Episode 19 with Tom Hegna, President TomHegna.com – How to Help People Retire the “Optimal” Way

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Beyond the Challenge is a podcast where executives in the insurance and financial services industry share their insights and experiences. Hosts Kevin and Sandy Dougherty talk with today’s top business leaders about what keeps them up at night and the biggest opportunity organizations can capitalize on today. We encourage you to listen, share, and subscribe to our program.

Kevin and Sandy Dougherty each have over 20 years of experience in insurance and financial services, corporate leadership, and executive search. They’re the owners of Global Corporate Solutions and Global Corporate Leaders. Global Corporate Solutions partners with organizations to gain efficiencies and contain costs. Global Corporate Leaders partners with organizations to enhance and evaluate talent.

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Welcome to Beyond the Challenge. Here are your hosts, Kevin and Sandy.

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Sandy: Today, we’re talking with Tom Hegna, President, tomhegna.com, and industry speaker about the trends, challenges, and opportunities he sees for the insurance industry. Tom, can you tell us a little bit about yourself and how you got into the industry?

Tom: Sure. So, I’m originally from a small town in Minnesota, went to college at North Dakota State University on an Army ROTC scholarship. I was commissioned in the military. I spent six years active duty Army, 16 and a half years Army Reserve, retired as Lieutenant Colonel in 2006. I entered the insurance industry after I left active duty. I started with MetLife. I spent about eight years at MetLife. I then went to New York Life, spent 15 years with New York Life, retired as a senior executive officer in 2011. I went out on my own, I’ve written five books on retirement, I’ve trained over 300,000 financial advisors all over the world, I’ve given over 5,000 live consumer seminars in all 50 states, and I have a PBS TV special Don’t Worry, Retire Happy that played in 80 million homes in the US and Canada.

Kevin: That is very impressive. Thank you very much. Tom, with more than 400,000 people in the US calling themselves financial advisors using any number of professional designations to sell financial products and give advice, can you tell us how do you counsel and train advisors to help people prepare for retirement?

Tom: Well, really, regardless of whether a financial professional is in the insurance industry or in the investment industry, there is an optimal way to help people retire and that’s what I talk about. I don’t sell any financial products, I don’t get compensated on the sale of any financial products, but math and science dictates that you have to have annuities in a portfolio and long-term care, a plan for long-term care in that life insurance is the most efficient way to pass wealth to children, grandchildren, and charity. So I show people where the different investment plans fit. For example, a lot of people like dividend paying stocks. Well, I do too, but they don’t fit for the paycheck in retirement. They’re okay for the playcheck, not for the paycheck. But a person’s basic living expenses and retirement needs to be covered with guaranteed lifetime income and that’s regardless if somebody’s in the investment business or if they’re in the insurance business. So, I really focus on the math and science and keep my opinions out of it.

Sandy: As a speaker, what are you most passionate about?

Tom: Well, you know, there’s 78 million baby boomers, I’m one of them, they’re all heading straight into retirement, many of them have the wrong information, they think they can retire on an investment portfolio, they did it their entire lives and they don’t realize that retirement is very different than accumulating money for retirement. Retirement is really about having income, and not just income, increasing income for the rest of your life and then risk management. You’ve gotta manage against market risk, against inflation or deflation or higher taxes or long-term care. You might die. There’s a lot of risk in retirement and, of course, the number one risk is longevity risk. People are living longer and longer and longer and that multiplies all the other risks. So, the longer you live, the more likely the market will crash. The longer you live, the more likely you’ll take out too much money. The longer you live, the more likely they’ll raise your taxes, the more likely you’ll see inflation, the more likely you’re gonna need long-term care. And so what the research of the top PhDs in the world say is that you’ve got to take that longevity risk off the table. Well, stocks can’t do it, bonds can’t do it, real estate can’t do it, crypto can’t do it. Only some form of lifetime income can do that. And so, again, this is all based in math and science, these aren’t my opinions, and I just tried to take the math and science to the general public in a simple, easy to understand way.

Sandy: Okay, thank you. So, with the new low interest rates, are annuities changing as far as the products or the type of annuities?

Tom: Well, yeah, I mean, I think you’ve seen these RILAs come out, the registered index-linked annuities. They’re a form of a variable annuity but they don’t have fees so it handles the fee argument, “The fees are too high.” Well, those RILAs don’t have fees. They have more upside than a regular indexed annuity but then they have some downside. So, they allow a client to kind of buffer the low side and maybe take a little less to the upside to keep a more level experience in investing so that would be one example. But here’s what I do say about interest rates. Right now, the 30-year government bond is telling me interest rates are likely to stay low for a very long time, even decades, even with all the inflation we’re seeing. I’m a little confounded because I’m an economist too and, you know, I see the inflation at the pump and everything but the interest rates still stay very, very low. But an income annuity is really not an interest rate play, it’s more of a mortality credit play, and I argue that these are the highest mortality credits we’re likely to see for the rest of our lives because, as medical technology advances and they cure cancer and diabetes and heart disease, people are gonna live longer and longer and so insurance companies are gonna have to reduce the payout rates on their income annuities, not because of interest rates but because people are living longer so I am buying annuities as fast as I can right now to lock in the highest mortality credits I’m likely to see for the rest of my life.

Sandy: So, do you see annuities playing a larger part or a smaller part in the retirement space over the next three to five years?

Tom: Oh, absolutely a larger space. It has to. I mean, again, it’s math and science and now you’re seeing that even, I think BlackRock is putting annuities in other 401(k) plans and now I’m even seeing some of these advisors in the past who were anti-annuity, well, they’re all coming around. Why are they coming around? Because they have to. They have to. You cannot retire optimally without an annuity in that portfolio. It’s not my opinion. Menahem Yaari, a PhD in Israel, proved it back in the 1960s that only a lifetime income annuity can optimize income over the indefinite period of a human life. See, you don’t know when you’re gonna die, I don’t know when I’m gonna die, but an insurance company knows almost the exact date when a thousand people are gonna die. They don’t know when each of us is gonna die but they do know that half the people will die before the other half and so they can pay a higher payout rate to everyone because they know they’re not gonna have to pay it to everyone. And so, again, it’s all based in math and science and I would say, you know, who sets the payout rates on annuities? They’re called actuaries. What do actuaries have to study to become actuaries? Math and science. So life insurance and annuities are based in math and science.

Kevin: What do you see as the next big thing coming to the retirement marketplace?

Tom: Well, I’ve always said if an insurance company could put a crypto sleeve into a variable annuity or an indexed annuity, that thing would go crazy because crypto can go up 1,000 percent and even if you get a piece of that, that could really help. So, I mean, I don’t know if we’ll see that but I’ve said the insurance company that can crack that is gonna get a lot of business. But I really do think long-term care is the next big thing. And I’m working with a company, they’re not a producer, they advise insurance companies on how to solve this problem, and this company has a lot of PhDs and like scientists and astrophysicists and all kinds of super smart people and they’re coming up with a plan to try to keep people out of the nursing home. So, you’d get nearly a guaranteed issue, not, you know, maybe two or three questions and as long as you pass those questions, you get approved. But then if you follow these certain steps on, you know, you walk so many steps a day or you do things to take care of yourself, you actually gain more coverage so they’re gonna incent people to take better care of themselves and stay out of the nursing home. But if they ever needed care at their house, then there’d be this insurance that would cover that. So, I think around the long-term care space, that might be the next big thing.

Sandy: When is that coming out, Tom? I think I’ve —

Tom: Well, there are companies right now that are developing the products and you’re gonna probably see it before the end of the year. Well, we’re almost at the end the year so let’s say by the middle of 2022, I think you’ll see something on the street with this. And it’s really pretty exciting because I think it’s gonna get people who don’t want to lose, you know, “What if I pay all this money and I don’t need it then I lost it?” This will be one where if they don’t use it, it goes to their family or they can use it for their own income but there’s gonna be a bucket of money there for them that incents them to take care of themselves and do the right thing so that they can live longer and live happier and live healthier.

Kevin: What is your opinion about the future of insurance regulation and compliance as we know it today?

Tom: I think they’re all going with the best interest. It’s gonna be some type of fiduciary standard. And everybody kind of points at the insurance industry that there were bad players that just sold annuities, that did bad things with insurance products. I can point to the investment side and show you many investment-type advisors who even claim to be fiduciaries who aren’t using annuities or long-term care or life insurance. They’re not fiduciaries, they’re fake fiduciaries. So I think, on both sides, the investment side and the insurance side, it needs to come together. And, again, let’s let math and science determine what the best course is, instead of having, you know, 50 different advisors with 50 different opinions. That’s not in the best interests of clients. So I think you’re gonna find things are gonna come a little tighter and whether a person’s in the insurance side or in the investment side, they’re gonna have very similar solutions because that’s what math and science dictates.

Kevin: Great answer. Tom, what type of carrier would get the most benefit from having a trainer like yourself?

Tom: Well, I mean, I’ve been hired by almost all of the Fortune 500 insurance and investment companies at some point in the last 10 years to either do consumer seminars or consumer webinars or advisor training. And I’ve at least trained over 300,000 financial advisors. I’ve helped companies increase their sales by billions and there aren’t many billion dollar players out there, I know of several, but, I mean, I can help companies increase their sales of life insurance, annuities, long-term care, and not just because they’re gonna be product pushers out there, that they’re gonna be protecting families and letting them retire with dignity and never run out of money and if they need a long-term care situation, that they’re gonna have a great long-term care situation, either in their house or in assisted living and not some stinky nursing home. And so those are the kinds of things that I teach people and how to how to use life insurance properly, you know? I’ve moved more of my own personal wealth to cash value life insurance because I wanna have more tax-free income in retirement. I own 11 annuities, I don’t sell annuities, I own 11 of them. And many of them, I’ve converted my IRAs and 401(k)s to Roth so those will give me tax-free income for the rest of my life. I do think that giving clients tax-free income for the rest of their life is gonna be so important because the way that this country is with debt and spending, taxes are gonna have to go up a lot and most people have their money in IRAs and 401(k)s and that’s very unfortunate, they’re gonna be very unhappy in retirement.

Sandy: So how is selling to the younger generation different from selling to the baby boomers?

Tom: You know what’s interesting is that I did my first presentation for Generation X, Y, Z, and millennials and I’m teaching them how to become millionaires because, first of all, I think most millennials and Gen X, Y, Z have to become millionaires to be able to retire. But I show them how simple it is in America today and I believe nearly any American that wants to be a millionaire can become one if they follow these simple steps. And so I’m training ’em but they’re very hungry to learn. Unfortunately, you know, they’re getting a lot of it on the internet and they’re on this wallstreetbets and they’re buying meme stocks and putting all their money in crypto, and I’m not against crypto, just you know, I’m not against crypto, I put 1 percent of my portfolio some time ago into it and it’s now a much bigger percent of my portfolio, but they’re not getting solid advice. So I’m trying to give them great advice on how to make more money, how to get really good at what they do. They can make more money then spend their money more wisely, because people waste money like crazy, and then to invest in appreciating assets instead of depreciating assets. Think about it. Cars, boats, jet skis, RVs, handbags, shoes, clothes, they all go down in value every day. And too many of the of the younger generations put their money into depreciating assets and I’m trying to shift their focus into appreciating assets because that’s how you get wealthy in America.

Kevin: What do you see as the biggest opportunity for the insurance industry over the next three to five years?

Tom: Well, I think there’s fewer insurance professionals than ever today and there’s more of a need than ever. So, let’s just solve all these problems. And I think you’re gonna see more companies doing combination policies, you know? You’ve seen it with life insurance and long-term care where I always draw three circles, you know, if somebody’s got $100,000 in the bank, you can put $100,000 in the policy, it’s gonna earn a higher rate than the bank is and it’s gonna grow tax deferred, it’s got a money back guarantee, if you need your money out, you can take that out. If you don’t need it and you die, there’s a bigger circle, that’s a tax-free death benefit that goes to your family. But what if you need long-term care? There’s a bigger circle of money that goes to you tax free for long-term care. And so one product solves three things: an emergency fund, a death benefit for the family, and long-term care. And I think you’re gonna see more combinations like that to solve the big problems, because, I mean, people have the problem, they don’t wanna run out of money. Well, only an annuity can guarantee that that won’t happen, you know? They wanna make sure that they leave some money to a charity or children or to their spouse. Well, life insurance is the best thing for that. And then they’re worried, “What if I need some long-term care? I don’t want to go to a nursing home.” Well, I don’t have to. My long-term care policy is home health care. I get to stay in my house. I call it anti-nursing home insurance. So, I think if we can just solve these problems in retirement and we’ve got the products and we’ve got the smart people that can do it, I think that’s the future of our industry.

Kevin: Tom, what is the best decision you made that had a positive impact on your career?

Tom: Well, I mean, a couple. I mean, I’m glad I went in the military. I mean, I learned a lot in the military. I learned discipline and I learned no excuses because they don’t take excuses. You can’t say, “Oh, sir, you know, I had a flat tire, you know, the kid was sick.” That doesn’t work in the army, okay? You gotta accomplish the mission and that was really good. And then it was really good when I went out on my own. I was gonna retire at age 55 but at age 50, I had an opportunity to retire and I took it and that made all the difference and I’m now living what I write about. I wrote the book, Don’t Worry, Retire Happy, and I’m happy and I’m not worrying and I’m enjoying my retirement. So I’ve really cut back on my travel, I’m doing more virtual events and things like that but I don’t think I’d go back and change anything.

Kevin: What advice would you give to someone looking to get into the financial services or insurance industry?

Tom: Oh, it’s a great time to get in. I would encourage you to find a company that has great training, that maybe can help you with lead generation so that you’re not just dialing out of the phonebook. I mean, it’s tough to get started. And if you can get a mentor or start with maybe somebody who’s a really good producer who’s gonna be retiring in five or so years and then you can be an understudy to them and help them out and do some of their service work and learn and then eventually kinda step into some of that, there’s some great opportunities out there. And I would just say shop, you know, three or four or five different companies, don’t necessarily jump at the first person that talks to you about it, and learn a little bit about whether it’s better to be all independent or have kind of a hybrid plan. It’s really up to you. But I think there’s never been a better time, there’s never been more demand, there’s never been more money out there, and there’s fewer financial professionals than ever before.

Sandy: Tom, thank you for your time today. It’s been great to hear your insights and how you see the retirement marketplace changing over the next few years and to learn what you’re passionate about. Thank you very much.

Tom: Thank you.

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