care inflation is about 6%.

So, that's also something to think about is just the health care inflation cost that you'll you'll see. But for this, when people retire, there's usually two schools of thought. They either think I can't afford any losses, so they stick their money under the mattress and with that it gets them wide open to inflation risk, right? So? Or the converses stuff is costing more, or I need my money to last. As long as I do, I need to invest very aggressively, which opens them wide up to sequence of return risk and market volatility risk. But really the way to keep up with inflation is to make sure that you're having some type of rate of return on your investments, on your income. That is filling the gap. So when things do cost more money over time because they will you're able to have that slight increase in your income in your take-home paycheck that your investments are giving you. So you need to make sure that you stay invested in order to keep up with inflation and have a rate of return on your money and not just have it in the bank.

0:10:54 - Speaker 2
Yeah, my grandmother literally was one of those that did the money in the coffee can thing. She put it in a, not a coffee can, sorry the old. Well, I guess it was a coffee can, but like the old Folgers, like massive, big metal coffee containers. And then apparently at some point had decided to take to burying some of it in the yard.

So you know, it's pretty one of those things where she shared with someone where she apparently some yes, some know and, but I guess one of her sons knew, one of my uncles knew to she was doing some of that, so I guess he looked and took care of that once she passed away.

0:11:32 - Speaker 1
But yeah, you never, know right you folks.

0:11:34 - Speaker 2
You know we used to do some interesting things and of course strategies obviously are more complicated now and we have more technology and stuff, but inflation is still there and so we're still going to have to mine that inflation gap. So and you know what you mentioned to healthcare, so let's do that one as well. Long term care gap I mean that's even a higher one, and you know sure you could have a great strategy in place, right? You could be humming along in retirement, everything is looking pretty darn good, and then, out of the blue, a long term care event happens to one of the two of you if you're married, and it could totally derail the situation and send you. You know, if you're pulling, I don't know. Let's say you're pulling $70,000 a year out to live on and now you got to spend 100,000 because, of this long term care situation.

Talk about messing up the long term plan.

0:12:17 - Speaker 3
Oh yeah, I mean, it can, like you said, completely derail a retirement plan, and I would actually argue that you do not have a retirement plan if you don't have a long term care plan.

0:12:28 - Speaker 2
Especially now right.

0:12:29 - Speaker 3
Yeah, I mean, and there's really three choices you have when it comes to long term care. You could buy long term care insurance to help fill that gap. You can self insure. So you're pretty much saying that I'm going to pay for these potentially added expenses out of my own money and with the knowing the risk that it could end up derailing your plan or your spouse's plan or depleting your assets, but you're willing to take that risk or I say this tongue-in-cheek, but unfortunately this is a solution that many of my clients offer is die before you need long-term care. So I don't recommend using that strategy, but you know it. Long-term care is not fun to talk about, it's not fun to think about, it's not fun to pay the premiums for the long-term care insurance. But I would argue that usually the winner in all of it is the person that bought long-term care insurance and never had to use it because they died in their sleep. So having long-term care insurance is risk management because it can deplete your assets very, very quickly.

0:13:41 - Speaker 2
Yeah, and then, of course, think about this, sherry, because a lot of times what happens is one person goes in for long-term care right, and it can totally wipe out the situation and really it's the spouse, it's the other person who's really left in the lurch because it wound up wiping them out, and now they're really scrambling to figure out what they're going to do in retirement, and maybe they've got to go back to leaning on the kids or whatever the case is.

So it's really important to really have this conversation and sadly and I get it, we're all human it's the one that everybody seems to avoid the most.

0:14:15 - Speaker 3
Yes, well, it's not fun to think about.

0:14:17 - Speaker 2
No, it's mortality. Who wants to think?

0:14:18 - Speaker 3
about it. Exactly who wants to think about it, and it's a lot easier to just pretend like it's not going to happen. But it's dangerous to not think about it or not prepare for it because, like exactly like you said in, this happens all the time that couples choose to do nothing or self-insure and one person needs the care and depletes the assets and leaves the surviving spouse with nothing.

0:14:44 - Speaker 2
Yeah, exactly. So again, you got to mind these gaps, and the long-term care one is a very, very big one and a very dangerous one as well, and so it's worth it to make sure you're having conversations with your advisor, even if it's uncomfortable, make sure you're doing so. And, of course, if you're not having conversations with your advisor, bring it up. And if you're not working with an advisor, definitely reach out and talk with one, like Sherry as well. So let's do one more here.

And this is another unfortunate aspect of the business right, we're all going to pass away as humans. It is what it is, and what you guys deal with is that inevitably, there's going to be that situation where someone passes first, right, and so we're going to have the widow's gap, or widow or his gap, but it's usually the widow, so widow's gap. And there's a couple of really major key components on this one, sherry, that people overlook and take away the emotional stress part, right to say guys, we already know that's going to be the given when you lose your loved one. But there's some financial pieces that we don't even think about or see coming because we've been doing it another way for so many years. We never see this gap coming.

0:15:45 - Speaker 3
Absolutely. I mean two income sources that go away when one becomes a widow is social security. So when both spouses were alive, two social security paychecks are coming into the household. When one spouse passes away, essentially the smaller check goes away. So now only one Social Security paycheck is coming into the household. And then the second difference is pensions. So pension could be decreased or, worst case scenario, go away because it only covered the one spouse that pre-deceased the other spouse.

So that's a very big risk and it's a mistake to assume that when you are widowed or one person is living in your household now that your expenses are going to be cut in half. Property tax is property tax, no matter how many people live in the house. Your cable bill is your cable bill, no matter how many people live in your house. So many expenses that you have are not based off of two people, it's just based on the home. So it is not prudent to assume well, it's okay to only have one Social Security paycheck go in because my expenses are going to be cut in half. That's just not true.

0:17:02 - Speaker 2
And so, if you think about it, you're getting slapped multiple times with this right, because so you may lose the pension money. If it's there, you're going to lose part of the Social Security, so your income is down. And then taxes. You're going to single filer now versus married. And so your taxes are actually probably going up, and so you're losing income and paying more taxes.

0:17:22 - Speaker 3
Exactly.

0:17:22 - Speaker 2
I mean, it's just a recipe for real trouble if you have not planned ahead of time to mind that widow's gap. So that is the gaps we were trying to talk about this week. Hopefully that helps. You know, focus out. There's a lot of things out there, little nuances, little things that can certainly trip us up in retirement it's a little easier. It's one of those sayings, sherry, I don't know if you've ever seen this, but a lot of the people that climb mountains say it's easier to ascend the mountain than it is to actually come back down right when people actually pass away coming back down from Mount Everest, for example, than they do actually climbing it.

So same kind of thing in retirement. It's easier to kind of build up the nest egg and climb the savings mountain than it is to figure out how to use it and navigate all the little potholes on the way back down.

0:18:05 - Speaker 3
Absolutely, and it's a complete mentality shift as well, from accumulation to decumulation. Completely agree yeah.

0:18:13 - Speaker 2
So make sure you're doing those right things for yourself and your loved ones. Have the conversations, talk with your advisor, reach out to Sherry if you're not working with one or if you'd like a second opinion. If you're already working with Sherry, well then you already know a lot of this stuff and, of course, the podcast hopefully helps you along the way with some useful nuggets of things that you might not have thought about, that you want to discuss or talk about different directions. So reach out to her if you have questions at GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom. Don't forget to subscribe to the podcast on whatever platform you like to listen to shows, on podcasts on. If you're an Apple person or Google or Spotify, whatever, you can just type in Money Chic in the title and find it that way as well, but it's all right there at GreenwayWealthAdvisorycom. Sherry, thanks for hanging out with me. I appreciate it. Hope you have a great holiday and you and I will talk a little later in the month, closer to our birthdays.

0:19:03 - Speaker 3
Sounds good, thank you.

0:19:04 - Speaker 2
All right, we'll see you the next time here on Money Chic with Sherry Rash.

0:19:13 - Speaker 1
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra SIPC advisory services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.