Ep # 54: Strategies To Protect Your Savings

Benjamin Haas |
  • What do we mean by protecting assets? - 3:16
  • Areas to focus on: Investments - 4:02
  • Areas to focus on: Insurance - 7:06
  • Areas to focus on: Taxes - 9:03
  • Areas to focus on: Estate Taxes - 11:41
  • Protection against litigation/identity theft - 14:24




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Full Transcript:

Benjamin Haas  00:03

Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you.  A healthier financial life starts...now!


Adam Werner  00:28

Hey Ben!  Podcast time once again. Nice of you to dress up for the occasion.


Benjamin Haas  00:33

I like my jacket. It's Fall weather. I like my coats. What can I say.


Adam Werner  00:39

Yeah, looks nice.


Benjamin Haas  00:41

I want to be spiffy, thank you.


Adam Werner  00:47

Gonna say, mission accomplished and I don't know when the last time I heard the word spiffy.


Benjamin Haas  00:52

Well, like to keep you on your toes.


Adam Werner  00:55

Would our kids even know what that means?


Benjamin Haas  00:59

Probably not. Probably not.


Adam Werner  01:01

I don't know if I've ever used that.


Benjamin Haas  01:05

Yeah, and I don't even know what how to segue spiffy into talking about asset protection strategies so let's just make a hard pivot. Today's podcast and hopefully it's to give people some other perspective. As planners, I think all the time we really want to focus on goals. It's fun to talk about savings, it's fun to talk about investments. We have certainly found and we've talked in this podcast before the psychological part of money for a lot of our clients is not just to focus on that. It's to focus on needing to find, I'll use the word stability, maybe needing to find security in life. That's not just getting to a point where you start to feel a little bit better about what you have and what it's going to be able to do for you but it's always that fear that life's going to throw us a curveball. It's relationships, it's health, it's accidents, it's litigation. How do we make sure people have safety nets in place that even when those curveballs happen, they're still able to feel secure in what they have? Long winded intro, take it away.


Adam Werner  02:17

Yeah, I think clearly to us, I guess I should share this with everybody listening. I think the majority of the people that we work with do lean more conservative in nature when it comes to their investments, their savings, that side of things where the inclination is, at some point you get to this stage where you've been accumulating assets all your life and now you have this pool of money, you get to retirement, whatever that end stage may be. And now, yeah, what am I going to do to protect it? Not necessarily, how am I going to continue to grow it exponentially? But now I have what I have, I want to protect it against market losses, taxes. We talked about creditors, litigation, things like that. We'll go through some of those today. So yeah, I'll start.


Benjamin Haas  03:16

Well, let me real quickly kind of piggyback off of what you said. I think when we talk about asset protection strategies, really, this can be at all phases of life, right? At some point, these are just checkboxes that are a regular part of our process whether you tend to be more conservative in nature or not because the one thing that we'll continue to preach is, there's certainly a certainty of uncertainty in the future. It is to make sure that some sort of emotional loss doesn't become a financial one. Let's go through the list of what do we mean by protecting assets and one of the ways in which we do it? Pretty much the "how to" and maybe, per usual, give some scenarios where we think it's really important to make it a focus and not just a checkbox.


Adam Werner  04:02

Yeah, so we'll start with I think the one that's probably the most obvious to people listening to this and that's on the investment side. How do you protect against investment losses? And there are certainly ways to do that. More often than not when it comes to a specific investment, being able to protect against losses, it has some sort of an insurance wrapper to it, an annuity as an example. You can essentially purchase a fixed annuity, it's like a CD at the bank. Usually when it comes to the fixed annuities, you know you're not going to lose money. You're getting a fixed rate of return so that's one way to protect against losses.


Benjamin Haas  04:47

Yeah, and I would say that's not the way that we would lead a conversation. We find it more far more important to think about protecting against emotional losses which is short periods of time where things maybe aren't going well. So, very quickly, our three-bucket theory is put in place to make sure that people have enough cash that the fear of short-term losses or the experience of short-term losses is not to the detriment of their retirement paycheck or their ability to cover their needs, wants, and wishes over a long period of time. I find that to be more psychological than let's put a firm choice mechanism in place.


Adam Werner  05:31

Yeah, so I'm glad you said that because yes, maybe I should have led with that being the caveat or at least the intro to that section. There are insurance products, fixed annuities, index variable annuities, that can essentially protect against losses. However, those come with a cost. The insurance company is not doing this out of the kindness of their hearts when it comes to investing these dollars so they're absolute. And to your point, we view that through the lens of that three-bucket theory to give yourself permission to let whatever that is for you, that third bucket for us, the growth bucket, go through those volatile times and not feel like you're having to sell at a loss. So you're not necessarily protecting against losses, you're just putting that in its isolated box, let it do its thing as long as you have all your other foundational items set. That's an okay thing.


Benjamin Haas  06:28

And it's fine to lead with that one because I think that's the one that people would most think about when we talk about asset protection but when we think about long term impacts, investments have a lot of predictability to us over longer periods of time. To focus too much on that and not think about the loss of your ability to earn an income or your loss of future income because somebody passed away. Your loss of assets because long-term care needs to be covered. Yeah, right. That's a whole other way that we would talk about potential losses of resources that sometimes get overlooked.


Adam Werner  07:06

Yeah, so I'll throw the insurance word out there, again, now different from the investment side of things. But yes, when it comes to, you, God forbid, loss of a life, right, replacing that future income, you can't do your job. I think we just talked about this in our most recent podcast with the open enrollment and employer provided benefits. It's the Disability Insurance. I think that's not to harp on the disability side of things but I think what often gets lost in the grand scheme of things, especially with younger people that are still earning. Their biggest asset more often than not, is their ability to earn income well into the future. So yeah, just being able to have the right types and the right amounts of insurance in place that again, God forbid something were to go wrong or not go according to plan. That you're not just protecting against a current loss but potentially that future loss or the loss of income moving forward.


Benjamin Haas  08:08

Yeah, and I see two ways that I want to make a comment to this. The first is to go back to your original comment on, we certainly have people that I think are a little bit more conservative in the way that they go about things and maybe that's because of a life experience. People that typically want to pass the risk of something bad happening on to an insurance provider is probably because they've maybe seen it somewhere else, where it really went the wrong way for somebody. But the other side of this is to a certain extent, I think it is our responsibility to educate people on those what ifs. If this occurs to you, all these goals that you have said are a priority are going to not be attainable in the same way. So at some point, it's using people's resources in an effective way to make sure that those safety nets are in place and insurance has to be a part of that conversation.


Adam Werner  08:59

Yes, yep.


Benjamin Haas  09:03

Another buzzword when it comes to conservative nature. I've accumulated these assets I want to keep what's mine. I think asset protection in some way is talking about taxes and that's twofold to me. Income taxes, nobody wants to pay more than their fair share. We also want to protect assets from estate taxes where there are avenues to do that for people so, I don't know, think of some examples there.


Adam Werner  09:29

Yeah, so I'll start with the income tax side of things and maybe it's not so much protecting against the tax side of things because there's only so much you can do from that standpoint. I think for us it comes down to when you would like to pay the taxes sometimes, right? Whether you want to pay the taxes today and invest in a or open a Roth IRA or Roth 401k, something like that where you are making the conscious decision of - I'm going to pay today's tax rates knowing that this type of account can grow tax deferred and tax free well into the future that when I need it, it's a known entity at that point. So you are protecting against future taxes in that realm, or you're protecting against taxes, or tax rates increasing in the future, which I know we've talked about this before, too, more often than not, our conversations are with clients, do you think tax rates are going higher or lower in the future and that's pretty much a one-sided conversation.


Benjamin Haas  10:30

Well, and I think that's why taxes comes up in this conversation right now of protecting assets when there is some uncertainty on where tax law is going to go in the coming months, years, whatever it may be. We can't continue to have huge government spending programs without trying to backfill that with some sort of tax revenue for the Treasury. So I think that this is going to be an even more prominent conversation for clients, when in their mind, they're protecting their money from future taxation in ways that they may not have paid taxes before. So it is for us to give added education on what are the mechanisms that can do that? Where can you put assets that they won't be taxed again? What is the effective way to gift so that you can avoid some taxation. How to handle RMDs. There's a whole slew of things that I think we could talk about here but it is one of the many ways we talk to people about making sure that they're efficient with how they're paying taxes because to your point, you can't control what you're going to pay to a degree. You can control when and that's what you need to do. Control when those tax bills and don't do anything that's really going to put you in a spot where you pay taxes on money that you shouldn't have.


Adam Werner  11:41

Yes, and I will reiterate that last point because we say it ad nauseum in meetings. More often than not, it doesn't necessarily make sense to pay taxes on money that you're not using or spending when it comes to investment accounts, retirement accounts, things like that. If you're earning an income and you're not spending it, then that's a different conversation. You're going to pay; they're going to pay the taxes on earned income. So, the other side of that, I believe we talked about the income tax side of things. The other side is the estate tax arena. The death tax, inheritance, tax, all of those fun little nips at your heels from the IRS and the government and I think the primary way to protect your assets from estate taxes is to get it out of your estate. Part of that involves trusts which in this sense, they must be irrevocable, to be able to get them out of your estate to protect them from taxes.


Benjamin Haas  12:50

Trusts, gifting in some ways, it's retitling of assets. I think we get the question often enough and maybe we should make a note to actually make this a dedicated podcast. Should I get my home out of my estate? Should I gift that to my children so that if I do need care later in life or if there is some sort of health concern, that that doesn't become an asset that's not protected from the laws that we have on getting onto Medicaid or something of that nature. So, I definitely think retitling of assets can be added to gifting and trusts.


Adam Werner  13:28

Absolutely, and I would hope that this all goes without saying but I'll say it anyway. Everything that we've talked about there, it's all situational, right? What may be right for one person when it comes to retitling the home for example in their kids’ name may make sense for some, may not make sense for many others. So everything, again, maybe that should be our main disclaimer, disclosure on the podcast in general, this is not specific advice for everybody. It's not blanket comments. It really does come down to individual situations and whether it makes sense or not.


Benjamin Haas  14:11

However, how about we move to the next which would be, I think, a piece of universal advice.


Adam Werner  14:21

Great segue. I'm sorry, I should've kept my mouth shut.


Benjamin Haas  14:24

No, I'm glad you said what you said because it's so very true but when it comes to protecting assets, the other part or I'll maybe put this in two parts that would be more universal is protection against litigation and maybe protection against identity theft. How many different scams are popping up right now. There certainly are companies out there. There are programs out there, whether it's Lifelock. It's reviewing your credit reports, protecting your personal information, shredding documents. Whatever it is, there are steps that everyone can take to protect their identity and therefore, in a way protect their assets. And then litigation, I'll throw it to you. So, you can maybe speak to that.


Adam Werner  15:08

Yeah, I think I mean, we've talked about this.  I'm trying to think when but on a recent podcast and you hinted at it a little bit with the trust or just retitling of assets. There are some protections built in when it comes to joint accounts. Married couples or even those that are not married where you can have an asset or an account titled in both names, that there are some protections built in from creditors or litigation in general. The other side of it being, again, insurance, when it comes to your liability coverage. There's always some level built into your homeowner's policy, your renter's policy, your auto insurance policy but typically, what we've seen those coverage limits within those standard policies are typically fairly low. So we're big proponents of what we would call an umbrella policy which acts like an umbrella overtop of all of your other insurance policies that has a much higher limit than, again, somebody you have a party at your house, somebody trips over a tree stump in your backyard breaks an ankle, now you're making a claim on your policy, that liability coverage as much higher to offset any type of an event like that.


Benjamin Haas  16:37

Yeah, and usually pretty cost effective for the typical advice we would give. Let's figure out your net worth. What could someone sue you for? Those multiples are very low to cover that with some insurance dollars.


Adam Werner  16:51

So yeah, I'll throw some numbers out there. Again, we are not liability salespeople but what we've seen. It's for calling a million dollars of liability coverage, it's a few $100 a year, essentially, which again, in the grand scheme of things, knowing what people pay for their homeowners' coverage, auto insurance coverage, it really is a small increase for a lot of confidence when it comes to God forbid something were to happen and I get sued, you at least have a much deeper well to go to protect your assets and not have to spend them down in that event.


Benjamin Haas  17:28

And that's a good way to bring it full circle because that's really what we're looking to do here through all phases of life. Make sure that whatever event we could imagine happening again, whether that's protecting things, if a relationship goes sour, yours, your children's, we know whatever it would be health accidents, litigation, it's always to make sure that the nest egg that you've built up doesn't become something that is taken away or beaten down because of these events. That the emotional side of your stability and security can stay intact when bad things in life happen.


Adam Werner  18:08

Yep. Yes.


Benjamin Haas  18:11

Purely situational but I hope hitting on those really five different ways that we go about it that gives us some insight to the other side of financial planning. It's not just building the wealth. At some point it has to be protecting itself.


Adam Werner  18:25

Yes, well said. So if anybody has questions or wants to talk through their own asset protection strategies, just know that we're here to play that role when needed.


Benjamin Haas  18:36

In a brown blazer.


Adam Werner  18:39

 And a purple shirt.


Benjamin Haas  18:41

There you go. All right, sir. Great rest of the day. Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing

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