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Episode 51: Retirement Income – One Size Does Not Fit All with Phillip Ramsey and Bryan Dewhurst
171 Plays6 years ago
At the end of the rainbow, you need to have a pot of gold. We’re talking about that 800-pound gorilla, retirement income. How do you build it, how do you get it when you need it, and how do you make it last?
In this episode, it’s just Bryan and Phillip talking together about these retirement income questions and more. There really is no one way to build up income for retirement, but there are some concepts to understand and strategies to decide on sooner rather than later, depending on your personality, job situation, risk-tolerance, and other factors.
How do you fill in the gap between what you’ll be getting from Social Security and maybe a 401(k)? That’s what we’re talking about here. People these days often have 30+ years of retirement to account for, so having a plan for retirement income is a big deal.
We’ll share with you several retirement income systems that people have used over the years, so you can understand which one – or a hybrid of several – might be right for you.
what you will learn in this episode:- Three basic ways people deal with retirement income
- Strategies for making your money last through retirement
- Why no one retirement income philosophy is one-size-fits-all
- Understanding the three phases of retirement
- What the “retirement red zone” is
- How to use a bucket strategy for retirement income
- Why $1Mil in a 401(k) might not stretch as far as you think
- 4 factors that could affect your retirement
- Why inflation is such a big factor in your retirement planning
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Transcript
Podcast Introduction
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. Hello and welcome everybody to another episode of The Uncommon Life Project, where I am your host, Philip Ramsey. And I am Brian Dewhurst. Thanks for tuning into another episode of The Uncommon Life Project. We are super grateful that you are tuning in. Thanks for the feedback that you guys have been giving us. I'd say people, folks. I say guys a lot. I need to stop that.
00:00:55
Speaker
Folks have been listening to you. That's really encouraging to us. And I know you guys are getting a lot out of it.
The 800-pound Gorilla: Retirement Income
00:01:00
Speaker
So that's helpful to us. So this episode... Big time. Big time. And here's why. Because at the end of the rainbow, you always got to have a pot of gold. And that's what we're going to talk about. We're talking about the 800-pound gorilla retirement income. Dum, dum, dum. Love it. We've got to start adding music. We got to get some... Because I can't be the one anymore. Right.
00:01:25
Speaker
Might sound horrible, but anyway, this is your first time tuning in. Brian and I are financial advisors with a little different slant on life. What we really think, and we live and breathe this, is we believe that our clients are their best assets.
00:01:40
Speaker
wherever you're at, you're valuable, you have gifts, and we want to try to pursue those. We want to try to bring those out of our clients.
Client Types and Income Sources
00:01:48
Speaker
And once we do that, we'd like to maybe follow suit with your money. Start aligning your money with what you're excited about. And this is where the traditional retirement, I think, is where people
00:02:01
Speaker
lived. Like what do you want your life to be like when you retire? And really that's a really good question to figure out what you're excited about because chances are you're going to be working or you're going to be doing stuff. You're going to be engaging. Even if it's like going out to golf every day. Well, for me, that's a grind and there's no way I do that. Right? Like you're good for about eight holes, eight holes at best. Uh, and then, and then it's just like drudgery for me.
00:02:24
Speaker
Well, but for other people, it isn't, right? And so what we want to try to do is really unpack that gift and excitement level that people have. And then we try to pursue that with their own money. So I would say that we should probably talk about three different
00:02:40
Speaker
patient types as we will. I was a pharmaceutical rep, I go to patient types, but client types and kind of start bucketing these people a little bit. So the first one we're going to talk about is the person from zero to 60 that have been like really pulling up and saving in retirement accounts. That could be 401ks, 403Bs, but they have been working someplace and then putting money on the side.
00:03:06
Speaker
and just saving money over time and letting the market do what the market does. And then they're ready to retire. So let's just say that's patient type one. Okay.
00:03:17
Speaker
Patient type number two is a person that has a side hustle, but also has another full-time job and has a retirement account. So kind of three tranches. I'd say that person is dabbled into like one of the seven sources. They have a rental property. They've tasted rental income or yeah, they have a side hustle. They've got a food truck or I don't know, you know, like they have other income.
00:03:40
Speaker
outside the main day job. Perfect. Thanks for the clarification. And then the fourth is... Third. Yeah. I'm sorry. The third, C, will be the person that really doesn't have a retirement account and has put all their effort and energy on the seven sources of residual income or just starting businesses. Basically, they're not doing the stock market.
00:04:02
Speaker
Because we have clients like that. I mean, they're full on business owners, real estate. They think the stock market is a little bit of a hoax. We can unpack that more in the podcast. But yeah, they're all in on the other side. And no matter where you're at, it's not wrong. It's just where you're at. So we're going to take it where you're at. We're going to give you cast some vision to moving forward.
00:04:22
Speaker
And I think the reason that we're trying to approach this conversation this way is because even the person, I would just say on the left or, you know, uh, person C, I would say person C, even if like you never invest in the stock market, you're still going to have to deal with social security, Medicare inflation. Um, you know, do you want life insurance or do you want long-term care insurance? Like some of these different things. And I'm not saying everyone has to buy those things, but,
00:04:49
Speaker
These are decision points that you're going to have to choose and make a decision on as you age. And so it's that melding of like kind of the conventional financial planning that we're hearing so much about on TV versus what we're trying to spread the message to is the seven sources. There's so many different ways to make money and build wealth outside of the stock market. But as you age,
00:05:12
Speaker
can you come to that critical point of like i don't you know if i want to do all this anymore i've built this thing up and i'm gonna live off of it. These these decision points are gonna meld together no matter what how you approach that from the get go you're gonna have to start dealing with some of these factors and that's what we want to highlight are these decision points and variables.
00:05:34
Speaker
I also want to address something very obvious right now. Normally Brian and I like to do a 25 minute podcast and try to talk as fast as we can, like I'm doing now. But instead of doing that, we are going to slow down and walk through this because this is kind of a big deal. It's a huge deal. Give me a long one.
00:05:49
Speaker
It's going to be a longer one. We're going to try to keep it concise and, uh, we're trying to give you right hooks all the time, but it could be a little wordy. So we'll apologize now. So let's get into it. Let's talk about a one or patient type. Number one. Uh, this is a person that has had a day job and has been not grinding, but, uh, maybe loving their life and enjoyed their career, corporate America. They're rewarded, but I'll say this, that they've never had their money work for them up to this point.
00:06:18
Speaker
Like they've never had to live off of their money. Right. Yep. I think, you know, when you look at investing in the stock market and this, this, uh, you know, patient type as we're calling it, they've seen their money work. Cause it's like, Oh, my 401k is way up right now. You know, we're shooting this at basically the all time high of the stock market. So they've seen it that way. But now when you transition to retirement, you're going to income, not necessarily growth. And so for that thing,
00:06:43
Speaker
those things are different. And so that's where the, that's where the maybe tension lies for that person is like, how does my money keep going up and how do I take from it?
00:06:53
Speaker
without running out. Absolutely critical point. And so I call this a big curb. They've got a big curb that they need to figure out pretty quick. And it's now getting income off of the money they've accumulated. Right. And for this analogy, we use kind of like the Indiana Jones when he's looking over that chasm and he can't see anything. In theory,
00:07:15
Speaker
there should be a board there. Yeah. Yet he hasn't done it. And so that leap of faith or that step out, it's going to be a little scary, right? Um, but it is where people are at. And so to talk through that is important. I want to make that really clear. And what we're saying is scary is like, let's just say you're making, I don't know, $7,500 a month, like net hitting your bank account from your job or 10,000. It doesn't really matter. And, but you've never really gotten income any other way other than working.
00:07:42
Speaker
And now you're looking at stop working and so your money needs to go from basically zero to seventy five hundred or whatever you decided your income need in retirement.
00:07:55
Speaker
you're trying to buy all of that off in the first month, because there's no real other income coming in. We'll get into Social Security and pension income and maybe that is a segue, but that's a big step to take for a lot of people. It is. And so I will say this before we just jive into this one current, I'd say client, this is consistent over all three, A, B, and C, one, two, and three.
00:08:22
Speaker
It's budget. What is it that you need to live off of every month? That's pretty important to know. And if you don't know it, the person that is in A or patient type number one, that's scary for Brian and I to enter into. Because if they say, yeah, I need 7,500, but they actually need $9,000, that's a big difference. And we were talking about over the course of potentially 30 years, that's a huge
00:08:50
Speaker
But that could be a huge problem for all of these cases. And so knowing your budget is absolutely critical. And I think the other variable that's important that you talk about is if you can tell me what you need a month and then when you're going to graduate or when you're going to pass away, I'll give you the best retirement plan.
00:09:11
Speaker
We're going to nail it. Nail it. And so if you don't have both of those key variables understood and known in one of them, you just can't. Right. So you got at least get 50% of that equation and you should be pretty spot on. Right. Or else your retirement is going to be a little bit an uphill battle. And so that's consistent over all three. Right. And I think to go to patient type B or number two,
00:09:34
Speaker
the person that has, let's just say like two rental properties and they have some 401k, 403b retirement assets.
00:09:42
Speaker
Person A is gonna have Social Security. Hopefully maybe they have a pension, maybe not. Most, I'd say it's probably, I think from our clients, maybe 30, 40% have a pension. Yeah, I'd say 30, more, closer to 30. Not many people have pensions. Not many. And so that person in the middle is really great because they've probably, their budget's a little tighter because they're running some sort of side hustle and they gotta keep track of their numbers. They're used to producing income on their own. That chasm's not as big.
00:10:11
Speaker
back to our Indiana Jones, and then they're going to have social security. And you know, maybe their spouse has a pension or something like that. And then the person see from what we typically see is, you know, they, they're typically, I want to say control freaks, but
00:10:24
Speaker
you know, they've done it on them. They've done it on their own for so long. They really don't trust people like us, but they have to make some of these decisions. And so it's hard for them to cross over to like, well, I don't trust any of this stuff because I've never, you know, I've never really done it. You know, obviously they probably had health insurance, they go on Medicare, but, uh, but they'll have some form of social security. And the funny thing is they look at social security like a bonus. It seems like for the most part, we're probably generalizing some things, but
00:10:53
Speaker
But i wanted to frame that and so yeah and then the two biggest variables tall three is how much money do you need a month and do you really know that number. Have you really fleshed out like hey i want to go to europe or i want to go to hawaii or. You know being honest with yourself for those things and then when are you gonna graduate. I want to pay but here is this
Retirement Income Strategies
00:11:12
Speaker
we did create an outline for this because it's such a big talk but i wanna throw one in here.
00:11:15
Speaker
The other thing that we've seen, and a lot of other advisors echo this, retirement is really broken up into three phases. And when you're looking at retirement in the context of America today, you're really looking at retiring in your mid 60s. Statistically right now, if you're married, you have a 50% chance that one of you, your wife or you, is living into your 90s. So I mean, you're really talking about
00:11:45
Speaker
Living for thirty years in this retirement space and that is broken up into three phases we call it the go-go phase you know typically you're healthy you got a pile of money you want to do stuff i want to travel i want to see the grandkids i want to see mount rushmore whatever next is kind of go slow. So you're either in probably your middle eight seventies everybody's different i'm not trying to put anybody in a box here.
00:12:10
Speaker
maybe mid 80s, but you're slowing down. You don't want to get on that plane. You don't want to get on that boat for the cruise. You're more, you know, locally, geographically, you know, you don't want to go out basically as much as you used to.
00:12:25
Speaker
And then the last phase is the no-go, like you're not really going anywhere, you're kind of in the last phase. And so in that, we're trying to take all these variables into account for each one of our clients as we craft kind of like a plan, an income plan. So I think it's important to kind of look at those three phases and look at the fact that 30 years is a long time. Absolutely.
00:12:49
Speaker
Okay. So let's talk about, and we've touched on it a little bit in this time, is the guaranteed income for almost all three of these. Right. But there are social security. If you have a pension, and then normally you have some type of investments, even if it's rental properties, you got investments that you're already pulling income off of. Yeah.
00:13:11
Speaker
So then just trying to walk through our process, high level, it's typically, you know, getting to know you. We would get to know your meeting and then it's like starting to get your numbers. Most people, you know, it's great for them to like go through a budget because I'd say six or seven out of 10 people are like, I haven't done that in a while.
00:13:27
Speaker
And so it's more of an exercise and then a lot of people are dialed in on it and they know exactly what they need because they've been thinking about it for a while. And then it's starting to go through, okay, what does your social security statement say? We use system software and a group that basically can model each person's social security options out because everybody is different. And if you think about it, like once you hit social security age, you could literally file almost every day.
00:13:55
Speaker
So there's just so many different filing strategies, depending on if you're married, if you're widowed, if you're remarried, if you're divorced and remarried, they're just, it's crazy. So we're not saying we're experts in that. We go and take you to an expert to help you look at all of your different options. So that's good. And just pensions, they are what they are. Um, some people like really like them. Other people are very skeptical of the business that they're getting those pensions from. And so that's also a variable that you have to take into account.
00:14:25
Speaker
And then we have investments to cover the gap between social security and pension and what you need to live off of right so that's kind of the chasm. I think this would be good to like so patient type a is gonna have social security the hope that you know if you're married to spouses social security and maybe there's a pension in there.
00:14:45
Speaker
Um, so that's like your foundation. Yep. And let's just say that as up to five grand a month, but you need 7,500. Yep. So really there's no other rental properties or anything like this for creation a and all those are taxed by the way, right? All those are taxed. And so then we got to say, Hey, from your investments, we need, you know, on a net basis, $2,500 a month. So on a gross basis, it's going to be more than that. Um, so that's just the basics of how we kind of frame this in. It's not really rocket science.
00:15:15
Speaker
Yeah. So patient B would be those same income streams, you know, social security, hopefully pension. And then maybe they look, I like, let's just keep using a rental property. Cause it's like, they're used to that. They're probably not going to sell it. They got it figured out. And then you have that. And now we need maybe only, let's just say you have $500 a month from a rental property. Now we only need 2000 net from your investments as opposed to the 2,500.
00:15:38
Speaker
And then option C is the guy is like, well, I'm still going to just keep doing this, but I might need Medicare. He's got 75 or 10 grand coming in a month. He doesn't really maybe need all these different things. Uh, he's not looking for his investments to close some sort of income gap yet. So yeah, if he does, then he has to make something really efficient quickly.
00:15:58
Speaker
Okay. So I think we can go to the philosophies of retirement income in this phase. Right. It would be helpful because there's different philosophies that advisors will use. Right. And it's fun just to talk through each one of them and why they are what they are. Right.
00:16:14
Speaker
And I think it's been interesting for us because each client comes to us almost with their own philosophy or they're reading stuff online. And it's like, well, I thought I would just do this. And it's like, well, you can do that. Like, are you going to do that yourself? Or do you want us to do that? So I think it's part of that. So the first main philosophy that I think was really crafted out of
00:16:40
Speaker
I just want to take one quick step back. When you look back at the forties, the fifties and sixties, social security was created in the United States in the 1930s, uh, for the great depression. And in large part, those, those companies back then had pensions. Um, we had sound money, like our dollar was backed by gold, all these different things. And so they didn't need a lot of money from their investments. Like that was a large portion of their income.
00:17:09
Speaker
Now the script has flipped where Social Security and some of these guaranteed incomes is becoming a lesser portion of people's income need. And they're needing to rely more on the residual income or the investment income. So the philosophy that we want to touch on first was systematic withdrawal, which I think in large part was started by a lot of the mutual fund companies. It says, hey, if you own these mutual funds with us, you can pull off 4% to 5%. And over time, we've historically been able to grow at that rate.
00:17:37
Speaker
and you could just basically live off the egg. If you've got a golden goose, you're just living off the egg, you could sell shares, you could be selling principal of your investment, but the growth and income of that portfolio is going to sustain you over time.
00:17:55
Speaker
what, you know, a lot of the data is happening. And then we had 1999, 2000, and then we had 2007, 2008, 2009, we had basically to almost, you know, 50% collapses in the stock market within a decade. And that through that philosophy, like totally out the window.
00:18:12
Speaker
So then really where our industry went was basically in a high level is called flooring. And it's basically saying, hey, to that patient type A, you need $2,500 a month to meet your income need. Let's just guarantee that with some sort of income rider, variable annuity, you know, whatever, some sort of insurance product. Because pensions at that point were going away quickly because of what happened in the market. And for whatever reason, they knew they could be more profitable with
00:18:41
Speaker
out those. Right. So they went away with it. But people still needed that income and they needed a guarantee to the income because they weren't ready to take their money and 50% of it be lost. Right. So that's why they went to that. Keep going. Totally. No, that's great. And Wall Street figured out that they could come in and strip out a pension by a company, get rid of the pension and then sell it for parts. And so a lot of these pensions have just been been cashed out, unfortunately, by Wall Street. And nobody's talking about that, in our opinion.
00:19:08
Speaker
I think the other thing you got to understand is when you go to a financial advisor, like if you go to an Edward Jones type company, I'm not trying to bash them, but I'm trying to just show you that we're all taught a different way. And if you go to a securities type firm like a Merrill Lynch, Morgan Stanley, Edward Jones,
00:19:27
Speaker
they're wanting to solve retirement income from like a investment-based non-insurance product philosophy. So that would be like a systematic withdrawal. We'll get into bucketing here in a second, but where you don't need an income guarantee to make up that gap.
00:19:44
Speaker
Now, if you go to a different company that is insurance-based, like Ameriprise, I would say, or Northwestern Mutual, Guardian, some of these other thrivent, they are going to try to sell you an insurance-based securities product, like a variable annuity or something with an income rider.
00:20:02
Speaker
because that is how they make money. And I'm not saying one is right or one is wrong, it's just the reality of the situation. And so you got to understand, and it seems like a lot of the people we're meeting, client wise, they have a pension, like, I don't want an annuity, like it's a dirty word, or
00:20:20
Speaker
they're, oh, this would be great. I don't want to lose money and they get it. And so I'm not saying one's bad or one's good. It's just they're different and you need to understand the way you're wired. And I would say the people who have, they're barely eking by into retirement for patient A is the more income you may actually need to guarantee. Right. Because if the market does take a hit and all your accounts go down and you need a withdrawal of X amount of money, man,
00:20:48
Speaker
you are going to draw dead. And the earlier you take a negative in retirement, if you're there, that's the biggest hit to your overall plan. Yeah. And I think what you're referencing, I think a lot of people have maybe heard it is, I think it was coined the retirement red zone. It's the five years preceding retirement and the five years after retirement. If you're taking substantial losses and taking withdrawals and paying taxes,
00:21:13
Speaker
and not putting new money in, it can have a substantial impact on your overall retirement plan. Yep. So the next one, we kind of talked about flooring. It's basically trying to guarantee that income gap we were talking about. The next one is bucketing. Bucketing is really, let's just say you have a million dollars in your 401k instead of looking that at one pot and living off of it, kind of like the systematic withdrawal approach.
Risks and Considerations in Retirement Planning
00:21:38
Speaker
you know, kind of what the process or philosophy is, is viewing retirement. We've already established it could be a 30 year time span is breaking that up into five year segments and looking at what income need you'll have in each of those five year segments based on when your social security triggers, a pension triggers, you sell something, how much the stock market goes up or down, how old you are, all these different factors and saying, well, we only need a smaller amount.
00:22:05
Speaker
for this first bucket and, and kind of seeding that bucketing is actually really hard to explain without a visual aid. So hang on, isn't the best for a podcast, but it's breaking that pot of money up and then investing it into different risk tolerances to protect your income need over time.
00:22:23
Speaker
So let's talk through that a little bit because I think I can help clarify that in our, in our example, we're saying 7,500 and we have 5,000 coming in from maybe both of their social securities. And let's say one of them has a pension. Sure. It's 5,000, but they need 7,500.
00:22:39
Speaker
So in this bucketing strategy, you would take 2,500 times 12, however many years where you need that to be. So let's say five years, and that would be in bucket number one. That would be in very conservative, if not cash, because they need that for the next five years. Very limited downside.
00:22:57
Speaker
Yep. So when we go to bucket number two, that bucket number two, that money is four, six to 10 years. Right. And so instead of multiplying 25, you know, a hundred, 2,500 times 12 times five, you might be able to put a little bit less in bucket number two because you have five years to grow that number. Yeah. We're not going to take any withdrawals out of bucket number two.
00:23:19
Speaker
Yep. And then keep doing it for bucket number three, number four, number five. But as you go out, you need to seed it less because you have more time for it to grow in the market. Yeah. And it also then puts, I would say, time and interest a little bit more on your side because for the longest bucket in 25 years, you don't need to touch it. You can be way more aggressive. Right. Because you can now take the ups and downs of the sideways longer. Right. And so to manage those, each one of those buckets is, is, yeah, it's interesting.
00:23:48
Speaker
It's definitely a strategy that people are using. And the risk that we're trying to mitigate, and I think maybe we should do a little better job of talking about the risks of each one. The risk we're trying to mitigate is withdrawal risk. And in conventional financial planning, it's saying, especially with more of a systematic withdrawal approach, it's saying, you should really only take a 3% withdrawal rate
00:24:07
Speaker
out of your money if you want it to last 30 years. Well, if you have a million bucks and you're only taking out 3%, that's only 30 grand a year. But that's being taxed. Yeah. And that's, that's before taxes. And so if in this example, this is actually good that it works out this way. $2,500 a month is actually $30,000 a year. So in that, if you're taking that out off the million, but you haven't paid tax yet, like you probably don't have enough income.
00:24:32
Speaker
And so what we're saying is that the market goes down 30% and now you're at 700,000 instead of a million, but you still need to take the 30 out. Well, that withdrawal rate now is a much higher than 3% off the 700. And so that's the risk we're trying to mitigate with the bucketing strategy.
00:24:48
Speaker
And I think that's going to be a shock to some people who hear that if you have a million dollars in your 401k, you're a millionaire, but all you can take is $30,000 a year. Like, wait a second. That doesn't seem like it computes. Right. And that's, you know, that's what the data is showing us with the volatility that's taken place over the last 20 years. And so
00:25:08
Speaker
Then the last strategy really is a simple rebalancing. I think it's a hybrid approach between bucketing and between systematic withdrawal. It's saying, I don't need an income guarantee from an annuity product, but I don't want everything in the same portfolio. And if you look at systematic withdrawal, you typically have a 60-40 split stocks and bonds, 60% stocks, 40% bonds.
00:25:34
Speaker
What this last simple rebalancing strategy is, is basically saying, hey, we're going to have 60% in stocks, 30% in bonds, and maybe 10% in treasuries. The problem is the treasuries don't really pay anything anymore. I think like the two in the 10-year treasury around 1.8%, 1.9%.
00:25:50
Speaker
not ideal for your money. But anyways, it's basically saying, hey, if we need that 30 grand a year gross or net, whichever, we're going to take that out of the bucket that's not down. So if stocks are up 25%, yeah, let's take our income out of the stocks. If stocks are down 20%, but bonds are up 10%, then let's take it out of our bond bucket.
00:26:12
Speaker
And if both stocks and bonds are down, then we're going to take our income out of the treasuries because there's no loss. And then at the end of that year, a certain point, we're going to rebalance that portfolio back to 60, 30, 10 to replace the treasury cash, to maybe put some more money into stocks, because maybe stocks now are down to 55%, to take some of that money and rebalance it and invest into the low of the stock market going down.
00:26:40
Speaker
And so those are the four, I would say main philosophies. I think the other one that I've heard in terms of just trying to go through all the ones that we've heard that I think, you know, people are reading about is there, I would say is the fifth one of saying, I'm going to just invest in dividend paying stocks. I'm going to live off the dividends and interest. And then over time, the shares should appreciate. And that's, I think kind of similar to a systematic withdrawal approach because you're probably going to need more than the dividend rate.
00:27:09
Speaker
The average dividend rate on the S&P 500 is like 2%. You could build a portfolio that has 4, 5, 6 average percent yield, if you will. But then you're taking more capital appreciation price risk with that strategy as well. And I think if you got lost there, sorry about that. But here's the deal. There's philosophies out there. Different ones.
00:27:32
Speaker
And I think it's important to go to somebody that understands all three or all five or all four, um, just so they can come match your plan with an objective lens and try to get the best one for you. Right. None of them are wrong. Right. And they all are valid in their own little area, but what's right for you. That's where you got to really listen and pay attention to know the client. So definitely.
00:27:56
Speaker
All right, so now let's talk to the person that's got a business on the side, got a pension social security. How does he engage in this approach? It's basically the same way. What's the best way? How much do we need? What's your budget? All those questions are the same.
00:28:13
Speaker
All the questions are basically the same, although he has a different alternative asset that we get to pull into his overall plan. And that might be something that eventually that rental property in this example might get too crazy or might be too much time or effort or whatever, or he doesn't want his family or his family doesn't want anything to do with it. That can be an option or that can be just a data point that we need to talk through and walk through.
00:28:40
Speaker
But normally there's going to be liquidation in that. There's going to be some cash in the rainbow that we can then pull into kind of more patient A type work. And then I'd say just C, lastly, for that client that has all these other
00:28:59
Speaker
businesses and income. This is kind of like every day for him. Right. So yeah, he has some questions and yeah, he wants to hear about what else he needs to understand and like when to take Social Security so I can max that baby out. Right. But it's all a bonus anyway. I've been living like I've been living and it's been working. Right. So so maybe tax planning for that person. Right. Trying to be more efficient with how to sell their business and not get give it all to the government. But
00:29:26
Speaker
Back to our curb analogy, that person that's the third patient or the third client, he is already been doing this income thing. So really nothing changed. There is no curb for him to jump off. It's just like another birthday.
00:29:43
Speaker
And so anyway, it's fun to meet everybody wherever they're at and really help them maximize their plan and where they're going. I want to speak to this patient type because I think we've meet them a lot. I call them builders. It's people that have built up something real estate portfolio business. Um, they like to invest in different things and these are not stocks and bonds, although they probably have some.
00:30:07
Speaker
But these are these are complicated, more complicated things. And if you look at like Robert Kiyosaki with like cash flow quadrant, you know, and becoming like a business owner and moving towards an investor, these types of people that are builders, it sounds great. And they've made a ton of money and they like having control and they understand the risks they're taking. But a lot of times I would say nine times out of 10, the spouse isn't.
00:30:33
Speaker
And so I think for this patient type, it's like, that's been great for you, but you're at some point not going to be here. And how are you going to button all that up for your spouse? And what's her plan going to be? And I'm not trying to generalize that these are always men because it could obviously be women and the women could obviously be integrated in this too and comfortable with it, but large part, they're not.
00:30:56
Speaker
And I think to boil that down is they don't have a beach that they're going to at some time. When you're patient A, like you've been saving up for this, let's go to a beach and there's like a different time of like lockdown. Well, C, they don't have that. They've been doing this the whole time. There is no like, well, when are we going to slow down? That's a really good point. So I think that's just something to keep in mind if you are patient C, kudos to you, but
00:31:23
Speaker
How are you going to leave and tie things up in a bow if something were to happen to you for your spouse? You know, so there's not a fire sale on your stuff or your assets. And then where's her income going to come from? And how are all these things going to fit together if you weren't there? Because it's a lot to handle.
00:31:39
Speaker
Yeah, so and here's the deal. You also have a business sale like you could probably sell your business and you could do it on contract. You could do it for cash, whatever, you know, talk to accountant, talk to a CPA, but there might be a building that you also bought and you'll have rental income from that building that
00:31:56
Speaker
Would allow you to pull off the actually hands-on things. Yeah, perhaps and even doing the small business owner that owns like You know an optometrist business or a dental practice, you know You could sell that dental practice but still own the building and have that building paid off and then they're paying you rent for your building so you still have some sort of that income and residual nature outside of investments and
00:32:21
Speaker
But then you're transitioning your practice money into retirement income money through more of these traditional vehicles. It might be smart to assign a lease, a long lease before you retire, before you do that. So, okay. What are four other factors that could affect retirement? I want to talk about those.
00:32:40
Speaker
Yeah, so we've got four, and there's a lot. There's just a lot in retirement. But these are more technical things, so I want to go rather quickly. The first one is Medicare. Obviously, Medicare is the government health insurance plan. For everyone we've met and talked to, our clients, they like Medicare. Medicare is great. I've really never heard anybody on Medicare complain about it.
00:33:06
Speaker
You've got to get the supplement and all of that. There's some rules around signing up for Medicare at the right times. We are not specialists in that. We don't claim to be, we don't want to be, but we do have people we can refer you to if that's where you're at and you haven't solved those questions. So we have people that we know, like, and trust that we can help you with, connect you to. But that's just not something that we kind of get into.
00:33:32
Speaker
But it is a decision point that you got to start preparing for. What kind of medications are you on? What kind of health needs do you have as it relates to accessing the healthcare market? I would say the biggest thing for that is know what your current situation is. What drugs do you take? How many times do you go to the hospital on average? That stuff is all good for an expert to know because then they can get you in the perfect supplement package for your Medicare. Totally.
00:33:58
Speaker
The next one I think is, I call it the silent killer is inflation. And this is, you know, one of the questions I like to ask is, you know, how much did a candy bar cost when you were a kid? I remember riding my bike and it gets 7.11. 49 cents? Yeah. I was like 45 to 55 cents when we were.
00:34:16
Speaker
When we were riding in on our bikes or skateboards, you know, and now it's like, I feel like it's like a dollar 25 or a dollar 39, you know, and then in just two decades, we'll probably three, but I'm sick of it.
00:34:31
Speaker
So inflation is real. All of our money that the Fed prints is debt. That's why it's called a Federal Reserve note. And so our money supply has to increase because it's all debt-based money. And so as the money
00:34:47
Speaker
supply expands that creates inflation because there's more money chasing fewer goods. And so inflation is real. I think we all get it, but really nobody talks about it. And the other thing I would say is the federal government lies to us about what social or what inflation is because it's tied to social security, Medicare and these benefits, these social benefits that you're getting. And so
00:35:13
Speaker
It's just, we all know that inflation is higher than 2%. I mean, you go to the grocery store, it's higher than 2%. So it's something you got to keep in mind. Have a retirement plan that factors in inflation. Right. I'm just boiling these down. Boiling them down. Okay. Third. Oh, this is fun. Are we going to fees? Okay, we can do that. I mean, save the best for life.
00:35:32
Speaker
Okay, so fees, we're hearing a lot from our clients is obviously, you know, we're in the business, we run a business. And, you know, we get paid somewhat on your money. And especially if you're rolling over investing your money with us. And so fees are a huge deal. And I think people are really starting to get wise to like how much money advisors have been making. And so in our businesses, we're calling it like fee compression.
00:35:58
Speaker
fees are going to come down across the board. And we're trying to do that in our practice, where you're all in expense on, you know, retirement assets, you know, is one to less than 1% annually. And so that's how we're trying to shape our business. And so you got to understand, there's really four layers of fees very quickly. You have like an investment manager fee. So the person that's actually picking and choosing the investments you're in, they have a fee to do that.
00:36:25
Speaker
the mechanism or tool they're using to invest your money, whether that's stocks, bonds, ETFs or mutual funds, those have an internal expense or fee that you, it's not getting billed out of your account, but it's out of the net return of the product that you're in. And then from there, you have like a financial advisor fee. That's like, you know, if you're paying someone like Philip and I to do a plan for us to help you open the accounts, that type of thing. So there's us. Just so valuable to pay that.
00:36:54
Speaker
And then the fourth layer of fee is like transaction charges or, you know, maintenance fees or, you know, that $50 a year IRA account maintenance fee. Um, so those are the general four layers of fees inside of, you know, your retirement accounts or your investments that you should be aware of. And, um, you should be having, you know, open, easy conversations cause it's all federally required now that we have to talk about and have that
Legacy Planning and Values
00:37:17
Speaker
disclosed. Yep. So good. So last one matter.
00:37:20
Speaker
our RMDs are required minimum distributions. These are interesting to me because we get clients that come to us and they're so excited that they have a huge number in these, I'd say accounts, retirement accounts. And they're so excited to say, we don't even need all this money. And that's good when you're 59 and a half to 70 and a half. But after that, it turns into a problem because of this.
00:37:49
Speaker
the government hasn't been taxed on any of that money and so it's seventy and a half they start making you and forcing you to take some of that big account out i just say it's like pushing your money off the ledge because they want tax it's kinda since we're using indiana jones it's like the scene when he's on the tank and they're headed over the cliff
00:38:08
Speaker
That's kind of like your money's in that tank and the government's driving it over the cliff. Like they want you to take that money out and they're gonna force you to do it. So there's an equation that starts and then that equation gets higher and higher. The percentage rate that you have to start taking your money is higher and higher.
00:38:25
Speaker
And so a lot of times people don't even know that they're on this train and they're like, what am I going to do with all this money? Well, you take it because if you don't do it, you get penalized 50% of what you haven't taken out. It's a huge deal.
00:38:40
Speaker
And people get blindsided with, oh, my goodness, I kind of have a problem. Like, what do I do now? Like, OK, we can do we can do a Roth conversion, we can do some things. But for the most part, we got a problem. And the waterfalls come and hang on. For sure. And so I would say probably 50 percent of the people we talked to about retirement income like don't understand or have not fully grasped this RMD, required minimum distribution requirement. So totally agree.
00:39:09
Speaker
All right, so that's the four. I think my last synopsis on RMD is understand it. Yeah. And maybe do the calculations and just see what that is for you. Yeah. Some people have no problem with it. Other people do. Definitely. Okay. And then the last one is just your legacy or, or I would say maybe even long-term care. We can talk about that quickly.
00:39:27
Speaker
Yeah, basically, you know, obviously, we're trying to be sensitive to this issue, we're talking about the end stages of your life. And we call it graduating. Because, you know, obviously, we believe in Jesus, and we want to go to heaven and hope, hope that, you know, you do too. And so in that, you know, you've got to have a plan. And when you look at like the two biggest risks in retirement,
00:39:50
Speaker
You know, we talked about one being inflation. The other one kind of in this whole vein is really longevity is lasting 30 years. Your money lasting 30 years. And then, you know, this one is long-term care. And, you know, we're getting more and more people, you know, where mom's in the home or they're seeing those checks and it's like, wow, it's eight, nine grand a month for mom to be in this home. Like, how am I gonna pay for that? What's it gonna be when I'm her age? Like, holy cow. And so,
00:40:17
Speaker
you know, if you're spending eight to nine grand a month, you know, and you still have another spouse living in the house, well, now you kind of have two budgets, you know, and so it's like, how are we going to pay for all this? And where you may, you know, your folks or you may have only been taking out two or three, four grand a month, but now you need to take out 10 grand a month. Well, that can deplete your retirement savings rather quickly. And so having a strategy for that is super important.
00:40:44
Speaker
because, and I think the other side of it is I would say we're trying to give you percentages because a lot of times people ask like, well, how am I doing compared to everybody else? Right. So we get that a lot. So that's why I'm interjecting these, these points, but I would say, I don't know, 30 to 40%
00:41:01
Speaker
like actually think they want long-term care and like I want that protection and then like Another 30% are like I know I need it but I really don't want to buy it and then the other 30% like I'm not You could put me in a home. It's my dad. I'll just go out and shovel really hard Yeah, pick me up and so again not casting aspersions on anybody that what camp you're in But it is something you got to talk about and nobody wants to buy it. I mean nobody wants to buy it sure and and so I
00:41:31
Speaker
There are different products that you can buy that basically blend life insurance with long-term care insurance because the insurance industry basically mispriced traditional long-term care and really don't offer it that much anymore unless it's super expensive. And further your premiums can go up as you age which is not helpful to your budget when you feel like you're on a fixed income.
00:41:54
Speaker
So a lot of the new products are built on life insurance chassis, if you will, because the insurance is very good at actuarily predicting mortality. And so a lot of it, you know, we can guarantee the premium, we can guarantee the benefit. We can use the G word in terms of guarantee because these are insurance products that are backed by, you know, insurance companies. And so anyways, we can combine, you know, life insurance with long-term care insurance and
00:42:24
Speaker
give you access to the cash value, which means that your premium is converting into a cash value that you can access if you still need the money. When you look at it that way, it's like just a forced savings account. As you age, you're going to naturally want to sit on cash more than you do now as you get in your 70s, 80s, and 90s, and that policy will grow with you. But it does take a shift in mindset to think about it that way. That's how we handle that.
00:42:54
Speaker
The last thing I'd say, just in retirement, and maybe this is a whole other podcast, but just your legacy. It's your legacy on what you want to live, like leave behind. And all I will say with this, if we're just going to try to boil this down, is you have way more than your money that you're going to leave behind, transfer to your next generation. I would say you have almost four categories. You have your core values, the things that make you tick, right? The things that got you there.
00:43:19
Speaker
I'd say your good and bad experiences, the things that like were really good in your life and the things that actually didn't go well have given you the character you are today. And then you have like how you spend your money giving to others, charitable giving and stuff like that. There's contribution to society. Yep. And then the fourth one is money.
00:43:41
Speaker
And if you only had three to give the next generation, which three would you focus on? And a lot of our clients say, I'd rather focus on my core values, my good and bad experiences in the way that I've lived charitably to other people. And I probably wouldn't be transferring my money.
00:43:57
Speaker
Which is the right answer. So that if those people think that way, then let's use your money to try to transfer all of those three. And when we do that and do it right, I feel like there's way more money to be had to be transferred. And then they know exactly that it's going to be used well. And those people are going to do the same thing from the next generation. It's more the Rockefeller plan than
00:44:19
Speaker
somebody who just transfers wealth and puts it in the will, man, that's going to be gone within two generations, if not one, poof gone. And so legacy is a big thing. And it's something that you get to talk about in retirement because chances are you're going to have wealth to be transferring on financially, but you also have wealth right now, even if you don't give them a dime or nickel by giving them your core values, your experiences and your charitable gifts. So that's what I'll say about that. I felt like we did pretty good on the time.
00:44:46
Speaker
I feel like we did too. I'm actually kind of surprised. I think the only other thing I would add about legacy is it's already started. Totally. I think there's this myth that like, Oh, I'll be different later. And like, I'll tie my legacy up in a bow later in my life. And it's just not true. Uh, so I would just challenge everybody, you know, we're shooting this around the holiday season. Uh, it's going to air, you know, first part of 2020, but.
00:45:09
Speaker
really think about this next decade of like, what do I want to do with my family? What is my legacy currently? And how do I want to change that as I move forward? Because it's already started. If this is something that's exciting to you, we do have an ebook on this topic to retirement income. Yeah, good point. Retirement income to kind of digest what we have talked about in a little bit more condensed version.
00:45:34
Speaker
If you want to go to that website it would be our free download for our listeners. It's only a gift for you guys. Go ahead with us. Yeah. So www.uncommonwealth.com backslash gifts. So if you want the free download, we have a, it's actually probably our biggest ebook to date and we're going to have a retirement checklist in there as well. So we're getting lots of feedback from folks.
00:45:58
Speaker
preparing to retire in retirement. And so we're trying to bundle all that up into a fun document that, you know, can be useful. Awesome. Well, thanks again for tuning in. This was a lot of content. So firehose. Yeah. Firehose. Yeah. Anyway, thanks for listening. I've been your host, Phillip Ramsey. And I am Brian Dewhurst. And you've been listening to the Uncommon Life Project. Thanks for listening.
00:46:20
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.