Lead. Empower. Grow. is a financial podcast First Financial Security, Inc. featuring interviews from entrepreneurs who lead productive teams, empower their communities and grow successful businesses of their own.
This week, our host sat down with Senior Marketing Director Matthew Wu, a former I.T. specialist who followed his passion for helping people until it led him to the financial services industry. Matthew brought a lively and educational discussion about what it means when inflation rates rise, today’s uncertain market conditions and how it all combines to affect retirement planning. In the process, he helped dispel some common myths about retirement and life insurance.
See below for an excerpt of our conversation — you can listen to the full episode here.
What were you doing before you joined the financial services industry?
I was in I.T. in various capacities. I directed I.T. for a global insurance company, and was also a project manager implementing ERP and financial systems for another global technology company. It was great delivering the systems and making the company’s executives happy — but there was something that I was fundamentally missing.
I realized that I got a lot satisfaction from helping people. I was known within my circle of friends and family as the finance and real estate person. I got introduced to life insurance, and it made sense to get licensed so I could help other people beyond just my circle of friends.
What topics do you get asked about most often these days?
Inflation is huge concern right now, and an especially important one to help my clients understand. That is where my technical training comes in. People come to me to ask about inflation because it is going from its average, which is typically considered as 3%, to 6%, 7%, sometimes 8% or 9%. It is ridiculous.
Inflation is the cost of commodities day-to-day, as measured by the Consumer Price Index. Usually, inflation is at a 2.5% – 3% annual rate, on average. Today, because the rate is climbing so high, one dollar will be worth less much more quickly. That means that your $100,000 of savings will not go as far as it did the previous year.
Consider this: take a nice, round number like $100,000. At 3% inflation, on average, it will take about 30 years for prices to double. So, if you’re making $100,000 now, when you retire at 65 or so, you will need to be making $200,000. Now, with inflation going at 8% – 9%, we are looking at between 20 – 25 years before the price is doubling. That means, for your 30-year window, you will need a lot more now.
How would you find the answer to a client’s question about how to beat inflation?
A big part of the business is understanding a client’s overall financial picture. We have a process for understanding what they are looking for by considering where they are now: their current expenses, their current income, their pension, Social Security, inflation and more.
We put it all into a model and project out 20–30 years — from there, we can find the gap between what they have and what they need. Once we find the gap, we can offer them a solution. Retirement planning is not just about getting to the finish line. It is also about playing defense and protecting your money.
Retirement planning is not just about getting to the finish line. It is also about playing defense and protecting your money.
In our day-to-day lives, we’re so busy: working, working out, taking care of the kids, taking care of mom and dad. Life goes on. We never think about the future. We think, “Hey, if I put my 5% or 10% into my 401(k), that contribution is going to be good enough.” Well, it may not be enough for what you need, for the lifestyle in retirement that you want. So, that is one of the things that we draw out when we speak to our clients.
Our job is to understand our client’s financial situation holistically. We want to make sure that we handle all the short-, mid-, and long-term goals. This service we provide is not a one-time thing. We meet with them on an annual basis — at the least — to help them along.
Our job is to understand our client’s financial situation holistically.
Are there any common myths or misbeliefs that you run into a lot?
People often underestimate how much they will really need in retirement. Inflation is going to reduce the value of your dollars in the future, so you have to account for that. A lot of people do not. Another myth is thinking that you will not need as much money because your expenses will decrease. However, you must account for additional costs alongside the higher costs — it is not just inflation, but medical costs that you may not be expecting too. That is why you have to protect yourself with living benefits.
Another myth is that Medicare will take care of all those medical bills. But Medicare will only reimburse you. It does not take care of the house payment. It does not take care of your grocery bills. So, you need to make sure that you cover those. If you do not plan ahead, in 10 or 20 years, you may not have enough money for those expenses.
Inflation is going to reduce the value of your dollars in the future, so you have to account for that. A lot of people do not.
Listen to our full conversation with Matthew for more information on inflation, retirement and the power of financial services.