Who wants to be a millionaire? — with Tom Hegna

Tom Hegna has spent his decadeslong career helping advisors and their clients create successful retirement plans, teaching them how to have income they’ll never outlive, how to reduce retirement risks, and successfully pass on wealth. His passion for these topics is obvious — and contagious.

His books, videos and personal appearances have reached millions, and his retirement wisdom may be more important today — in the face of economic turbulence — than in many past decades. His successful books, including Don’t Worry, Retire Happy! and Paychecks and Playchecks: Retirement Solutions for Life, have helped educate countless individuals as they plan for retirement, and his PBS special Don’t Worry, Retire Happy! has been seen in over 80 million homes.

Tom has passed on his knowledge to countless advisors and agents both as a preeminent speaker who is always in demand on the main stages across the financial services industry, and through countless videos. He is a master at making complex financial challenges simple and presenting actionable advice in a friendly, conversational manner that takes the sting out of what can be stressful financial issues.

Tom is a master salesman whose most important advice to advisors and agents is “don’t sell.” His results speak for themselves.

Paul Feldman: Tom, you and I attended this year’s NAIFA Apex Event, where you were talking about some new ideas you’ve been working on. Can you tell us a little bit about that?

Tom Hegna: I’ve spent my entire career focused on baby boomers, those either in retirement or near retirement, and how to mitigate risks in retirement, how to have income that you’ll never outlive and what’s the most efficient way to pass on wealth. But recently I created a presentation for generations X, Y, Z titled “How to Become a Millionaire.” I did this because there are a lot of advisors out there that need a road map for how to talk to younger clients. Younger clients may not be ready for an annuity yet or long-term care insurance, but they’re on their path to building wealth. So, I came up with some simple ways that I believe most Americans can become millionaires.

Feldman: That’s very powerful. What gave you the idea for this approach?

Hegna: When I was just starting out as an advisor, I’d go to a party or to my kids’ basketball game or baseball game and people would ask me, “So, Tom, what do you do?” And my answer was, “I create millionaires. You tell me how many million you want and I’m going to show you exactly what you need to do to get there.” That was my little elevator speech. I didn’t say, “I sold insurance.” I didn’t say, “I’m a financial advisor.” I said, “I help create millionaires.” And that’s what I do.

And when they expressed interest, I would then run a life insurance illustration and solve it for a million dollars at age 65. For example, I ran one for a 25-year-old female to have a million dollars at age 65. The premium is about $7,700 a year, so that means she’s going to have to put in a little more than $600 a month into a life insurance policy. If she does that, when she’s 65, she’ll have a million dollars. Well, not everybody’s going to put their money in life insurance.

We all know that. Nor probably should they. But that was something I could run in an illustration to show them how it could be done. So they’d say, “Wow, this is possible.”

Next, I would teach them about the time value of money. I’d say, “Now, if you could get 6% on an investment, you’d have to put about $500 a month away to hit your target. But if you can get 9%, you only have to put away about $250 a month. If you could get 12%, you’d only need to put away a $100 away a month. And within 40 years, you’re going to have a million dollars.”

That got us into a conversation where they see that I’m on their team. I’m trying to help them become wealthy. I don’t push products, because I didn’t really care if they wanted to invest in mutual funds or stocks or life insurance or whatever. It’s probably going to be a combination of those. But I wanted to get them to have a goal in their mind: They could become a millionaire.

Feldman: That sounds pretty straightforward. Is there more to it? How does an advisor explain this to a client?

Hegna: When I sit down with clients, I say, “Look, there are three phases of wealth. The first phase is building wealth, which I call, ‘Who wants to be a millionaire?’ The second phase is protecting your wealth. Once you have wealth, you want to protect it. That’s, ‘Who wants to stay a millionaire?’ And then the third phase is distributing wealth. That’s ‘How to live and give like a millionaire.’”

And as I had said, I spent my entire career on phases two and three, helping people protect their wealth and distribute their wealth. But I wanted to help the younger people build wealth. There are three things you need to do to build wealth. Number one, you need to want to make more money. Number two, you need to spend less or spend wiser.

That’s the hard part for most people, because they all want to look like a millionaire. They want to drive a fancy car, they want to stay at Sandals, and they want to do all this expensive stuff.

But that’s really not wise when you’re building wealth. And then number three, you want to put your money into appreciating assets. Most people put their money into depreciating assets: cars, boats, Jet Skis, handbags, shoes, clothes, iPhones, iPads. Those are all depreciating assets. They go down in value every single day. And while we all need to put some of our money into depreciating assets, you do not want to have the majority of your money going there. You want to have the majority of your money going into appreciating assets: investments, stocks, commodities, real estate — things that typically go up over time.

So, the dirty little secret is that everybody is going to make millions of dollars over their lifetime. For example, even somebody making $50,000 a year over 40 years is going to make about $3.7 million. Over 50 years, they’d make about $5.6 million. But if I could get them up to $100,000 a year, they’re going to make between $7.8 million and $11.2 million. And if I could get them up to $250,000 annually, they’re going to make over $18 million, or $28 million over 50 years. And the more money you make, the easier it is to save a million dollars.

When it comes to total economic wealth, there are two components. Number one is human capital and number two is financial capital. And the big mistake that most advisors make is they’re only looking at their financial capital. “What are your investments? Where’s your 401(k)?” With younger people, you want to look at their human capital — their potential future earnings. Young people have tremendous human capital.

The reason most people don’t become millionaires isn’t because they don’t make enough money, however. The reason most people don’t become millionaires is they spend too much of the money that they make. I believe most Americans could be millionaires, except for two things.

Number one, they spend too much money on their cars, and number two, they get divorced.

Let me give you an example. Last year, I wanted to buy a new truck. I could buy a brand-new Ford F-150 pickup that was about $65,000, or I could buy a pickup that was two years old with 13,000 miles on it for $30,000. Now that’s a difference of $35,000. Well, if you know me, I went with a two-year-old pickup. Now, if I take that $35,000 difference and I invest that at 6% interest, in 30 years that’d be worth over $200,000. In 40 years, it would be worth almost $400,000, and in 50 years, it would be worth almost $700,000. If I could get 8%, it’d be worth $382,000, $849,000 or $1.8 million. Now that’s just the impact of one vehicle.

My wife and I have been married for almost 40 years. We have four kids. I bet we’ve had 15 to 20 vehicles between us and the kids. Think of how many millions of dollars that would be if you just bought used, instead of buying new, every time you bought a car, and invested the difference.

Gary Vaynerchuk says people lose because they want things fast when life is long. Some millennials say to me: “Yeah, but Tom, it’s YOLO. You only live once. We’ve got to get out there and live.” And I say, “No! Joe Jordan says it’s YOYO. You’re on your own, baby.” And the only one who will take care of your older self is your younger self. And I think that’s the message that we really want to take to young people: The only person that will take care of your older self is your younger self. Be good to your older self.

Feldman: How do you help somebody make more money, and possibly increase their annual pay? Is there any advice you give them?

Hegna: The Japanese have a thing called ikigai. Ikigai is where four circles intersect. Number one, what are you good at doing? Number two, what do you love to do? Number three, what does the world need? And number four, what can you get paid to do?

And I always use myself as an example because I think I found my ikigai. I love doing what I’m doing, I think I’m pretty good at helping people with retirement income, the world needs it, and I get paid to do it. So, I’m getting paid to do the things that I’m good at, I love, and the world needs. And so, that’s really ikigai. So many people hate their job, hate their co-workers, they don’t like to go in to work. They’ll never become wealthy doing that because you can’t make a lot of money doing something that you hate to do.

Feldman: You’ve talked about inflation. How will the rising inflation rate we’re experiencing now impact the future of, say, $1 million?

Hegna: In 20 years, a million dollars isn’t going to be what it is today, but here’s what I tell people. You’ve got to get your first million in order to get your second million. And the first million is the hardest to get. Once you get your first million, the second and third and fourth can come quicker, because now you can have your money making money. It’s not just you making money. Your money can make money, so you can have multiple income streams eventually. But you’ve got to get some money before you can have those multiple income streams.

One thing I talk about is the “rule of 72.” That’s how fast money can double. Just divide whatever percentage you’re earning into the number 72, and it’ll tell you how many years it will take for your money to double. If you’re earning 10%, you divide that into 72. That means every 7.2 years, your money will double. When I was with a client, I’d say, “OK, you’ve got $50,000 now. In 7.2 years, you can have $100,000. Then in another 7.2 years, you’ll have $200,000.

Then you’ll have $400,000, $800,000, $1.6 million, $3.2 million.” And I would say those words so they could actually think, “Oh man, maybe I can become a millionaire.” If a client can understand how money works and how compounding works, they have a much better chance of becoming wealthy.

Feldman: An advisor might say, “Oh, I don’t want to work with somebody who’s young because there’s just not enough money in it for me.” Should advisors work with younger clients who may have human capital but little or no financial capital?

Hegna: The reason you want to talk to younger people is that while they don’t have a lot of financial capital now, they’re going to have a lot of financial capital in the future — and you want to be there helping them. And if you build a relationship with them when they don’t have any money, they’re going to trust you when they have money. I had this family when I was an advisor and they were just poor as could be.

They lived out in Apache Junction [Arizona] in a trailer house, a single-wide. I treated them with respect. Well, guess what? They won $1 million in the lottery. Who do you think they called?

They called me because I treated them with respect when they didn’t have money, so they knew I’d be nice and treat them with respect when they did have money. I did not prejudge people. I’d have people say, “Oh, I’m not going to that neighborhood. That’s a bunch of trailer parks.” Do you know how many annuities I wrote in trailer parks? There were people who had $500,000 in an account, a CD or a tax-free bond — and they were living in a trailer home. I did not prejudge people, and that was very good for my business.

Feldman: What impact do you think inflation is having on people currently close to retirement age?

Hegna: Well, it’s really going to hurt people in retirement. What I tell people is you can’t just have income in retirement. You’ve got to set up increasing income in retirement.

For example, I have 11 annuities. I have some that start at age 60, some that start at age 62, some that start at age 65, some that start at age 70. I’m guaranteed to have increasing income for the rest of my life.

Another approach is to cover the basic living expenses with guaranteed income, but then optimize the rest of the portfolio to protect against inflation. You invest some in stocks, real estate, commodities, things that go up in times of inflation.

Feldman: What do you think about the market right now?

Hegna: It’s very, very scary. In the past, the Fed would come in and they would print money or you’d have Congress that would spend money. Well, I don’t think the Fed’s going to be printing any money, and they’re not going to be lowering interest rates for a while. I think this market has quite a ways to go down.

Feldman: You have described life insurance as “a woman’s issue.” What do you mean by that?

Hegna: Well, number one, I think the numbers are about 75% of married women end up as widows. Because women live longer, they’re the beneficiaries of life insurance policies somewhere between 70% and 80% of the time. So, I tell women, “You’re going to live with the consequences, good or bad, of how much life insurance your spouse is carrying.” Now, am I saying it’s not important for women to have life insurance? I’m not saying that. About 50% of all women own zero life insurance, at a time now when over 50% of women are the breadwinners of their home. So, women need a lot more life insurance. But the fact is they’re more likely to be the beneficiary than the husband is to be the beneficiary. We need to talk to women about making sure that their spouse or their partner has adequate life insurance.

Feldman: You also talk about life insurance as a tax issue. What do you mean by that?

Hegna: Well, if you look at the history of the U.S. marginal tax rate, it has not been a very level number. During most of your parents’ lives, it was 70%. Well, where are we now? We’re in the high 30s. Is it unreasonable that taxes are going to go up to 45%, 50%, 55%, 60%? I think it’s highly likely that taxes are going to go up that high. Life insurance, as a death benefit, goes tax-free to heirs. That’s important.

It goes tax-free to the kids, and you can even have it set up to be free of income tax and estate tax if it’s set up properly with an irrevocable life insurance trust and everything. There aren’t a bunch of assets out there that can do that. Another nice thing about life insurance is you can take money out prior to age 59½ with no penalty. It’s like a Swiss Army knife. Most people are significantly underinsured. You really need to have at least $1 million of life insurance for every $50,000 of income. It’s the low-interest-rate environment that has caused people to be underinsured. When interest rates were 10%, they’d say, “You need 10 times your salary or seven times your salary.” When interest rates are at 1% or 2%, you really need 20 or 25 times your salary.

Feldman: In this environment, what would you recommend for someone who is a retiree right now, or somebody who is really close to retirement?

Hegna: The formula hasn’t changed. Retirees should cover their basic living expenses with guaranteed income. So Social Security counts because it’s a lifetime income annuity. Pensions count because they’re a lifetime income annuity. But whatever a retiree is short between their normal living expenses, and retirement funds plus any other guaranteed income, that’s where the annuity fits in. You want to have guaranteed income to cover those basic living expenses. And then you can invest the rest of your money as you see fit.

We saw during COVID how important it is to have guaranteed lifetime income. People say, “Oh, I buy dividend-paying stocks.” I buy dividend-paying stocks, too, but they’re not guaranteed lifetime income. During COVID, over 700 companies slashed or eliminated their dividends. People say, “Oh, I do real estate. That’s my deal.” Well, I like real estate, too, but it’s not guaranteed lifetime income. During COVID, renters didn’t have to pay rent and landlords couldn’t evict them. It’s not guaranteed lifetime income.

I’m very firm. The research is clear. You should cover your basic living expenses with guaranteed lifetime income, and then you can invest the rest of your money.

Feldman: What’s the best sales advice you’ve given in the past six months?

Hegna: I tell people, “Stop trying to sell. Focus on helping your clients. Ask them what keeps them up at night, what are their concerns?” If you ask the right questions, they’re going to tell you exactly what you need to do. They’re going to literally say, “This is exactly what I need.”
Stop pushing products. Focus on solving problems and helping people retire the right way. Get on their side of the table instead of your side of the table. That’s the best advice I can give.

Paul Feldman started the website InsuranceNewsNet in 1999, followed by InsuranceNewsNet Magazine in 2008. Paul was a third-generation insurance agent before venturing into the media business. Paul won the 2012 Integrated Marketing Award (IMA) for Lead Gen Initiative for his Truth about Agent Recruiting video and was the runner-up for IMA's Marketer of the Year, a competition that includes consumer and B2B publishing companies. Find out more about Paul at www.paulfeldman.com.