On This Episode
To write the Chinese word for “crisis,” you combine elements of two different Chinese characters. One character means “danger” while the other one means “opportunity.” Translated into English, it means “opportunity riding on a dangerous wind.” Let’s discuss how some of these crises might actually be opportunities, depending on your situation and perspective.
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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Here is a transcript of today’s episode:
Marc: Time for another edition of the podcast. Thanks for hanging out with us as we talk investing finance and retirement here on Retirement Planning – Redefined with John and Nick from PFG Private Wealth, and we’re going to talk about when crisis meets opportunity here on this episode of the podcast. But first I’ll say hi to the guys, and then we’ll dive into what that means. What’s going on, Nick? How are you?
Nick: Oh, doing well, doing well. It’s been a really busy start to the year. People are anxious to kind of check in and go over things and all that kind of stuff, so we’re enjoying catching up with everybody and just kind of walking them through where we are and how things are going.
Marc: Good. Yeah. As the first quarter winds down, I imagine that’s the case. John, what’s going on with you, my friend?
John: Oh, not too much. As Nick mentioned, just a very busy start to the year, so yeah, get in touch with everyone has been good. And I think the last time we said the weather’s starting to warm up around here, so we have two or three months of some really nice weather, then it’s going to get scorching hot. So just try and enjoy the nice 70s to 80s for the time being.
Marc: There you go. Exactly. Well, so what we’re talking about this week here on the podcast is some people view certain things that are going to happen to us in retirement, or that happen to us in general, when it comes to our financial lives as a crisis, and other look at it as an opportunity, right? So I’m going to give you guys a couple here. I’ll let you guys expound on those based on what you see or what you do, and we’ll just discuss some of these ways that these crises, if you will, might actually be an opportunity, a good way for you to look at it, maybe change your perspective just a bit.
Marc: Now, John, I know we’re in totally different spaces when it comes to this, you and I, but I am an empty nester. I’ve been one now for, well, actually about two and a half years going on three years. But for some parents the idea of empty nest is a very joyous one. My wife and I were pretty surprised at ourselves. We were like, “Sweet. We love her, but bye, do your thing, have a good time.” And for others, obviously, there’s a very sad attachment and sometimes they have trouble with it. But from a financial standpoint, what’s some things to think about here?
John: Some of the things you can think about is definitely your cash flow. I would assume for the most part is now you have a little extra cash flow. So from a financial standpoint, I think, in the last session we talked about in the 50s having a little bit extra money to save.
John: We see that quite a bit when kids are out of college. You’re no longer paying for college bills. Your electricity, water bills, maybe gone down a little bit.
Marc: Cell phone.
John: And the big one is groceries.
John: That really shot down for certain people here, and it really gives you an opportunity to either save some more for retirement or go on some more vacations and travel, you know?
Marc: That’s a good point. Nick, I wasn’t trying to leave you out there, but I know that you don’t have any little ones yet, so I just was getting John’s take on that. What do you see though, from a planning aspect?
Nick: Yeah, it’s interesting because we almost see this happen in kind of like two phases. So, for a lot of our clients, the first phase is when the kids go away to school. It’s kind of like … Or even from the standpoint of when the last kid goes away to school, so there’s that period of time where they’re away at school, but they’ll come home on breaks, and maybe during the summer they stay at home, and so there’s a little bit of adjustment. But while they may not be at home, they may still be on the payroll per se?
Nick: And then there’s that kind of full shift into, all right, they’re gone, they’re off the payroll and what now sort of thing. And for some, depending upon the age that they are, that’s where grandkids may come into play. And so there’s a little bit of a transition where maybe you’re watching the grandkids a couple of days a week, and people tend to kind of like having some sort of interim between they’re being a crazy household versus an empty household.
Nick: But really that recapture of money that was being spent, saving it, putting it away, so that’s one of the most effective tools I would say that we have to kind of help people with this process is if we’re able to show people. Maybe they’re somewhere from five to eight years out from retirement and it’s like, “All right, our expenses have dropped by a thousand dollars a month with the kids kind of shifting out of the house. We had originally planned to retire at 65, but if we save this thousand dollars a month, is there a chance that we could retire at 62, 63, 64?”
Nick: And so, kind of going through a planning process and showing them like, “Hey, yeah, in some cases, if we can recapture those dollars, if we can put that money away, we can get you into that next phase of life a little bit quicker.” There’s a huge relief for many people that comes with that where there’s less … Even if they are going to continue to work, knowing that they may not necessarily have to work, there’s a huge kind of mental relief that we see in people. And so I’ve seen that really alleviate some of that mindset change quite a bit.
Marc: Gotcha. Yeah. And so whether you view the empty-nest syndrome as a crisis because you’re like, “What are we going to do? We’re all by ourselves.” And maybe it’s a standpoint of you got to spend more time with your spouse. It’s just the two of you. Who knows what your viewpoint is? But at the same time, you could look at it as an opportunity to maybe put away more for retirement, whether it’s they’re half off the payroll, completely off the payroll, to both of the guys’ points here. So try to find the opportunity in that versus necessarily the crisis.
Marc: All right, so let’s move to the next one, guys, and that is market downturns or market crashes. You know, obviously they’re going to be stressful no matter what happens. I mean, just what we saw a year ago now last March with the downturn due to the pandemic. And so I get where the crisis can come into play, so what some things to think about in the event that we want to try to turn that mindset into more of an opportunity?
John: Yeah, so when we have downturns in the market, a good opportunity is really buying into it. It’s like you have a store that’s going out of business and they have their going out of business sale and you kind of jump in there and see what they have that you can get at a very discounted price. Same thing with stocks.
John: I mean, just to give an example of one, and I kind of use this in the class, because I feel like I’m always there, is Disney. Their stock dropped quite a bit last March when we started to shut down, and that was a great buying opportunity if you had some cash on the sideline to take advantage of it, because it’s really skyrocketed since then. And I’m just using Disney as an example. There’s a lot of other ones as well that we can discuss, but you know, if you’re … position yourself to really take advantage of a market crash, you can really put yourself ahead and when the things rebound. So, there’s definitely some opportunity in market crashes.
Marc: I think people sometimes immediately latch on to the paranoia side of it. But if you had a good plan in place, it might not feel as much of a crisis, I guess.
Nick: You know, one of the conversations that we’ll have with clients as they do shift into retirement, for those that may be a little bit skittish about the market in general, or if we have concerns that some market volatility will kind of derail them from their plan, just maybe overall that the market stresses them out a little bit, what we’ll do is kind of figure out. Like, “Hey, how many months of expenses will make … If we hold X amount of months in cash to cover expenses, will that put you in a place where you’ll feel comfortable?” Because with a crash there’s two parts. Number one is to not bail and to cash out at a loss. Number two is if you have cash handy to put that cash, like John said, and enter it into the market and take advantage of the upside. It can be significant.
Nick: So for clients that are fully retired, being able to have some of that cash set aside to be able to take advantage of opportunities, and also prevent them from acting in a way that is not good for them longterm can be important. And for those clients that are actually still working and still actively saving into accounts, saving on a monthly basis or on a consistent bi-weekly basis helps, whether it be [inaudible 00:08:23] cost averaging is what a lot of people know it as, helps you buy in at times when the market’s low or at a discount, once it bounces back, you can really bounce back in a significant way, and make a difference.
John: Yeah, So another opportunity you can do in a market crash is really do some Roth conversions on IRA assets.
Marc: Good point.
John: So what you would do is … And I think we’ve discussed this in kind of one of our last sessions. But now that this has come back up, it’s probably a good time to bring it up again, is if your IRA balance drops, that could be a good opportunity to convert it and pay less taxes on a lower balance at that point in time.
Marc: Okay. All right. Certainly some good points to think of, and again, we’re trying to show some areas, silver linings, if you will, where something might feel like a crisis or seem like a crisis, but maybe there’s an opportunity there to be had. And of course, a lot of that comes down to, as I mentioned, just having a good plan in place that’ll help you alleviate some of those feelings because you’ll know what to expect as you’re walking into some of these scenarios.
Marc: Number three, guys, maybe a little bit tougher, obviously, to plan for, but still something that has to happen. And this is one that I think just gets avoided mostly because people are afraid to talk about it, but it’s long-term care, and maybe that’s the crisis is the continual rate hikes or something like that.
Nick: Yeah. With clients that have long-term care policies, we try to make sure that we explain, and when we do our classes, we walk through this section. We try to make sure that we explain so that they fully understand that premiums for traditional long-term care policies can go up, and anybody that’s really purchased a policy in the last decade is really starting to see that now. And so, those policies do have what are called non-forfeiture options, so they have the ability to either keep their premium the same and reduce benefits, or pay more and keep their benefits the same. And we really try to take it on a case-by-case basis, but it’s important to take it into consideration and understand because it is absolutely a factor that can impact the overall planning, and is just really another reason that when you’re planning for expenses for clients, building in buffers on expenses and making sure that the plan works well, this is an important space to make sure that you cover.
Marc: Yeah, certainly some good points. And sometimes maybe it’s just a good reminder, a kick in the tush that we sometimes need, to just look at some of the things we’re a little bit afraid of addressing. And nobody likes thinking about it, but it is part of life, so it’s certainly worth having a conversation.
Marc: One more here guys, and that is the crisis, and we saw this obviously a lot in the last 18 months or so of downturns, getting laid off, in this case, whole industries really suffering due to the pandemic. It’s certainly going to be tougher to look for opportunities there, but from a retirement standpoint, and we’re not necessarily talking about people that are in their 20s or 30s or 40s, but from a retirement standpoint, any things we can try to find here to turn that into an opportunity? Maybe getting laid off early, the first thing that would pop into my mind is that if you had a good plan in place, you’d be able to know if that’s necessarily a bad thing or a good thing. It might just be saying, “Okay, well, it’s time for me to go ahead and retire and I know I’m going to be okay.”
John: We’ve seen that situation’s come up recently where we’ve had clients laid off and it’s like, “Hey, Nick, John, let’s get together to do a meeting.” And in the meeting, it’s, “All right, let’s look at how the plan looks without you working currently,” and we find out it doesn’t look as bad as they thought, and it kind of makes them feel a bit better about their current situation.
John: We’ve also had some other scenarios where maybe it doesn’t look great, but it’s, “Hey, you don’t need to go work full time anywhere. You can go find something that you enjoy to do and maybe work part time and the plan still looks solid.” So, that’s something to just keep an eye on is if you are laid off, you don’t necessarily need to get back to the income that you were making before. Maybe you can now go do something else that maybe you enjoy more or a second career, and maybe at part time, your plan still works. And that’s where it’s important to plan ahead and make sure that you have the ability to make decisions and be able to monitor those.
Nick: Yeah, I would add, in reality for somebody that’s within a couple of years of retirement, the money that they are going to save in those years, if they’ve done pretty well up until that point … So, let’s say for example, somebody is planning on retiring at 65 and they get laid off at 63. Well, the money that they were going to save between 63 and 65 wasn’t going to have a huge, huge impact on their overall plan and make it rapidly improve. However, not having to dip into the money that they’ve saved in those couple of years will be important. So kind of along the lines of what John said, it’s like, “Hey, if we can …” We’ll go through the plan and say, “Maybe you’re used to making a hundred grand a year, but if you can find something making 40 or 50 that can help you avoid having to dip into your accounts, let your accounts to continue to grow, and even if you can’t save for these next couple of years, it lets you hold the line, that can be really a win-win and make an impact.”
Nick: So between that and kind of sticking with the fundamentals of trying to make sure that you have six plus months of expenses in cash and really kind of the tried-and-true things from a planning standpoint, can help people get through that. And we’ve also seen people kind of have a sense of relief where they were getting burned out at work. They weren’t really happy there anymore. They didn’t realize how much it was taking out of them and just literally a month or two to regroup kind of refreshes them, and they end up in an opportunity that’s a lot better than the one that they were in anyways.
Marc: Yeah. Some great points for sure. I mean, try to find that opportunity in it. Maybe if you’re lucky enough to have a position where a pension was involved, maybe they’ve offered you a lump sum buyout, whatever the case is, or the monthly. So, it’s worth having those conversations to find out where you stand, because it may not be that crisis that you initially thought it was.
Marc: But it’s the gut punch when you first find that out, sure. But if you’ve got a plan in place or you go and you find out and you have those numbers run, you may certainly find, to the guys’s point, that you could be in better shape than you realized. And it’s interesting that the way you guys phrase that, because my brother’s actually right there now. He’s 63 and he’s going to be … They’re going to be closing up the business here that he works for in the next couple of months. And so he’s at that cusp as well, and he’s like, “Well, I’m going to take a look at my numbers again.” And so he sat down and talked with his advisor, and he’s like, “I think I can just go to part time,” to John’s point, “and just do some things that I want to do now.” There’s a couple of little hobby ideas he’s been thinking about doing.
Marc: So you never know, right? You got to look for the opportunity where you can. And it’s hard to sometimes not focus on the crisis, but with a good strong plan in place, that’ll certainly help you do that. And that’s kind of the whole point. That’s one of the reasons we do the podcast is to shine some light on some areas to think about that.
Marc: And you’ve been listening to Retirement Planning – Redefined. Stop by the website at PFGprivatewealth.com. Check out the guys there. A lot of good tools, tips, and resources. You can contact them to come in for a consultation or review or talk about your situation. You can find the podcast there, subscribe to it that way, or drop us an email here as well on the program. And we’ve got one this week we’re going to wrap up with. Jane has a question for you guys. She says, “It’s about 401k funds. If I don’t use the target date retirement fund, is there a certain number of funds that I should allocate within my 401k? I don’t want to under or over diversify. Is there a right number of funds or does it really just depend?”
John: Our answer to almost everything is, “It always just depends.” It sounds like Jane, she’s not doing the prebuilt kind of option, which is the target date, and is looking just to really build her own portfolio, which is fine. But it’s really more important as far as how many funds you have to get into the right asset classes. So, 401ks do a really good job of making sure that you have a lot of different asset classes to choose from. And when I say asset classes, large cap, small cap, bond funds, international, that’s the way you want to diversify within a portfolio.
John: It really comes down to your risk tolerance, which again, with the 401k platforms, they typically have a questionnaire for you when you sign up or on the website. And then once you determine that, I’m just throwing it out there, if you’re moderate, then you’re going to want a certain mix of those asset classes to make sure you have a good portfolio for you. Easier said than done, so it’s really important to work with a financial professional to make sure that you have the right number of funds and you’re diversified in the right asset classes for your situation.
Marc: All right, there you go. Thank you so much for the question. We certainly appreciate it. And you know, every situation’s a bit different. There’s universal truths to apply to all of us, and that’s one of the reasons, again, we do the podcast to share some of those things, but every situation can be uniquely different when it comes to retirement planning. So, reach out to the team and give them a call if you have some questions at (813) 286-7776.
Marc: Don’t forget to subscribe to us at Retirement Planning – Redefined on Apple, Google, Spotify, iHeart, Stitcher, so on and so forth. You can find all the information at PFGprivatewealth.com. Guys, thanks for your time this week. I appreciate it as always. John, have yourself a great week. Nick, you as well, my friend.
Nick: Thanks, Marc. Thanks.
John: Have a good one. Thanks.
Marc: We’ll talk to you a little bit later here on the program. This is Retirement Planning – Redefined.