By John Teixeira and Nick McDevitt
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The podcast currently has 73 episodes available.
Are you and your spouse on the same page when it comes to what retirement is going to look like? If not, it’s time to talk. Listen to this episode where we'll explore why it’s so important for couples to have detailed conversations about their finances and retirement futures. We’ll cover exactly what you need to discuss, and how to handle any disagreements.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Mark:
Are you and your spouse on the same page when it comes to what retirement is going to look like? If not, it's time to talk. So check into this episode where we explore why it's important for couples to have detailed conversations about not only their finance, but their retirement futures and their dreams, this week on Retirement Planning, Redefined.
What's going on? Welcome into the podcast. Thanks for hanging out with John, Nick, and myself as we talk investing, finance and retirement. And we're going to go to couples therapy this week here on the podcast a little bit, or maybe we'll make it more manly, I guess, and call it a team sport.
However you want to look at it, you want to be on the same page with your spouse, with your loved one when it comes to retirement. I wanted to talk a little bit about that this week, guys, to see how many people generally are on the same page by the time they sit down with professionals like yourselves, financial professionals, or if it's happening a lot in real time, right in front of you. So we'll get into it this week.
What's going on, John? How are you bud?
John:
Hey, I'm doing good. How are you?
Mark:
Doing pretty good, hanging in there. Looking forward to chatting about this a little bit.
Nick, I hope you're well.
Nick:
All good.
Mark:
All good as usual. Well, that's very good.
Nick:
Good start to the season for the bills, so I'm happy.
Mark:
All right, well there you go.
Nick:
It's early. It's early, but...
Mark:
My lions, my lions are all right for right now. We'll see. I don't have a lot of hope. 40 years doesn't bode well when you have one good season in 40 years, but we'll see.
Nick:
I get it, [inaudible 00:01:33].
Mark:
All right, so let's dive into this couple stuff here. Why is it important for couples to work together on their retirement plan? I mean, you come in, somebody sits down for the first time with you guys for a consultation, and they're just not even remotely on the same page. That's got to be a bit more problematic, yeah?
Nick:
Yeah. Not being remotely on the same page is tricky. I would almost say we probably, at least for John and I, we probably don't run into it too much where they're completely on separate pages.
Mark:
Well, that's good.
Nick:
I would say that there tend to be different ways that they think about money and kind of communicate about money. To be honest, that's one of the reasons that I would say that John and I like working together as a team with clients is because oftentimes one of us will kind of pick up more on the vibe that one of the people in the relationship is on, and then vice versa the other way around.
And so I'd say it's pretty rare that people in a couple tend to think about finances the same way. Even though they might end up having similar goals on the backside, they kind of attack it a little bit differently. And really it's, I think we joke sometimes, I think at this point we're 80% therapist, 20% financial advisors.
Mark:
Right.
Nick:
And really it's just trying to get people closer to the same page, and realizing that a lot of the things that they're talking about are pretty similar and they're just going about different ways to attack that.
Mark:
Well, John, to expand on that, when somebody sits down for the first time, do you guys, if they haven't really discussed some of those big issues, is it important that they maybe try to knock some of that out before they come in to see an advisor? Or does it not really matter as long as it's getting done?
John:
Yeah, I don't think it really matters. I think sometimes they're not even really sure exactly what to be knocking out prior. So to delay meeting with someone just to try to figure out, "Hey, are we on the same page?", I don't think makes sense. I think what tends to happen in our meetings is we'll ask some questions that kind of get them thinking a little differently. Like, "Oh, I didn't think about that." And ultimately, I think what we do when we do our planning, they tend to have some things come out and then they tend to kind of understand where the other one's coming from and that kind of lines up.
Mark:
Yeah. Well, I mean, I talk to advisors all across the country and I certainly hear stories often about people saying, one person will say something and the spouse will go, "Since when? I never heard of that."
Nick:
It definitely happens sometimes for sure. I would say almost that tends to be more on the lifestyle side of things.
Mark:
Okay, all right.
Nick:
Versus almost purely financial.
Mark:
Like "I want to go scuba diving in every major ocean or something." And the other one's like, "What?"
Nick:
Yeah, when the husband pulls, "I want to drive across country in the RV" card, that's where I've seen a lot of the sideway looks where... My parents are a good example, it's like my dad doesn't like to drive to Publix, but then he said he wanted to drive-
Mark:
Across the nation.
Nick:
... In an RV, because that's going to be more relaxing. And I remind him that a thousand miles is a lot worse than five. So there's things like that absolutely. How to spend that time, or even just the extra time together. I've almost seen it where it tends to be a little bit of a smoother process for couples when one person retires first, and maybe there's a year or two lag, where they kind of have a little bit of a staggering on spending an extra 50 hours a week together, which can be a little bit of a shock.
Mark:
Sure, yeah, it's a totally different animal. Yeah.
Nick:
Yeah, a totally different ballgame. So I would say from at least my experience with clients, it tends to be more in the lifestyle side of things. What I've seen most often with couples are it's rare that it's a 50/50 input on finances.
A lot of times I'll see it where one person might be a little bit more strategic on expenses, and then the other one might be a little bit more focused on the actual investments, things like that. But they end up being kind of having the same goal or outlook, but the lifestyle and how they're going to spend their time in retirement and how much they're willing to spend to do those sorts of things tends to be a little bit different.
Mark:
All right, John, well let me throw this one your way. So my wife and I are not usually on the same page when it comes to certain different things in a relationship, like most couples. And when it comes to risk, we are completely different.
So how can couples navigate if they are in different places risk-wise? Because let's be honest, I mean the statistics are what they are. Typically, us fellas tend to want to take a little bit more risk, and a lot of times the ladies tend to want to play it a little safer. Not always, but that's kind of the average.
So how do you guys handle that and what's some advice there?
John:
So we'll do risk tolerances for each client when that comes up. And we we'll find that someone, again, might be more aggressive than the other, so maybe their accounts are invested, maybe a moderate where someone else's, the spouse might be invested conservative. So that, having separate accounts makes that a little bit easier.
It becomes more difficult when it's the, a joint account. And what we'll do at that standpoint is we kind of go back to the plan. So a lot of the times it's what type of rate of return are we trying to achieve from the planning standpoint. We kind of have conversations, and we'll try to blend the two of them together.
I'd say for the most part, I don't want to speak for Nick, but he could jump in, have never really had this come up as an issue. It's kind of like, "Hey, this is how you want to do it. This is how this other person wants to do it." And for the most part, the spouses are okay with it as long as they're achieving their goals.
Mark:
Interesting.
Nick:
For the clients that tend to be, for the ones that have a little bit more of that risk appetite, we found through conversation that they have the risk appetite when things are good.
Mark:
Sure. Everybody likes it when it's up, right?
Nick:
Yeah, for sure. And not necessarily when things are bad. And so we're big fans of almost having, for lack of a better term, like a petty cash drawer or just kind of a smaller investment account that will carve out. So when there are clients that want to have that higher risk appetite, want to take opportunities to really kind of get some big upside.
Mark:
So that's your speculative casino type money, right?
Nick:
Yep.
Mark:
If you will.
Nick:
Yup, yup, exactly. And really too, because I would say the majority of our clients are pretty close to retirement or in retirement, they tend to, at least in our experience, be a little bit over that phase with any sort of larger amounts of money. Oftentimes they come to us and they're like, "All right, we had our fun and we're ready to be a little bit more in line on the risk side of things with the investment decisions that we're making." And oftentimes when we have that conversation of, "Hey, if you get an itch, let's have this off to the side and it'll help you make better decisions with the rest of the money." That tends to be kind of a winner for everybody.
John:
No, I was going to say, yeah, that's kind of what we reference sometimes as a cave, this is kind of your play account where you want to buy some individual stocks and things like that, where the fluctuation won't really make a big impact overall on your plan. So as Nick mentioned, that kind of satisfies some of the very aggressive clients.
Mark:
Okay. Well, so you mentioned the fact a second ago that a lot of your clients tend to be nearing or into retirement, and with a different demographic comes different feelings and mindsets about money.
So with that in mind, we tend to find that, which is really weird if you think about it this way, a lot of times you tend to find that in couples, going through the life, building of the life, raising the children, blah, blah, blah, blah, blah, typically the wife tends to budget the money, handle the money, so on and so forth. She's doing all that stuff in the house. But when it comes to retirement, it tends to seem like us guys tend to take the lead there.
Is it okay for one person to handle all the financial matters? Or do you guys really prefer that both people have a good understanding, even if it's not your bag, do you still prefer them to have a general, I don't know, 10,000 foot view of what's going on?
Nick:
Yes. I would say too, more and more that, again, from our experience, and maybe it's our clientele where you've got a lot of households that are both people work, both have retirement accounts, and although they may make some differences from the perspective of risk in their portfolios and stuff like that, it tends to be a collaborative effort. Again, I would say we have, anytime we do planning, we have clients fill out an expense worksheet. It's rare that they both fill it out. It's usually one of the two that are filling out the expense worksheet.
And so it does tend to get kind of broken up a little bit from who focuses on what. But it's definitely important that they're both on the same page and have a good grasp and an understanding. And I would say too is the easiest example of that, and the people that work with us kind of know this is there's one report that we go over with clients, it's like a cashflow. It's in detail, wall of numbers, lots of columns, can be kind of intense. And then there's an area called the decision center, which takes all those columns and it puts it into kind of a graph format and it's more interactive.
And I think that's kind of almost the best illustration of the different sides of the brain where one person in the couple sometimes likes the details and likes the column report and they like to, because they can go in on their client side of the portal and go through that and re-review it. And the other one is, "Hey, let's zoom out. Give me the broader picture. Are we good? Are we not good? Give me an idea of a couple of decisions that we need to make moving forward and let's go from there."
Mark:
And there's no right or wrong to either one, it's just what is your personal appetite? But I think neither, like if both of you don't have a good understanding, John, that's a recipe for trouble later on too.
John:
Yeah, no, I'd agree with that. It's important for both to at least have an idea of what's happening and working as a team, whether one takes a lead and one takes a backseat, we encourage everyone to have a general understanding. Because this past year has been interesting where I've had some clients have some health issues, pass away. And you got to make sure that both pistons are aware of what's happening because you don't want that situation where it's like, "Hey, I don't know where anything is. What do I do?" So [inaudible 00:11:43].
Mark:
That's exactly the point, right? Yeah, that's the worst case scenario. And it often, it happens more times than people realize. So you both want to have a decent understanding, even if it's not your thing. And again, no gender roles there. It tends to be the case, but I mean, my wife is way smarter than I am, and she actually deals with, she's very analytical and deals with money and numbers all the time for work. And it's one of those things where when it comes to our retirement, she's like, "I don't want to deal with it. So you deal with it."
And it could just be as simple as, "I deal with numbers all the time, I don't want to deal with it yet another way." So no matter what it is, you find a way to make it work, but not having a decent understanding of what you have, and why you have it and who to turn to in the event of a catastrophe, is a recipe for disaster. So obviously if you're working with a financial professional and a team like the guys at PFG Private Wealth, then at least you also have that resource to turn to when something does happen like John just mentioned.
So one final question here, I'll let you both kind of jump in and chime in a little bit here. What final piece of advice would you give to couples who are maybe just beginning their retirement planning journey, when it comes to making sure that they both are feeling comfortable?
Nick:
I think it depends on what phase they are in life, but in general, I think it's hard to screw it up long-term, if you're saving money. So even if you are very conservatively saving the money and you're not getting much return on your money, that kind of instills an ingrained habit of saving money and being used to living on the rest. That will lead you to better habits and better outcomes.
You can always take the next step in, whether it's working with an advisor, whether it's doing research by yourself and then making better and smarter decisions on how you invest that money that you saved. That tends to be kind of the easier part. But the behavior of saving that money first and then going from there, is the number one thing, I think that's important.
Mark:
Okay. That's his advice there. What do you about you, John, what do you think?
John:
Yeah, it's really similar. You can never go wrong saving. And it's really just kind of the words that just get started. Just get started saving, just get started planning, get started with any of it. Whether you have kids, you want to make sure that estate documents are in place, insurances are in place.
So depending on what phase, it's just a matter of getting started with the overall planning, and saving is definitely where you want to be the forefront. Because like Nick said, you can't go wrong. You're never going to be mad looking back saying, "Man, I saved way too much for retirement."
Mark:
Right, exactly. Taking the forward steps and doing something to quote the rush song, right? If you choose not to decide, you still have made a choice. So don't make that choice to do nothing. Do something for yourself and your future self and get started today. Make sure that you are planning for retirement and having conversations with your loved ones so that you guys are on the same page.
And of course, as always, if you need some help, make sure that you get onto the calendar with qualified professionals like the team at PFG Private Wealth. You can find them online at pfgprivatewealth.com. That's pfgprivatewealth.com to get yourself some time on the calendar to sit down with John and Nick and get started today.
This has been Retirement Planning, Redefined. Don't forget to subscribe to the podcast on whatever major podcasting platform app you like to use. They're on all of them. So you can just type in Retirement Planning, Redefined in the search box, or just go to pfgprivatewealth.com.
We'll sign off for this week. For John and Nick, I'm your host Mark, and we'll catch you next time.
Remember the thrill of shaking a Magic 8 Ball to get answers to your childhood questions? Would we ace that math test? Would we be famous someday? Well, today, we're bringing a bit of that magic back. But instead of asking about pop quizzes and playground crushes, we’re turning to the Magic 8 Ball for advice on something much more important: your retirement planning!
What would the Magic 8 Ball have to say about these common retirement questions if it had the wisdom of a financial advisor?
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
Speaker 1:
Speaker 1:
You all remember that thrill of shaking the Magic Eight Ball to get answers to those childhood questions we couldn't wait to find out? Would we ace that math test or be famous someday? All those crazy fun questions we had when we were kids. Well, this week on the podcast, we're going to do the Magic Eight Balls Guide to Retirement Planning with John and Nick here on Retirement Planning Redefined.
What's going on everybody? Welcome into the podcast. Thanks for hanging out with John and Nick and myself as we talk investing, finance, and retirement. And we're going back to our childhood with the Magic Eight Ball. Going to have a little fun with these things and shake it up and see what kind of answers we get for retirement. Then of course, let the guys give us some proper answers just in case the Magic Eight Ball gets it wrong. But guys, what's going on this week? Good to talk with you as always. Nick, how are you buddy?
Nick:
Good, thanks. Just staying busy.
Speaker 1:
Staying busy, rocking and rolling. Very good. John, my friend, how are you?
John:
I'm doing all right. Getting ready for this upcoming storm we have, so.
Speaker 1:
Oh, big fun. Yeah.
John:
Getting to the grocery store quick, so all the crazies don't run me over.
Speaker 1:
Nice. Now you got little ones. Do they still sell the Magic Eight Balls in the store? I think they still make them. Don't they?
John:
They do. I think we had one at one point.
Speaker 1:
Nice.
John:
And it didn't work very well, so anytime they asked a question, it would end up on the side and they're like, what does it say? And I don't know.
Speaker 1:
I can't see it. You got to reshake.
John:
It was definitely something good that entertained them for a little bit.
Speaker 1:
Yeah.
John:
But like any little kid nowadays, it lasted all for about 20 minutes.
Speaker 1:
Oh, yeah. Yeah.
John:
Like, all right,-
Speaker 1:
Well I'm a wee little kid of the 70s, so I thought they were great. That and the Etch A Sketch and the Stretch Armstrong, I was a happy dude, so. But anyway, let's have a little fun with this, this week here and I'll toss you guys out a question. You kind of give us the Magic Eight Ball and your answer to it, or at least what it maybe should be, so to speak. Right. So we'll make it easy to kind of get things started. John, I'll toss this one to you. Should I start saving for retirement now? What's the Magic Eight Ball say?
John:
Magic Eight Ball is going to say yes, definitely. The sooner you can start the better. And that goes for anybody, whether that's you in your 20s. I have some clients that right out of college started and now they're in their late 30s, and when we do reviews occasionally, it's always like, "Hey, really appreciate you kind of getting on me for starting to save," because as life happens, expenses are going up, they have kids and stuff like that, it's harder to save. But when they didn't have too much going on in their early 20s expense wise, they were definitely built up a nest egg, so.
Speaker 1:
Yeah.
John:
If you haven't started at any point, wherever you are, 20, 30, 40, it's good idea to start.
Speaker 1:
Yeah, I mean 50 as well, right? I mean it doesn't make a difference at this point. Waiting yet another day only causes you more problems, right? So should you start now? Definitely. And I'll give you guys kind of a little primer on the Magic Eight Ball. So we kind of looked through some of the stuff. They have, I guess what you'd call the green, kind of the positive answers, right? Stuff like the one John just got there, yes, definitely, most likely, out look good, that kind of stuff. Then they had that kind of middle of the road, nah, not so sure, right? Reply hazy, ask again later, better not tell you now, that kind of thing. And then of course they had the negatives, which was my reply is, no, very doubtful, don't count on it. So on and so forth. So we'll use those answers to kind of kick things off with each one of these episodes and then let the guys expand on it like John just did. All right Nick, so your turn, give it a go. Is a million dollars enough to retire on? What says the Magic Eight Ball?
Nick:
That's definitely a reply hazy, try again answer on that one. A consistent conversation that we have with people, whether it's somebody that we've worked with for a while or somebody that has come to us and we're kind of taking them through the planning process is that everybody's situation is different.
Speaker 1:
Sure.
Nick:
People love to compare things with each other, whether it's cars, houses, finances, whatever. And we try to make sure that people understand that comparing themselves even to a sibling or a neighbor or friend doesn't necessarily make sense. Some of the most common examples that we'll see are people that maybe they have pension plans because of the sort of job that they have.
Speaker 1:
Yeah, they saved a million, but they got a pension versus someone who saved a million and doesn't. That's a dramatically different setup, right?
Nick:
Correct.
Speaker 1:
Yeah.
Nick:
Correct. Yeah. And so assets are important obviously, but really the end game for assets in retirement is to generate income. So ideally people will have the combination of both, but having an arbitrary number like a million dollars is something that doesn't make a whole lot of sense. And I know that recently there's been some kind of articles in the news about, I think we just hit the highest percentage of millionaires in the US.
Speaker 1:
Right.
Nick:
And even from that perspective, dependent upon the situation, again, a million dollars isn't what it used to be. So it really just all depends. We've had clients that have had five or $6 million going into retirement that when we look at their plan, they're going to burn through that in 15 years because they spend too much. And we've had clients that are retired with five or 600,000, but they have their expenses very much in check, they have no debt and they live within their means and their plan looks great.
Speaker 1:
Yeah, there you go. I mean there's three of us here on this podcast and it might take a million for one and 500,000 for the other and two and a half million for the other. Right. It all just depends on where you live, how you live, all those sorts of things. So yeah, reply hazy, try again. And really what it comes down to is get a strategy, get a plan, and get the numbers crunched for your specific situation and then you're going to understand exactly what you need to get to. You're going to have a better outline versus just kind of a shaking the Magic Eight Ball.
And I think the idea behind some of this too was fun. You know how you guys in the industry know this. There seems like there's always advisors out there that have a little crystal ball on their desk and they like to say, "Let me check the crystal ball," when somebody asks them a question and they're like, "Well it doesn't work today." And that's because it's not a sound way of doing things. So we thought we'd take that kind of analogy and apply it to this week's podcast. So back to you, John. Can I rely on social security for my retirement?
John:
Say out look not so good.
Speaker 1:
Right.
John:
Yeah, definitely not what you want to be banking on. It's a good source to have.
Speaker 1:
Sure.
John:
But you do not want it to be your only source.
Speaker 1:
It's big dollars. I mean it can be big dollars for a lot of people. And I think an interesting question, and I put it this way, is I've got a family member, a loved one who totally survives on social security only, but it's not what she wanted, right? So could you do it? Yes. But is it ideal? No.
John:
Yeah, no. I think on average social security covers maybe 30, 40% of someone's retirement income. So you have to look at where's the other money coming from. So just planning on social security I would say is not a very good plan.
Speaker 1:
Very true, very true. Well following that up there, Nick, give us the Magic Eight Ball answer here. Is it wise then to have multiple sources of retirement income?
Nick:
It is absolutely as imperative as you can get to try to have different sources of income. A conversation that we have with people consistently is that from the perspective of planning, the one thing that we know and that we can absolutely count on every single year, year after year, is that there's going to be change. And so anything that you can do to build in options, build in flexibility, allow yourself to adapt and pivot to what's going on is essential. And part of that is income streams, not only diversifying assets, but diversifying income streams.
Speaker 1:
Definitely. Right. So you definitely want to have those. Social security is a big piece of it, but it doesn't need to be the only one. You need to have multiple sources of income streams. All right, John, back to you. Can I expect to have fewer expenses in retirement compared to when I'm working? What's the Magic Eight Ball say?
John:
I'd say don't count on it. Again, I don't know, we've kind of preface this quite a bit and we've even said it today, everyone's different. So we've had some people where expenses have gone up during retirement because they want to vacation more, they want to do more things with the family. So I wouldn't say plan on that necessarily. And the only way to really find out is to do a comprehensive plan, but then there's going to be curveballs that come at you, whether it's health expenses. That tends to not go down as we get older. So maybe something could be dropping off.
Speaker 1:
Right. Right.
John:
But you never know what's going to get added. So do your plan as best you can and try to be as accurate as can. But I wouldn't have that be like the bulletproof, like, hey, my expenses are going to drop so I should be good.
Speaker 1:
Well, that's a great point because a lot of times people say, hey, here's our back of the napkin math. We think if we curtail this a little bit and this a little bit, we can make it work. Right. We can kind of squeak into retirement. But then you get there and you think, I don't want to do that, right? And there's certainly a lot of conversation around regrets that people have when they're talking once they get to retirement and they go, boy, I wish I would've spent more in those early years when my body would've let me go out and do some things that I wanted to. Right. So can I expect fewer expenses? Yeah, probably not, right? Because like you said, things are going to drop off, but other things are going to add and of course don't count on it. I think that was the answer Rhonda Thomas gave me when I asked her to the seventh grade dance, I think she said don't count on it. I think she must have got that from Magic Eight Ball as well.
Nick:
That's stuck with you.
Speaker 1:
Yeah, right. Exactly. It stuck with me. I'm still wounded Rhonda, if you're listening. All right, so let's do the next one here. Should I review my retirement plan annually? Nick, what says the Magic Eight Ball?
Nick:
Without a doubt on that one. Going back to what we talked about earlier, things constantly change. So updating the plan is really important. The most recent example of why that's important has been inflation over the last couple of years. So when we do a plan and we put in an inflation increase every year in expenses, the software still requires us to kind of update those baseline numbers. And so what we found and what we've tried to emphasize to people is that us capturing and updating those baseline numbers every two or three years is really important and gives us a much more accurate projection from the perspective of planning. So,-
Speaker 1:
Gotcha.
Nick:
Those annual reviews are important.
Speaker 1:
Yeah. And that's how you kind of keep track of the expense changes or the income source changes or added a grandchild, want to change this, whatever the case is. So all those annual things are certainly important. Your life's going to change, your plan has to change along with it. All right, John, will my retirement plan be affected by future changes in tax laws? Not to get political, but you have to talk policy and certainly when it comes to taxation, that's going to be part of the conversation. I mean, seems like everything is political these days, but if you're thinking about future changes in tax laws, you're going to have to certainly think along those lines as well. So what says the Magic Eight Ball when it comes to will your plan be affected by it?
John:
Signs point to yes.
Speaker 1:
35 trillion? Maybe. Yeah.
John:
Yeah. So you definitely want to take that into account. I mean if you look at maybe people that retired in the 70s and then all of a sudden the 80s, your social security is getting taxed, you weren't really anticipating that happening and then,-
Speaker 1:
Oh yeah, the IRMAA tax, right? That gets a lot of people blindsided.
John:
Yeah. So you could count on taxes changing. Whether it's going to go up or down, again, we don't have our crystal ball, but we have the Magic Eight Ball here. Something's going to happen and you should be planning for that. One thing you could do when you're running retirement plans is you can have the ability to stress test it, to take a look at it. So definitely plan on it.
Speaker 1:
Yeah, I mean you figure, look, regardless of where your political bent is, we've got a lot of debt and so taxes are going to have to change. And even if it's not this particular administration change, this current election, right, God willing, you live long enough in retirement. If you last 20, 25, 30 years in retirement, you're going to see multiple administrations come and go. And that's going to mean multiple tax law changes because they do that every so often. Right. So the odds of that happening are pretty great. So signs point to yes, you should consider how taxation is going to affect you because it is one of the biggest pieces of your retirement strategy. What is that old saying? It's not what you make, it's what you keep, right? So make sure you're talking with qualified professionals like John and Nick when it comes to dealing with all this stuff. Let's do one or two more and then we'll wrap it up. Nick, let's toss this over to you. Let's see here. Should I focus on paying off debt before increasing retirement contributions?
Nick:
So I would say depending upon the debt, most likely.
Speaker 1:
Okay.
Nick:
From the perspective of consumer debt like credit cards, all that kind of stuff,-
Speaker 1:
Bad debt, right?
Nick:
That can absolutely, it's hard to argue that that's not unimportant. One thing that can be a slippery slope for people is it kind of tends to depend on their behaviors. We've had clients that have been good income earners but have at different times had debt problems. And in certain ways, whenever they pay off the debt, the debt comes back up and then they kind of find themselves not saving at all. So it's oftentimes kind of a balance of both. One of the most common sorts of comparisons from a perspective of debt is mortgage. We found that over, we had a lot of those conversations when interest rates were really low and we kind of emphasized with people to take advantage of those low rates and that's come to be a pretty beneficial sort of decision. So I would say in order, consumer debt for sure, trying to do both consecutively, both at the same time, obviously ideal, and then just kind of working through the plan and prioritizing what makes the most sense and how to deploy the money.
Speaker 1:
Yeah, definitely, right? I mean, debt's going to be a big component of that as well, and certainly getting rid of that, the higher interest stuff is always a good idea. So the final piece then here guys, and John, we'll let you wrap it up since you started it. Should I consider working with a financial professional as I near retirement? This is kind of a layup for you, but I'll give it to you anyway. What do you think?
John:
Appreciate that layup. Answer is yes. As you're getting closer to retirement, it becomes even more important to make sure you're working with someone to update the plan or start a plan and take a look at it. I would say you don't have to wait until you're near retirement. I think the answer is yes at any point.
Speaker 1:
Yeah.
John:
Even my younger clients, they always appreciate having someone they could talk to and bounce some ideas off of, whether it's not always comprehensive planning, but it's someone you could talk to discuss things.
Speaker 1:
Exactly. Because there's so many nuances out there and it just continues to grow and get more complex. So certainly not a bad idea at all to get qualified professionals on your side. So if you need some help, reach out to the team at Pfgprivatewealth.com. That's Pfgprivatewealth.com and don't forget to subscribe to the podcast on Apple and Spotify or whatever platform you like using. It's Retirement Planning Redefined with John and Nick from PFG Private Wealth. And we'll see you next time here on the show and enjoy the Magic Eight Ball. We'll catch you later.
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Very often, we see people who know that the financial decisions that they’re making aren’t the best decisions, but they try to create excuses or explanations for why they’re doing what they’re doing. Let’s talk about why these excuses usually don’t hold water...
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Marc:
This week on the podcast, we're going to talk about combating popular excuses for poor financial decision-making. Very often we see people who know that they've made some poor financial decisions and they try to explain it away or create excuses as to why they've done that. So we're going to talk about that this week from things the guys have seen and maybe that'll shed some light on your situation right here on Retirement Planning Redefined.
Announcer:
The rules of retirement have changed. No longer can most of us rely on Social Security or a single pension to fund our futures. We're living longer and retirement doesn't just last a handful of years anymore. Instead, you might stay retired for 20 or 30 years and maybe even more.
We need to look at retirement through a new lens with fresh eyes, with a new approach and plan of attack. Here to answer the call are financial advisors John Teixeira and Nick McDevitt of PFG Private Wealth Management, serving you throughout the Tampa Bay area. This podcast is Retirement Planning Redefined, and it starts right now.
Marc:
Hey, everybody, welcome into the podcast with John and Nick from PFG Private Wealth here with me to talk investing, finance, retirement, and hopefully avoiding some of these poor financial decisions that everybody gets into. It doesn't make you a bad person, doesn't mean you did anything wrong. But if we can learn from the mistakes of others, I forget who said that, was it, Einstein, probably a little bit better off than making some of these mistakes ourselves.
And of course, the guys helping many families retire, so they have seen a lot of this stuff and a great resource for you to tap into. So if you've got some questions, make sure you reach out to them at pfgprivatewealth.com. That's pfgprivatewealth.com. What's going on, John? How are you doing this week?
John Teixeira:
Hey, I'm doing all right. I'm doing all right, doing real well. So I think you mentioned the end of the last podcast with new puppy. I don't think we talked beginning, but yeah, new puppy is doing well. My girls are attaching to it quite a bit. It's funny, because if my wife and I go to feed it, they're like, "No, no, no, no, I'll feed it. I don't want you bonding with it."
Marc:
Oh, nice. Okay.
John Teixeira:
They want to make sure the dog's their friend.
Marc:
Their dog.
John Teixeira:
They're pretty excited. It's really cute.
Marc:
Nice. Very cool. Very good. Well, Nick, my friend, how are you doing?
Nick McDevitt:
Pretty good. Pretty good. Speaking of dogs, I was with family this past weekend and my sister-in-law reminded me that I volunteered to take care of one of their dogs when they went out of town soon, and I had totally forgotten. So be on doggy duty for about 10 days, which I'm actually looking forward to, so it'll be fun.
Marc:
That's cool. Yeah, very good. Good stuff. Your sister live far away, or do you have to?
Nick McDevitt:
It's brother and sister-in-law. They're down in Sarasota, so yeah, not too far. The last time I took care of this dog though, it was pretty funny because he's not used to being in a city setting, so he's just used to being in his backyard. There's so many other dogs around, all the scents. He wouldn't pee for almost two days.
Marc:
You're driving him nuts, huh?
Nick McDevitt:
Yeah. Yeah. So I was taking him out every two hours to try to get him to finally go, so I'm hoping this time it's a little bit smoother.
Marc:
There you go. Very good. Little dog stories here to kick things off. Always good. So man's best friend. Well, let's get into some conversations here, guys, about these poor decisions. Hopefully you won't make any poor decisions when it comes to the dogs, but let's talk about some of these from a financial standpoint, guys. I got some classics here I want to share with you, and then you guys give us your take on what you guys see and how you guys react or help folks through these types of things.
So for example, when someone wants to start their social security early at 62, a lot of times the excuses or the explanation is, "Well, they owe me, right? Or I've paid into the system. I want it back before it goes bankrupt," all that stuff we've been hearing the last couple of years.
Nick McDevitt:
Yeah, definitely heard this one or 100 times, but history has shown that if you can afford to wait, one thing that people are noticing, I would say we have less and less clients retiring pre 65, unless there's something that happens, maybe a health situation or loss of a job and they need the income at 62. That's one thing.
Marc:
Well, that's the thing, right? If you're talking about excuses, Nick, if you need it, you need it. But if you're just turning it on because you feel like you want to stick it to the government or whatever, you could be costing yourself a lot of money.
Nick McDevitt:
It has a huge impact over time, especially in the last four or five years where the inflationary raises that have been given for social security have been much higher. People that waited because they get that inflationary raise and people that are collecting get the inflationary raise, but it's compounded when waiting because you get the normal increase plus the inflationary raise.
The amount of benefit for people that have made that decision to wait has been substantially higher. And we've had a lot of people that have clicked over to that 64, 65, 66 and have started to take their benefit or will be. And we look back at those numbers. And to a person, they've all been extremely happy that they waited because the benefit is substantially more.
Marc:
And John, I mean, if you are thinking about turning it on, don't forget that if you decide that you're bored and want to go out and earn some money or something like that, there's going to be limitations there too. There's more than just the haircut that you take from taking it early. There's some other things that go along with that.
John Teixeira:
And that's one of the things. Typically, as you guys already mentioned, when someone brings this up, it's really what do you need it for or why are you taking it? And the big thing is are you still working? And if you are or if you plan to work even part-time and you make above I think it's roughly 20 to 23,000 or so...
Marc:
Around 20, 21. Yeah, somewhere in there.
John Teixeira:
If you make above that, there's what they call a recapture. So they'll take half of it above that amount. So it's definitely something to consider is are you working currently or do you plan to go back to work? But once you hit your full retirement age, you are able to take your social security and not worry about that.
Marc:
Yeah, sky's the limit then, right? You can make as much as you want then.
John Teixeira:
But beforehand, definitely something to consider. And what we typically do for clients on this, and we'll offer it to anyone that's listening, is we can run a social security max strategy, which helps people see it. It's one thing to say, "Hey, I want to take it now." But once they see it, and like Nick mentioned, that compounding is really important with waiting, with the cost of living adjustments that you get.
And especially we talked last time about inflation and how that's gone crazy, so you really want to plan correctly. Once people see it on paper, it tends to slow them down from taking it, but everyone has their different opinions.
Marc:
Yeah, for sure. But again, if you're doing it just because it's like, hey, I want to get it before it runs out of money or something, don't make that excuse. Run the numbers, as John said. Get a stress test maximization on that social security strategy before you turn it on. And then if you need to turn it on, well, certainly turn it on. That's the point. All right, number two, when someone is taking too much risk with their money, we often hear things like, "Well, I'm behind. I'm making up for lost time." We talk sports often on here as well.
If you're thinking about baseball, the home run kings, typically the people that usually hit the most home runs, are also the strikeout leaders because they're swinging for the fence a lot. And so just be careful when you're doing that. Whoever wants to take this one, feel free to jump in here. But if you're behind, that's one thing. A lot of us do feel that way. But I guess the first question I would have is, how do you know you're behind? Is it just a feeling or have you actually gone in and sat down and had your numbers ran?
John Teixeira:
Yeah, this is a really common one. When talking about getting these, I got this a couple of months ago and the person wasn't behind. They felt like they were. But when we started doing the planning, they weren't. But a big thing with this, especially trying to get more aggressive is it's going to take you outside of your risk tolerance. Can't stress enough that you really want to stay in with whatever risk tolerance you have.
Because if the market starts to fluctuate and you can't handle it, so if all of a sudden we have a COVID type year or whatever might happen, the market's down 20, 30% and you start to panic and you go to cash, and then within a month later a rebound, you just missed out on all that upside. One of the first things in investing is understanding your risk tolerance and investing in that type of portfolio so you don't make mistakes.
You really don't want to chase any returns or anything like that and feeling like you got to catch up. Because ultimately if you do that and you're not a risky investor, you're going to end up even more behind.
Nick McDevitt:
And oftentimes too when people are actively making that decision like, "Hey, I'm going to take a little bit more risk," and when you kind of flush it out and you talk about it, they're often under the impression that they will exit at a certain point like, "Oh, I'm just going to wait until I make X amount or I get this amount and then I'll back off."
But when you're in the midst of things going up, it's very difficult to walk away. And trying to time things, having that perception that they can time it is extremely difficult. And the overreaction that tends to happen after that just puts them into a highly volatile situation. Human behavior comes in and just makes it very difficult to be able to even benefit from it, even if it does work out.
Marc:
I mean, getting that risk analysis done to find out, okay, am I behind and how much risk can I take or should I take, feel comfortable with taking? All of that is part of sitting down with a qualified professional to find that stuff out. And I think we all, human nature, a little bit feel like is once you get to 50, I think that switch kicks in and we're thinking, okay, I've got to start thinking about retirement. And boy, I haven't done a whole lot, whether you have or you haven't.
So again, run the numbers, sit down and have that analysis done. That's going to help you understand whether you're behind or not. So let's go to the third one here, John. How about this one for you? When someone has way too much cash, often it's, well, I've been burned, right? Or maybe even more recently right now is, hey, it's a pretty decent rate. With the interest rates rising up, I'm getting a decent rate at the bank, so why not just sit in cash?
And that's fine, but it's also not going to last real long. And you're not going to just automatically get that 5% or whatever that you'll see ads for right now. If you just have money sitting in your savings account, check your savings account. It's not generating that much. You're going to have to talk to the bank about a different product. They're not going to automatically just increase your savings account interest rate.
John Teixeira:
And this goes back to the risk tolerance as well. The first part that you said here of people being wary of the market or they've lost before. So this is what happens, and we've seen clients that lost money in '08 and doing plans for them and introduced them in 2016, 2017, and they were in cash for almost eight years and they'd lost out on some big runs.
So if they were invested properly, it wouldn't have been the issue. So you definitely want to, again, risk tolerance, get the plan down, stay the course, because long-term history has shown us that you will in a portfolio basically beat the cash just sitting in cash all the time.
Marc:
Oh yeah. I mean, it never does. No matter what the interest rate, even people who live through the late '70s, early '80s when interest rates were really high, 12, 13, 15, 16%, it still wasn't beating inflation then. I mean, that's the thing with the interest rates at the bank, they never outpace inflation ever. It's there for that safety portion.
John Teixeira:
Yeah, exactly. And as far as people that are with money on the sidelines and they want to stay in the money market getting some rates, you're right, it's not going to stay like that forever. They're trying to force these rates ultimately down at some point. The thing is going to be the timing of when do you get back in.
So we have some clients that earn that scenario, and we're doing a combination of cash and also dollar cost averaging into the market to give them best of both worlds right now to take advantage of the nice cash that they have, nice interest rate. Again, not just sitting in a savings account in some type of money market, but also trying to take advantage of potential upsides in the stock market.
Marc:
Yeah, for sure. I mean, again, all this stuff we're talking about this week is they sound like a good excuse, but when you really break it down, again, you need to have that analysis before you start rationing away these decisions that you've made. Nick, how about this one for you, my friend?
When someone has no idea what they're invested in, which is often people come in and say, "Hey, here's my stuff, here's what I got," often the excuse is, "Well, finance isn't my thing, or I was told to get this or that, and I don't really know what it's doing for me." And that's certainly not where you want to be. You want to understand what you have and why you have it.
Nick McDevitt:
Having had this conversation many times, one of the things to try to point out to people is that we can't care more about your situation than you do. So we don't necessarily need you to be reading The Wall Street Journal every day. But at the same time, we want there to be a level of engagement. We want there to be questions. And really I think the trend of the last five to 10 years is people realizing that strategy and planning when you zoom out is becoming more and more important than maybe the underlying investments.
Even if you look at a simple example such as target date funds and 401(ks), the tools that are out there make it easier and easier for people to be able to put something on overdrive to a certain extent versus 10 years ago, a default strategy might be a money market fund that back then was paying 1% and people start putting money in. They don't realize their money's not doing anything, where a lot of times the default strategy these days is going to be a target date fund and there's some actively managed things happening inside of that to help them move it along.
But maybe they haven't incorporated in or understand like, "Oh, 401(k)s have Roth options now. Have you started to do that? Or, hey, maybe your company has some discounted stock plan that you can participate in." And if it's a publicly traded company and you're getting a 10 or 15% discount right off the bat, you almost don't even have to do anything. You just need to make a really basic decision to do it. So the level of engagement from a strategy standpoint is an important thing, and the underlying how to get exposure to those markets has become easier with time and technology.
Marc:
Yeah, great point for sure. All right, John, any final thoughts from you on that same one from Nick?
John Teixeira:
Yeah, yeah, to add to that, something we've seen right now what Nick mentioned with the cash or someone sitting in money market not realizing it, we've seen that with annuities as well. A lot of annuities right now, the rates have gone up and the products look pretty attractive. But some client, if you're not looking at your stuff, you could be in an older one where today's rates might be five, six times better than what you're currently getting.
So it's important to take a look at what you have, do a quick snapshot of it and just understand, "Hey, this is where I'm at. Is there anything better I could be doing," which everyone should do at some point.
Marc:
Yeah, for sure. And there's usually little tweaks. Sometimes people think, well, I probably should sit down and talk with a financial professional, but it's going to be this major undertaking or whatever. Not always. Sometimes it could just be little tweaks and whatnot. So go check them out online, pfgprivatewealth.com. That's pfgprivatewealth.com. You can book an appointment right there on the page, top of the page on the right-hand side there. There's lots of tools, tips, and resources.
You can click on the podcast page to check out past episodes or subscribe to us on whatever platform you like using, check out the blog, and so on and so forth. So a lot of good information there at pfgprivatewealth.com. And again, you can subscribe to the podcast on whatever platform you app you like using, Retirement Planning Redefined. Thanks for hanging out with us this week. We always appreciate your time. For John and Nick, I'm your host, Mark, and we'll catch you next time here on the show.
In this episode, we’re diving into some famous words by the one and only Yogi Berra. You might know him for his legendary baseball career, but Yogi was also a goldmine of wisdom. We'll spin some of his classic quotes into financial advice. It's all about viewing things through the right lens—so let's see what financial insights we can uncover from Yogi’s memorable sayings!
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
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Marc Killian:
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Nick McDevitt:
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John Teixeira:
"While you're working to make sure you're investing the right amount and picking the right options, and then while you retire, now it's on you to figure out what's the best solution for supplementing your retirement income." So it's definitely ain't what it used to be, which is very important to make sure that when you do retire, it's a different game where it's not accumulation. You have to realize that money needs to last throughout your retirement and you have to put together different strategies to make sure that it does do that, not just like you have a pension that's going to guarantee for life so.
Marc Killian:
Nick McDevitt:
But when you zoom out, these things are cyclical. So even though the technology may be very new and the way that maybe things react are different than they were before, there's been other times in history where the technology at that point has been new and the way that things react are different. And there's a lot of different quotes out there about how history is really kind of the greatest teacher. And when you zoom out, so many of these things have happened before. The subplots are different, but so many of these different things have happened before. And it kind of goes back to having a good plan, having the ability to adapt to what's going on, kind of not painting yourself in the corner because really the only certainty that we have is change. So it's pretty wild.
Marc Killian:
John Teixeira:
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Make sure you subscribe to the podcast. If you're not, maybe share the podcast with others who might benefit from checking out the message and the conversation. And you can find them online at pfgprivatewealth.com. That's pfgprivatewealth.com. And you can subscribe to Retirement Planning Redefined on Apple or Spotify or whatever platform you like using. Just type in Retirement Planning Redefined or again, visit them on their website for all the tools, tips and resources at pfgprivatewealth.com. Guys, thanks for hanging out. And John, good luck with the new puppy you got.
John Teixeira:
Marc Killian:
Nick McDevitt:
Each generation is currently navigating a unique part of the retirement planning experience. With many baby boomers preparing for the transition into retirement, we're going to focus on some of the top questions this age group is asking in today's episode. Stay tuned to see what you can learn from John and Nick this week on Retirement Planning Redefined!
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Marc:
Every generation is currently navigating a unique part of retirement planning experience. No matter what generation you're in, there's going to be different questions that you might want to tackle. So on this week's episode, we're going to talk about that from the baby boomer standpoint, here on Retirement Planning Redefined.
Welcome to another edition of the podcast, folks. Retirement questions that every generation should be asking themselves is the docket this week, and we're going to touch on the baby boomers. We may come back around to some of the other generations right now, but I think for most of our listening demographic, the boomers are certainly going to be ones that want to pay attention. It's interesting, guys, the boomer term has become polarized. It used to be one thing to say just baby boomers or whatever, but now they get a little offended, I think, with the whole boomer thing. It hasn't gone very well on social media the last couple of years, but either way, we're going to talk about that demographic from 1946 to 1964.
It's so funny with these age things, they keep changing it. I was looking at the one for generation X, which is what I am, and now they're saying late '70s when it used to be like '83 or something. So I think they just changed these numbers based on what they want to have happen for conversation pieces. But anyway, we're going to get into that with John and Nick this week. What's going on, John? How you doing, buddy?
John:
Doing all right. Actually getting ready for, Nick and I are bringing some Easter baskets to the local children's hospital here. We're going to be handing them out this coming up Friday.
Marc:
Oh, very cool.
John:
We're excited for that.
Marc:
Yeah, very cool. That's nice, you guys are always doing some cool charity things going from around the area, so very, very cool. What's happening, Nick? How are you doing, buddy?
Nick:
Good. Staying busy, along the lines of what John was talking about, the group that we're involved in, we're working on a big derby party here in St. Pete, so big event. So that's fun to works the other side of the brain, and then we're just staying busy with... We've got one thing that's been interesting, John and I were talking about it earlier, this area is growing pretty rapidly, and it feels like we've had more clients than ever that are looking to move out of the area and slow down a little bit. So, it's starting to become a little bit of a trend recently, so.
Marc:
To move away from Tampa?
Nick:
Yeah, yeah. Move away from Tampa or further out to more of the outskirts of the area, but we've had some clients recently like Panhandle, Georgia, North Carolina. The growth here has just been pretty overwhelming.
Marc:
Monstrous, yeah.
Nick:
Yeah, and-
Marc:
There's a lot of states that are that way, right? I mean, there's a number of states where I think people, everyone's flocking from places like New York and California, and it's just like, okay, stop. We can't handle it.
Nick:
Yeah, it's interesting because this area, the east coast of Florida has always been like the Atlantic coast south, and then the west coast of Florida where we are has always been a little bit more low-key. Still a decent size, but a little bit more low-key, and it has that feeling like developers and everybody is trying to make it more similar to the East Coast. I think that's kind of pushing some people out, but even because obviously Texas has been a place that's been a popular area for people to move to for some of the similar reasons, whether it's taxes or just how the government runs or whatever their reasoning is. But one of the biggest differences, just reading about Austin, which is I would say Austin's most similar to this area in certain ways from a size perspective and all that, but they've had a huge drop, cost-wise in housing because they've been able to maintain supply. Whereas the housing here is just completely insane at this point, especially in St. Pete.
Marc:
I was going to say, across the country, it seems like it's really inventory's low. So, just a lot of people that just aren't selling, well, because the prices of houses through the roof, so you're not selling the one you're in because you know that when you buy another one, it's going to cost you just as much or more. So, it's interesting.
Nick:
For sure, that's definitely had an impact. This area specifically because of the influx, there's also been some interesting articles about how much corporate owned, single-family housing there's been. But I mean, you're talking 11, 1,200 square foot houses in St. Pete for 800 and up, [inaudible 00:04:23] how things shift.
Marc:
It was on my list, a roundabout way to talk about some different questions that every generation should ask themselves. So housing certainly can apply to any generation. I mean, even folks in our baby boomer conversation today could have been thinking about downsizing or whatever the case is in retirement and that certainly could play into that question. So that's one we tackled without really even setting it up to tackle it. So we'll just jump in and talk about a few more of these things.
But again, with everything being so wild right now, it seems like from a financial standpoint all across the spectrum, whether it's inflation, housing costs, food costs, whatever the case is, how do you manage all that? So risks, whatever risks guys, is going to be top of mind, especially if you're a senior. My mom is 82 going on 83, and she's constantly worried about the various different kinds of risks that may affect her at that age. Market volatility, social security, whatever it might be. So let's just start with the market volatility. Whoever wants to take that one.
Nick:
Yeah, so from a market volatility standpoint, it's very interesting from the perspective of how things seem to work these days from a market perspective. I don't have the exact numbers, but I know last year, essentially needed to... The majority of the growth in the market, although we had a great year, the majority happened within a seven to 10 day market window. So your chances of if you're not just holding and studying the market, your chances of really getting the returns that you're looking for are very difficult. So volatility, the swings up are substantial and the swings down can be. I think a lot of that has to go, can be attributed to the algorithm based trading and high frequency trading and things like that have an impact on that.
Marc:
And if you're a senior, none of that interests you, right? So I mean, that's [inaudible 00:06:18].
Nick:
No. No. Yeah, absolutely not. But for a lot of people in that generation, they're used to the returns being more steady throughout a single year or the perception from that perspective at least versus like, hey, if you miss a month and it was a good month, then your returns could be next to nothing. So it's pretty interesting.
Marc:
Yeah, managing that risk, for sure.
Nick:
Yeah, it goes back to that classic perspective of the asset allocation continues to be as important as ever.
Marc:
Yeah, for sure. John, if you think he just mentioned steady income. So if you're a senior, best approach for transitioning from a steady income like your job, for example, to retirement withdrawals, that's usually a massive hurdle for anybody going into retirement but obviously right now, these are the boomers. I just read actually today that we're taping this guys, I think four million people were going to be retiring this week, four million this week.
John:
It's a good number.
Marc:
Crazy, right? So, how do you deal with that scared-ness of, okay, I had a paycheck last week and now I don't, I got to use my retirement money and turn that into paychecks. That's a big hurdle for people.
John:
It's a huge hurdle for people. This is one of the biggest things we see when we're doing retirement planning for clients that are transitioning. It's, I used to work and get my paycheck every biweekly, whatever it is, and now it's gone. There's a fear of spending their money they've been saving all these years. I'll tell you, the best thing to do in our opinion, is to develop a financial plan and a strategy for retirement income. So you really have to put the pen to the paper and determine, okay, what are my expenses? How much do I need? That's going to be the first step. Then after that, it's looking at, hey, what are my income sources? We talked about social security last week, we'll touch on it a little bit more here, but hey, how much is social security going cover? Okay, what other sources do I have? Really evaluating where's the money going to come from? Once most people see it, it provides peace of mind and a little bit of, okay, this is what I'm doing. You got to have the blueprint. Once the blueprint's there, you feel much better about what your approach is.
Marc:
Well, we all want to know we got mailbox money coming. We all want to know that when we go out, and I know most of us don't go to the mailbox anymore to get it right, but it's the same idea that when you go open the mailbox, the check is there. That's what you need to know. That's that comfort factor that you need to know. So that's turning these accounts that you've been building up through your working years into this retirement income. So certainly, that is an importantly huge question for baby boomers to ask themselves.
We're talking about wealth and building wealth and working through the years. Nick, I'll throw this one at you. I'm going to hop around here a little bit, but passing on wealth to the next generation without sacrificing your own retirement, is also another huge question that boomers are asking themselves because they want to know that they are going to be fine, but a lot of times they want to leave something behind. I just was looking this up real fast. Experts are putting that number between 40 and $100 trillion right now that they're estimating in the great wealth transfer conversation, which is what boomers will be leaving to their kids and grandkids over the next 20 years. $100 trillion. Man, that's crazy money.
Nick:
Yeah, it's pretty wild. What's interesting is I think the baby boomer generation has done a good job of accumulating assets and saving.
Marc:
Oh yeah, great job.
Nick:
There's also, I would say, versus maybe their parents' generation, they spend a little bit more. It's interesting, a lot of the people, I wouldn't even call it half-and-half, maybe around 30, 35% or 40%, leaving money for them is incidental, where their focus is primarily on themselves. A lot of times these are people that have done a good... They've helped the kids get through college, kids have good careers, and-
Marc:
Right, we've saved it, it's ours, let's party, right?
Nick:
Yep, so they want to travel. Obviously travel is the most popular thing that people tend to want to do. So having that conversation changes things. For those that are highly focused on leaving the money, and what's interesting is where I've seen it happen a little bit more is because people like to, in their mind, it makes it easier for them to segregate money. So we've had a few recently where their retirement plan looks good, their thought process with the money that they have saved and accumulated and leaving it to their kids is incidental like, hey, if there's money there, great, if not, we want to take care of ourselves first. But, they've also inherited money maybe from their parents or a brother or sister, and they say, all right, well this is going to be the money. I consider this found money, and so this will be money that I'll try to leave and pass down. So it's been interesting seeing that thought process.
But with the way that current estate tax exemptions are from a tax perspective and avoiding estate taxes, that sort of thing, for most people, that's not an issue. But for those that are, maybe they've got kids that are high-income and they would like to leave them money that has less of an impact from a tax perspective, depending upon their situation, we might look into life insurance options or even converting to Roth options to help them pass on money and not have a major negative impact to their overall plan.
Marc:
Yeah, because you want to figure out how to... If you do have it in your mindset to transfer some wealth upon passing, and I think probably the healthy approach that a lot of people take is, we're going to do what we want to do, we're going to be fine, and whatever's left at the end, fine, transfer that over to the kids or grandkids. You want to make sure that you're doing that as efficiently as possible. So some strategizing there is certainly going to go into play.
John, I'll throw this back to you, whether it's leaving money behind or even how you set up your social security, because you talked about it a minute ago and readdressing social security. Maximizing social security could impact what you do have left over at the end to leave behind because that's not something you can pass on. So it's a matter of figuring out how you want to structure these things to maximize your benefits and get everything out of it that you can while you're still here.
John:
Yeah, yeah, if you're able to maximize your social security and figure out what's best for you, what that ultimately does is you're dipping into your own investments a little bit less because you have that strong social security income stream. So if there's more investments left over, your beneficiaries, whoever your beneficiaries are, will have a bigger balance coming to them. So definitely, we talked about it before, we always stress on it. You don't want to take social security decision lightly. You want to make sure that you're strategizing for your situation on how to maximize those benefits.
I believe it was last week that we talked about the cost of living adjustment in social security. So if you delayed yours, people have been getting 6% or 7% increases, and if you were taking yours later, you get a bigger balance. Those 6% or 7% over the past few years have really added up. So, very important to make sure that you take what's best for you in social security and not just take it lightly. I hate to say this, but you don't want to listen to your neighbor on what they did because you'll be surprised how many times we're meeting with people, it's like, my neighbor's doing this, and it's just like, huh, okay, well-
Marc:
That's your neighbor, right.
John:
What does your neighbor do? Well, they're in tech. It's like, okay, well.
Marc:
It's a little bit different, yeah. Well, thinking about that social security conversation, so getting a maximization ran, going through the planning process, going through a strategy session with you guys, and having it stress tested and having that maximization ran will help you see that because that's a great point. Are you riding the horse that brought you, which is your retirement, or the government one? I know technically it's our money, the social security, the government, but it's like figuring out the best balance between those two when you're going to start pulling things from whatever account. So, good stuff right there to think about when you're talking about for generations. Go ahead.
John:
One thing Mark, with that. With social security maximization, a lot of people don't realize is there are these calculators that you can look at and say, hey, you put in your numbers, you put in a spouse's number, and it will shoot out, hey, this is the strategy, but it doesn't take into account other factors, as far as, do you have a pension? Things like that. How you want to figure out what's the best strategy is when you look at your social security and how it affects all your other assets and income streams, then you can figure out what the best approach is because when you just look at social security in a vacuum, there's other factors in there that really make a big difference on what the best strategy is. A lot of people will just go online, hey, what's the strategy, maximization strategy, but it doesn't give the overall picture.
Marc:
A great point, really good point right there. So let's wrap it up with one final piece here to think about, Nick. Of course, we could go forever on this topic, but we'll just... Some couple of concise points to think about when you're talking about addressing healthcare costs in retirement. Obviously for boomers, this is a huge concern, really for anybody, if you're alive and human right now on the planet. Healthcare is obviously growing out of control, but certainly a big concern when you're elderly.
Nick:
Yeah, I think, and this is almost a tiered approach. So the first thing or aspect that needs to be addressed is if you plan to retire before you're eligible for Medicare. So having a plan in place and understanding what those costs could look like. So for the majority of people, if they want to retire before age 65 and they need to get healthcare coverage outside of their former employer, then we tell them to typically budget between $800 and $1,000 a month per person. For most people, that's going to be a huge increase in costs. They might be able to float it and they also might be able to reduce that cost substantially if they have money saved that are non-retirement funds. So non-qualified accounts where we can keep their income on paper down and they might be able to qualify for a subsidy. So that's phase one.
Then phase two is, once you are eligible for Medicare at age 65, making sure that we're budgeting somewhere between 4,000 and $5,000 a year and having them talk to a person, and we've got a couple of resources that we're very happy with and we refer people to, because depending upon their overall situation. Again, if they, especially people that are coming from working for a large company that maybe had really good benefits and they're used to paying maybe a couple hundred bucks a month for coverage for themselves, that may actually be an expense that goes up.
Then the phase leading into those two things are, are you eligible for a health savings account at work? Are you putting money in? Then that money that is getting put in maybe something that we could use to help mitigate some of these costs and be efficient from a tax perspective. Then also help you cover maybe potential large, actual purely out-of-pocket medical expenses that start to approach and happen down the road when you get to your 70s, 80s, etc, where these things pop up. People live longer, whether it's some sort of acute care or if it's some sort of need for long-term care, which is expensive, but-
Marc:
Yeah, crazy
Nick:
Really, the key to that is the overall plan, making sure that we test those numbers out in the plan and that we've got a strategy to approach it.
Marc:
Yeah, because if you don't take a strategy into account with that, if you're married and you're a senior and you're like, hey, we're going to just take care of each other because it's just going to be cheaper, it's a wonderful sweet and noble sentiment that has no basis in reality because it's just not smart. It's such a taxing physical thing, a mental thing, to take care of one another without having some sort of help in there. So you've got to plan and strategize for it, whether or not it is daunting to do, yes, but if you don't start having those conversations, it's only going to get worse.
I mean, my wife jokes with me all the time. I mean, I'm 52, and she's like, I can't pick you up now, I can't imagine trying to pick you up when you're 72. She's 70, it's just not going to work. So you've got to have a good strategy for healthcare to address the rising cost because it is going to continue to do so. Again, these are some questions for boomers to really think about and ask themselves.
If you need some help, if you need to sit down and start that planning session, that strategy conversation because you've been putting it off or you've addressed a few things, not all the things, whatever it looks like, reach out to John and Nick and get yourself onto the calendar at pfgprivatewealth.com. That's pfgprivatewealth.com for a consultation and a strategy session of your own. Don't forget to subscribe to the podcast, Retirement Planning Redefined on Apple, Spotify, Google, YouTube platforms, whatever, you can find us on all those major platforms. Just type into the search box, Retirement Planning Redefined, or again, go to pfgprivatewealth.com. That's going to do it for us this week for John and Nick, I'm your host, Mark. We'll catch you next time here on the podcast.
Are you planning for your retirement with the confidence that you're making all the right moves? In today's episode, we'll unveil the crucial income planning mistakes that could jeopardize your retirement and show you how to craft a financial plan that's built to last decades, not just years. Tune in to ensure your retirement strategy is foolproof against common pitfalls and ready to secure your financial future.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today's Show:
For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
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Marc:
Are you planning for your retirement with the confidence that you're making all the right moves? Well, on today's episode, we'll unveil the crucial income planning mistakes that could jeopardize your retirement and show how to craft the financial plan that's built to last decades, not just years. Tune in to Retirement Planning Redefined. All that, coming up next.
Hey everybody, welcome into the podcast, John and Nick joining me once again to talk investing, finance, and retirement here on Retirement Planning Redefined with the guys from PFG Private Wealth. John and Nick are financial advisors helping folks get to and through retirement. You can find them online, if you've got some questions, need some help, at pfgprivatewealth.com, pfgprivatewealth.com. And we're going to talk about some income planning mistakes this week here on the podcast.
What's going on, gents? How you doing, Nick? What's going on, buddy?
Nick:
Good, good. Just staying busy. Just crazy that we're almost April. I guess we're approaching April at this point. Just had some friends in town, so that's always a little bit chaotic. But no, everything's good. No complaints.
Marc:
John, how's it going in the crazy household that is yours my friend? You doing all right?
John:
It is crazy. I don't want to get into it. But yes, it is a madhouse. I'll leave it at that. But, yes.
Marc:
But having little ones always is, but that's good.
John:
Yeah, you know well.
Marc:
Well, and it's April, right? It's a busy time of year, too, a lot of things happening with taxes and financial strategies and everything. Anyway, it's spring, all that good stuff.
So, let's talk about some income planning mistakes. Let's kick it off with something simple. I teed it up a little bit in the intro there about being retired for decades, not just years. I know that we all fundamentally think that, John. We're like, "Yeah, of course, we're going to be retired for decades." But somehow or another it disassociates, I think, as we're getting thirties, forties, maybe even in our early fifties. We don't really put as much thought to it, I guess, as we should.
For me, for example, all the men in my family die young. I've already had heart surgery at a young age, so I could easily jump onto that path of, well, I'm not going to live that long, so whatever. I am not going to really worry about planning for decades. But that's just a bad move, especially if you've got people that you love, loved ones that you may want to make sure they're taken care of too. So, ways to think about it, right?
John:
Yeah, the worst thing you could do is plan to retire for a few years, and next thing you know, run out of money, you don't know what's happening anymore. But no, we get this quite a bit where I can remember clearly Nick and I were doing a plan and the money around the eighties, it was looking a little tight. The person was pretty excited. We were like, "We need to make some adjustments to make sure it lasts age 100." He is like, "No, I'm good." He's like, "I'm not lasting until 80 or 83." And we were like, "Okay, well, we'll still do our due diligence to make sure your money lasts for a while," but [inaudible 00:02:55]
Marc:
What if you're wrong? That's the thing. And did this person have a spouse? Were they married?
John:
He had a spouse there. He was semi-serious, but we ended up making some adjustments to it. But that is something we had quite a bit. When we do our planning, we make sure it goes to age 100, because you can't predict the future. And with technology and everything that's going on now, people are living longer.
Marc:
For sure.
John:
It's just the healthcare industry, there's just always new innovative things happening. But it's a mindset that I will say people need to understand.
And that goes with building a portfolio. Just had a conversation with a client this week, and we're doing some things, and they're just looking at everything short-term. I had to remind them and say, "Hey, you're looking at a 20, 30 year period where there's some long-term money here. Not everything is the next five years." And just talking to her made her realize that of just saying, "Hey, I'm still invested for the long term. I can't make adjustments just based on expecting the next four or five years." So, that is a mindset people really don't understand with the investment portfolio. You still have some long-term money, because your retirement is going to be 20, 30 years, not just four or five.
Marc:
No, a great point. Glad you were able to have that conversation with her and get her eyes moving. I think that's a real value add right there that people don't often take into account when working with a financial professional. We tend to think, "Well, it's the X's and the O's. They're going to help me figure out the dollars and the cents." But there's also really thinking through and behavioral analysis a little bit, behavioral changes that we have to walk through, because you guys see this day in and day out.
And Nick, I'll throw number two over to you. Part of that, as John was just saying, "Hey, you've got to set things up for short-term and long-term," social security is going to play a big factor in that. So, starting it too early could really change your long-term numbers.
Nick:
Yeah, there's an extra emotional attachment to social security, which we very much understand.
Marc:
Whether you're mad at it or not, whether it takes off or not.
Nick:
Yeah, and we totally understand that. For us, we always try to integrate the social security decision with the overall investments and the overall plan. Just like with anything, we always approach it from the perspective of, hey, our job is to tell you the impact of the decisions you may make, and then ultimately it's your money.
But, for sure, one of the biggest negatives, especially if they're financial situation is pretty solid otherwise, starting social security too early these days makes a difference. Really the last few years have really played that out. Anybody that started social security before COVID and maybe didn't necessarily need to, between the inflationary adjustments that have happened, which they still would've received, that inflationary adjustment compounds with the delay. And so, the jumps in benefits for anybody that's waited those few extra years have been substantial, and people that are starting it now are pretty happy that they waited, and it's made a difference for them.
Marc:
Well, if you don't have a strategy, you could be costing yourself tens of thousands. This could be big dollars over the course of your lifetime. I get it. We're all terrified about what's going on in the world, because every five seconds it seems like there's some new, crazy, weird, wonky thing happening in the world that is 2024. But you've still got to make sure that you're making the right decision so that these planning mistakes don't come back to bite you 10, 15, 20, 25 years down the line. So, good points, for sure.
Hey, John, what about bonds? For years, you'd go 60/40. You'd go standard portfolio. You'd go to bonds as we age for safety. Last couple of years though, they ain't been all that great. So, is it still one of those things where assuming it's a safe source is a good move, or not?
John:
Yeah, I would say it's not to assume that that's going to be 100% your source of income. We're going to-
Marc:
From a safe side, right?
John:
Yeah, yeah. We're going to touch on inflation and things like that. We've talked about being retired for decades, so you want to make sure that you have some equities in the portfolio so you are keeping up with costs of living going up. If you're just in bonds and fixed income, you're going to lose out on a lot of upside. And then, if you look at the past years, although interest rates have gone up obviously the last couple of years, there was about a 15, 20-year period where you get a bond and it's giving you two or 3%. That's nearly not enough to supplement most people's income.
Marc:
Oh, for sure.
John:
So, you definitely want to diversify, make sure you're planning for the long term for some growth, and also you want to adjust to an environment where interest rates are very low and the bond yields just aren't enough to sustain what you're trying to do.
Marc:
And at the time we're taping this here, it's just at the very end of March, it'll probably be out sometime here in April of '24, Powell still saying that even though the numbers came back in, inflation was a tad higher, I think, just last month then what they anticipated core inflation. He's still saying that nothing's changed for him, and that they may be looking at cutting rates throughout 2024. So, who knows?
But Nick, that does play into inflation as John just teed it up. Our fourth point here is it's going to play into it no matter what's going on with the dynamic that we have right now. But even just basic inflation, even if you just go sticking with the normal 3% we've seen for years and years and years, if you don't take this into account, and again, our topic being income planning mistakes, you are seriously messing yourself up, because five grand right now, if that's your expenses, is not going to be five grand in 10 years. It just isn't.
Nick:
Yeah. I would say too, especially in this area, I think there's been some studies at the inflation rate in the Tampa Bay area has been higher than other places.
Marc:
Okay.
Nick:
I've had multiple conversations with clients where there's been this... I think because there was such a period of scarcity in getting decent fixed rates, whatever it was, eight to 10 years, it's like people are just taking a deep breath and just saying, "Oh, finally I can get four and a half or 5% on my money again," which is great, but the issue is that some are assuming that it's going to last for a long period of time. Last year is a really good example from the perspective of that five-ish percent, whether it's a CD or money market or whatever, solidified last year. We had some clients that shifted more over, and we had many conversations about it. But again, it's like the S&P then did, what, around 20% or something like that?
So, there was an opportunity cost there. When the market's up like that, you really don't want to lose out on those years. And so, the inflation is compounded. For example, even just people that are in Florida and live in a condo, maybe they've lived in a condo for a while, all the condo rules and association rules have changed. They're like, "I've seen association fees double in the last two or three years," and it's really putting a lot of pressure on people. Even if their mortgage is paid off, but they've been on somewhat of a fixed income, there's a lot of pressure happening there.
And so, yeah, we try to just keep emphasizing even if it's a small portion of the money, even if it's only 20 to 40% of the overall portfolio where we have something related to growth, more marketed towards that, getting them to understand that, hey, this is for money down the road. No matter where the rates are right now, the one thing I can promise you is they're going to change. And so, that's been a little bit of a different conversation than we've had to have probably, I'd say, the 10 years previous to that. So, it's going to be interesting to see how people start to react when the cuts do happen.
Marc:
Yeah, because you're talking about having to keep up with inflation, you need to have some stuff at growth. You've got to have some stuff at risk, basically, so that you can pick up gains in the market, things of that nature, wherever it's coming from. But you've got to have some money out there taking a few chances, because you do have to keep up with or outpace inflation.
I guess that really just brings me to my last point here, John, and you guys can both jump in if you'd like to on this, but you've got to have other income streams besides just social security, plain and simple. That's all fine and good, but you've got to have some other income streams and some of that needs to be safe, and some of that needs to help you with the future money, which is growth.
John:
Yeah, 100%, Mark. Social security might cover thirty to forty-percent of someone's expenses, and covers a portion of what they need for income there, but really important to have some other income stream, whether that be real estate, whether it's your investments.
Right now, we're talking about rates, rates are really strong. We have a lot of clients looking into these income annuities, because they look really appealing right now. Because as interest rates go up, those annuity products typically tend to look a little bit better. So, just having that guaranteed income or just reliable income source to put on top of social security really gives a nice buffer.
I don't want to speak for Nick, but I have found when you have your floor of guaranteed income, it helps you make better decisions even with your other money, where if the market's volatile, but you say, "Hey, I have X amount of dollars guaranteed income coming in in this pool of money here that's set aside for growth," even when it's a little volatile, it's just giving you a little more peace of mind to saying, "Hey, I know my baseline expenses are covered, so I'm going to be okay." We find that that does help people make better decisions when they have multiple income streams.
Marc:
Yeah, you got to do it, right, Nick? It's just the point of the fact that you want to have that diversification not only in income but also with tax buckets. You just want to have some general good broad diversification in your entire portfolio.
Nick:
Yeah, absolutely. The diversification, and I alluded to it earlier, it's just as important as ever. Having the higher floor on fixed rates has been helpful the last couple years, but the phrase that I've used quite a bit lately is zoom out. We need to zoom out and continue to zoom out, because that's really important, for sure.
Marc:
That higher view of things versus trying to narrow in?
Nick:
Yeah.
Marc:
Yeah, I got you. Well, so there's some income planning mistakes that we can certainly make, so make sure that you're avoiding these. And of course, if you think, "Well, I don't do this every day," or, "This is something that I just can't wrap my brain around all the time because I'm just too busy living my life and working my own job," or whatever the case might be, that's why you have a financial team to help you out.
So, if you need some help, and of course you've got questions, always reach out to a qualified professional like John and Nick before you take any action to see how something's going to fit into your unique situation. They're financial advisors to PFG Private Wealth. You can find them online at pfgprivatewealth.com. That's pfgprivatewealth.com.
And don't forget to subscribe to the podcast Retirement Planning Redefined on Apple or Spotify or YouTube platforms. That's going to do it this week for us. We'll be back with more on future episodes. So again, hit that subscribe button and we'll catch you next time on Retirement Planning Redefined with John and Nick.
“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” – Eleanor Roosevelt… Ever wish you could foresee financial missteps before they happen? On today’s episode explore some real-life stories of regret and arm yourself with the essential dos and don'ts to ensure your money works for you, not against you.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today's Show:
For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
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Marc Killian:
"Learn from the mistakes of others, because you can't live long enough to make them all yourself." Eleanor Roosevelt said that, and we all certainly wish that we could foresee financial missteps before they happen, so on today's episode, John and Nick are going to share some stories with us and talk with us about money mistakes we might regret and how to avoid them here on the podcast. This is Retirement Planning Redefined.
Hey, everybody, welcome into the show this week, as John and Nick and myself are going to talk about those money mistakes and hopefully ways to avoid those. So we're going to get into a few of them this week. And as always, if you've got some questions, you need some help, reach out to the guys before you take any action on something you hear on our show or any others as it relates to your situation specifically. We all have these universal things that apply to us, but individually in the nitty-gritty is where we need the qualified professionals to really help us dissect and do the right things for our retirement. And John and Nick can be found at pfgprivatewealth.com. That's pfgprivatewealth.com. Get yourself onto the calendar and don't forget to subscribe to the podcast. John, what's going on, buddy? How you doing?
John:
I'm doing pretty good. How are you?
Marc Killian:
Hanging in there. Doing pretty well. Looking forward to talking to you guys today about these money mistakes and seeing what we can do about them. Nick, my friend, what's going on on your end of the world? You doing all right?
Nick:
Yes, sir. Staying busy.
Marc Killian:
Yeah? Just keeping busy. Well, that's good. It's that time of year. We are into, I don't know, we're right around November about the time we're doing this, so we'll see. The year's winding down quick and so it's always something coming fast and furious. So let's talk about a few of these things so hopefully we can avoid them, especially in the fourth quarter. Sometimes we start to maybe spend a little bit more money than we realize. So let's get into today's conversation a little bit, guys. And I want to talk about IRA withdraws, whether it's a loan from I guess a 401K or I know that you can't do it from different kinds of accounts, or just taking them out prematurely. Why is this a money mistake that people might regret? Because I've talked to a lot of advisors and it seems like everybody universally says this is the last place to access money early if you need it. If you needed something for an emergency or something's happened, most people seem to advise against pulling money out of these types of accounts early. Why is that? Whoever wants to tackle it.
John:
Yeah. I'll take that one. So yeah, the main reason why you want to avoid this is it can be riddled with fees and there's a 10% penalty. If you're under 59 and a half, you don't qualify to take the distribution out, so what you're doing there, and we talked about it last week, is Uncle Sam has a liability on your money. You're just basically giving Uncle Sam 10% of your money. And then on top of that, you're paying taxes on any withdrawal. And if you're already currently working, now you just actually raise your tax bracket, so you could be paying additional taxes and this is money that's just lost. And what you're really losing out on is the growth potential down the road. So it really is a lost opportunity cost of, hey, if you pulled out 40, 50 grand over whatever, a couple year period, well, depending on how long you were going to wait until you retire, that's 50 grand of six, 7% potential compounding growth. That could really add up and could be a detriment to your overall retirement strategy.
Nick:
I would add to that, too, from the perspective of a lot of times, the reason for taking out the funds isn't necessarily the best, and there could be other ways. If it's a last resort, that's one thing. If it's something where it's for an update to a house or different things like that or even certain types of debt consolidation, we've found that literally the money just disappears almost to the standpoint of it never gets replaced. When that expense goes away, they don't catch back up and reemphasize savings or things after that. The money comes in quick, it feels easy, it goes out quick, and then they just move on like it never happened, so it really can put people behind the eight-ball.
Marc Killian:
Yeah. And I definitely like the point of not only is there the immediate impact, but there's that future impact that John talked about by losing the ability to continue to grow that money for our future self. So certainly a money mistake that we could regret and why many advisors, most advisors advise not doing that and looking for some other alternatives. Let's talk about lifestyle creep. It's not a song from Radiohead. It's like you get to that peak earning years, I suppose, and the kids are out of the house.
I'm there now, guys. I'm 52, the kid's in the Navy, she's doing well. My wife and I are doing all right, and so I've been splurging a little here and a little there on some extra items and we're enjoying ourselves, but I'm also being mindful not to let it get out of control because there is that future me still waving, saying, hey, don't forget about I need some of this money, too, when you're 75. So you got to be careful with that. You guys see that sometimes when folks get to this age where they're like, hey, I've worked really hard. I'm going to treat myself a little bit.
Nick:
Oh, yeah. Definitely we'll see that. And we always joke with people that we're not the money police and we're not here to tell you that you can or can't use your own money or those sorts of things, but to just show you the repercussions of decisions, both good and bad. So those years in your fifties where you're able to save really make a big difference. And so sometimes we'll even phrase it like, okay, well, maybe you're going to splurge on a certain type of vehicle or a second home or something like that.
Marc Killian:
That's big splurging. Yeah. Wow.
Nick:
Yeah, yeah. So what can we do from the perspective of, okay, a little bit for you now and a little bit for you later sort of thing. Because sometimes it's as simple as, all right, let's just start an automatic deposit into a separate account and at least force it. Let's see how it feels. Because a lot of times people will adjust to having a little less take home income or they're used to having a certain amount of money in the bank and maybe it's substantially higher than it was five or six years ago, and they get almost addicted to looking at it, and now it's like, all right, well, you've reached that. Now let's deploy some of what we'll call the new money elsewhere and start to save it to try to make up for that creep a little bit.
Marc Killian:
Yeah. It's all about balance. And of course, John, I was talking about just buying season hockey tickets and he's talking about buying an extra house. But either way, it's all about finding that balance so that you don't get that lifestyle creep out of control a little bit. And John, I'll throw this one at you since you've got the little ones there. Another one of the big money mistakes people are starting to really wake up to is I paid too much for my kid's tuition and I can't finance retirement. So I told my daughter this. When she was 20, I was like, all right, you need to get your stuff together because you ain't staying on my couch forever. And besides, you don't want me on your couch whenever I'm 70 and you're in your forties or whatever and you've got your family and you're raising your kids and I've had to come live with you because I gave you too much for college, or I helped you too much along the way. It's got to be about balance on this as well, I would think.
John:
Yeah, yeah, a hundred percent. I think most parents, they want to provide obviously as much for their kids as possible.
Marc Killian:
Of course we do.
John:
They'll say, oh, I don't want them to have all these student loans coming out of school. I just want them to focus on school. But a hundred percent. You can't go at 59 and a half or 65 and say, hey, I need a retirement loan. That's not an option.
Marc Killian:
The only choice there might be maybe a reverse mortgage, and that's the conversation of the day.
John:
Right, exactly. So you don't want to catch yourself in a situation where it's like, hey, in your high earning years, you're really, hey, let's help out with school. And then all of a sudden they're done and you look at your nest egg and it's like, wait, I got to work extra or I have to adjust my lifestyle. And you really back yourself into a corner. So there's other ways to go around it. Maybe they do take out a student loan and once they graduate, maybe you assist them in paying it back, but at least you have that option to really adjust it to your situation.
We're talking about mistakes and how to avoid them. What you especially want to avoid is backing yourself into a corner at the 55 plus age, because that's a lot of times where you're a high earner and companies might look at it and say, hey, we need to downsize. I've had a few clients where late fifties, early sixties, and they're looking at it like, hey, I got to go find a job somewhere. And they weren't planning for that. So you definitely want to leave yourself flexible to adapt to any situation that's going to come up.
Marc Killian:
Yeah. Since I was talking about hockey a second ago, we'll use that as an analogy. You definitely don't want to have two guys in the penalty box, two of you in the penalty box, and have it be a five on three because it's just going to be a little rough right there. So making sure that, again, balance is going to be the key, right? Making sure that you can handle helping the kids without sacrificing your future. And they don't want you to do that either, ultimately.
At the moment they feel like they do because it's great to have mom and dad help, but when it comes back around years later and they have to help you, they're going to really regret that decision as well, so that's why we're trying to highlight some of these areas for you to avoid. And Nick, I'll toss this one to you. Similar in a way, but instead of helping your kids, you're helping yourself because you chose to retire early. And if longevity risk is the great multiplier to all the other risks we face in retirement, and that's just the years we live longer, I would think that retiring too early is almost like longevity risk on steroids.
Nick:
Yeah. I think the retiring too early thing is usually if there's a really strong plan, meaning financial plan, retirement plan done, I think we feel pretty comfortable with the level at which we do plans and give people just input on, hey, we feel comfortable with you retiring. We don't feel comfortable with you retiring. But for example, recently, a new client, somebody that is going to retire a little earlier than maybe is considered typical reviewed the plan that they had been working off of the last maybe 5, 6, 7, 8 years, and the rate at which the plan had expenses dropping for the client jumped out to me as a red flag.
And so it's not only from just a standpoint of, hey, in theory it doesn't make sense to retire too early and all these different things, but also just showing the importance of second opinion or the importance of the plan, importance of inputs in a plan where in our opinion, cutting expenses by 50% between 70 and 80 is a pretty tricky thing and can be very misleading with the security that you feel with your plan. So yeah, things like drawing down the money too early, whether it's taking Social Security too early. Those increases that people have gotten in the last three, four years in Social Security, especially those that have waited are going to make a really substantial difference because they've been so high, and just anybody that took those real early and locked in those gains on much lower numbers, they're going to feel it 10, 15 years down the road.
Marc Killian:
Yeah. I don't have the exact data in front of me, but I just saw something not too long ago that talked about waiting three years, just three years to retire, delaying it three years, made some crazy number difference in the math for retirement. It was pretty wild. I'll have to find that. We'll have to talk about that on a future show, but it was pretty interesting, just the massive difference that it can make. So certainly important. Hey, if you want to retire early and the numbers bear out, cool, but just I think that's the point. Run the numbers. Make sure that you truly can pull the trigger and retire early so that it doesn't bite you along the way.
Because you certainly don't want to get to 80 and be like, oh, okay, now I got to go back to work. That wouldn't be good, so let's not do that. John, let's talk about the last one here. I want to have you chime in a little bit on different taxable buckets. We were just talking a couple of weeks ago about kicking the can. We're so used to it. That's what we've been taught. Pumping into a 401K, defer, defer, defer, and many people, if we're talking money mistakes again, is I didn't really explore other tax buckets and I regret doing that. So maybe it might've made more sense to look at Roths, for example, or something else.
John:
Yeah. Going back to our last session, this is when you look at your nest egg and you say, wait, Uncle Sam's getting about 15 to 20% of this, and you realize, hey, I should have done some Roth money. But yeah, that's definitely something. We see a lot of people going into retirement where Roths weren't too popular really 10 or 15 years ago, and 401Ks, that is, and now it's more popular, so more people are doing it. But definitely right now, we're seeing a lot of people where most of the money's pre-tax and they'll go into retirement and realize how much they're paying in taxes and just saying, hey, I wish I had some tax-free money to really help the burden of the taxes I'm paying. And again, the tax rates could change, so just being able to adjust and pivot depending on what's happening.
Marc Killian:
Yeah. I definitely think that it's something worth investigating, having a conversation, but there is some things they have to think about, too. So I know it's been the hot topic lately to talk about we're doing Roths or conversions, Nick, but if you are considering doing so, make sure that this is also money that you're not going to need to access right away because there is a five-year hold, correct? If you're converting?
Nick:
Correct. Yeah. So if you're going to implement conversions into your overall strategy, it's really important to have it road-mapped out because we've seen people that have converted too much or converted money that they expected to be able to use within that five-year window, and then it defeats the purpose. And or maybe they don't have money outside to be able to pay the taxes. So yeah, it's really important to have a broad-based strategy when you're looking to do that.
Marc Killian:
Yeah. Because I know it's been a hot topic and a lot of people have been really pushing the importance of getting money, paying the taxes now at the lower rate that we're in, because we're all pretty sure the tax rates are going to go up, yada, yada, yada. And so it's been a big focus, but don't just get sold on it because it's the thing, and then all of a sudden, to your point, someone's saying, hey, I got a million bucks. Let me start converting all of it because you're going to jack yourself up in tax brackets that way, too. So there has to be some strategy to that as well. Just like everything in finance. Make sure that you got a good strategy in place for all the different pieces, the income side, the taxation side, Social Security, all those pieces need a strategy to them in order to be effective and working together within that strategy.
So if you need some help, that's what the guys do day in and day out. Get yourself onto the calendar. Or if you know someone who's in a situation that does need some help, share the podcast with them. Let them know to reach out to them or just stop by the website, jot this down. Pfgprivatewealth.com and share that with those that might benefit from the message. Pfgprivatewealth.com is where you can find John and Nick, financial advisors at PFG Private Wealth. And don't forget to subscribe to the podcast, Retirement Planning Redefined on Apple, Google, and Spotify. Guys, thanks for hanging out. Nick, buddy, I appreciate you as always.
Nick:
Thanks, man, and enjoy your hockey.
Marc Killian:
Absolutely. Going to do that, and to your mom as well. She's a new big fan as well. So go hockey. And John, my friend, I hope things are going well for you, and thanks for hanging out, buddy.
John:
Yep, have a good one.
Marc Killian:
Yes, sir. We'll see you next time right here on Retirement Planning Redefined with John and Nick.
The retirement planning world is filled with plenty of advice and suggestions, but there are critical questions lurking in the shadows – the unasked, the overlooked. These are the questions that can help define the comfort and security of your retirement future. On this episode, we unearth and tackle these hidden, but essential questions about retirement.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today's Show:
For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
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Marc :
The retirement planning world is filled with plenty of advice and suggestions, but there are some critical questions that sometimes get lurking into the shadows or unasked or just overlooked and that's the questions we're going to talk a little bit about today here on the podcast. So check it out here this week on Retirement Planning Redefined.
Hey, everybody. Welcome into the podcast. Thanks for tuning in as John and Nick and myself talk about today's topic, which is some hidden or overlooked questions in retirement planning. So the guys are going to help break this down this week on the show. Thanks so much as always for being here and listening and if you've got some questions, make sure you reach out to the guys at pfgprivatewealth.com. That is pfgprivatewealth.com. Get yourself some time onto the calendar and you can also subscribe to the podcast on whatever app you like using. Find it all right there at pfgprivatewealth.com. Guys, what's going on? Nick, how are you, bud?
Nick:
Pretty good, pretty good. Happy that we've worked our way into football season and we're starting to get some tease of cooler weather. I'm excited about that.
Marc :
Yeah. Very good. John my friend, what's happening in your neck of the woods? You doing all right? How's the little ones?
John:
Good. Little ones are good. They're seven and four. So they keep getting older and a little bit more-
Marc :
Weird how that happens, right?
John:
I know. Personality's definitely coming out I'll say. My kids are completely different and we're like, "How did this happen?" One is very reserved and shy and the other one's a complete maniac, but they're great.
Marc :
Yeah. It's like they look at each other as they're going through things and the stuff that we don't see as parents and they're like, "I'm going to be the opposite of this person," or whatever the case is. It's always funny how the siblings, now I just have the one, but I'm one of seven myself so I certainly can relate to the siblings, but myself, I only have the one kid and she's all of it rolled into one. She's got a little bit of everything going on with her so there's definitely nothing happening. There's nothing hidden about that kid that's for sure. She puts it all out there.
And that's my segue into the topic today for retirement plannings hidden questions. I think guys for some of these, they're not necessarily hidden as much as maybe overlooked is the better term. I think we know it, we keep it in our mind somewhere, but we tend to just either forget about it or we put our focus someplace else during the journey towards retirement. So you'll see what I mean here with this first one.
The question might be, how much are these tax deferred savings eventually going to cost me in taxes? And so you can kind of see where I'm going with this. If you're pumping away into the 401k 'cause you've been told that's the thing to do for 40 years, you kind of forget that eventually you know it, but you forget, eventually Uncle Sam's going, "Hey. Where's mine?" Right? So how much is it going to cost us?
Nick:
Yeah. I would say that's definitely a topic that we talk about quite a bit, especially with the required minimum distribution age getting pushed back. Some clients that have allocated a large portion of their retirement funds to pre-tax accounts and then maybe have their expenses low and don't plan on taking out much money at least initially early on in retirement can get a bit of a surprise when those required minimum distributions kick in.
And so that's something that we try to plan around where oftentimes accountants are usually focused on taxes today. So a lot of times they'll suggest, "Hey. Defer those until you only have to take them out and use other money first," and we tend to try to split that money up, take some of the money out of the pre-tax accounts earlier on, make it kind of blend with some of the other non-qualified funds so that when the required minimum distributions kick in, it's not such a huge surprise and maybe causes income above and beyond what they expected to have.
Marc :
Yeah. And John, 'cause a lot of people, let's just use a million dollars 'cause it's a round number and it's easy, but it's kind of sexy, right? It's got this allure to it like, "Hey, I'm a millionaire." But if you've been pumping this all into one of those type of accounts, you're not really a millionaire. You're more like a 700,000 aire because the government wants their share again, right?
John:
Yeah. Yeah. It's something that's always there and if you start to look at it, you want to estimate I would say on average, again everyone's different, but I'd say 10% to 20% you could expect would go to taxes. Obviously if you withdraw it in one year, it'd be a bigger chunk than that, but when you retire, we're looking at effective tax rates between 10 to 20 sometimes 25%.
Marc :
Yeah.
John:
Not that we like to look at rule of thumbs, but if you're looking at a balance sheet and wondering, "How much of this is going to be mine?" That's a decent place to start.
Marc :
Yeah. It's a good place to start the conversation, right?
John:
Yeah. Yeah, exactly. But it's something to be aware of and this is where the planning becomes very important to understand, "How much taxes am I going to be paying per year?" And that's where it's important, whoever you're working with when you're doing your retirement plan, they should be able to show you that at any given year how much you're going to pay in taxes and that way you have an idea of like, "Hey.' The big thing with this too, especially this day and age, a lot going on in the world and-
Marc :
Just a little bit.
John:
Yeah. Big question is are taxes going to go up? So if a lot of your money's pre-tax, and we're going to get to this later I believe, if taxes go up, that's a bigger hit that Uncle Sam's going to take out of your nest egg. So it might be 10% or 15% when you first retire, but all of the sudden it could be 10 years in and that's a bigger chunk they're taking depending on the rule changes.
Marc :
Yeah. That's a great point. And so using that same million dollar analogy here, Nick, the next question that again gets looked at, but maybe not looked at the right way is how much can I pull out of this joker each year? And so talking about rules of thumb a second ago with John, it's easy to do the back of the napkin and do the 4% thing, but if you did that off a million dollars and you say it's 40 grand, well if you don't have a million dollars, 'cause again, you got to pay the taxes and you got more like 700,000, now you're at 28 grand, so on and so forth. So it becomes a real, I don't know, sliding scale as to what you can withdraw each year.
Nick:
Yeah. It could be a tricky thing, especially because, and I would say even the landscape has changed a little bit. So for example, clients that retired five years ago when interest rates were really low and the money that they needed to take out of their nest egg wasn't going to just be this concept of interest only or dividends only because the ability to be able to do that was minimized with where rates were. So we do talk about the 4% rule to give people an idea of and a better grasp of understanding of, "Hey. When you look at your nest egg and you're trying to figure out how much money can I really take?" That's an easy calculation for people to make so that they understand, "All right. 40,000 for every million," because some people are under the impression that they can take out a lot more for example. And so helping them understand, "Well, hey. Maybe not quite," is a big thing.
And that also, kind of what you alluded to, where 40,000 from maybe a non-qualified account is different than 40,000 from a retirement account because of taxes and especially if they're living in a state where there's state income tax, that sort of thing.
Marc :
Gotcha.
Nick:
So we discussed that 4% rule with people so that they have a better understanding of it, but then it really helps us emphasize the importance of having a withdrawal or a liquidation order, helping them understand, try to focus on some short-term, mid-term, longer-term assets and almost kind of assigning a job to different types of accounts because some accounts we're going to spend down a little quicker. Other accounts we want to let grow, but especially when it gets to times like these where the markets are a little haywire and people are getting nervous, sometimes they want to bail and try to emphasize it's important to still make sure that you keep some long-term investments in play.
Marc :
And that's a good point 'cause that's going to lead me to my next little hidden one here that we've been reawakened to John and that's our friend Mr. Inflation. Not that he's our friend, I'm being sarcastic, but-
John:
Not my friend.
Marc :
Not my friend at all, right? But we've been reawakened to it, but forever in a day it was like, "Okay. It's just there. It's not that bad. Two and a half, 3%, whatever." But now people are going, "Well wait a minute. Is this going to derail my plan?"
John:
Yeah. We are seeing quite a bit of that. Everyone's inflation rate's different. That's one thing that we will say is that everyone has a slightly different inflation rate depending on what you do, what's important to you-
Marc :
The things that you buy. Yeah.
John:
Yeah. So example, I'll tell you where I've seen my biggest expense has been food. Fairly well and all of the sudden it's like to try to go eat something that's a little bit good for you, it's like, "Man, this is getting expensive."
Marc :
Exactly. That kind of hit my ear funny. I'm sorry. I'm going to cut you off real fast just to ask you to expand on that some more, but people might go, "Wait a minute. The inflation rate, it's 4.5%. Why is it different for different people?" But that's a great point. How you live and your lifestyle, and we're not even talking like living super high on the hog now, go to the grocery store or other places, you know it's still not 4.5%. They don't factor so many things into that number. It's really kind of a misnomer, right?
John:
Yeah. Everything's different. As we know, energy costs are different, food, and then what do you like to do in retirement? Do you plan on traveling? Are you doing more activities where it doesn't cost anything? Then guess what? If you're just hiking and doing things like that where you live, then not going to be a big impact for you, but if you like to travel and do other things that result you get on a plane, going out to eat, things like that, it's going to be a whole different experience. Again, we harp on this, but it's important to do the plan and if you are working with an advisor, maybe they have the ability to categorize each expense and have it have a different inflation rate depending on what's happening in the world.
Marc :
Nick, are you guys taking into account a higher inflation rate currently for folks to adjust that or do you still look at the historical over the long-term rates and say, Okay. Historically we'll probably be somewhere back down in that three or 4% range over time?" Or do we need to adjust for that in the interim?
Nick:
So the way that we've been handling it, because we think it's a little bit more efficient to look at it, is it's a little bit more work. So every couple years we have people update their expenses. So we have an expense worksheet. So the key being that when they update their expenses, we can account for their inflation over the last few years. And then we'll use a more traditional rate moving forward 'cause the tricky part with using a higher rate is that's over the lifetime of the plan. So we're talking 20, 30, 40 years.
And normally that's not something that happens. So we know that oftentimes there are these spikes, which we've had in the last couple years. So we want to reprice that in and take in accounting for what these higher expenses that they have are and then use a more traditional rate moving forward because the amount that we would have to increase it over the last couple of years would be higher than it would be over a 10, 20 year period.
Marc :
Gotcha. Okay. Makes sense.
Nick:
So that's kind of what we found to be the most accurate. And again, there's things where, as an example, had a friend that got into a car accident either late last year or earlier this year and they were forced to get a new vehicle versus if they hadn't gotten into a car accident, they wouldn't have wanted to. So they were forced to get a new vehicle and with where prices were on used vehicles-
Marc :
At the time, yeah.
Nick:
Yeah. Just like crazy pricing. So that is something that specifically impacts them differently than somebody that doesn't need to buy a vehicle and can just wait until things slow down a little bit. So that's just kind of a good example. And we've got people who, if they're renting, I live in downtown St. Pete and I rent and the rent in downtown has doubled over the last five years. There's things like that versus somebody who's in a mortgage and that's a little bit different. So those are just kind of some examples of why we want to reprice where things are at, update our baseline, and then kind of move forward in a little bit more traditional and keep an eye on it.
Marc :
Yeah. And John, you said a second ago, how you're living, the kind of food you're getting or whatever, but also where you live. So another hidden question might be, is where I live going to impact my retirement situation? I can't see how it wouldn't. What you're going to be doing there in Tampa, for example, where you're at John versus where I'm at, I'm in sticks. Just even property taxes are going to be vastly different from county to county and so on and so forth or state to state.
John:
Yeah. Where you live will make a big difference and one example Nick just actually gave where it's renting versus owning. That's going to make a big difference depending on what's happening. But no. It definitely makes a big difference. I was just up in Boston a couple of weeks ago and I saw some of that inflation up there as I was up there and I'm like-
Nick:
Wow.
John:
Tampa's catching up, but it's still not there and it's just like, "Okay. Things cost a lot more up here."
Nick:
Yeah.
John:
So it does make a big difference and then of course, where you live, is that where you're going to spend most of your time? Again, are you traveling? You know what I mean?
Marc :
Well with Florida being a retirement destination, a lot of times people will do the moving to Florida. I don't know if I would move there just for the tax benefit. Is that big enough to wag that dog or it should be moving there because you want to move there for various other reasons? Oh, and then there also is the benefit of the tax situation. Is that a better way of looking at it or just, "Hey, we're going to move from New York to Florida because the tax rates are better."
Nick:
I would say that the lifestyle that people used to have when they came to Florida, and this is in all parts of Florida, but obviously Miami, Lauderdale, Naples have always been pretty high and areas like Tampa and St. Pete have lagged a little bit, but now a regular middle class home in Tampa is going to cost you 500 plus thousand where six, seven, eight years ago it could be you might have to move out into the suburbs a little bit more, but the high twos to 300. And so it's going to be interesting to see how it does impact that traditional, unless you're coming from a city like a Boston where the values are still much higher.
Marc :
New York. Yeah.
Nick:
There's a lot of places where, I'm from Western New York, Rochester, New York, the value of the homes were never that high, but the tax difference was substantial and now it's a lot cheaper to live there even with the taxes than it is here to have the same sort of house and neighborhood and when you factor in car insurance has gone insane here, property insurance has. So it's going to be interesting to see how it impacts it.
Marc :
For sure. Well let's do the final one here. We'll wrap up with pit questions and Nick and I were just talking about some significant ladies in our life getting into hockey, his mom, my wife. And I asked my mom, I was like, "Hey, you want me to take you to a hockey game?" And she's 82. She's like, "Honey, I could never get all the way down the stairs and then back up again." But the question becomes is should we be planning, especially if you're in this what they call the sandwich generation, if you're in this 45, 50 range, 55, for caring for your elderly parents. It's certainly happening happening more and more.
John:
Yeah. I would say definitely something you want to look at in your plan and something you just want to be aware of it and the potential of that happening and then you want to have conversations with siblings if you have siblings on, "Hey. If this were to happen, what are we going to do in this situation?"
Marc :
What do they have? What does mom and dad have? And then what do we need to shore up possibly?
John:
Yeah. So it's having all these conversations with the whole family of, "Hey. Do you have long-term care insurance in place?" "Okay, you don't. Okay. What's the nest egg? What's the income coming in?" So something you definitely want to have a discussion on and I think Nick has shared a couple of stories and I have a couple of my own where we're seeing where maybe it's not financially impacting the couple that's retiring, but it's impacting their lifestyle. So I've had some scenarios where clients couldn't do the things they wanted to do because they were caring or taking care of a parent, not necessarily financially 'cause the finances were fine, but they were physically doing things and had to be present. So it really impacted some of the things that they were able to do.
Marc :
Yeah.
Nick:
Yeah. I can speak to that 'cause my grandmother lives with my parents. It's been over 10 years now.
Marc :
Wow.
Nick:
And it's real life for them as far as what John just talked about of being able to travel and do the things that they want to do. They get some breaks where, for example, now she's up staying with an uncle up in Rochester. So they've been doing a little bit more like traveling and trying to do things to enjoy that, but-
Marc :
They have to plan out their activities more.
Nick:
Yeah. Much more so. And let alone the stress of taking care of someone and all that kind of thing. So I think that one of the best pieces of advice to potentially give people is to, and that generation can sometimes be a little more difficult when discussing money. It feels like they're getting a lot better, but being able to have conversations with them to understand what do they have? Do they have their documents in place? Who are the executors of their estate? Or is it a will? Is it a trust? Is there going to be issues that may be a fallout from how things are written? What can be done now to clean that up? And even things from the perspective of, 'cause sometimes parents will start to want to gift money or do different things and we've seen that that generation oftentimes has a lot of non-qualified money.
So maybe it's stock accounts or things like that where if they sell to try to gift some cash to kids or grandkids or whatever, they can incur some serious taxes 'cause oftentimes that generation has held their accounts for a long time. And so even just understanding like, "Hey. Well if you leave these types of accounts after you pass, it's going to be much more tax efficient than leaving these other types of accounts." So let's be smart with how we have some sort of liquidation in there and work through that.
Marc :
Gotcha. All right. So those are some hidden questions that you may want to consider and have top of mind or at least readdress when you're talking about getting a retirement strategy into place. So if you've got those questions, again, reach out to John and Nick and subscribe to the podcast. Find all the information at pfgprivatewealth.com. That is pfgprivatewealth.com and subscribe to Retirement Planning Redefined with John and Nick on Apple, Google, or Spotify to catch future episodes as well as checkout past episodes or just find it all at pfgprivatewealth.com. For John, for Nick, I'm Mark. We'll catch you next time here on the podcast. This has been Retirement Planning Redefined.
Money can't buy love, but it can certainly start some spicy debates between you and your better half. In this episode, we're digging into the financial face-offs that make Monopoly fights look like child's play and exploring some money minefields that can test even the most solid relationships. Listen in as we explore how to resolve some of the most common financial sources of tension between couples.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today's Show:
For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
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Marc:
Welcome into another edition of the podcast. It's Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com if you've got questions or concerns about your retirement strategy or lack thereof.
This week we're going to be talking about 'til debt do us part, resolving potential financial sources of tension between couples, because let's be honest, married couples fight, and often it's about money. That's usually the number one reason that we get into arguments. So we've got five that we want to identify and talk through a little bit and try to hopefully shine some light on some places where we can talk about some of these things and maybe get onto the same page and not have these arguments. Because a lot of times these things happen in front of advisors the very first time.
Guys, not too long ago, I was just chatting with another advisor, who said he was sitting down with a married couple, they were talking, they were going over the stuff, and they were pleasantly surprised about some extra money that they were going to have. The husband says, "Great, we're going to buy an RV and travel the country," and the wife looked at him and said, "Since when? You've never ever brought this up before." So it was the first time she had ever heard it. So we want to make sure that that's not happening. We want to try to have these conversations, ideally with each other before we sit down with an advisor, but certainly that's going to happen as well, because you guys, as you know, often wind up having to be a little bit of marriage counselors sometimes when it comes to dealing with finance in front of folks. That's going to be the topic this week. We're going to get into it.
Nick, how you doing buddy?
Nick:
Doing well. Doing well, thanks.
Marc:
Yeah. You ever run into that situation where a couple said something in front of you and you could tell the other one was completely caught off guard?
Nick:
Oh yeah. Yep. Yep. It's-
Marc:
Par for the course?
Nick:
Yeah, that's when the couple's therapy hat goes on.
Marc:
That's right.
Nick:
Probably a lot of advisors don't work in teams like John and I do, oftentimes, and I would say one of the things that it helps with the most is just being able to pick up on the social cues a little bit easier from both people, just because people, depending upon their personality, they may show you a lot with their expression.
Marc:
Yeah. Little tandem action there. John, you're married. I'm married. Married couples argue, right? And money's usually the big deal.
John:
Whoa, whoa, whoa, whoa. Speak for yourself, Mark. [inaudible 00:02:15] aware of it. It's all roses over here.
Marc:
Your wife's listening, that's right. Make sure you don't say anything, yeah. But it does happen, right? And money's the number one argument point. So, let's talk about these five that we've identified here that people tend to run into in y'all's industry.
Risk tolerance, if I start that first one, risk tolerance in investments. This is pretty simple. If you're talking about two people, there's a good chance one feels one way about something and the other one feels the other way, especially when it comes to being married couples. So one person may be more aggressive with the portfolio and one's not, right? That simple.
John:
Yeah. This does happen quite a bit because everyone has different risk tolerances, personalities, and how they react to the market. What we typically do in this situation is each person will fill out their own risk tolerance questionnaire, and that gives us understanding of how to invest each portfolio. And if it's a joint account, we usually have a discussion of, "Hey, how does this fit in the overall plan and the strategy?" So, again, hate to sound like a broken record, but we really try to have the plan dictate how much risk we should be taking, and then obviously the risk tolerance comes into play. But what we do in this situation is we take account both risks' levels, and then we'll try to incorporate that into the plan and make sure that it's in line with what we're showing for numbers.
Marc:
Yeah. This is pretty basic one here, but we want to make sure that both parties are feeling comfortable with the risk that they're taking. It's just that simple. So to not have the argument, you don't want to have the portfolio 90% in the market, for example, just as throwing numbers out there, if the other person's tolerance is only going to be comfortable with half of that or less than that. So you want to have those conversations. It's also good to work with an advisor who can help you go through. And this is why another piece of the importance of both parties being involved with the financial planning process, so that they both are getting their needs met, as well as understanding what's happening and knowing what their plan is. So that's the first one.
Nick, let's talk about the second one, retirement age. My wife and I are five years apart, and she jokes all the time, and I don't think she's joking, but all the time she's like, "You're going to retire five years before me and I don't think I like that," because she just doesn't want to see me goofing off and having fun while she's going to work. Understandable, but something you got to talk about.
Nick:
Yeah. It's definitely something that comes up quite a bit. It's interesting, honestly, it varies quite a bit from couple to couple. I've seen it go from anything from one person really enjoys their job more than another and they plan to work longer and they're comfortable and happy with that. In the last few years, we've had people shift to working from home and that has kept them in the job longer. They don't have to do the commute anymore. We've even had clients move maybe a little further out into the burbs because of it and start their adjustment to retirement by being in a quieter area, that sort of thing.
Also, in a funny way, sometimes couples are like, "We need to ease into this whole spending all this extra time together sort of thing. So us doing it at the same time may not be best for us as well." Then purely from a financial standpoint, there could be a significant age gap or maybe at least three to five years where the cost of health insurance, those sorts of things for the younger one, could make a significantly negative impact on the overall plan if they were to retire early. And so they just do it. They continue to work just for that reason alone.
Marc:
Yeah. So you've got to have those conversations to sort that out a little bit so that you don't have that argument or that fight over what's going on, things of that nature. Again, this could be an easy one, but it also may not be depending on the age disparity, or even just from the financial standpoint of figuring out the ideal way to do this.
John, let's go to number three for you here on legacy for the family, for heirs or whatever the case is. I joke with my daughter all the time, we only have the one, but I joke with her, I'm like, "I'm not leaving you anything but a credit card statement." So she's expecting to get nadda. She knows that's not true, but for folks who have multiple kids like yourself, it could be simple, where one party wants to leave them a whole bunch and the other party doesn't, right? "We worked hard for this. We want to enjoy our retirement with the money that we put together. The kids are doing fine, so I don't want to leave as much." And that's certainly the source of tension between a married couple, if one's wanting to give a lot and one's wanting to give a little.
John:
Yeah, this is probably, I would say, my planning career here, the biggest tension one I've seen actually, because if you're setting aside money to leave for a legacy and you're not spending it, that can make a big impact to what you do in retirement. So, again, the planning does help this out where you start to kind of see it. But this is definitely one where I would say it's a conversation to have in making sure that everyone is on the same page as far as what is the goal for leaving a legacy to kids or grandkids?
Marc:
Yeah. And the grandkids can certainly be another whole equation in that too. Although the funny thing is, is couples tend to get on the same page about the grandkids. It's like, "The heck with the kids, just give it all to the grandkids." But, again, you've got to really talk about how you're going to separate that out.
Nick, do you see that as the biggest one as well? As John's mentioned, that's the thing he's seen the most in his career. Do you see that quite often as well?
Nick:
Yeah, I would agree with him on that. That's definitely the case for me as well.
Marc:
Yeah. It's, again, "Let's leave them as much as we can. No, they're doing just fine. We've given them everything throughout their life. I'm not leaving them that much." That's what my wife and I joke about with our kid. We're like, "I'm not leaving her nothing. We've given her tons of stuff. She's doing well on her own. She doesn't need any of the stuff that we have. We're going to enjoy our retirement ourself." So, we don't have big fights about it, but you could.
John:
Mark, actually, one thing that I've seen at work is a kind of in-between, if this debt does become a sticky point, is I've seen some clients that instead of leaving money, it's, "Hey, let's do some things that we enjoy with the family." So instead of just saying, "Hey, we're going to leave you this nest egg," maybe it's, "We go on a vacation and we pay for everybody to come, so we create memories versus just passing away and just leaving them a chunk of money." So that's kind of an in-between, where it's, "Hey, I want to enjoy my retirement. We'll leave it for the kids. Let's do both."
Marc:
Gotcha. That's a great point. Yeah, for sure. So maybe trying to enjoy that while everybody's around is a good way of looking at that.
Let's do number four here, housing and retirement, probably the second biggest one, more than likely. "Do we downsize, do we not? Well, we raised the kids here. I want to stay here and raise the grandkids here," kind of thing. Like, "Have the grandkids come here for those great memories, but financially it makes more sense to downsize," or whatever. So there's a whole plethora of arguments that can pop up around the housing issue, Nick.
Nick:
Yeah, the housing issue, from almost like a hyperlocal standpoint here, has really become quite interesting, and, to a certain extent, in other areas as well. In our area here we've had really home values post-COVID double, and then interest rates go up. So there's this stuck factor, where in theory somebody may look to downsize their home, but for what they would get for the money, the change in taxes, if there was financing involved, it's one thing if they'd be able to pay cash, but if there'd be financing involved, a lot of times that cuts into any sort of gain that they would get. So unless they're shifting out to an area that's substantially less expensive or that sort of thing, people are a little bit more stuck than they had been previously, which we see that from the standpoint and the perspective of low inventory and that sort of thing.
So we're in an interesting cycle, and it's going to be pretty interesting to see how that ages in the next few years, because we've already had some clients that had looked into downsizing but wanted to stay local, and with the pricing where it's at, it just didn't end up making financial sense. The downside of that is that there's more maintenance and the house is harder to keep up. So instead, they're spending money on maybe some services related to the home that they hadn't before. It's pretty interesting.
Some clients that have relocated from other areas of the country where the housing markets are higher, they've been able to have that be a downsize that's worked out well for them. But that gap used to be much more substantial. What they would sell a house for in maybe the Eastern Seaboard versus what they could buy something for here now, the gap is much smaller than it used to be. Although for some areas it's still a better value, it's changed.
Marc:
Yeah, it's easy enough to get into these arguments about different things, and certainly anything that's emotionally attached, like leaving money to the kids or raising the grandkid... I keep saying raising, but spending time with the grandkids in the same home where you raised your children can certainly carry a lot of emotional weight to that. But if the finance or the math bears out in a different direction and one party's leaning towards math and finance and the other one's leaning toward emotion, can certainly lead to arguments. And also, not having the conversations until you sit down with the advisor, probably not the best way to go about that either. "We're going to sell the house." "No, we're not. We're going to stay in the house," and you guys are left sitting there going, "Oh boy, this is going to be fun." So definitely something you want to have a conversation about.
Then the last one guys, is also a pretty big one as well, which is just retirement lifestyle in general. Again, what do you want to do? I used my wife and I as an example a minute ago, I'm going to retire before she does, and she travels a lot for work. Well, she doesn't want to travel that much in retirement. She wants to be at home and enjoy her garden and so on and so forth. And I'm like, well, I'm always working from home, especially while she's traveling now, so I want to get out and do things once we retire. So we're in two different spaces. We've got to find a way to make that work as we get there. And many couples face that same kind of analogy.
John:
Yeah, this happens quite a bit in understanding and getting that aligned. I think with all these topics, I'll say that just sitting down and starting a financial plan will answer a lot of these questions and making it come to light. And once you see the plan, you'll really start to determine, "Hey, should we downsize? What can we leave to the kids?" Retirement age, et cetera. And then also, "What are the things we can do in retirement?" It really opens up the conversation.
Just kind of give you scenarios here. I just had a client that, she, herself, her goal was to hike the Appalachian Trail. She just did about half of it, and the husband didn't want to do that. She did it, and then he would actually meet her at certain spots in the trail and they would hang out and then he'd fly back home. But those are things that she wanted to do, and she's not the only one. I have some other people like that as well. If it's that drastically of a difference, some people might do things solo off their bucket list. But the majority of the time, I'll say, maybe we've been fortunate that we've worked with people that will actually compromise and work with each other, even if they have different bucket lists in retirement.
Marc:
Yeah. Yeah. Nick, you want to chime in on this one?
Nick:
Yeah, it's really an interesting dynamic. I see it now more with my parents who both retired during COVID. The caveat with them is that my grandmother lives with them so that puts some restrictions on what they can do. We have a lot of clients who have that same sort of situation, which is also another reason for people to be strategic about the things that they want to do, and be able to plan around that sort of thing.
As an example, for my parents, I have an uncle that's going to fly down and stay with my grandmother for a week, and they're going to go travel a little bit, go out west for a wedding, and be able to enjoy that time. So, people that tend to be homebodies too, I think I've seen maybe struggle a little bit more than others. I would just say that any sort of engagement, hobbies, things to get you out of the house, all those sorts of things, we've seen have a very positive impact on people's energy levels and how much they're able to actually enjoy retirement.
Marc:
Yeah. Well, and again, these are five big places where we can certainly argue about money when it comes to our finances, sources of tension. Whether it's arguing over how aggressive or not we are with our portfolio, whether it's what kind of age we want to retire at, the legacy to leave behind, where we're going to live, or just what overall retirement's going to look like, why have this be a source of tension when we can have a conversation with each other? Hopefully we've done this already, but again, many times couples, they know they're going to fight, so they try to avoid, or maybe they're not as truthful, guys, as they might be with their partner when it's just them. But sitting down in front of advisors like yourselves, now they're a little bit more comfortable because they feel like they've got this mediator who doesn't have a vested interest in the fight. They're just there to help provide the financial information. Is that fair?
John:
Yes.
Nick:
Yeah, I would say so.
John:
Yeah, I would definitely agree with that.
Marc:
Yeah. I think a lot of people feel better about doing that in front of an advisor, but again, try not to catch your partner off guard by never having this conversation with them and just springing something on them. Talk about it, and work your way through it, and hopefully maybe use this podcast as a catalyst if you need that, if you're having trouble with your spouse, and just say, "Hey, listen to this." Maybe this will get you guys talking or whatever. And then sit down with a qualified pro like John and Nick to go through the process and see what it is that you need to do to tackle these items and get onto the same page. So reach out to them, pfgprivatewealth.com. That's where you can find them online. Don't forget to subscribe to the podcast, pfgprivatewealth.com.
You can find Retirement Planning Redefined on Apple, Google, or Spotify. Whatever podcasting platform app you like to use, just type that into search box, or again, stop by the website, pfgprivatewealth.com. Guys, thanks for hanging out and breaking this down a little bit for us this week. I always appreciate your time. For John and Nick, I'm your host, Mark, we'll see you next time here on the show.
Get ready for part two of our Retirement Cash Flow series! This time, we're diving into the income side of the equation. In our first two episodes, we tackled the ins and outs of your expenses in retirement. Now, it's all about understanding the crucial role of income analysis. We'll uncover the secrets of guaranteed income versus the uncertain stuff and shed light on the consequences of retiring without a clear income plan. Don't worry if you're feeling lost - we've got your back with practical solutions and expert guidance. Tune in and take charge of your retirement cash flow!
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer:
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today's Show:
For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
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Mark:
Welcome into this week's edition of the podcast. It's Retirement Planning - Redefined with John and Nick from PFG Private Wealth, back with me again to talk about mastering retirement cash flow. So we're going to dive into the income side of the equation here a little bit on these things that we need to discuss, and go through this crucial role of income analysis. And we'll talk about, hopefully, some ways to highlight some points to think about when it comes to making sure you've got that cash flow taken care of. Because clearly, we've got to have income in retirement when we're no longer getting those paychecks. So that's on the docket this week on the show.
Once again, guys, thanks for being here. John, what's going on buddy?
John:
Oh, not too much. Just starting to get this Florida heat hitting me and we're only about a month into it, but I think I'm already tired of it.
Mark:
Already tired of it? Yeah, you got a ways to go if that's the case.
What about you, Nick? How are you doing, my friend? I know you're doing a little moving. Moving's always fun, right? You getting that all worked out?
Nick:
Yeah, yeah. Well, luckily the move wasn't too bad, but pretty much settled in and I got a little bit of break from the heat in July after going up north for a little bit, like I tend to do during the summer.
Mark:
Oh, yeah. Although it's been hot everywhere. It was probably hot up there too, wasn't it?
Nick:
It was, it was. But it was, for sure, cooler and the humidity less.
Mark:
Yeah. That's the kicker. Yeah.
Nick:
We definitely had some warm days for sure, but I do enjoy being able to go on the fresh water up there, because I don't do fresh water in Florida. And it's not like I go to the beach that much anyways, but the water at the beaches here right now is just insanely hot. It's not even worth going in.
Mark:
It's like you get in the bathtub.
Nick:
Yeah, yeah. It's ridiculous.
Mark:
You think, "The ocean! I'm going to cool off." No, you're not. But yeah, well, good. I'm glad you guys are doing all right.
So let's get in and talk about this cash flow thing here a little bit. Why is understanding income, guys, in retirement critical for the stability of your financial strategy, and what could happen if you don't have that clear picture?
Nick:
Yeah, so I was actually having a conversation with a client earlier today and really kind of emphasizing ... We emphasize this with our clients quite a bit, that it's super important to have income. Obviously, income is king in retirement, but not completely in lieu of liquidity, of having other funds.
So this one client had good direct income sources and then had a decision to make on a pension, on whether to lump sum, roll over or take it as an income. And because of the overall financial strategy, for her it made sense to take lump sum, roll it over into an IRA. And that would kind of give her the balance of having assets that she can dip into, versus just a stream of income that would limit her on other things.
Creating that balance is different for every single person, but we really try to emphasize trying to make sure that you understand the different forms of income, and balancing that with making sure that you have access and accounts that are invested, but are also liquid.
Mark:
Yeah, okay. I mean, that makes sense, clearly. And so, when we're thinking about the stability of income streams, John, what are some examples of different sources? I mean, there's some that are pretty obvious, but we want to make sure we have more than just one, clearly. So what are some of the things to think about?
John:
Yeah. You definitely want to analyze where the money's coming from. I know the last podcast, we were talking about expenses, and that's really where you start, is getting to understand, "Hey, how much am I spending?"
And the next step is, okay, now that I'm spending this, where's my income coming from to cover those expenses? And you want to make a clear picture of understanding what your income sources are, because the biggest risk going into retirement is making sure you do not outlive your money. And part of that is understanding, "Okay, where is my income coming from? And how do I make sure that I maintain my lifestyle without running out at age 80 years old, and now all of a sudden I'm looking to get a job at 80."
Mark:
Yeah, nobody wants to do that. So we're talking pensions, right? IRAs, 401(k)s, social security, annuities, so on and so forth, things like that. Is it advisable to try to rely more heavily on one versus the other? And I think for many years, John, people would kind of say, "Well, social security's going to make up half or more", but I don't know that that's the reliable source we want to go with anymore. What do you think?
John:
Definitely not, no. Especially with ... Not that anyone's done this yet, but a lot of talk of updating the social security program, cuts and things like that. You definitely want a good balance of retirement income sources, because if, let's say, there was an update to social security, you'd want to have something in your back pocket where you can say, "Okay, that's okay, that's not going to affect me too much. I can pull from this income source."
Nick:
And things like understanding ... One of the things that we walk people through as far as if they're taking distributions from their retirement accounts, as they're leading up to retirement, going over the whole concept of a safe withdrawal rate, being around 4%, maybe 4.5%. Rates are a little bit higher, but we don't know how long they'll stay that way. That helps people get a little bit of a grasp of how much money they can take from their investments safely, and look to make sure that any other sources kind of fill in the gap.
Mark:
Let's talk a little bit about some of those guaranteed sources versus non-guaranteed, Nick, I'll let you kick this off for a second here. What is a guaranteed income and what's the difference between that versus non-guaranteed?
Nick:
Sure. The way that we would look at something such as the term "guaranteed income", although there are issues with social security for the most part, we look at that as a guaranteed income source. That may be something that we toggle down as far as the percentage that they would receive, but we would look at that as a guaranteed income source. If they implemented an annuity strategy, dependent upon the type of strategy that it is, that could be considered a guaranteed income source. That would be something. It's always important to point out to them that, although the history is pretty strong for insurance companies, when it's an annuity, the guarantee is provided by the insurance company itself. So that's something that's important to know. Pension plans are usually considered pretty safe and a guaranteed source of income.
Mark:
Yeah. I mean, non-guaranteed is going to be ... I mean, when we think about a normal 401(k), right, where we're just pumping money away, but unfortunately, if you've got it weighted in the market or things of that nature, it's not necessarily guaranteed. If you're risking it, by having exposure to the markets, then that's where that non-guarantee comes from. Correct?
Nick:
Correct. Yeah. For example, the conversation I had earlier with the client as far as ... Because the question that she had was exactly that. Like, "Well, hey, if I do this lump sum rollover, is that guaranteed like the pension is?" And of course the answer is no. But I also did kind of point out to her, and this was somebody that doesn't have a spouse but has kids, that, hey, this single life option is guaranteed for your life. But if you pass away within five years, you haven't even gotten close to the lump sum balance and nothing would pass onto your children. So that's something else that can come into play, where the word "guarantee" can be tricky, because it can guarantee certain aspects, but not others.
Mark:
Right, yeah. And so John, listeners have probably heard of things like paycheck versus playcheck, right? So if we're talking about explaining, and as you mentioned, we did some expenses on the last show. If you can walk through some of the ways that we might do that.
I would think that we would want to try to use our guaranteed income sources to cover, which would be our paychecks, to cover all the have-to-haves in life. And then we use the non-guaranteed, possibly the playcheck side, as the fun items. I guess every situation is different, but is that a simple way to break that down?
John:
Yeah. So your paycheck would be associated with your fixed expenses, the things you need. Your necessities, things that you really need to make sure that are covered. Taxes, groceries, things like that, that you cannot do without.
Mark:
Rent. Electricity.
John:
Yeah, exactly. Your playcheck is obviously, as you mentioned, discretionary income, your wants. Let's put it that way. And what we do when we're doing the plan, and everyone's situation's different of course, but we'll have a lot of people that, let's say they're very conservative and they just say, "Hey, I want to make sure that my paycheck items are covered on a guaranteed basis. That no matter what, I want to make sure I have this covered, so I stress a little bit less about what's going on with the markets."
And we can adjust the plan to basically make sure that happens for them. And then what we end up doing is, anything that's tied to fluctuation, whether it's the market or anything else, or rents, then it'll be the playcheck scenario where, "Okay, this is going to cover it." And let's say where that comes into play is, if a year is down in the market or interest rates drop, well, all right. Maybe that specific individual might not do as much in discretionary spending in that given year.
Mark:
Yeah. And Nick, maybe depending on how you've saved for life or how your setup is, maybe you have a pension or not, there's a possibility that you could have your paycheck cover everything that you need in retirement, or most of it, and you're really just using those accounts that you've built up, your 401(k) or your IRA or something, as something to leave to heirs.
So I mean, there's lots of options out there, lots of strategies. It just really comes back to, what have you done and what kind of a saver you been, and so on and so forth.
Nick:
Yeah, that's absolutely correct. And for clients that we have that did retire with maybe a substantial pension, and they've been a really good saver, and they don't really dip into those investments, we definitely put together ... And their main objective is to leave money, we can work together and put together strategies to try to do that as efficiently as possible and that sort of thing.
Mark:
Yeah, because a lot of people will say, with RMDs for example. I mean, I can't count on one hand or both hands how many advisors I talk to that have clients saying, "Yeah, I got to take this money out for the RMD and I don't need it. What am I supposed to do with it?" But you have to do it, right?
Nick:
Exactly. So it's like you got to take that hit from a tax perspective, but the money could always be reinvested, it can go into a different sort of investment vehicle. There's a way to continue to have it grow. Some people will use RMDs to fund a permanent life insurance policy, to kind of shift money from a taxable inheritance to a tax-free inheritance, that sort of thing. So it just kind of depends upon, just like anything else, the overall situation and the factors that are specific to their plan.
Mark:
Gotcha. Well, John, let's finish off with this. So, any strategies for maximizing, maybe some non-guaranteed income? Because we often think about, or hear, John, stuff like, "Hey, get your social security maximized, run a social security analysis, make sure that you're getting all that you can there." But how do we do something similar, I suppose, in the non-guaranteed space?
John:
Yeah. So this will be where, I'll give you a scenario. If we're doing a plan for somebody and all they have is social security and there's no other guaranteed income, and let's just assume this person's conservative, and they have a decent nest egg where we could look at it and say, "Okay, what we could do is, from the investment portfolio, whether that's a 401(k) or IRA or a Roth IRA, whatever it is, we could pull some money out of there, put it into one of these annuity companies that provide a guaranteed income", and of course, disclosure based on their paying ability.
Mark:
Sure.
John:
And from that we can say, "Okay, here's your social security. And based on the plan, we feel that together we come up with this number, you should have x amount of guaranteed income on top of social security." And we can basically take a chunk out of the investment portfolio and put it into one of these annuity products to give, in essence, some guaranteed income.
And what that typically does, it'll provide the person with a little bit of peace of mind where they say, "Hey", back to that scenario of paycheck and playcheck, "I know that my paycheck items are now covered and I feel a little bit more secure about what's happening."
Mark:
You're kind of creating your own pension.
John:
Exactly.
Mark:
Yeah. Okay. And again, for some folks, Nick, that's where the strategy might play off. Because some people, obviously, especially when you think about the annuity term, some people are game to learn, some people are very hesitant because they've heard whatever it is that they hear. But it could be an option for folks who don't have a lot of other resources to tap into, especially if you're going to do something like a fixed index where you're going to tie it to an indices. And that way you're kind of experiencing some of the upside, but you're also having some of that protection on the downside, so that it's not quite as non-guaranteed as it could have been if you just left it straight in the market. Is that fair, is that accurate?
Nick:
Yeah, annuities are always a subject that can be ...
Mark:
It's a hot topic.
Nick:
Maybe volatile, yeah, hot topic sort of thing. And the way that we tend to approach the subject is, there are so many different options when it comes to annuities. There's kind of dividing up the decision-making process between strategy and then implementation.
So what I mean by that is, oftentimes, integrating in an annuity strategy for somebody can make sense to really dovetail into what John talked about. "Hey, we've got an income gap that's needed of maybe $15,000 to $20,000 a year, and hey, we can carve out this amount of money and cover that." And then we'll see issues arise in the implementation, where the advisor that they had worked with uses a product that is maybe super expensive or the guarantees are not good, or it's been misunderstood or mis-sold, or the sales charge period's a really, really long time. So the implementation is poor, and that oftentimes sets off the red flags and that sort of thing.
So just like anything else, we would look at it and we tell people upfront, "Hey, this might be a strategy that makes sense for you, it may not. We think our job is to explain to you how it works so that you understand it, so that you can say yes or no. And then we move forward with whatever you feel comfortable with."
Mark:
Yeah, so sometimes you may have to create some alternate sources using life insurance products or different things that are out there. But again, each situation's going to be different, so you want to identify what kind of income sources you need and then where you're going to be getting them from.
So if you need some help, as always, make sure you're talking with a qualified professional, like John and Nick, before you take any action on anything you hear from our show or any other show. You always want to see how it's going to relate to your unique situation. Obviously, we're all affected by the same kind of things; we're going to have expenses in retirement, we're going to need income in retirement. But how you break that down and how you're able to utilize the things that you've done through your life, are going to be different from person to person.
So, get yourself onto the calendar, have a conversation with John and Nick at pfgprivatewealth.com. That's pfgprivatewealth.com. That's where you can find them online. And don't forget to subscribe to the podcast on Apple, Google, or Spotify, whichever podcasting platform app you like to use.
Guys, thanks for hanging out. As always, I appreciate your time. For John and Nick, I'm your host, Mark, and we'll catch you next time here on Retirement Planning - Redefined.
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