Tom Hegna joins Coach Pete D’Arruda to explain the difference between the income that covers everyday expenses and the money that lets you enjoy retirement. They discuss the shift from accumulating savings to spending with a plan, the go-go, slow-go, and no-go phases of retirement, and why withdrawing from a falling portfolio can make recovery harder. Hear Hegna’s perspective on building an income floor while keeping money available for emergencies and future growth.

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Transcript

Automatically transcribed from this episode; timestamps are approximate.

00:00 your book, Paychecks and Playchecks. For folks who've never heard that phrase, can you tell the difference between a paycheck and a playcheck in retirement? Yeah, so that book is really based in math and science. It's the research of the leading PhDs around the world who write these white papers that people don't read while I happen to read them. And really, the paycheck is what you should live on in retirement. And that should be covered with guaranteed lifetime income. So Social Security, pension, lifetime income annuities from an insurance company, that should cover your basic living expenses. That's the paycheck. And then the playcheck, you can invest however you want in stocks, real estate, bonds, crypto, whatever you want. And that's for the travel, the fun, the cruises, the pickleball, the golf, all that kind of stuff. So you want to have both paychecks and playchecks

00:45 to have a successful retirement. Yeah, and retirement's very important. And here's something that let's say you had 50 advisors, different financial advisors, you sat them all down in one room. And you asked them how to build a secure retirement. And you said you probably get 50 different opinions. Why is there so little agreement in this financial industry on something so important as lifetime income? The advisors have kind of followed the baby boomers, all right? And so for 40 years, they were advising them how to diversify their portfolio and accumulate wealth and what stock should I be in and all that kind of stuff. That has nothing to do with retirement. Retirement is totally different, okay? Retirement, you want to make sure that you have increasing income for the rest of your life and that you're managing the risks. You got to manage inflation risk, market risk. You could live a long time. They can raise your taxes. You might need long-term

01:37 care. You might die. There's all these different risks in retirement. So retirement is not about accumulation and diversification and asset allocation. Yeah, those can play a role. But retirement is really about having increasing income for life and managing those key risks. That's what a successful retirement needs. You said they could raise our taxes, Thomas. They will. They will raise our taxes. They're going to have to. I mean, it's math. Yeah. Well, the national debt is kind of scary, isn't it? We're over $40 trillion now that they admit to. That's funded and unfunded liabilities. When you get to look at the promised pensions and all that, we're over $100 trillion in debt that we have a response. Yeah. I've seen, I've seen numbers where it's over $200 trillion for unfunded obligation for social security, Medicare, Medicaid, government pensions, military pensions. I mean, yeah, we're in big trouble. And so, you know, what I've done is first of all, I converted all of my

02:27 IRAs and 401ks to Roth. So, and most of those are in income annuities. So I got all this tax-free income coming in. I moved more of my personal wealth to cash value life insurance. I just finished a 12 pay whole life policy where my premium was 226,000 a year. So, I mean, I'm serious about it. I moved a whole bunch of money into cash value life insurance. And now I I'm sitting in just a great spot because I have all this money that I can get out tax-free. My, my, my annuities are coming to me tax-free. I mean, that's pretty powerful position to be in. And I would encourage your listeners to really, really look at that because what happens if taxes double and, and honestly, to get us out of this mess, they're either going to have to cut spending significantly or raise taxes significantly, and they don't like cutting spending. And so, you know, I think they're going to be raising taxes.

03:14 Lately, we've been having a lot of those Roth conversations with listeners. I think people are starting to realize it makes sense to convert regular IRAs to Roth IRAs. Even if you have to bite the tax bullet right now, you'll never have to bite it again in the future. And that's what people overlook. They like to kick the can down the road, but if you leave all your money in regular traditional IRAs or traditional 401ks, you're going to owe tax every single year, every single year in retirement. And that's going to be money you could have spent on yourself. Now you have to give to the government. And those taxes are going to have to go up, I think significantly. I mean, again, it's just math. You just look at it. You talk to any half smart person who knows numbers and math and any economist, anybody who knows this kind of stuff. And they're going to tell you that we're in a huge, difficult situation and taxes are going to have to go up a lot.

04:00 Well, let's look at your decision process because you said you put about $226,000 a year in a whole life policy and now you're paid off. But what led you to do that? Well, you know, I've been in this industry for 35 years and I've seen how wealthy people use whole life to their advantage. I mean, it's a great bond substitute. It's not a stock substitute. When people try to compare it to stocks, it's not going to beat stocks, but it will be bonds. Okay. And it's tax-free and I can leave life-changing legacy to my family. You know, I wasn't raised, my parents were teachers in the small towns in Minnesota. They didn't make much money. I grew up in a lower middle-class family. When I moved to Arizona, when I first went in the army, everything I owned was in my Masta 626, everything I owned, you know? And so I started with nothing and now I have the ability to not only

04:47 live a great life with my wife and I, but to really have generational wealth transfer to my children and grandchildren. So let's talk about, when we look at Nelson Nash, he was a friend of mine. He wrote the book, Be Your Own Banker. He said, treat a life insurance policy as your own bank. And a lot of folks don't realize that concept, but I think that's what you're doing with the whole life. You also, there are a lot of life insurance policies now that let you use the death benefit to pay for long-term care. So you don't need a standalone long-term care policy anymore. Absolutely. You can solve a lot of problems. And you know, I bought my last two houses with money out of my life insurance policy. Because think about it, we're in Arizona. You had to be a cash buyer to get the good deal down here. If you were going to do a mortgage, you weren't going to get the deal. They wanted cash. Well, where do you come up with one or two million cash in a couple

05:32 days? I, you know, you can't do that at the bank. They're going to fill out this form. We've got to underwrite it. We go see, and then they're going to charge you nine or 10% interest. No, I just call up. In fact, I think I did it all online out of my phone. Two days later, I got, you know, over a million bucks sitting in my bank account to close on the house. And then I, then I pay back, you know, the loan on my, my life insurance policy. So for me, it's been, it's been a really a great blessing. And, and, uh, you know, people don't understand life insurance. In fact, my own son is buying a policy now and he's like, well, dad, you know, I'm looking for a lower premium. I say, Sean, you don't want the lowest premium in life insurance. You want the highest premium. You want to put as much money in there as you can. You know, you want to overfund these policies. You want to put extra money into them. That's, you know, everybody wants a lot of tax-free money. Well, to get a lot of tax-free money, guess what? You got to put some tax-free money. You got to put

06:19 some money in there in order to get it out. And so I don't, you know, I, you know, but I deal, we'll tell you 226,000 was harder than I thought, because that's like 400 something pre-tax to put 226 after tax. So it was a little harder than I thought, but I'm glad I did it. And folks, we're talking to Tom Hegna. He's the author of the really bestselling book, Don't Worry, Retire Happy. A great, great name, great title, Tom, by the way. And, uh, you wrote about the go-go, slow-go and no-go years. And so can you go through those real quick for us? Yeah. Well, you know, a lot of people think retirement's going to be 30 or 40 years of golf, tennis, pickleball, line dancing, and cruises. And that's not true. You go through three distinct phases. The first phase is what I call the go-go years. I'm in my go-go years. I'm about 70% retired. I play golf four to five days a week. I play pickleball two days a week. My wife and I

07:05 travel all over the world. So, uh, but I still do things like this, you know, on my schedule when I'm able to, and when I want to, but that's the go-go years when, when you're, when you're out and you're active and that you actually need a little more income. You know, people say, Oh, when you retire, you'll need 70% of your working income. No, no. For the go-go years, you're going to need more because every day is Saturday and you're out there spending money. The second phase is what I call the slow-go years. Now the slow-go years, you can still do everything in the go-go. You just don't want to anymore. You know, you don't want to go downtown after four 30 because dad can't see when it's dark out. And then the no-go years, the no-go years are those years when you're probably not leaving the building till you're leaving the building. If you know what I'm talking about. So in the go-go years, what's important is having income. That's the most important thing, not assets, assets. I don't care about assets, income. You want to have as much income as you can in your go-go

07:54 years so that you can go, go and have a lot of fun. The slow-go years, it's all about long-term care. And just like you said, any plan is better than no plan. So people can buy a traditional long-term care insurance policy. But I think what makes sense for more people is to get the life insurance policy with a long-term care benefit because that way, if you don't need the long-term care, you still have a death benefit for your kids or you still have an emergency fund. It does three things in one. And then, or if you've got somebody who's medically unable, they, oh, I can't buy life insurance. I can't buy long-term care insurance. I have too many medical problems. There are annuities out there, coach, that will double or triple the income for a period of, you know, three to five years, depending on the company. So that, and most, most long-term care events are three to five years. And so that normally works out pretty well. I say any plan is better than no plan. And then the no-go years,

08:43 that's where life insurance fits. And people say, well, life insurance has nothing to do with retirement. Well, I already told you, I moved more of my personal wealth to cash value life insurance. And by the way, Ernst & Young says the optimal retirement portfolio is 30% income annuity, 30% whole life insurance, 40% investment. So I'm not alone in this. This is researched and documented. All right. But we have four kids. And one of the reasons many retirees don't fully enjoy their retirement is because they think they got to leave some money to their kids. And so one day we were sitting around and my wife said, you know, we were talking about how much we leave the kids. And my wife said, I don't know what you think. And I said, well, if we bought a $1 million second to die life insurance policy, name the four kids beneficiary. When we're both gone, they're going to get a million dollars tax-free. That's 250,000 a piece tax-free plus whatever's left over. I said, let's start there.

09:30 So we bought that $1 million second to die life insurance policy, name the four kids beneficiary. That policy is completely paid up. The total cost of that policy was 150,000. Now think about that for 15 cents on the dollar, we get to transfer a million dollars tax-free to our kids. But here's the best part who gets to spend the other 850,000 we do. So I tell people all the time, don't leave your kids any money. You're supposed to spend your money, leave them life insurance because you can do it for pennies on the dollar. Tom, you famously said that every day is Saturday in retirement. Most people think retirement means spending less. Why do you say it often means spending more, especially early on? Yeah. Well, I think Dr. Wade Fowler did a really good job on this. He calls it the retirement smile. And he says the spending is like a smile. So early in retirement, you're going

10:19 to spend more because those are the go-go years. That's when you're traveling, you're spending time with your grandkids, you're buying, you're still buying stuff, you're maybe get another new car or something. And so you spend more at the beginning. And then when you go into the slow-go years, you typically spend less because now you're not traveling, you're sitting at home more, you're watching TV, the grandkids come to you, you don't go to them. And so you spend less in that slow-go period. And then as you get older, that's when long-term care things kick in. That's when medical problems happen. That's when you need your house redone, you need a walk-in bathtub, you need grab bars in the toilet or whatever. And so then you spend more. And so that's what he calls the retirement smile. You spend more at the beginning, then you spend less, and then you spend more as you age. Yeah.