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Episode 62: Retirement Income Options with Phillip Ramsey and Bryan Dewhurst
187 Plays5 years ago
You’ve planned for retirement in a general way. You have some money stashed away in IRAs and other accounts. Now you can just coast into retirement and forget about money, right? Nope, that’s not how retirement works for most of us. But the important thing is that you do have options.
In this episode, we want to help you explore your options. There are many different approaches to take as you head into and plan for retirement–or as we like to call it “time freedom” mode.
Don’t get pushed into a path you are not comfortable with, because when it comes to retirement income one size definitely does not fit all. Some people want a lot of guarantees, some people are okay with risks. In this episode, we want to educate you about your choices. If you are getting ready to “clock out” of the regular work schedule you’ve been on before retirement, we want you to know what your options are so you can make the best choices possible.
what you will learn in this episode:- Why Retirement Income is not one-size-fits-all
- Understanding guaranteed and non-guaranteed income
- How to define financial freedom for yourself and build a plan that works for you
- The options you have for retirement income
- What to expect from pensions and social security income
- How to make sure you have enough liquid assets to manage during retirement
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Transcript
Defining an Uncommon Life
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit. Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
00:00:27
Speaker
A life worth celebrating and savoring. Please welcome your hosts, Brian Dewhurst and Philip Ramsey.
00:00:34
Speaker
Hello, everybody. And welcome to another show of the Uncommon Life Project, where I'm your host, Phillip Ramsey.
Educating Retirees on Wealth Management
00:00:41
Speaker
And I am Brian Dewhurst. We're coming back at you with a couple ideas, a duo cast. And here's the deal. At the end of the day, a lot of people in the more traditional mindset who haven't had a chance to go down the uncommon route, chances are we'll have a lot of wealth amassed in these retirement plans.
00:01:02
Speaker
So today we wanted to at least educate you on the different approaches that you can take within now that you're in retirement mode and you're wanting to get some cashflow off of these bigger assets. There's a lot of options. There's a lot of different opinions out there. Our job is to educate you and then let you take it and then use it and then maybe bounce ideas off of us, answer any questions, but then make it the best for you. Because as I know and the older I get, the more I'm understanding that people are just different.
00:01:32
Speaker
Some people want a lot of guarantees, some people are okay with risks, but we're all different. Our job is to educate you on each. And so that's what we're hopefully going to do today in this show, is kind of walk through, if you're in more of a traditional mindset, who's starting to put a lot of money in these 401ks, what to do when you get to the end.
Customizing Retirement Strategies
00:01:52
Speaker
when you're ready to punch out or to at least give you some ideas when you're getting that direction. So I'm kind of excited about this show. It's something that I don't think a lot of people do because they're all a lot of advisors are very opinionated on what you should do in this mode. And one size doesn't fit all here.
00:02:09
Speaker
And I would just, I'm gonna poke at my uncle, Dave Ramsey, which is not my uncle. But that's, I think my biggest beef with him is like, he's like one size fits all. Don't question me, don't just do what I say. And that's the part where I'm really, you know, that's where I, like my blood boils, my blood pressure goes up. Because there's many ways to do things, not just one way. So we wanna try to educate you on this show to give you multiple options.
00:02:37
Speaker
And you can kind of figure out which one the best one is for you. What would you say about the show, Be Dog? Yeah, I'm excited. We obviously love helping people retire and probably one of the most humbling things to do and to take on for someone is to help them with that. But it's one of the most rewarding parts of our
00:02:58
Speaker
business career. So I think today is super important. I think, you know, you've always done a good job telling people, you know, that they're really smart and they're going to make the right decision for them and their family if they understand the information and they're presented multiple options.
00:03:15
Speaker
you know, they're going to know what resonates with them. And I think that's just the most important part of this whole thing is that you have a lot of options and you've probably made good decisions up until this point. And so why wouldn't you make a good decision if you were presented with all the information?
Transitioning from Accumulation to Income
00:03:31
Speaker
Totally. Which gets us to the first point, I think I want to talk about. Emasking wealth or like accumulating wealth is,
00:03:40
Speaker
I'm not gonna say not that hard but it's you know depending on what you do or what investments you put like it's a different deal when you're starting to take income from those things because a whole different realm of activity is happening one you're not in you're not
00:03:58
Speaker
Putting any more money into these accounts where as you are growing these these big accounts your dollar cost averaging which is basically you're sending money in on a consistent basis and buying a different price points i just dollar cost average in five seconds.
00:04:16
Speaker
So, you're not doing that anymore because you're not adding to these accounts anymore. And then you're starting to make sure that if the account does go down, when you're in the income phase, kind of like retirement phase or time freedom as Brian and I call it, that's when it gets really dangerous if the account starts to dip.
00:04:36
Speaker
I'm not saying everybody can amass wealth, but kind of I'm saying that's easier than the income portion of this whole life of your account. It gets touchy.
Understanding Financial Decisions in Retirement
00:04:49
Speaker
And if you have a couple negative years at the beginning, statistics show that you're way more likely to hit zero, which is like the worst case scenario for a lot of people is I just don't want to run out of money.
00:05:03
Speaker
And so those kind of thoughts are, I think, important to just point out. You've done the right things to just accumulate wealth. Now it's time to take income. And now it gets really sticky. And so I'm going to just kind of put two sides of the bookends here and then we can kind of talk about both. And then there's obviously a hybrid in the middle.
00:05:25
Speaker
But at the end of the day you can live off of your investments and there can be no guarantees you can just try to make sure the market does what the market does the market goes up market goes down market go sideways and you can have no guarantees on that and that's a hundred percent of your account over here and you are just.
00:05:47
Speaker
like a shaken leaf, like you could be exposed, you might have enough money, you can take the ebbs and flows of the market over here. On the other side, you have all guaranteed income. There is nothing that the market can do that will
00:06:02
Speaker
do anything to your cashflow, like those are the two bookends. So you have non-guaranteed, 100% non-guaranteed, and then you have 100% guaranteed income, which means that you're probably going to have to buy some insurance-based product to do that. Because as we all know, and I will put a caveat in my compliance officer, which is B-Dog will love, is that we can never guaranteed anything on the security side that is not insurance-based except 100% loss.
00:06:30
Speaker
Now, ideally, you know, that would not happen, but that's the only thing we can guarantee when we have like a market based product. Now, insurances have some guarantees involved. So there's a lot being thrown at you, but there's the bookends.
Exploring Income Strategies in Retirement
00:06:45
Speaker
Where do we start? And there's a hybrid in the middle and we'll go to it. But I think it's good to talk about the bookends. Yeah, I think that's really helpful. I think in terms of
00:06:55
Speaker
income, it's proven. I mean, there's a lot of data out there coming out now. I think a lot of the information in terms of retirement income strategy, like in the 80s and 90s when
00:07:08
Speaker
Largely, this whole idea of retirement income planning started and you had the explosion of the stock market in the 80s and 90s leading up to the tech wreck. But in that, it was like 60% stocks, 40% bonds, and you can't lose.
00:07:28
Speaker
But with bonds going down for 30 years in a row, interest rates, that means the price went up, which means bonds actually acted like stocks. Now, there's not a lot of place for interest rates to go. We continue to think they're going to go lower in the short term, 2020. And so it's harder to generate yield and income in a retirement income plan from a bond portfolio.
00:07:53
Speaker
And, you know, again, you add to guarantees. And so a lot of the data is showing that your paycheck
00:07:59
Speaker
the money that you need to come in, if you spend seven grand a month, you should have seven grand a month coming in. That should all be guaranteed, whether that's pension, social security, or we pensionize part of your IRA, 401k, other assets to get the seven grand coming in. Um, there's lots of different ways to guarantee that through insurance products, but, um, utilizing an insurance wrapper of some sort through an annuity or income based annuity or,
00:08:26
Speaker
Indexed annuity to guarantee that that base level of income and then Above that having liquid money because the other spectrum from non guaranteed to guaranteed is You know liquidity is non liquid versus liquid So, you know having a liquid investment or brokerage account to act as your you know play money I think is one of the ways I like to hear it described just you got your your paycheck money and you got your paycheck money and
00:08:56
Speaker
The paycheck money is guaranteed. The paycheck money can be the money that's liquid and invested
Demographics and Retirement Planning Strategies
00:09:02
Speaker
in the stock market without an airbag.
00:09:05
Speaker
Totally. Okay. So I think let's just define the client type that we're talking about right now. Like, and I think we've done it, but I just really want to clarify and there's, there can be many people, but I think like the 55 year olds, this would probably resonate with, or, you know, a little bit older to like the 65 or the people who are getting ready to punch out or the people who are already punched out, um, punched out is probably,
00:09:33
Speaker
a little aggressive. But in financial freedom, because they're starting to live off of their income, this is who we're talking about today, because I think it's just really nice. And here's something I figured out about myself recently. When somebody comes to me, and I ask them for an opinion, and they give it to me, and I start going down that path,
00:09:55
Speaker
I always will question when I hear another path after I'm down a path. Does this make sense? Like if I go to somebody and be like, Hey, what should I do here? And they say, you should do this. Don't question it. Just do that. So I do that. And then maybe three, four weeks down the path, uh, somebody else is like, well, why don't you do this path? Then I'll always question myself of being like, huh, maybe I should have done that path.
00:10:19
Speaker
Okay, but what I would rather have is when I go to somebody and be like, hey, what should I do here? And they're like, well, here's your options, right? Give me options.
00:10:29
Speaker
I just want to know my options. And then once I know my options and I pick an option, there's really no looking back in my personality or my, my, um, the way I'm wired. So, so that's what we're trying to do here. Um, so, all right. So let's talk through some of this stuff. Um, because there's a lot here, you talked about liquidity, you talked about guarantees. I think I want to echo on that point. I think what we're trying to say is if you want an opinion on what you should do or how you should structure your money in retirement, we're typically giving you.
00:10:59
Speaker
Option A, option B. Option A probably does involve insurance because we believe in insurance and it's in our ADV, our legal documents that has to state our conflicts of interest that we do sell insurance because we believe in it and because it's part of our overall planning philosophy.
Insurance's Role in Retirement Planning
00:11:16
Speaker
And so, or, and we've met a lot of people that really like what we do and what we say, but they don't want insurance. They've largely not purchased it in their life and they don't want it now when they're nearing retirement. Feels like an expense, feels unnecessary. They've made all this money in the stock market. There's really no use for it. So trying to understand the client type and then just show them like,
00:11:42
Speaker
I kind of acknowledge what we use sometimes is like we're a grocery store. We have access to a lot of different stuff to help you financially. We're trying to understand where you're at and narrow it down to like, here's two aisles in the grocery store for what you're trying to do.
00:11:58
Speaker
We can go beyond that if those two don't work out, but based on everything we're hearing, seeing these are the two options, I think that would probably best align with what you've told us. Totally. I want to preface this with two things. One, nowadays, people don't normally have a pension. Back in the day, pensions were a lot of people's retirement income. That partnered with Social Security,
00:12:28
Speaker
they wouldn't like that would honestly probably handle 80% of their cashflow. Uh, maybe I'm being a little aggressive, but I think that's somewhat on.
00:12:40
Speaker
Well, nowadays people don't have pensions. Like big companies have found that those pensions are costing them a lot of money. So they have taken those pensions away. And so, I mean, we just talked to somebody last week that she looked at her pension payout this year. And then next year she looked at her pension payout and you would think it would have gone up because more time normally means more money.
00:13:06
Speaker
But in this pension, it was going down. So they were incentivizing this person to either take their pension right now or take the lump sum. So the way that you can do these pensions is there's probably a lot of options, but let's just talk about one.
Pension Options and Social Security Concerns
00:13:19
Speaker
You can take the income from that pension, which is monthly check from that company, or you can take a lump sum of a lot of money or money. Let's just say more money. Like one time they're going to give you a check and then now you can do what you want to do with it.
00:13:36
Speaker
So those are the two ideas, but a lot of times people just don't have that pension now. And with the state of the, I would say economy and where we're at financially, a lot of people are kind of looking at their social security is like, I'm a little worried about that. Like, so I want to quickly talk about the social security because I think it's going to be important and people have got to be thinking that like, is social security going to run out? Like, how does this work? So I'd love to hear your thoughts on that.
00:14:02
Speaker
Yeah, let's go into pensions. Let's stay there. How many pensions have been rated? Couple of things on pensions. I think if you have one, you need to understand. One, we just heard of one company, so we'll use them. They're a manufacturing company that has a pension. Manufacturing is very capital intensive. It takes a lot of money, a lot of equipment, a lot of labor.
00:14:26
Speaker
If something goes wrong in that, they need to raise capital quickly and kind of shore up their balance sheet. Well, one of the quickest things they can do is to get rid of their pension liability because a pension on a corporate balance sheet is a liability. It's an expense that they have to put money into.
00:14:45
Speaker
These pensions are built on assumptions of certain interest rates based on their investment portfolio. Largely, they're invested in fixed income, not stocks. As the interest rates have pulled down to near zero, it creates a lot of stress on keeping a pension funded. When that funding goes down beyond a certain level, the insurance company,
00:15:12
Speaker
basically administering the pension for the manufacturing company, calls the manufacturing company and says, hey, well, you got to put more money in. And if they don't have the more money on their balance sheet because of what's going on in operations or the economy or what have you, that makes the pension very risky. And so these stock market fluctuations and more importantly, these interest rate fluctuations have a tremendous pressure on pension calculations
00:15:40
Speaker
So it's really important that when you're looking at your pension, you've got to understand 20 to 30 year tail risk of what could go wrong in this industry or this business that this pension could go away or could be reduced. They can change the deal largely, especially if you haven't started income.
00:16:01
Speaker
That's just something to keep in mind. I think the other thing that we kind of tell people too from a pension standpoint is if you have a pension and you take the income route instead of the lump sum route, that's really not an asset to you from your estate perspective. So if you have a half a million dollar lump sum option on your pension,
00:16:21
Speaker
or you're gonna take $2,500 a month for the rest of your life, you can give, typically the pensions have like a spousal or a beneficiary where they get 50% or 75% of the income for their life, whatever option you choose. But once those two people have passed away, that money is gone. There's no money coming back in.
00:16:41
Speaker
to your estate if you didn't spend it all so the other advantage of taking the lump sum on your pension. Is putting that money with an insurance company whose sole business purpose is to guarantee income that's their business model not like a manufacturer. And now it's on your balance sheet because it's in a self directed ira.
00:17:03
Speaker
And now it's part of your estate, the half a million. And we could still use that to generate the $2,500 a month. So I think those are really important points to make, especially we're kind of shooting this video in the midst of this COVID-19 fiasco. And so it's going to put a lot of pressure on a lot of corporate balance sheets.
00:17:24
Speaker
totally bad there. Yeah, no, I think that's good. And I still want to go back to social security and what your thoughts are on that. But before we do that, here's the deal of where we've, we've kind of went after the insurance idea earlier in our practice because bonds were not the place to go as interest rates were going down. Um, it's just not as appealing to put safe money there anymore. Like I think back 20 years ago when advisors, it was like, just put them in bonds, like,
00:17:53
Speaker
And that was the right answer then. And what Brian and I found was the bonds weren't yielding a lot of interest rates. And so we had to figure out a new solution for our safer type money. And that's when we went to insurance products because it gave us a guarantee that it wouldn't go down. Um, and then maybe, you know, even if some guarantee goes up. So like the bond sleeve of a portfolio, an insurance product can. Exactly. And so that's how we use it. So I think that was just kind of a quick thing that I wanted to say. Yeah.
00:18:23
Speaker
Let's hit Social Security because we get this all the time. I don't know, at least once or twice a month, we get this question. And it's valid. I mean, I get it. I largely don't view UNI and just almost 40 years old getting Social Security, at least before we're 70.
Funding and Risks of Social Security
00:18:42
Speaker
But Social Security is really driven by the taxpayer. The government doesn't
00:18:49
Speaker
make money. The government taxes and corporations then tax, but all of the tax money comes from the people, the consumer. Businesses don't pay tax. You hear all the time like, well, Amazon didn't pay any tax on all their profits. That's true. They are doing things.
00:19:11
Speaker
to evade and get out of tax liability, but that's the way the corporate or the IRS code was written. Jeff Bezos, you can say what you want about the guy. The guy employs over 100,000 people and he's shipping products all over the world. There's probably almost not a more important company in the world to the economy right now than Amazon. I'm not heartbroken that this guy is not paying taxes because
00:19:39
Speaker
If he pays taxes, that means they're passing that to us, the consumer, and we're going to have to pay more for our goods and services from Amazon. The corporation will always pass the tax to the consumer. I bring all that up because Social Security comes from a payroll tax off of our wages.
00:20:04
Speaker
And so that money goes in to the federal government and our Congress, the people that have been in there for 35 to 40 years, and because we don't have term limits on these people, they've spent it all. And they've not only spent it all, they've spent an extra $25 trillion. That's where our federal deficit is today. So the money is gone and they've spent it. And so now it's a matter of future people working and paying in payroll tax to support.
00:20:32
Speaker
Social Security. With that said, and Warren Buffett just talked about this, it was actually a pretty humbling shareholder meeting from Warren Buffett. I grew up in Omaha. I've been to the Berkshire Hathaway shareholder meeting almost 10 times.
00:20:52
Speaker
Warren even talked about this a little bit of, you know, they asked him about, well, the dollar's going to hyperinflate. Well, he said, not really, because we can print the money in our own currency. A lot of countries in South America, for example, they'll issue bonds and dollars, but then they have like their own currency. Like the, I think Brazil uses the Brazilian Real.
00:21:14
Speaker
And so that creates a pressure when you're borrowing in one currency, but you're transacting in a different currency. But we don't have that problem. So our currency is the dollar and we're issuing debt in the dollar, which means we could really issue as much debt as we need to cover our bills.
00:21:30
Speaker
not saying that's ideal and they're printing money out of thin air. That's why we've done a show on gold, show on Bitcoin. That's why you should own other assets because that doesn't create inflation. But largely, back to the main point of Social Security, it's over. And like what you alluded to earlier, for the average American, Social Security is still like 45% to 55% of their monthly income.
00:21:58
Speaker
The other major demographic that's important to us as a country, we're kind of more top of mind with it because it's our business. 10,000 people a day turned 65 for like the next, I don't know, 13 years, however long it is. It's basically the baby boomer population. Think about that statistic. Actually, in light of COVID-19, it's kind of intriguing or interesting to think about. 10,000 people a day turned 65.
00:22:28
Speaker
And so if you're still talking about, I think it's almost like, I don't know, 60 or 70 million people in that demographic that are going to be going on to social security. And that's 50% on average of their monthly income that they need to survive.
00:22:44
Speaker
there is no way on earth that the US House of Representatives and Senate can cut Social Security totally out. They have closed a few filing options that have reduced the Social Security like annual budget or what they have to give out, like 9, 10 billion here, 9, 10 billion there. So they've closed a lot of the filing strategies that were
00:23:12
Speaker
you know, really unique that if you understood the system, you could get more money out. I'd say creative ways to get more money out of social security by taking your spouse's half of hers and then it was really creative. They've taken those away. So they've kept some of that creativity, creative stuff. That's a great way to put it, Phillip.
00:23:32
Speaker
But in large part, they cannot, I don't think they will reduce the social security benefit. I think what you will see is they're gonna bring it down to like, you know, the main standard filing ways that they're doing now to limit some of the creative stuff. And then they're gonna move the goalposts. And they're talking about that too, where, you know, for people sub 40, you know, it might move out to like age 70 or 72, because we're living longer.
00:24:01
Speaker
I think we've covered that in another show. When Social Security was created, I think it started at 62. I think it started at 65. They added 62 later for people. But the life expectancy at the time was 61. Well, now the life expectancy for men and women, I think roughly, it's like 77, 78 years old. So, I mean, it needs to change for sure.
00:24:27
Speaker
But for the baby boomer generation, largely they cannot change it because they know they will never get reelected. Sure. And so would you say if you are what age or older, you're probably okay. Like it's probably going to stay the same. I mean, we've heard this for, I don't know, I've been in, we've been doing this now for almost a decade. I've heard this for a long time, so I don't know if it's still true, but
00:24:49
Speaker
You know, a lot of these financial companies have lobbyists on Washington DC. And so they're trying to influence and update legislation as it benefits them, just like the banks do, just like the energy companies do, just like the healthcare companies do. And so what they've said, a lot of the preliminary legislation is that if you're over 55,
00:25:12
Speaker
They're not going to change the deal on you because you're too close. There's no way you can turn your ship fast enough to make up an extra, if they were to cut that in half, an extra $1,500 a month. That's a ton of money you got to come up with in a decade basically. So if you're over 55 and they make changes, I think you'd be good.
00:25:35
Speaker
Under 55, I think that's really honestly probably one of the fastest growing demographics of our clients are the people that are 45 to 53, 55, and they're just like, I want out. I want to be done. How can I retire at 60? I don't want to do this into my mid 60s or all of that. And so it's trying to help them move faster, get things organized and how can they
00:26:03
Speaker
how can they segue into retirement sooner than maybe they were planning on? So I think we go through all of that depth to kind of give you a lay of the land is like this money that you've now accumulated, you've got some choices, but they're kind of heavy choices at the
Evaluating Income and Risk Management Strategies
00:26:23
Speaker
end of the day. Like there's a lot of decisions that you need to be making. And so here's the biggest choice. Do you want a hundred percent guaranteed income with insurance products?
00:26:32
Speaker
that your money comes in no matter what. The downside of that is usually they're illiquid. Like you give them the money and then it's kind of like you can't really get more money out. There's some caveats to that, but let's just say very little liquidity. To the other side of non-guaranteed, where yeah, 100% liquid, but that account can go down and can fluctuate.
00:26:56
Speaker
Here we are. We're there. We're there. I think it's important too. And like we cover this in our retirement income ebook. You can download that if you want. It's at uncommonwealth.com backslash gifts. We kind of talk about this in there, but I think it's important when you talk about insurance, it's like what risk are we insuring? And your four major risks
00:27:15
Speaker
One is healthcare. So if you're sub 65, you probably have insurance through a corporation or we utilize Medicare for our families. But if you're over 65, you have Medicare and a lot of our clients on Medicare, they love it. Like it's simple. They get what they need, all of that.
00:27:33
Speaker
And so that is pretty straightforward. Then you have disability. Well, you're really not working anymore in retirement, so you don't really need disability insurance. So that kind of goes away. You have death benefit, you know, we're all guaranteed that we're not going to live forever. So you do you want permanent or whole life insurance or do you want term insurance just to cover a period of your potential retirement? And then and then the last risk, well, not the last risk, but the last kind of health life related risk is long term care.
00:28:02
Speaker
or critical illness if you go into a nursing home, that type of thing. We've all heard those stories about grandma and how much it costs and it's real, it's very expensive. And then from there, on the investment side, you have longevity risk or income risk. Like, am I gonna run out of money? Your actually biggest risk in retirement is longevity. A married couple in America right now, statistically, 50% likely that one spouse lives into their 90s.
00:28:32
Speaker
So if you're retiring in your mid-sixties, it's 50% chance one of you could live 30 years. That's a long time to plan income with no job, no money coming in outside of your investments. And so those are the main risks that insurance is protecting.
00:28:51
Speaker
And then it's a matter obviously of working with you, the client to like how much of these risks weigh on you or impact your decision-making and how much do you want to plan for each of those eventualities or not. The ones I don't think you can ignore is income, right? Like if you don't have money coming in, the rest of them are kind of a moot point.
00:29:15
Speaker
And so that's really where the annuity decision or income guaranteed income decision comes into play. Yeah. So.
00:29:25
Speaker
Let's say the average person, and I'm just making this number up, has $400,000 in their IRA or their 401k or retirement plan, and they come to us. I think there's an interesting caveat to say, the first thing that we'll ask is how much do you need every month for you to live comfortably? You're not going on a vacation.
00:29:48
Speaker
Every week you're not traveling the world but like on average, I mean you can go on some vacations But like what is it that you are averagely spending? We got to know that like that's important for us if they say that they're only spending three grand But in all actuality, they're seven. They're spending seven like you can see how this is a problem So if they say hey on average, I'm spending about five thousand dollars a month That doesn't include debt reduction house payment like trying to take that out of that but like five thousand dollars a month
00:30:18
Speaker
then that's when we'll go to, okay, what assets do we have to work from, right? We have the 400,000. Do we have like, let's say, Social Security, how old are you? Let's try to maximize that and try to eat into some of that 5,000 with other people's money because I mean, other people money you've been paying.
00:30:35
Speaker
long time so let's try to maximize that as much as we can to eat into some of that monthly budget that you need but first things first you gotta know what how much you need and if you don't know that I'm telling you it is a liability to liability so for sure find that first then come to us or or somebody you need to come to us but
00:30:57
Speaker
somebody and just tell them this is how much monthly I need. And then the next question that we all have is like, okay, since we have $400,000, let's talk about the rule of 4% for our listeners.
00:31:10
Speaker
Yeah. And I think the last thing I'd add on budget is I think most people generally do know what they spend a month. Like if you say, yeah, I spent, we just need five grand a month. I think in large part, most people at that age, like know that's true. I think the difference is, is like, Oh, we need a car.
Handling Unexpected Retirement Expenses
00:31:26
Speaker
Oh, we're going to give the kids some money. Oh, we want to go on a trip.
00:31:30
Speaker
out of the roof, you know, and it's like, man, you do three or four of those things in a year or two years. And it's like, it alters the numbers quite a bit. And so it's like, are you going to be doing this every two years or is this just like an anomaly of, you know,
00:31:45
Speaker
wanting to take care of things or things are happening. You know, obviously life happens, but it's that extra stuff that I don't think people really take into account. And when you retire, that stuff has a massive impact because you're not working, you're not getting that additional cashflow.
00:32:01
Speaker
to compensate for those expenses. And so, you know, unless you have that as part of your plan, but a lot of people just don't think about that stuff. And so I just wanted to close the loop on that. Totally. And I think there's I love this. I'm just going to give credit. I don't we're with some older people. They used to say older advisors. And I love this point that they made. They said there's three phases of retirement.
00:32:26
Speaker
Remember? There's a go-go stage where you are like, go, go, go. There's a go-slow stage where things are starting to slow down and then there's a no-go stage. And obviously, cashflow is different for all three of those. And so, I think to balance that go-go stage with, yeah, you feel healthy. I mean, you're healthy. You're rocking and rolling, have a lot of money. It's time to live and love.
00:32:51
Speaker
and go, but then there's also a time of like, whoa, now you're going too fast. Too much go-go, too much go-go. So, go-go, go-slow, no-go in retirement. Okay. Yeah. All right. So, yeah, $400,000. We got this client that is looking to retire. We're looking at their social security. We see that maybe $2,400 is coming in from social security. We can figure out the whole Medicare situation.
00:33:18
Speaker
for them. So healthcare is kind of a balance there. And then we really want to say like, okay, how, what's your risk tolerance? That's when we go to risk tolerance and the 4% rule. So, all right, let's go to the 4% rule. Yeah. So the 4% rule, just basically a lot of math has been done. Um,
00:33:37
Speaker
I think it was done in the 70s or 80s but it basically said how much could you take off a portfolio. A lot has come out lately that has suggested that study that generated the 4% rule is more for institutional investors like pensions and things like that and largely
00:33:55
Speaker
Not saying it doesn't apply impurity to personal retirement income, but it's not really what the study was designed to test. But to explain it, it basically means that you should only take 4% off of a portfolio of income if you don't want to run the risk of it running out of money. And so if you just think about it, 100 grand at 4% would give you $4,000 a year of income sustainably.
00:34:22
Speaker
Now, when you hear that, you're like, oh my gosh, I need $2 million to live. And that largely may be true. And it comes down to what Philip said, it's all about your budget. And if you are spending 120, 150, $250,000 a year and you want to keep doing that, you're going to need a lot of money.
00:34:40
Speaker
But if you're spending five grand a month, and that's largely what it is at the end of the year, 50, 60 grand, you don't need millions and millions of dollars to retire. If you have social security, if you have a pension or something else.
00:34:54
Speaker
So that 4% rule is just the withdrawal rate based on the probability of you potentially running out of money. And Philip, you kind of alluded to earlier in the show, if you take, you know, negatives, negative returns upfront, when you start taking the income out, it acts as like a double
00:35:14
Speaker
double effect on your withdrawal rate. If you're taking out four or 5% on 100 grand and then the market goes down 20% and you take that and now you're down 25%, you just turned 100 grand into 75 grand in one year. It's very unsustainable potentially. If your portfolio doesn't recover, the market doesn't recover. So that's what the 4% rule is. And it's a quick way to kind of just gut check where you're at.
00:35:42
Speaker
And so I would say for the $400,000, $16,000 a year is that 4% rule. So you have that. So now it needs to be like, okay, like obviously $16,000 plus the, so what's that a month? Let's just quick do that. It's like $1,300 a month plus the $2,400 for social security. You're at $3,750, let's just say.
00:36:08
Speaker
a month and we need five grand. So there's a gap there. So now we really need to talk about like, okay, what can we do to figure this whole thing out? Do we want to do more guarantees that will give us what we need?
00:36:26
Speaker
Do we want to try to get a little higher rate of return? And that's why it goes to risk, right? What is your risk? What is your family's risk? What are you and your wife's risks? What do you need this money to do? What other assets do we have to play on? And that's kind of the whole basis of this thing.
00:36:44
Speaker
Guaranteed income for Brian and I just know that it does give people peace of mind. It does. It's that paycheck and then play paycheck money for us that our clients really do like when all their money or their base need is all guaranteed. So everything else is coming in. They feel like they can do fun things about it or do other things. So yeah.
00:37:10
Speaker
The other thing, like if you do more of an investment only retirement income strategy, like where your money is largely gonna be in the market, you don't really want to secure a death benefit or long-term care, you have to understand that we call this phantom liquidity. Let's say you have $2 million in your 401k and you really don't need that much income off of it. You know, you have a pension, you have social security,
00:37:37
Speaker
It seems like a lot of money, but when you look at it that way and you're not carrying a death benefit to your grave with like, you know, whole life insurance, you know, there's a difference between whole life term and permanent life. But let's just focus on whole life because it's, you know, 100% guaranteed.
00:37:57
Speaker
If you don't carry a death benefit in retirement through an insurance product, psychologically you're going to view that pot of money as your death benefit too. So it's serving two purposes. One, income. And we kind of call this, this phantom liquidity is like that 2 million, if it's set aside for income, it now has a job function. And then if you don't buy insurance to help fulfill your legacy, it now has two job functions.
Insurance Products for Income Sustainability
00:38:26
Speaker
And so it not only needs to produce the income you need in retirement sustainably, it is now also the money you're going to leave behind, you know, in large part to your heirs. Now, if you have a home, you know, maybe you could sell your home or some possessions, I don't know, collectibles, but let's just focus on the main thing. Then if you don't buy long-term care insurance, which, you know, you have the right to do, now that pot of money is doing three job functions.
00:38:51
Speaker
And so that's really what you've got to start thinking about. If you had something major happen and you had to pull out a hundred grand of that money and now it's at 1.9 and like, you know, the stock market goes down 20, 30% and the way you were allocated, you took a large portion of that downside. And let's say you need 50, 60 grand a year to live off of off that money. There is a lot of pressure on that pot of money to do a lot of things for a long period of time.
00:39:21
Speaker
I don't know a lot of our clients, it just doesn't seem like that's how they want to do retirement. And the peace of mind that comes from having a whole life policy that can facilitate death benefit in the event of your death can facilitate, you know, critical illness or like long-term care type money because you can spend down the death benefit. If you go into a nursing home, all that's built into the same product.
00:39:44
Speaker
And then, oh, by the way, you have cash value inside the whole life policy too that grows compounded, you know, free of tax guaranteed because you're largely not getting any interest on cash in the bank. Well, that whole life policy is doing three things for you with the same money. It's acting as liquidity for cash. It's acting as a death benefit to give you kind of like that hall pass permission slip when you had to go to the bathroom back in the day at school.
00:40:09
Speaker
Give you the permission to spend down your investment money because you have a death benefit that's guaranteed and then oh by the way if you do go into a nursing home you can access the death benefit that way you know before you pass away. It's doing those three things so now your investment money. Is just all it's only core focus for job is income.
00:40:31
Speaker
And so that's really how insurance can take a lot of pressure off your investments and actually probably give you more money because now you can be more aggressive in the market, which is counterintuitive and when you retire because you have the insurance risks created on the other side.
00:40:50
Speaker
So that's kind of how we want people to think about it. And you don't think about it largely in that way as you're accumulating wealth because we're just young, we feel like we're not gonna pass away, nothing's gonna go wrong. We're optimistic about the future, we have a good job, we have good income, we're saving.
00:41:09
Speaker
And when you stop getting income in, that whole kind of script flips a little bit in terms of the financials and how all this works. And the risk is shifting constantly as we age too. And so it's just important to keep all that in context.
Maximizing Retirement Funds and Conclusion
00:41:23
Speaker
And our job, honestly, is to just lay all of these things out. Like some of these things that you might not even think about as like a long-term care or income risk. Our job is to try to make your money the most efficient way possible.
00:41:38
Speaker
And sometimes it is to have multiple uses on your money and not just one use like Brian's talking about. So we hope that this episode was, one, enjoyable and too informative to you of kind of laying all this stuff out. That's kind of like a little glimpse into Brian and I say my head when we start talking about retirement is there's a lot of pitfalls that we want to try to help
00:42:01
Speaker
navigate our clients through. And so if you have any questions, you can always go to www.uncommonwealth.com. Click on free consultation. We would love to talk through some of the ideas or some of the questions that you have. That's what we love to do. I love those 15-minute calls and a lot more people are starting to take advantage of that.
00:42:23
Speaker
which is fun for us because our job is to serve you and put you in the greatest place. And then also I'll just say that if you got through this whole thing and you're not in the income retirement age or retirement like downslope or whatever you want to call this, you know, like this is this is
00:42:41
Speaker
probably eye-opening as well as probably strengthens our philosophy of what are you going to do in retirement? And I have a feeling you're probably going to be working, but just doing something that you love to do. And so how do we get you to that point faster?
00:42:56
Speaker
That's our job, right? And our job is to make goals and help you achieve those faster and unlock how you uniquely gifted. And so I'm really grateful that you took the time, listened to our show, always am. Thank you for rating it. Thank you for just all the feedback that you've been giving us. I mean, it's enjoyable for both Brian and I to get on this for 40 minutes and just spit back and forth some stuff that I hope is helpful to you. But any closing thoughts you have, Brian?
00:43:26
Speaker
No, just go forth and be uncommon. And yeah, like you said, we're always here to help and serve and love talking to people and walking through their different personal situations. Thanks for listening. You've been listening to the Uncommon Life Project. I'm your host, Philip Ramsey. And I'm Brian Dewhurst. Have a great day. Thanks, everybody. Goodbye.
00:43:43
Speaker
That's all for this episode of The Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.