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How to Make Your Clients Retire Happy
What are you doing to save retirement?
Not enough if you aren’t actively warning clients about their retirement risks. If you have been to an insurance or financial conference over the past several years, you have heard Tom Hegna deliver that message. He is a popular speaker and author of several books, including his well-known Pay Checks and Play Checks and Don’t Worry, Retire Happy.
It is not just Hegna’s theory. He first worked for MetLife and then for New York Life, where he developed not only a respect for the retirement protection value of insurance but also the best ways to convey those messages to clients. In this interview, he sketches out some compelling strategies to help clients understand the power of insurance. 
Hegna also brings a middle-American everyman perspective to the subject because of his background. He grew up in a small Minnesota town and then attended North Dakota State University on an Army ROTC scholarship. He did six years active military duty and 16½ years in the Army Reserve before he retired as a lieutenant colonel in 2006. 
He is loudly clanging the bell on the retirement crisis and saying that agents and advisors who are not talking about insurance to protect clients’ retirement are not looking after clients’ best interests.
In this interview with Publisher Paul Feldman, Hegna reveals seven steps to a happy retirement.
FELDMAN: How did you become a leading retirement expert?
HEGNA: I was in the insurance industry for almost 25 years. I was with MetLife for eight years. I was an agent, a manager, and a national marketing manager for their variable life product. I then went to New York Life. I started out as an annuity wholesaler and worked my way up to be a senior executive officer of the company. 
And while I was there I was kind of in charge of their retirement income push. New York Life was the first company to really focus on income annuities, and that was my mission and my job. So I trained every New York Life agent, manager and wholesaler. And if you look, New York Life still has about a 40 percent market share, which is unbelievable in the income annuity market. So I learned a lot doing that, right? I had to study a lot. I had to read the research of Dr. David Babbel, Moshe Milevski, Menahem Yaari and Nobel Prize winner Dr. Robert C. Merton.
I learned a lot about the math and science behind these income annuities. You cannot retire optimally without using an annuity. That’s one of the things I found out. It takes out the No. 1 risk in retirement, which is longevity. So I took that knowledge and I went out on my own in about 2011. And I wrote my first book Pay Checks and Play Checks. It was a big hit. Since then I’ve written three other books, and I’ve had a PBS TV special called Don’t Worry, Retire Happy! that’s played in 72 million homes in the U.S. and Canada. 
I also did the main platform at MDRT, Top of the Table, NAIFA, NAFA and GAMA. So I became known as the retirement income guru or expert in the insurance industry.
FELDMAN: What do you see wrong with retirement today?
HEGNA: There are people who think retirement is about the stock market, asset allocation, real estate or rebalancing the portfolio. And none of that is true. A successful retirement has two simple components. One, increasing income for the rest of your life. And two, risk management. Taking key retirement risks off the table. Like market risk, sequence of returns risk, long-term care risk and inflation. 
It’s about really having a base level of guaranteed lifetime income. That’s what a successful retirement looks like. 
I see the insurance industry has kind of caught onto it and they’ve adopted a lot of this guaranteed income. 
But on the financial planning side of it, these fiduciaries are really not fiduciaries because they’re not using annuities. It doesn’t make sense because you can’t do what’s in the best interest of the client if you’re not taking longevity and long-term care risk off the table — not using life insurance to efficiently transfer wealth.
Retirement is not just about asset allocation and low fees and no commissions. That has nothing to do with a successful retirement. So that’s what I think a lot of people are doing wrong in our business. 
FELDMAN: What can an advisor do to help educate their clients better on that? 
HEGNA: First of all, advisors need to be educated. They need to learn how to retire optimally. My book, Don’t Worry, Retire Happy! lists seven simple steps to a happy retirement. And it’s based on math and science. When I go around the country speaking, I’m not giving my opinion. I’m sharing the math and science behind a successful retirement. 
Now let me be clear — there’s a difference between an optimal retirement and the best retirement. 
With the whole fiduciary thing, they said you’ve got to do what’s in the best interest. Well, that kind of got shortened down to consumers as, what’s the best? 
The fact is that nobody knows what’s going to be the best. I don’t know what’s going to be the best. You don’t know what’s going to be the best. Nobody knows what’s going to be the best. 
So, what math and science do whenever there are many variables and they don’t know what the best solution is, they come up with the optimal solution. The optimal solution simply means this will be the best more often than anything else will be the best, and it will never be the worst. 
That’s what optimal means, and all I can really do is teach people the optimal way to retire. I don’t know whether it will be the best, but it is the optimal. 
It will be the best more often than anybody else’s best solution. That’s what I do. And so they’ve got to learn, you know, they’ve really got to learn the math and science. It’s not just about stocks and mutual funds and money management. It’s about risk management too. 
FELDMAN: What are the “Seven Steps to Optimal Retirement?”
HEGNA: The first step is simple, you’ve got to have a plan. 
I always ask how can you get anywhere if you don’t have a road map or a plan of how to get there? 
And with that I say you’ve got to work with a financial professional. Retirement is not a do-it-yourself project. I do a lot of public seminars. About 80 percent of my talks now are for the general public. 
And I say things like this: “I’m willing to bet you don’t do your own dental work in your garage with your drill set, and retirement’s way more important than getting your teeth fixed. And I don’t think you ought to be doing your retirement planning by yourself either. You really need a competent financial advisor to help guide you through all the paths.”
I even say that I use a financial advisor. I wouldn’t have to. I could write all my own products. But I don’t because you know what? I don’t stay up to date with the latest rider and the latest products from this company or that company. 
FELDMAN: It’s so simple, yet most people never have a plan for one of the most important parts of their lives. What is the next step?
HEGNA: Step 2 is to understand and maximize Social Security benefits. For most people Social Security is the largest retirement asset they have, and yet these people are spending more time planning their summer vacation than learning how to maximize their Social Security benefits.
In a nutshell, let’s say you have a married couple. The breadwinner is the one who should delay taking Social Security. 
Let’s say the husband made more money in his career. Well, the wife can take her benefit at 62. I’ve got no problem with that. But the husband should wait until 70 because his check covers both lives and when he dies, she gets his benefit. 
If he took his early, he locks her into lower survival benefits. Because the breadwinner’s check covers both lives in general, the breadwinner should delay. 
There are some exceptions to that. If they’re both in very bad health or if they’re investing that money and they think they can do better, I’m actually OK with that. I’m just not OK with everybody taking it at 62 because their buddy at the coffee shop told them to take it at age 62.
I just implore people to make an educated decision on the most important retirement decision of their lives, which I would argue is this Social Security start date. 
Step 3 is to consider a hybrid retirement. Too many people are trying to retire too early. They haven’t saved enough money. 
If we can get these clients to work just a couple of extra years, even part time, we can increase their success in retirement significantly. They can have increased earnings, increased savings, increased Social Security benefits, and we can keep them from tapping into their portfolios for a few years. 
Step 4 is to have a plan to protect themselves against inflation, because with inflation over 40 years at 4 percent, their purchasing power will be cut by more than 50 percent. And in 30 years it will be cut by more than two thirds.
 So I always tell people you don’t just need to plan income to age 100 and beyond, you need to plan on increasing income to age 100 and beyond. 
That’s where stocks, mutual funds and managed money fit — because you can build a portfolio that goes up if we get inflation.
But I also tell people you can protect yourself against inflation without using any risk products. I’ve already bought guaranteed lifetime income that will kick in when I turn age 60, but I’ve bought even more that kicks in when I turn age 65. I bought even more that kicks in when I turn age 70. I’ve bought even more that kicks in when I turn age 75.
I’ve got 11 income annuities, and I’ll probably have 30 before I shut this thing down because I’ve learned a lot about retirement. I’ve learned that retirement is not about the stock market. It’s not about real estate. 
It’s all about having increasing income for the rest of your life and risk management. 
FELDMAN:  Laddering is a perfect strategy to utilize multiple products that are designed to do different things. What is Step 5?
HEGNA: Step 5 is people need to secure more guaranteed lifetime income. Time magazine has a quote: “Securing at least a base level of lifetime income should be every retiree’s priority at least if they want to live happily ever after.” 
And I will tell you, that lines up exactly with what the Ph.D.s who study retirement say — that as a minimum you should be covering your basic living expenses in retirement with guaranteed lifetime income. 
Now there are three sources of guaranteed lifetime income. The first is Social Security. Social Security is a lifetime income annuity. It’s a guaranteed paycheck for life. 
The second source is a pension. But what is a pension? A pension is a lifetime income annuity. It’s a guaranteed paycheck for life. 
Social Security counts and pensions count, but whatever you’re short you know what you’re supposed to do? You’re supposed to go find an insurance company and buy a lifetime income annuity. 
Not only are you going to be more successful in retirement by doing that, you’re going to be happier. 
The Wall Street Journal had a headline that read, “Secret to a happier retirement is friends, neighbors and a fixed annuity.” 
They studied the happiest people in retirement. You know what they found? People surrounded by their friends, surrounded by their families, who had guaranteed paychecks every single month. 
I challenge people and say hey, who are your happiest friends in retirement? Is it retired military? Retired government? Retired teacher? Retired professor? It’s people with pensions. Study after study after study show that people with pensions are much happier in retirement than are people who don’t have pensions. Understand that happiness in retirement is tied almost 100 percent to guaranteed lifetime income, not assets. 
Assets make people miserable in retirement. Think about the most visible friends you know. They’re loaded. They’ve got assets out the wazoo, but they’re losing money in oil. They’re losing money in gas. They’re losing money in Bitcoin. They’re losing money in Facebook. Now they’re losing money in Amazon. These people are miserable.
There was a white paper written by Towers Watson. Your readers can google “Towers Watson and retirement happiness” to read it.
They studied all retirees — old retirees, young retirees, rich retirees, poor retirees. You know what they found? All retirees were happier if they had guaranteed lifetime income. 
But you’re not only going to be happier in retirement, you’re also likely to live longer. 
A lot of people follow me on Facebook and LinkedIn. I recently posted a University of Chicago study that Freakonomics picked up and pushed out through social media. It studied people who bought lifetime income annuities versus people who didn’t. 
You know what they found? The people who bought the lifetime income annuities lived longer than the people who didn’t. 
When I was a senior executive officer for a company, I asked the actuary to tell me the actual experience of our life expectancy in our annuity book of business versus our actual experience in the life book of business. You know what was found? The annuity book of business lived a lot longer than the life book of business. 
This is nothing new. In high school or college you probably had to read a book called Sense and Sensibility. It was written by Jane Austen in 1811.
Do you know what Jane Austen wrote in the book Sense and Sensibility back in 1811? She wrote, “If you observe, people always live forever when there’s an annuity to be paid. An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.” 
FELDMAN: That’s amazing. Quite a history.
HEGNA: Then Step 6, you’ve got to have a plan for long-term care. No retirement plan is complete without a plan for long-term care.
When I’m doing seminars I say my guess is that in this room this is the No. 1 thing that has not been taken care of that can wipe out your entire life’s work. 
And then I talk to them about the three phases of retirement: the go-go years, the slow-go years, and the no-go years. The go-go years are those fun years of retirement maybe between 60 and 80 when you’re playing golf, going on cruises and you’re line dancing. Every day is happy hour somewhere. That’s the go-go years. 
But that’s followed by the slow-go years. You can still do everything from the go-go years, but you just don’t want to anymore. 
In fact, you don’t want to go downtown after 4:30 because you can’t see when it’s dark out. That’s the slow-go years. 
Then the slow-go years are followed by the no-go years. The no-go years are those years when you’re probably not leaving the building until you’re leaving the building, if you know what I’m talking about. 
The go-go years are all about income. Not assets, income. That’s why 100 percent of my purchases are going for income in my go-go years. 
The slow-go years, that’s all about long-term care. And what I tell people is any plan is better than no plan. 
So I hope they buy long-term care insurance. But if they don’t, I hope they buy a life insurance policy with a long-term care rider or an annuity with a long-term care rider. 
Then the no-go years are all about life insurance. People say retirement is not about life insurance. I say life insurance has everything to do with retirement. It’s the life insurance you bring into retirement that gives you the license to spend your money. 
FELDMAN: That is an underappreciated aspect of life insurance in planning — how it affects the other assets.
HEGNA: It is why so many people are not enjoying their retirement. In the back of their mind they think they have to leave some money to their kids. 
“Oh, we’ve got to leave some money to Johnny and Susie” — so they’re denying themselves a retirement in order to leave money to their kids.
I tell people all the time, don’t leave any money to your kids. Spend all of your money. Leave them life insurance. 
I use me as an example. So we’ve got four kids and one day we’re sitting around saying how much should we leave the kids.
I said if we bought a $1 million second-to-die life insurance policy, named the four kids as beneficiaries, when we’re both gone they’ll get a million bucks tax-free. That’s $250,000 apiece tax-free. Let’s start there. 
You know what the total cost of that $1 million policy was? $150,000. So think about this: For 15 cents on the dollar, we get to transfer a million bucks tax-free to our kids. 
Who gets to spend all the rest of the money? We do. So I tell people I don’t want you to leave your kids any money. Spend your money, but leave life insurance because you can do that for pennies on the dollar. 
Step 7 is to use your home equity wisely. For most people their house is one of the largest assets they have, and there are basically three ways to use their home equity wisely. 
They can sell the home and downsize and move to Arizona. But here’s what I tell people. If you’re single, when you sell that home you can capture up to $250,000 tax-free in capital gains. If you’re married, you can capture up to $500,000 tax-free in capital gains, and that can certainly help with retirement. You can take a loan against the equity or you can do a reverse mortgage. 
Now let me tell you where I come down on reverse mortgages. I am not for reverse mortgages, but I am not against reverse mortgages. They are a tool that can be used in retirement. 
But here’s my best professional advice: Be very, very, very careful and work with a reverse mortgage expert. But having said that, what I will share with your readers is that in the past two or three years there have been tremendous changes in the reverse mortgage market, and you’re going to read many more positive articles by very respected sources. 
FELDMAN: What are some other life insurance strategies advisors are taking advantage of?
HEGNA: I wrap up my talks with the most efficient way to pass wealth to your children, grandchildren and charities, and that’s with life insurance. 
I give an example of a lady who was going to leave a hundred thousand of her “just in case” money. She had it down at the bank. She had her six grandchildren as beneficiaries. She said, “When I die, they’re each going to get a little over $16,000.” 
I said, “Why did you leave it in the bank? Why didn’t you put it in a life insurance policy? You can still get the money out if you need it, but when you die each of the grandkids gets $36,000 instead of $16,000. Don’t leave your grandchildren money, leave them life insurance.”
 I give an example of charitable giving. There’s this very generous couple. They tithe to their church. They give to their university. They saved up $50,000 they wanted to give to charity. 
But when we started talking about it, they each want to give $50,000. How do you give $100,000 to charity when all you saved up was $50,000?
You put it in a life insurance policy. It immediately creates $100,000 of gifting power. 
You want to leave more money to charity? Don’t leave them money. Leave them life insurance. 
And the last example I use is protecting Social Security benefits. Imagine a case where the husband gets $2,000 a month in Social Security and the wife gets $1,000 a month. 
Well, what happens when he dies? She gets his. What happens to hers? It’s gone. So her income goes down, but what happens to her taxes? They go up because they were filing jointly. Now she has to file single. 
So her income went down. Her taxes went up. What could have protected her from this? Life insurance. 
Remember, people over the age of 60 buy a lot more life insurance than people under the age of 60. So don’t think once you’re in retirement you don’t need life insurance. 
NEXT MONTH: Tom Hegna delves deeper into retirement risks every advisor should know.

Founder, President, Publisher [email protected].

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