Ken: Hello everyone, and welcome back to Money Matters with Ken Moraif. Of course, I am your host, Ken Moraif, and this is the podcast. Well, thank you, Jack. This is the podcast where we talk about everything and anything in the world of retirement planning. We talk about income taxes, Social Security, Medicare, you name it. We talk about it, and we try to have more fun than a human being should be allowed to have when talking about all this financial stuff.

This week is going to be no exception because we have a show that is chock full of fun stuff to talk about. Let me go over what we are going to cover on this, our weekly excursion into the land of retirement planning.

First, we are going to talk about the hurdle rate. H u r d l e, hurdle rate. The hurdle rate is the rate of return that we calculate to determine what interest rate you need to support the lifestyle you want, subject to inflation, your spending habits, taxes, and all the things that could happen. It is our best projection of the rate of return you need to earn to support the lifestyle you want for the rest of your life.

We are going to go through how we calculate that in a broad sense, not into the massive detail we would if you came in to visit with us.

Second, a question we often get is when should you take Social Security at age 62. You can take it at 62, 66, or 70. Actually, you can take it anytime after age 62, but the big milestone ages are 62, 66, and 70. So when should you take it at 62. Everybody tells you not to, but we are going to go over reasons why you might want to. There are some.

Also, I have been reading that the historical rule of taking 4 percent of your money out so it lasts as long as you do is dead. The 4 percent rule is dead. Now people say it is 2 percent. Why is it 2 percent. Because we had two really big bear markets in the last 25 years. We had Y2K and we had 2008. In both cases, people lost so much money that if they were taking 4 percent out, they ran out. So now they say you should only take 2 percent, which means you need twice as much money to support your lifestyle.

That is insanity. We do not believe in that. We will give you a better answer when we get into that segment.

Then, as we do every week, we are going to talk about how to pass on the fruits of your labor to your greedy, unwashed, undeserving heirs, also called estate planning. I know your heirs are not greedy, unwashed, or undeserving, but on the off chance that they are, we want to talk about how to get it to them in the best possible way.

This week, we are going to talk about something called a QTIP trust. Like the thing you stick in your ear, a Q tip. It actually stands for Qualified Terminal Interest Property. You probably fell asleep halfway through that, so that is why we call it a QTIP.

A QTIP trust is where you leave assets to your beloved and very clean spouse, and you want to make sure he or she is protected from lawsuits, remarriage issues, divorce, and other risks. We will talk about how to create a trust for your spouse called a QTIP.

So we have a show with fantastic stuff lined up. Again, I want to make sure you know who we are. I am Ken Moraif, founder and CEO of Retirement Planners of America. We are focused on people who are five years from retirement or within five years into retirement. Our goal is to help you retire when you want and to have your money last as long as you do.

If you do not know our website, Jack, can you play our jingle.

Retirement Planners of America.

RPOA. I love that. It is kind of catchy, is it not. All right, let us get going.

Let us talk about the hurdle rate. What is a hurdle rate. As I mentioned, it is the rate of return you need to maintain your standard of living for the rest of your life. We need to take into account taxes, inflation, your spending habits, and possible future events like inheritance or selling property. We take all of that into account.

The first step in calculating your hurdle rate is to determine how much money you have. Let us use one million dollars as an example. That is my favorite number.

Let us say you have one million dollars and your cost of living is sixty thousand dollars a year. You might say that sixty thousand is six percent of a million, so your hurdle rate is six percent. But that is not the correct way to look at it.

You must consider inflation over your retirement, which could last thirty years. Your cost of living will increase over time, so your investments must keep up. If you take six percent today, you may need to take more in future years. That means your hurdle rate can rise over time.

We also create something called a retirement cash flow plan to estimate how your spending will change. Spending tends to go through phases. At first, you may spend more on travel and activities. Later, you slow down and spend less. So we assume higher inflation early in retirement, then gradually lower inflation later.

We might estimate four percent inflation in the first ten years, three percent in the next ten, and two percent after that. Your cost of living still increases, just at a slower pace.

We also consider personal inflation, not the CPI. The CPI includes things you may not spend on, like diapers or college tuition. Your inflation is based on your lifestyle.

Once we factor all of that in, we determine if your savings can support it and calculate your true hurdle rate. If your hurdle rate is too high, it may not be sustainable. You may need to reduce spending or delay retirement.

We also include income sources like Social Security, pensions, or other income. If the hurdle rate is too high, it is like high blood pressure. It means your investments are under too much strain.

That is the kind of discussion we have with clients, and we would love to have it with you.

Now let us change the subject and talk about Social Security.

When should you take it at 62. You can take it at 62, wait until full retirement age, or wait until 70. Benefits increase about eight percent per year if you delay, but they stop increasing after age 70.

One reason to take it at 62 is that you need the money. Retirement is meant to be enjoyed. If taking Social Security earlier helps you enjoy it, that matters.

Another consideration is health. If you delay, you must live long enough to make up for the years you did not collect benefits. That break even point is often in your early eighties. If you do not expect to live that long, taking it early may make sense.

There is also uncertainty about future benefits. Government policy could change. If you are in a higher income bracket, benefits could be reduced. So there is an argument for taking the money while it is available.

There are also income limits if you take benefits early while still working. This can reduce your payments. So there are many factors to consider.

Social Security is complex. There are thousands of ways to claim benefits. It is not a simple decision. You should consult a professional.

Now let us talk about the four percent rule. Some say it is dead and should be two percent. That would be a huge difference.

If you have one million dollars and take four percent, that is forty thousand dollars per year. If you only take two percent, that is twenty thousand. To get forty thousand at two percent, you need two million dollars.

The concern comes from past bear markets like 2000 and 2008. During those times, markets dropped significantly. If you were withdrawing money during those downturns, you were depleting your investments.

This is called sequence of returns risk. Losing money early in retirement can have a much bigger impact than losing it later.

That is why we believe in protecting against large losses, especially in the early years of retirement. That period is critical.

Our approach focuses on both growth and protection. Protecting your principal is key to long term success.

Now let us move to our final segment, estate planning.

We call it passing assets to your greedy, unwashed, undeserving heirs. Of course, your spouse is not included in that.

This week’s topic is the QTIP trust. It is designed to benefit your spouse while protecting assets.

When you pass away, part of your estate goes into the trust. It protects assets from lawsuits, divorce, or poor financial decisions.

It also allows you to control how assets are distributed after your spouse passes away. For example, in blended families, you can ensure assets go to your children.

The trust allows distributions for health, education, maintenance, and support. It maintains your spouse’s standard of living but prevents excessive spending.

There are many reasons to use a QTIP trust, and few downsides. It provides protection and structure.

Estate planning can be complex. We are not attorneys, but we can guide you and connect you with professionals.

So if you love your spouse, consider a QTIP trust. If not, that is a different conversation.

If any of this resonates with you, visit our website.

Thank you for joining us. I hope you are healthy, wealthy, and wise, and we will talk soon.