What to Do When You Lose Your Spouse with Joe Anderson & Anthony Finocchiaro – Ep 63

[INTERVIEW]

Keith Ellis, Jr.: Welcome, everybody, to another edition of the Retirement Road Map, brought to you by SHP Financial. We’re here today with Joe Anderson and Anthony Finocchiaro, two advisors here at SHP Financial. And guys, today, we’re going to talk about something that’s been coming up a lot in my meetings. And sadly, I’ve had to deal with this more recently with two clients, the last year before, two clients as well. And that’s what happens, or what is the impact of losing a spouse in retirement? And a lot of times, that’s overlooked. That’s not something we think about and not something we want to think about. It’s, we’re going through life happy, joyous, and all of a sudden, out of nowhere, this happens, which again, this has happened, sadly, to two of my clients, both of them lost their husbands in their very early 60s, and their whole life got turned upside down, not only emotionally, but financially.

And then also, some of the major impacts that are often overlooked when we’re planning as advisors, and one of the things I think we do well here at SHP Financial is look at things holistically. We want to build an income plan. We want to build an investment plan that meets your risk tolerance, your goals. It helps generate, again, going back to the income plan. We want to build a tax plan, ways to mitigate or minimize taxes throughout your lifetime and through an estate planning as well as health care planning. So, it’s that five-pronged approach of what we call our retirement road map that helps us look at and address each of these situations in a forward-looking manner. And I’m going to kind of toss it over to you guys now as advisors here and you work with so many people, so many of our wonderful clients, are you getting these questions? And what are some of the things or some of the impacts that you both see?

Joe Anderson: Yeah, honestly, Keith, this is one of the top questions I think Anthony and I get most during our meetings. There’s usually a driver in terms of the finances, someone who understands it, someone who appreciates it or maybe enjoys that control a little bit more so, and then there’s usually a spouse who, it’s not their thing, right?

Keith Ellis, Jr.: Yeah. They may take a backseat because they’re disinterested.

Joe Anderson: They’re disinterested. And I think one of the biggest benefits and one of the powers of creating a relationship with a company like ours is to have that relationship with an advisor that you know will take care of your spouse when you’re gone. As you mentioned, Keith, having that five-step approach, you’ll see just through losing a spouse from retirement, it’s going to impact all five of those areas, their income strategy, their investments, the amount of risk they can take, taxes, absolutely, health care, and legacy too, they’re all important.

Keith Ellis, Jr.: Yeah. It’s interesting that you brought up the finding that advisors, I met with someone last week actually and they were from Florida and they had interviewed two advisors down in Florida, but they were looking for someone more local here. And they had interviewed one other company. And she wrote to me over the weekend saying, “Look, I really enjoyed our meeting. I really trust you.” And that’s the words that kind of resonated with me was in order to gain that relationship, and that’s maybe a bad way of putting it, but it’s kind of what’s happening is, like, they’re gaining relationship with us. We’re gaining a relationship with them. And really, giving them that piece of mind for that transition for when that time comes, inevitably, right? So, I mean, and you’re right, it does affect all five areas. Think about taxes as an example. You move from filing as a joint filer to now, uh-oh, now I’m paying based upon a single tax filer, talk about the impacts of that.

Joe Anderson: Yeah, I mean, ultimately, a lot of people don’t think about that, but your tax break point is chopped in half. Similarly, your Medicare break points also drop in half. Both are dictated by your income, but that surviving spouse, their lifestyle isn’t going to be just a 50% lifestyle from what they previously explored and what they enjoyed. But the surviving spouse, they only get to keep the higher of the two Social Security payments as well. So, there’s a lot of immediate impact just in that one event.

Keith Ellis, Jr.: It’s interesting you say that because it’s like you’re right. It’s not like, sadly, you lose your spouse and all of a sudden, your lifestyle gets cut in half, your expenses get cut in half. A lot of people, especially, 5, 7, 10 years ago when we started to build these plans for folks would say that and think that. But now that this has happened, sadly, to multitude of my clients, I can kind of speak to them and say, “Look, that’s typically not what happens.” You know what I mean? A lot of these expenses kind of stay the same, or maybe even go up a little bit more because you want to be out. You want to be a little bit more social. Maybe you’re spending more time with your kids. Maybe you’re spending more time with your grandkids to entertain your time.

And I know, again, this is a little bit of a morbid topic, but it’s inevitable, and we need to address it. We need to address it as advisors. We need to address it as a team. We need to make sure that we have a plan for it for when that time comes. So, these are things that as we build a plan for a couple, we want to look at it through that single filer’s lens. And you’re right, if something does happen, the amount that you can make isn’t as much. So, now, you’re maybe potentially getting taxed more.

And when it comes to your health care, the amount you make isn’t as much as well. So, maybe, you’re now paying more in health care, which a lot of people miss and don’t think about. A lot of advisors miss and don’t think about and don’t help their clients with, right? Some of the other impacts that maybe you can speak to around health care, what are your thoughts around that?

Joe Anderson: Yeah, I mean, to your point previously, Keith, it’s not about what they have. It’s about what they get to keep, spend, and enjoy. And when it comes to health care, your Medicare premiums, what you pay on a monthly basis is based on income from two years prior. So, for those individuals who transition to a single filer status for Medicare, the breakpoints aren’t that high. They account for everything. There’s no deductions for taxes. And we see a lot of people hit those unintentionally, or they get ahead of themselves trying to do various tax planning prior to that and they hit these break points unintentionally. So, you need to ensure that you understand how all five pieces fit and work together.

Keith Ellis, Jr.: And go ahead, Anthony.

Anthony Finocchiaro: No, I was just going to say just to piggyback on top of what Joe said, just making sure that the clients are as educated as they can be, kind of pre and post that morbid event happening, the more knowledge they have, the more of an impact it can be for them. So, I just think that being open, honest, and upfront with the clients on how the impacts can affect them, again, like I said, pre and post death, it’s pretty powerful.

Keith Ellis, Jr.: And beyond Medicare, what are some other impacts you think people face?

Joe Anderson: Similarly, I mean if you’re going into a nursing home, long-term care, obviously, a dramatic concern. I think the variable that we see most often is maybe not even if can they afford to pay that, but where are their money’s located now? If they’re all in pretax form, traditional IRA, maybe all 401(k)’s, they have to pull out more, maybe thousands of dollars more per month to pay that expense, but that is now forcing them into a higher tax bracket. Now, their other expenses are dramatically increased. It’s not about what you have. It’s about what you get to keep by doing some preventative planning, things like Roth conversions or other tax planning strategies prior, creating tax diversification, not just diversification on how your money’s invested, but the tax status of that money will help protect your spouse.

Keith Ellis, Jr.: Yeah. I mean, it’s a very traumatic time when something like this happens. And Anthony, you made that point earlier, it’s about being educated. It’s about having the knowledge. And also, I think looking through the lens of the future to say, “Okay, God forbid this does happen to me. What does this look like?” And having that plan spelled out, so then you know because when that time comes, there’s so much emotion, obviously, sadness, and also so many things that you have to deal with as that spouse that is still here, that the last thing you want to be thinking, the last thing you want to feel is uncertainty, right?

You want to know that, hey, look, while I’m going through all this, one, I have a team that’s supporting me and helping me through all this, but two, I know I’ve already pre-built a plan that I know I’m going to be okay. I just need to check the boxes to get from point A, sadly to point B, and just kind of move my life forward without my loved one, but I know that I’m good for the next 5, 10, 15, 20, whatever that time frame is because I’ve already built that plan. I’ve already looked at that plan. So, we had our joint plan. Now, we have our single– that look through that lens of when-that-time-comes plan. You know what I mean? And it’s an empowering feeling to know that when that time comes, you have, again, that team, someone to rely on, that plan built, that lack of uncertainty, but more certainty, that you are going to be okay.

Anthony Finocchiaro: Yeah, I think, like especially in those scenarios too, that you were describing, Keith, the surviving spouse, understandably more so is going to be very overwhelmed in that situation.

Keith Ellis, Jr.: Overwhelmed is the best word.

Anthony Finocchiaro: They’re going to be overwhelmed. And not only are they overwhelmed with the loss that they just experienced, but they’re going to get their finances in order, they have to get their estate in order. They’re going to do so many things. I mean, again, morbid here, but they’re getting funeral agents, everything like that in order. And if we can be a lending hand to make one piece of their lives easier, especially in that situation, I think that kind of just goes back to building the relationship with the clients and having that trust factor. And again, us, I would say, we always want our clients to be able to hopefully rely on us and rely on us in a sense of we know we’re going to get exactly what we need in this situation from our advisors because they already set us up, and we want to take away from the overwhelmingness that they’re feeling, right?

Joe Anderson: Yeah, I think you both made a couple really good points. I think having someone that you trust, you mentioned that earlier, Keith, but the word trust is paramount. You need to trust that person that you trust with your finances to take care of you and your surviving spouse. But creating that relationship while you’re both alive and well, while you both have the ability to build that trust together, I think is really important, having someone in a firm like SHP who deals with estate planning attorneys and CPAs as well to ensure everything is done comprehensively, but even beyond that point, just ensuring that we can stress test these scenarios for those clients. When you come in through our planning technology, we will show you the impacts of losing your spouse early. What are the things we’re going to do prior to that to make sure that that looks better? If you even run into a worst-case scenario, how do we ensure you’re still okay and you can accomplish the goals that you have?

Keith Ellis, Jr.: Yeah, it’s so true that, whether it’s with us or another team of advisor, whatever it is, make sure you’re doing this, make sure you’re, one, looking at things holistically. You’re looking at all five areas of retirement. But then within those five areas, there’s a multitude of things that need to be addressed, for instance, income, Social Security. Do you have a pension? How do you take it? Required minimum distributions, which we’re going to hit on here in a minute. Dividends, interest, all these different things to drive that income plan.

And then, okay, so now we’ve built that joint income plan, now let’s stress test that, like Joe said, against what happens if something happens to Mr. Jones. What happens if something happens to Mrs. Jones? And then we can play the when game. You know what I mean? We could look at it more or less whenever the client wants, and that allows them, again, to feel that sense of comfort, that sense of certainty to know that they’re going to be okay, or if they’re not going to be okay, it allows us to help plan ahead of time to put them in that better place because without a plan, you don’t know. I always say, like what I’ve experienced in doing and what we’ve done for so long and building these plans is when– let’s not even assume that anyone’s passed. Let’s just assume Mr. and Mrs. Jones are coming in and they’re ready to retire, having a plan allows them to retire and enjoy retirement with confidence. Does that make sense? Do you guys experience that as well?

Joe Anderson: 100%. Yeah, Anthony hears me say it almost every time, I want you to leave. Your financial plan should create two things. One is confidence to know you’re going to do the things you want with the lifestyle that you hope to live, and two is flexibility. I think financial planners do a poor job of number two, which is ensuring we have the ability to manage and be nimble as these different environments happen. It’s not just to set it and forget it plan. You need a relationship ongoing to ensure that you can counteract all the things that come.

Keith Ellis, Jr.: Yeah. Again, so whether it’s with SHP, which we hope it is, but if you are working with another advisor, make sure that that advisor or that advisory team is not only looking just at your investments, which most advisory firms, it’s kind of where they focus is just investments. Make sure they’re building you all these different plans, all these different strategies. Make sure they integrate. Make sure you know how they impact you, and then take a look at that plan or a plan through those lenses. And it’s going to provide you more confidence, it’s going to provide you more certainty, it’s going to provide you more clarity as you move forward in retirement.

Like you said, Joe, what we like to do is revisit these plans ongoing with our clients because we know one thing, our clients’ lives don’t stay stagnant, and neither should their plan. You need to be able to adjust. The plans need to be able to adjust. And because things come up or desires come up or that trip comes up or that vacation comes up or that new car comes up, and we want to be able to support that client and let them know that they have what is needed and necessary to get them through that period of time. So, as we look at this as well, the majority of folks, rightfully, wrongfully, I mean, you can look at it through, but they’ve saved through IRAs, 401(k)’s, 403(b)’s. What’s the impact there if something were to happen?

Joe Anderson: So, most people come in with a lack of tax diversification. Like I mentioned, most money is in pretax form, traditional IRA or 401(k), like Keith said, when they come in and sit down with Anthony and I. Now, even if you are someone who falls into the camp of being a great saver, someone who saved maybe more than they’ve anticipated or more than they even necessarily need based on how math works today, that could be a dramatic impact to the surviving spouse when it comes to forced distributions or what are called required minimum distributions, either at the age of 73 for most retirees currently, or 75 if your retirement may not be right on the horizon for you.

But if you’re someone who saved dramatically, those RMDs can be six figures per year. And if you’re a single filer for taxes, that immediately pushes you to probably three Medicare break points higher tax brackets, as well as probably one to two tax brackets higher just through that forced distribution. But what you can’t do, a strategy that we leverage now is moving money to tax free, which is Roth IRA. With that RMD, you can’t move it to tax free. You got to pay taxes as it grows again, Keith.

Keith Ellis, Jr.: So, it comes back to proactive planning as opposed to reactive planning is kind of what I’m hearing. Does that make sense?

Anthony Finocchiaro: Definitely.

Joe Anderson: Yeah. I think people may and, rightfully or wrongfully, they may give us pushback when they hear about paying taxes now.

Keith Ellis, Jr.: What do you mean? People don’t like to pay taxes?

Joe Anderson: No one wants to pay taxes, and we don’t necessarily want you to pay taxes either, but our goal is to minimize that tax liability and protect against future tax law changes, too.

Anthony Finocchiaro: We like to take advantage of that now too, right, Joe, especially with the tax laws getting ready to sunset in 2026. So, we can try to move some of these pretax dollars into post tax accounts while the tax rates are lower than they’re expected to be, even the impact of that is substantial over time. I mean, obviously, you want to do that in a conscious way as well. We don’t want to move you into a tax bracket that you’re uncomfortable in. But that just goes back to what we were talking about earlier and building out these plans for everybody, that’s part of the planning process.

Joe Anderson: It’s a conversation your advisor should have at least.

Keith Ellis, Jr.: Yeah. And I love doing this because I did five in the last week, speaking to people, when clients come in, and saying, “Okay, one, do you understand this?” And typically, the answer is yes because we’ve gone over it in years past. Two, is this something we want to do again this year as your income change at all, kind of what’s going on there? And then what myself and our team does is we take the meeting notes, go back, digest them, and then go back to the client with two to three different scenarios. One, I always say more conservative and I don’t mean market conservative, I mean, hey, look, if you want to be conservative with your tax planning, here’s what this looks like. A little bit more aggressive with your tax planning if you want to kind of max out what we believe your tax planning to be, here’s what this would look like.

And in each of those, your tax implications, your implications on the projected cost of health care, so then client’s not left in the dark. They know what they’re getting into. They know how this works. But what I love about our planning software and what we use in our plans in general is we could say, “Hey, look, now, if we do this, here’s a long-term impact to you.” Obviously, we don’t know the end. There’s no expiration date on the back of our birth certificates. So, we’re planning for a little bit longer, as we should according to data in census information. But we don’t know the exact, so we plan for the longer. We can show you that impact positively that this creates for you.

And going back to our original conversation, if you lose a spouse, what are some of the actions? I know we’ve talked a little bit about this, but what are some of the actions? I know some of the actions we look at, but I was hoping you guys could speak to that, that we are starting to implement and look forward to as a client comes on board with SHP. And we look at their plan through that lens.

Joe Anderson: Yeah. I think it’s going to boil down to a handful of things. I think leveraging where you are today and leveraging the knowns, being tax law, being the market, being even a way to make lemonade out of lemons using today’s recent volatility or the recent weekly volatility as a way to move more shares at a lower tax price, things like Roth conversions. Controlling what you can though, the tax planning, if you’re to protect your spouse, things like trust planning or maybe long-term care type strategies through irrevocable trusts, ILITs, even insurance type layers, they’re all things to consider. There’s just conversations to have. Rome was never built in a day. I think it’s important to start with the knowns, having the right amount of risk in your portfolio, ensuring that you have income to last you and your spouse throughout retirement, but making sure you’re checking all the boxes, as Keith mentioned earlier. Anthony, you have any other things that you…

Anthony Finocchiaro: Yeah, I think something that’s very important is in the scenario when you do have a spouse that passes on is the first thing really, in my opinion, you need to do is make sure you get organized. You want to make sure you gather all your records, look into your husband or wife’s pension account that you didn’t know about or that they were drawn off of. If you’re the spouse that didn’t take care of the finances, per se, trying to make sure you’ve dotted all your I’s, crossing all your T’s in those areas. And if you work with a team like us, SHP, most of that’s probably going to be organized for you already, but in the same respect to that, even us, we’re going to try to make sure that’s over the top organized for you so that it’s not as painful as it could be, right?

Keith Ellis, Jr.: I mean, one of the things that we have here that I’ve actually given to each one of these families because there’s stuff that we can do for them, there’s stuff that unfortunately they have to do by themselves and nothing we can do about it, it’s a survivor’s checklist, and it goes through each of the different items that they have to do in kind of the time frame, the projected time frame in which they should be completed. So, again, it goes back to that organization, that knowledge of sadly going through this and building out that checklist and helping folks through these types of things in the past allows us to help provide guidance to those that go through it, sadly, in the future.

And I want to go back real quick to the idea of tax planning around your IRAs, around your 401(k)’s, around your 403(b)’s, and why we believe the impact of this could be so important is, one, you’re right, Anthony, Joe, you’re taking advantage of what we believe to be our lower tax rates than probably where we’re going to be in the future. Again, no one knows, but it’s just a– you look at kind of everything going on, the debt increase, so on and so forth. Where are they going to get the money to start to pay this down? The low hanging fruit is just to simply increase taxes, which then takes more of your pretax assets every time you take a distribution. So, the more you can move from that bucket to a bucket that’s not impacted by taxes or that tax-free bucket, we believe long term the better off you are.

Secondly is, let’s say this, you do lose a spouse. And now, you’ve completed quite a bit of this over time, right? Let’s say we’ve done this for– I have some clients who have been doing this for 10 years. We’ve moved quite a bit of money from one bucket to the other. God forbid they were to lose a spouse, that’s going to have a much, I guess, less, I don’t know the word, a lesser impact, I guess, on them because those required minimum distributions are less because it’s only on their remaining pretax assets, not the tax-free bucket, right? So, you’re kind of controlling that future distribution, that future tax bracket, that future filing, that future cost, I guess, of doing business with the federal government.

And then also around that is, where now your income is lower because you’re not forced to take these distributions potentially, so you’re controlling your cost of your Medicare, your cost of your health care. So, not only is it good to start to execute these while you’re alive, it’s joint, and start to really look at this situation. Matter of fact, it’s ideal to do it when you’re joint to protect against when you’re single, right? You know what I mean, if you think about it that way? So, it’s a very, very powerful strategy and it has a massive impact. But you’re right, Joe, like a lot of our clients, I don’t want to say they haven’t seen the impact because they have. They have all this money, this growing tax free, right? But they haven’t seen the impact of something happened, a lot of them haven’t seen the impact of something happened to one of them or them having to use it and not have to pay tax. They’re like, “Wow, that’s great. I don’t have to pay taxes on that distribution,” or leaving it behind to their kids tax free. It’s a major, it’s a profound impact all around that whole family situation to help both the mom and the dad, but also the kids, maybe even the grandkids long term.

So, I want to build off that a little bit, and also, something that you said around trusts. These are very important ways to organize your estate and kind of get things, a lack of a better way of putting, your ducks in a row. Whenever you go sit with an attorney to build a trust, you kind of have to pull out everything, right? So, it allows that family to get organized. Hey, what do you have? I need to know, that attorney needs to know every single thing so that they can put together the best plan for your needs. It also happens when you go to update your plan or revisit your plan. So, if you have a trust out there and you haven’t revisited, and this hasn’t been top of mind, but maybe now, it’s circled back to be based upon this conversation, my suggestion is because there has been some law changes here over the last three to five years to SECURE Act and the Mass estate tax law change, it might be worth going to revisit this because your life has changed, and lives change, things change, maybe you have more new grandkids, whatever you want to add to them. And it just kind of goes by, and unless you put it top of mind, you forget, right? So, it’s a great way to get organized because God forbid, something that happens and you’re disorganized.

Anthony Finocchiaro: I feel like there’s just so many people too that don’t know what they don’t know either. And if we can help educate them on that fact, especially, like you said, pulling out everything so we could take a look at it holistically and making sure that, like you said, Keith, get all your ducks in a row so that you’re not missing anything when it comes down to it, right? And I just think that the more that we can help in that department and the more that you offer up to us, the more trust we can build as a group, and trust is everything.

Keith Ellis, Jr.: Yeah. And then the final thing I’ll say before we wrap this up is it’s not the easiest topic, it’s not the most fun topic, it’s not the best topic to talk about, but that is long-term care, right? It’s like, something happens to one spouse, the other spouse tends to help give them care and get them through that tough time. And then, sadly, they pass on, but then that spouse is left behind. And the question is who’s going to take care of them? So, there are ways to address this beyond just typical insurance. And it is something we like to at least put forward in front of the families we work with because it is part of that overall holistic plan. And like I said, there are different ways to address this issue that are a lot more creative than they were in the past.

So, don’t think because you didn’t do something three, four, five years ago, you can’t do anything. Matter of fact, the market’s become more vast, more expansive, and more creative than ever. And to me, it’s a good time to tackle this and a good time to put a plan in place because without a plan, again, goes back to that one word and that’s uncertainty. So, any last thoughts or anything?

Joe Anderson: I think it’s just important to consider where you are today and to protect against those future changes. Obviously, in a perfect world, our goal with our clients is always just to maximize their financial situation, make them as much money as they can, allow them to enjoy the lifestyle they want, and leave as much as they possibly can behind. But if you’re not considering and evaluating all of these short-term planning needs, things like trusts, things like tax planning, even just creating the relationship between the non-driving spouse and the advisor, the person who’s going to guide them and take care of them after you’re gone, I think that it’s just a very important area to consider. And it’s overlooked in financial planning.

Anthony Finocchiaro: Yeah. However we can help build confidence, like the saying of ours, building confidence to and through retirement, however we can help do that and impact you guys in any way in that sort of fashion, we’re going to try to do that in as a positive manner as we can.

Keith Ellis, Jr.: Yeah. And for those of you that want more information on, one, SHP, or the types of plans that we do, or maybe something in this segment resonated with you and you just want to raise your hand and say, “Hey, look, I want a second look. I’d like to come in to see what this all looks like, what you guys can do for me,” just feel free to go to our website, www.SHPFinancial.com. That’s SHPFinancial.com. We’re happy to sit down, give you a second opinion or, maybe if you haven’t even started, start to help you put forth that holistic financial planning because, again, we want to address your income needs throughout your retirement, make sure your investments are aligned with the way that you think, definitely take a look at what are the most underserved areas of retirement, which is tax planning, make sure your health care strategy, you understand where you’re going once you turn 65 and those Medicare costs start to kick in, what that looks like long term for you, and is long-term care something you want to address. And then finally, making sure that when something happens to each of you, you have that plan or what we call that estate plan to help transition wealth to each other, but then to the next generation. To us, that’s a holistic retirement plan, and we call that our SHP Retirement Road Map. So, again, feel free to visit us at SHPFinancial.com. Joe, Anthony, thanks a lot for your time today. It was fun.

Joe Anderson: Thank you.

Anthony Finocchiaro: Yeah, absolutely. Thank you.

Keith Ellis, Jr.: Absolutely.

[END]