Mastering Retirement Cash Flow (Part 2): Understanding Changing Expenses

On This Episode

On this episode, we will continue our conversation on what expenses may change when you enter into retirement.

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Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Mark: Back here for another episode of the podcast with John and Nick from PFG Private Wealth. On Retirement Planning Redefined, we’re going to get back into our conversation from the prior episode about cashflow. We went through some categories, housing, work stuff, healthcare, taxes, so on and so forth, on how those expenses will change either to the plus or the minus, depending on our setup. Well, this is the time to talk about the setup. So as we are assessing our retirement expenses, we’ll break these down into a couple of categories. So we’re going to talk about those with the guys. John, welcome in buddy. How you doing this week?


John: Hey, I’m doing all right. How are you?


Mark: Hanging in there. Doing pretty well. How about you, Nick?


Nick: Pretty good. Staying busy.


Mark: Staying busy and enjoying. So we’re taping this before the fourth, but we’re dropping this after the fourth, so hopefully you guys had a good fourth? Nick, you probably went up and saw family, yeah?


Nick: Heading up north to just, yeah, extended family and friends. That fourth week makes it an easier week to get away because everyone’s doing stuff anyways.


Mark: Yeah, yeah. It’s always funny when we have the holidays and we’re kind of taping the podcast ahead of time because then drop it because we’re not around, so sometimes I get confused on my dates. So yeah, again, we’re talking about this before the fourth about what we’ll probably will be doing on the fourth. So John, are you on grill duty? Because I know I am. I’m stuck on it.


John: No, no. My brother’s forcing me to have a cookout at my house, so I told him if I’m providing the house, he’s the one on grill duty.


Mark: Okay, that’ll work.

 

John: He’s visiting from Boston, so he’s excited because my other brother’s down here and my sister, cousin, and actually the best man in his wedding is married to my sister, so he decided to come down.

 

Mark: So Marketing 101. So the second you said Boston, all I hear is these Sam Adams commercials right now, “Your cousin from Boston.” Every freaking time I hear Boston, that’s the first thing I think of. Or Sam Adams beer, I go right there. All through the hockey playoffs and NBA playoffs, I kept seeing those commercials so it’s embedded in my brain. But hey, that’s the point of marketing, right, is to be those little earworms, so you go out and buy whatever it is that you go out and buy. And speaking of that, that’s my transition into the must haves versus the nice to haves. So if we’re talking about those accounts, those different categories that we went through on the prior episode, guys, how do those things now play into for our cashflow? Again, cashflow is the conversation wraparound, it’s the wrapper of this whole endeavor. We need to break this down. And do you guys do this with clients? Is it something you encourage them to do, because everybody’s individual needs and wants are going to be a little bit differently, but do you break things up in the must-haves versus the nice to haves?


Nick: I would say to a certain extent, we do. We kind of list basic expenses and discretionary expenses.


Mark: So give us some musts. What’s the musts?


Nick: So obviously housing, healthcare, food and groceries, some form of transportation, whether it’s one vehicle, two vehicles. Getting rid of debt. Those are all things that are obviously needs. [inaudible 00:03:02]


Mark: Life essentials, right?


Nick: Yeah, for sure, for sure. Depending upon the people, some things are discretionary. I would say most of the people that we work for can’t afford to have some sort of traveling in retirement.


Mark: Yeah, so is two trips a year or is it five trips a year? That’s kinds how it starts to change?


Nick: Yeah, exactly. Or even a big trip every X amount of years. So like a baseline travel budget of X, and then let’s add one of the things that we commonly do is, let’s say the travel budget is $6,000 a year from a baseline standpoint, and then every three years they want to do an additional trip of another 6,000, that’s one trip. And so we can scatter that in throughout the plan and show them what it looks like and toggle that on and off. And with how we do planning, we can show them the impact of doing something like that and what it does to their plan. So for the higher tier, nice to have. For discretionary expenses, we will use our planning software and kind of show them, Hey, here’s the impact on your plan if you want to do that. Because we always preface everything, it’s telling people that it’s your money, we’re not telling you how to spend your money or what to do with your money, our job is to show you the impact of the decisions that you make.


Mark: That makes sense, yeah.


Nick: So let’s arm you with that information so that you understand if you do these things, then let’s make an adjustment accordingly. And for sometimes it helps them put into perspective where not everything is a yes or a no. And what I mean by that is, well, let’s just say that there’s two lifetime trips that they wanted to really do, and so they like to have a bigger travel budget, but really when you boil it down, it’s like, okay, I want to make sure I go to these two places. So we make sure that we can accomplish those and make adjustments elsewhere. [inaudible 00:04:58]


Mark: Yeah, because the must … I’m sorry to cut you off, but I was thinking about this as you were saying it. The must-haves, like the housing, the health, food, you’re not going to have any kind of discretionary wiggle room. Well, you don’t want to. Now you could say, okay, we’ll eat less food, or something like that, but that’s not the goal in retirement, you don’t want to go backwards. So the place typically we do make some adjustments in the cuts are in the nice to have categories.


Nick: Yeah, and usually it’s almost more of a toggle where even to a certain extent of, we’ve had conversations where, hey, if things are going really well in the markets and we’re able to take advantage and take a little extra money out in years where things have gone well, that’s kind of the impetus to do this sort of thing.


Mark: Kind of pad the numbers a little bit.

 

Nick: Yeah.


Mark: John, let me get you on here for, besides the expenses we covered, some of the things we went through, what are some contributing factors that will affect cashflow problems that you guys see in retirement? So all these different things, whether it’s healthcare, housing, whether it’s whatever, give me some bullet points here for folks to think about on things that can, not in a category per se, but like outside effectors, outside influencers, that can really cause us cashflow problems in retirement.


John: The number one I’d say, concern for most people going through retirement is longevity. How long does my money need to last?


Mark: And that’s the great multiplier, right? Because if you live longer, it makes everything else go up.


John: Correct. Yeah. So that’s one thing we look at, and we do plans. We’re planning for age 100, and we’ll always get people like, well, I’m not living that long. But the thing is, that’s always …


Mark: What if you do?


John: Exactly. So it’s like, Hey, listen, if you live to 100, guess what?


Mark: You’re covered.


John: Your plan looks good. You could live to 90 and the plan looks good. So we always plan for, we again, overestimate the expenses, overestimate the life expectancy,


Mark: And then you don’t have to live with your cousin in Boston, right?


John: Exactly. That’s right.


Mark: All right. What else besides longevity?


John: Another big one we’re seeing right now is inflation. Because with retirement, you’re not getting a paycheck anymore, so your ability to earn is now gone. So your nest egg is providing that income for you and social security. And keeping up with inflation, especially the last few years has been a challenge for quite a few people. And mostly I would say for me, I’ve noticed my food bill has gone up drastically in the last couple of years, more than anything else is really. Because we talked about musts and nice to have, if trips go up, you could say, all right, I’m going to go on a little bit lesser trip, or not go as much, but you know, you got to eat and you got to have healthcare. So those things there are big ones to really consider going into retirement and to be aware of, is the plan [inaudible 00:07:42]


Mark: Yeah, a friend of mine, for Memorial Day, we were talking about cookouts earlier, so we got July 4th, you’re probably hearing this after July 4th, but how much did it cost you to buy this stuff? So a friend of mine posted a picture around Memorial Day that he bought three steaks, and he lived in the New York area, Nick, actually. And the tag on the thing was like 60 bucks for three steaks. It was like, holy moly. And I know different parts of the country are more expensive than others, but it was just where I’m at, it was like, wow. And they weren’t like that impressive of a steak. So to your point, you got to eat.


Nick: To be honest with you, I think there’s a little bit of …


Mark: Price gouging.


Nick: … ridiculousness and price gouging going on right now from the perspective of a lot of different areas. I just got my six months notice on my car insurance, I’ve been complaining to everybody about it. One vehicle, no accidents [inaudible 00:08:34]


John: Wait, wait, wait, wait, wait, wait. Nick, this isn’t a therapy session, right?


Mark: Well remembered, well remembered, John, from the prior episode. Very good.


Nick: Yes. I drive probably 7,000 miles a year at the most and paying almost $2,500 a year for car insurance. But the crazy part is that, so okay, if it’s always been high, that’s one thing, but two years ago when I had switched companies, it was about 1,700. So again, we take …


Mark: Inflation.


Nick: Do the math on that. I’m sorry, but 50% is not inflation, there’s some 50% in two years and it’s kind of wild. And then even just going, the area that we’re in has been massive growth in this area, but even what the restaurants are charging, and it’s just inflation impacts different areas differently.


Mark: It’s an excuse. I mean, just like anything, we’ve turned it into excuse, just like the supply chain problem issue. A friend of mine was trying to get his RV worked on and they were like, well, we’re still having supply chain issues for a valve. And it’s like, really, a valve on an RV, it’s been three years. I don’t know if supply chain issue really holds in that argument, but if companies are dragging their feet or employers, somebody’s just taking long, that’s just an excuse. And I think that’s the same thing with the inflation. Is it real? Yes. But to your point, are some of these numbers really truly justified? But they can use that, well, inflation’s bad. That’s the excuse they use in order to hit you with a 50% increase.


Nick: Yeah, and I’d say from a planning perspective, because people get concerned about that from a planning perspective, and saying, well, hey, we had much higher inflation last year than we did in our plan moving forward, and [inaudible 00:10:27]


Mark: Are we going to be okay to survive it, yeah.


Nick: Yeah, and the easiest way that we mitigate that from a planning perspective is we reprice current expenses. So in other words, repricing the current expenses allows us to take that into consideration, the increases that we’ve had, and then use more normal rates moving forward, which is how you more accurately display that from a planning side of things.


Mark: Gotcha. All right, John, so you hit us with longevity and inflation as a couple of areas that can contribute to cashflow problems. Give me a couple more before we wrap up this week.


John: Investment returns is another spot, depending on what type of plan you do or type of planning, if some people will really have their income depend on what their portfolio is returning for them.


Mark: So we’re talking about sequence of return risk, kind of thing?


John: Yeah. So if you having a down year and there’s not as much income coming in from your portfolio, well that could ultimately affect your cashflow. Or if it’s a down year, and we go back to longevity of, Hey, how long is my portfolio going to last, just have a 20% dip in the market, you’re going to be a little concerned about pulling out in that period of time, because once you pull out, you know, you realize those losses, and there’s no more recovering [inaudible 00:11:41]


Mark: Yeah, it’s a double way, it’s the market’s down and you’re pulling money out. So the truth that makes the longevity factor interesting. Okay.


John: So one more thing on this. This is really important, and especially what we’re seeing in the last couple of years where you have some type of plan where if you are dependent on that, you have almost like a different bucket to pull from in a time like this. So you really want to position yourself to be able to adapt to downturns in the market which could affect your income.


Nick: One of the things, and I’ve been having this conversation quite a bit lately, is that previous to last year, for the dozen years leading up to that, rates in return on fixed or cash and cash equivalence was so low, you couldn’t get any return on that money, that really people shifted predominantly, or at least in a large way, to take more risks, meaning more upside, so more heavily on the [inaudible 00:12:39]


Mark: Well, because the market was going up too. We get addicted to that, so it’s very easy to go, well, it does nothing but climb, it’s done it for 12 years in a row, so let’s keep going, right?


Nick: Yeah. And a little bit of that’s a circle where it’s part of the reason it kept climbing, is because people were saying, well, and not just, but it’s just a contributing factor where it’s like, well, hey, I’m literally getting zero return here. So inflation’s eating away at my money anyways, I might as well take a little bit more risk. And so earlier this year in the majority of our client portfolios, we took some money off the table because now we can get four to 5% in something that has no risk, and that lets us kind of at least take a deep breath, see what’s going on, get some sort of return, where most of our plans, we use five to 6% in retirement anyways.


Mark: Yeah, that’s a good point. You just got to be careful, right? Because we don’t know how long those rates will last either, so you don’t want to lock yourself into anything too hefty either, without making sure it’s the correct move for you. Especially, I’m thinking more like CDs for example.


Nick: Yeah. We still target things that are short term, that sort of thing. But for a retiree, even from the perspective of, let’s just use the million dollar number, there’s a huge difference between five years ago, where if you wanted to do a one year CD and you could get 0.8%, that’s $8,000 on a million bucks versus 5%, even just for a year, now it’s 50,000 of income. I mean, one is you can’t pay your bills, another one is going to be much more comfortable. So for a retiree, one of the sunny side or glass half full part of what we’ve been dealing with from an inflation perspective, is that at least there’s a little bit more return on safer money as we try to re-plan and readjust.


Mark: Yeah. No, that makes sense. So one more category here that I want to hit for just cashflow problems in retirement, John, you did longevity inflation and investment returns. I’m going to assume the fourth one’s probably just the emergencies, the things that life throws at you in retirement years?


John: Yeah, a hundred percent. Emergency funds, it’s [inaudible 00:14:44]


Mark: Got to have one.


John: … for that, because you just don’t know what’s going to happen.


Mark: Murphy’s Law’s going to happen, right?


John: Murphy’s Law’s been happening for the last three years. So basically a big one is healthcare expenses, which we touched on as a must have. So big health event could really dip into your emergency funds. Or again, especially here in Florida with the roofs, have talked to some clients and friends who basically were having homeowners insurance issues here, and then carriers are basically saying, Hey, for you to get renewed, you need a new roof. And all of a sudden it’s like, what? I just go, my roof’s fine. It’s like, well, it’s outdated, you know, you need a new one, or else [inaudible 00:15:24]


Mark: And so they’re not covering maybe the full cost or some of the cost, I guess, but they won’t insure you.


John: I had some friends actually get notices saying, your roof’s too old. If you don’t replace it, we’re dropping coverage.


Mark: Oh geez. Okay, yeah.


John: So that’s an emergency expense.


Mark: Definitely.


John: Roofs aren’t necessarily cheap, so important to have an emergency fund because like you said, Murphy’s Law, you have no idea what’s going to come up and you want to be prepared for that.


Mark: Yeah. No, that’s a good point.


Nick: The roof thing is pretty wild here too, because a lot of people have tile roofs down here. And depending upon the size of the house, a tile roof is going to cost you, what John? Between 50 and a hundred thousand dollars?


John: Yeah, 50 to a hundred grand.


Mark: Really? Holy moly.


Nick: And so, yeah, and then if you’re in a neighborhood that has association rules and all these other things, it can get a little squirrely. So just understanding even little basic things like that, where especially people that came maybe from up north where it’s just shingle roofs and 10, 12 grand, 15 maybe, and then [inaudible 00:16:25]


Mark: Yeah, I was going to say, my metal roof was like 20, and that was like eight years ago.


Nick: Yeah. So there’s just things like that where we always very much emphasize having an emergency fund.


Mark: Yeah, definitely. All right, good stuff. Talking just cashflow issues, things to consider here on the podcast the last couple of weeks. So if you’re worried about the cashflow or you’re just worried about making sure your plan is accurate for the time of life you’re in, especially if you’re one of these folks that maybe got a plan, you’re like, ah, I got a plan put together like a decade ago, or whatever. Well, it’s not a set it and forget it, it shouldn’t be a set it and forget it, anyway. Even insurance policies, sometimes it’s very easy to get one and throw it in the drawer for 20 years and forget about it, but all those things can be looked at and reviewed and see if there’s a better way to put a strategy together. So if you need a first opinion or second opinion, reach out to John and Nick and the team at PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe to the podcast on Apple, Google, Spotify, whatever the case might be. Whichever podcasting platform app you like, just type in retirement planning redefine in the search box. Or again, find it all online, pfgprivatewealth.com. For John, Nick, I’m your host, Mark. We’ll catch you next time here on the podcast. This has been Retirement Planning Redefined.

Mastering Retirement Cash Flow (Part 1): Understanding Changing Expenses

On This Episode

In this episode, we’ll explore many of the expenses in your life that might drastically change (one way or another) in retirement. We’ll break those expenses down further to see which ones are the top priorities and analyze some of the other factors that impact your cash flow in retirement.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Marc: Welcome back to the podcast. It’s Retirement Planning-Redefined, with John and Nick here with me to talk investing, finance, retirement, and mastering retirement cashflow, part one, is going to be the topic today. We’re understanding just changing expenses. We’re going to break this into really a two-parter here, obviously, by calling it part one. And we’ll do a little more focus on some of the other things on the next session. But for today, I want to explore some of the expenses in life and how they just change as we’re moving some things … as we’re moving from working into retirement. And things you guys see with your clients and how you work through that process for them. So that’s the topic today. Let’s get into it. John, first of all, how are you doing, buddy?

 


John: I’m doing all right. Getting ready for the summertime here.

 


Marc: If it happens. I don’t know what’s going on in the south. I’m in North Carolina, and we’ve had one 90 degree day, and it’s almost July. Totally unusual for us, so it’s very, very weird.

 


Nick: Oh, it’s hot here.

 


Marc: Yeah. It’s like two states seem to be in a weird spot. I don’t know what’s going on with the middle of the south here. It’s very strange this year. But Nick, I heard you chime in. How are you, my friend?

 


Nick: Doing pretty good.

 


Marc: Yeah. So you guys are sweltering, is that what you’re saying?

 


Nick: It’s definitely hot, yeah.

 


Marc: Well, kick a little this way because I don’t know what’s going on. It should be warmer here than it has been. So, very weird.

 


Nick: Well, I’ll trade.

 


Marc: Okay. All right. Yeah. Like today, it’s … well, we’re getting a ton of rain. Today, taping this podcast, it’s 72 for the high, and tonight’s overnight low is 58. That doesn’t happen usually in North Carolina in late July or late June.

 


Nick: Yeah. That is pretty surprising. That’s cool for North Carolina.

 


Marc: Very, very weird. So I don’t know, Mother Nature is off her meds, I guess. But what can you do? So let’s get into this conversation, guys, about changing cash flow, before I keep going down that tangent. I’ve got a few parts here I want to run through. What are some of the expenses that might drastically change one way or the other, either to saving us money or to costing us more money? Whichever way you guys want to take this, whatever you’ve seen with your clients. But let’s start it off with housing. I think housing is probably the number one expense in retirement. Correct me if I’m wrong there, but what do you think?

 


Nick: Yeah. I would say for a lot of people that maintain a mortgage past retirement, it’s definitely a significant monthly expense. One thing that we are seeing here with the tick up in interest rates over the last 12 months, we had had conversations with multiple clients from 2018 through 2021 about taking advantage of low interest rates and keeping their mortgage and that sort of thing. And for a lot of people, that makes them feel uncomfortable. But to a person, everyone that we’ve talked to that has done that, now that rates are where they are, they’ve been pretty happy about that decision and being able to take advantage and lock in those low rates. But for those people that just naturally, with the schedule mortgage that they had, and ended up paying off the mortgage by the time they retired, that drop in expenses is usually a big help. I would say one thing that jumps out that’s a reminder that we use for people is … especially because the homeowner’s insurance market here has now gone completely insane. Taxes and insurance don’t go away. So I can’t tell you how many times we’ve had a conversation where maybe somebody had a mortgage that was $3,000 a month, and they’re like, well, once I retire, that 3,000 a month is going to go away. And we point out, well, hey, about half of that is. The rest of it’s for taxes and insurance. So sometimes that drop in expense isn’t quite as much as they thought it was going to be.

 


Marc: Gotcha. Yeah. And it’s easy to do, even with downsizing, because the market’s been high. So it’s not always just lowering things just to go to that downsizing piece. John, what’s your thoughts there?

 


John: Yeah, I would say the downsizing is a big part of it. Not only if you downsize, you might be able to get some equity out of your house there. So if you downsize, buy a two or $300,000 house, you get some cash that you could do something with. But then you start looking at smaller house, less homeowners insurance, less maintenance costs, things like that, it could really be a pretty significant savings. Especially, as Nick mentioned here, with homeowners insurance. I think mine went up like 60 or 70% in a year, which was … … I’ve heard a lot of people. At first, I thought it was just me. And then I talked to some clients, friends, family, and it seemed across the board that it just shot up.

 


Marc: That’s hefty.

 


Nick: Yeah, there’s a lot people that are falling between five and $10,000 a year now. For homeowners insurance down here, it’s gone just wild.

 


Marc: Well, I imagine the big hurricane added a lot to that, right? That’s probably part of it. From last year.

 


Nick: Yeah, yeah.

 


Marc: Yeah, for sure. Insurance companies are like, we got to recoup some money. How are we going to do that? 60% hikes. All right, no more work stuff. Category two on the changing in expenses. I think we probably assume for the most part that no more work stuff means we’re going to save a little bit of money.

 


John: Yeah. So this is something that when we do planning, we definitely hit on. We have different categories of current expenses and then retirement expenses, and then we actually go one further and we’re looking at advanced age expenses. But this is one where you’re not commuting anymore, or at least to work. So depending on what your commute was, you could be saving quite a bit on gas, car maintenance expenses, things like that. And then the big one, I know when Nick and I worked in West Shore, was the lunch expense. Where it’s like every time for lunch it’s like, all right, where are we going? A good excuse to get out of the office and just get a change of scenery, you find you’re going out to lunch every day. That does tend to add up quite a bit.

 


Marc: Oh, yeah. You can spend some dough that way, for sure. So I think in this category, we feel like … and this one I think maybe drives a lot of people feeling like, oh, I’m going to spend less money in retirement. Right, Nick? I mean, this is one of those things. Well, I’m not doing all those things now, so I’m going to be saving money. But you’re also doing more stuff because you don’t have to go to work, so you may not save as much as you think.

 


Nick: Yeah. I would also say too, that this post-COVID work from home shift has prepared a lot more people to have a better idea of the expenses that have changed. We do have a fair amount of clients that used to commute, and no longer do. And so they’ve gotten a peek into what that looks like. And people are creatures of habit. Inevitably, they develop new things that they do, and usually there’s other expenses that replace previous ones, but-

 


Marc: There’s always something, right?

 


Nick: Yeah. But oftentimes, there are reasonable reductions in some of those work-related expenses.

 


Marc: Okay. Let’s go to healthcare. This one here, this one to me seems like this is not going to be going into the positive. This is not going to be putting money back in our pocket. More than likely, this is going to cost us more.

 


Nick: Yeah. I mean, for a big chunk of people, especially if they work at a company that has pretty good health benefits, and maybe they haven’t had their kids on their plan for a while, so it’s just them and a spouse or them solo. Oftentimes, the shift to what we budget for post-age 65 Medicare-related premiums, oftentimes it goes up for people. So we typically budget about $4,000 a year, and we have a more aggressive inflation number that we use on that. Oftentimes, people come in less than that, especially with a high deductible plan, those sorts of things. I just had this conversation the other day with someone, where they were going to have a pretty substantial jump. And they had worked for the same company for a long time, didn’t realize-

 


Marc: You mean a jump in the premiums?

 


Nick: Yes. Yep. They had worked for the same company for a long time. It was big company and had really good health benefits, and premiums were going to go up. So it can be a little surprising that way. If it’s somebody that’s shifting more from the perspective of, kids recently got off their plan and they’re cutting back on … maybe went from a regular health plan to a high deductible, those sorts of things. It can be a drop. But honestly, I see it more neutral or go up than I see it go down.

 


Marc: Yeah, definitely. John, taxes, let me hit you with this one. This is a big misnomer that’s been around for years. That when we get to retirement, our taxes are just generally lower because we’re not getting a paycheck, we’re not making as much. But more times than not, eight out of 10 times people are not in a lower tax bracket.

 


John: No. Typically, they tend to be in the same, if not, maybe a little bit lower. Because what you’re really trying to do when you do planning is you want to keep the person’s income where it was while they were working.

 


Marc: Right. You’re trying to fill in the … you’re shortening the short shortfall. You’re pulling from our assets to make up the shortfall based on Social Security or if you have a pension or whatever those kinds of things are. So you’re trying to keep the numbers basically the same, correct?

 


John: Exactly, yeah. So we are trying to keep the numbers the same. And we find a lot of people … I would say we find the majority of people have most of their money in pre-tax accounts. So what you’ll find is when you’re pulling out of the pre-tax accounts, you’re paying taxes on it. So this is really important when it comes to planning, where you … and we harp on this constantly. It’s a matter of setting yourself up to adjust. So maybe if you have some tax-free money, some after-tax dollars in some other accounts, you can really try to eliminate … or not eliminate. But try to lower what your taxes are going into retirement. And I’ll say one thing that happens quite often with clients, and this is only maybe a year or two that we see in retirement, is they just have a couple of years of just massive expenses where … we just had someone that’s purchasing a second home and they need to pull out of their retirement account. And all of a sudden, it’s like in that given year, that’s going to be a big tax hit. Or it’s a health expense. Or I’ve had other ones where they want to do a remodel on their house and it’s like, well, I got to pull money out of my account. And everything is pre-taxed, so they really get … we see a significant increase in their taxes in those years.

 


Marc: Yeah. And that’s why we want to get tax efficient, if we can. And maybe that’s worth looking at, trying to maybe move some money so we don’t have that tax time bomb sitting there waiting on us. Some different things. And speaking of actually that, Nick, let’s go to the next one here because you can chime in, it fits well with that. Is one of the biggest things we’re doing is pumping money, hopefully, especially the last 10 years of working, into our retirement account. Maybe that 401K that John was just talking about. And therefore we’re growing those dollars. And that is an expense that goes away once we stop working, we’re no longer feeding that.

 


Nick: Yeah. That deferral is usually the lowest hanging fruit of expenses or cash flow going down.

 


Marc: Money back in our pocket, kind of thing, right?

 


Nick: Yeah, exactly. That outflow is usually the biggest drop, especially if it’s … if you’re talking a couple that is essentially, maybe they’re both maxing out or pretty close to maxing out, they’re saving around 25,000. That’s $50,000 a year. Granted, that’s the money that they’re used to living on anyways.

 


Marc: Yeah. Because we weren’t seeing that. When we’re working, it’s going straight to the paycheck … or straight to the 401, for example. But now that we’re not working, we also don’t have the paycheck. So to me, is it truly a savings or is it a wash, because you weren’t seeing it before either? You know what I mean?

 


Nick: Yeah. I think for a lot of people it’s a wash. Realistically, in the day-to-day setting and from a lifestyle perspective, it tends to be a bit of a wash.

 


Marc: Okay. Yeah.

 


Nick: Yeah, it’s more of an on-paper reduction, more than anything.

 


Marc: Makes sense.

 


Nick: And in theory, when you start … if you want to nitpick a little bit. The money that you defer into those plans, you still pay payroll taxes on it. So there’s a little bit of a savings there. So that’s something that can factor in. And one of the changes that fits in with both the tax and retirement things is a lot of times at that point in time, they’re no longer claiming kids. Maybe the mortgage is paid off. So from a deduction perspective, there’s also a change as well from the standpoint of what they’re able to deduct versus what they can deduct in retirement.

 


Marc: Okay. And so what we’re doing is we’re talking about these categories here on understanding how our expenses are going to change, whether it’s to the plus or to the minus. And then we’ll talk a little bit more later on about how that’s going to affect us in our overall expenses and some things to cover in ways to be more efficient in that. So let’s continue on with a couple more categories here and then we’ll wrap it up for this podcast. So we went through housing, work stuff, healthcare, taxes, the retirement savings account when we’re no longer feeding the 401 animal. John, so you mentioned earlier travel and leisure, when you were talking about there’s different things we’re going to spend money on. So if every Saturday is the day I spend the most money, well, guess what retirement is?

 


John: Every day seems like it’s a Saturday.

 


Marc: It’s a bunch of Saturdays, right?

 


John: Yep.

 


Marc: It’s Groundhog Day.

 


John: The more time you have, you find yourself trying to fill the gap of what to do. And we see a lot of people that are, if they’re like golfing, they tend to be golfing a little bit more. Or fishing or whatever it might be. I’ll see-

 


Marc: But that’s the point, right? That’s the point of retirement. It’s what we’re striving for. But I think the scary part is, is if we haven’t budgeted for how much we’re … the activity. That’s when we can maybe shortfall ourselves.

 


John: Exactly. Yeah. That’s where it’s important where you’re doing a cashflow analysis for retirement. Like I said, we typically look at retirement expenses. We’ll look at what the person does for hobbies and try to estimate, okay, this is what we can expect. And you always want to go over the amount, you never want to go under.

 


Marc: I was going to ask you that. Yeah. You want to-

 


John: Yeah, you always want to go over, because-

 


Marc: … inflate it a little bit.

 


John: Yeah, exactly. I’ll tell you this … and my wife doesn’t listen to the podcast. When she’s at home more, I start to notice my Amazon bill goes up and packages end up at the door. So when there’s a lot more downtime, you tend to say, okay, what’s out there? Oh, let me go run to the store. Let me go do this real quick. And all those things add up to just added expenses, which fine-

 


Marc: Yeah. Well, sitting on the computer or the phone, you’re just like, I’m bored, I’m not doing anything. Next thing you know, you’re on some sort of shopping site because you’re like, I was thinking about this or that, or a new set of golf clubs. Right, it’s easy to do.

 


John: Home projects because Pinterest is giving you all these different ideas that you should be doing with your home. So yeah, all those things are up.

 


Nick: All right, John. This is not a therapy session.

 


Marc: No, but I mean he’s right, though. I mean, it totally … and people do that.

 


John: So Marc, that’s coming from the single guy right now.

 


Marc: Right. Yeah, exactly. Yeah, I was thinking the same thing. And you mentioned, you were talking about projects, DIY projects or Pinterest. We’re right in the middle of rebuilding … I’m building a billiards room here next to my office for the pool table. And it’s just, scope-creep has taken over. It’s like, oh, I can … I factored in the budget. I’m like, I could do it for this amount of money. And I’m way over budget. And that’s, again, if you’re retired … I’m still working. But if I was retired, that could be a real problem. If I let scope-creep get in there and I’m spending 25% more than I budgeted for this project, that could be an issue. So you want to make sure that you are inflating it, to your point. Puff those numbers up a little bit, just to be on the safe side.

 


Nick: Oh yeah, big time. I don’t think I’ve seen anybody come in under budget on anything in the last three years.

 


Marc: Yeah. And that’s with professionals, let alone doing it yourself, right?

 


Nick: For sure.

 


Marc: Okay. So that’s travel and leisure. So the last one here, last category, insurance. Many people, guys, walk into retirement saying, well, I don’t need insurance anymore. That’s also that old standard, as far as the financial services world. Well, who needs … why do you need insurance if your kids are grown and you don’t have to replace your income because you’re not worried about sending them to school. Or all that kind of stuff that you guys have heard probably a million times.

 


Nick: Yeah. So we’ll see … one of the most common insurances that go away, whether it’s at retirement or early in retirement, is life insurance. So we obviously emphasize the fact that a death early on in retirement is the bigger risk, especially if there’s outstanding debt, those sorts of things, versus later on in retirement. So sometimes we’ll have people that, maybe they’ve got three to five years left on their term policy and the premiums aren’t prohibitive. And we’ll just them keep the coverage because there’s still a mortgage, or just that additional money if something were to happen would be a big boost to the surviving spouse. But disability definitely goes away because disability insurance, by definition ensures your ability to work. So if you’re not working, then you’re not insuring anything. So that’s something that drops. And then some of these supplemental policies that maybe were provided by the employer, aren’t portable and you can’t take them with you anyway. So some of those things will drop off. So that’s definitely something that can be adjusted and adapted to reduce some of the costs.

 


Marc: Well, I think for every situation, insurance is one of those questions, John, that goes either way. Some people may not, when you guys are developing and looking through the plan, maybe insurance isn’t needed. But then again, maybe it is. Or maybe they’re using an insurance policy for the cash value policy side of things or whatever. So this one is one I think could go either direction.

 


John: It definitely could go either way, it really depends on the individual. And like we were just talking about here, each person, whatever is important to them will dictate whether your insurance is going to be going up or down. That’s really what it comes down to is, each individual, what they value and what they want to protect with insurance and what they’re … oh, okay. I’m okay without it.

 


Marc: Well, and that’s a good way to think about what we’re going to get into for the next podcast, is really assessing must-haves, nice-to-haves, things of that nature. And then how other aspects in the financial services world could affect those categories we just ran down. So we’re going to wrap it up this week. So again, these are just the expenses categories, and some major ones here to think about how they may change to the plus or to the minus with our cash flow in retirement. And we’ll be back next week with the second half of this conversation. So do yourself a favor, if you haven’t done so yet. Reach out to the team if you don’t have a strategy or a plan in place, and get started with a consultation and a conversation for yourself. You can find the guys at pfgprivatewealth.com. That’s pfgprivatewealth.com, where you can get started today on a strategy for yourself. Reach out to John and Nick there. And guys, thanks for hanging out. I’ll see you next week … well, in two weeks on the podcast. Nick, have a good one.

 


Nick: See you.

 


Marc: All right, John. Thanks, buddy.

 


John: Sure.

 


Marc: And I’ll catch you later. We’ll see you guys here on retirement Planning-Redefined, with John and Nick.

Ep 50: Can You Get An A+ On Our Retirement Planning Quiz?

On This Episode

Don’t dread this as much as you hated hearing these words as a kid, but it’s time for a pop quiz! We’re putting retirement planning preparedness under the microscope with 5 critical questions to which you need to know the answers. So sharpen those pencils and let’s see how ready you are for retirement.

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More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Welcome into the podcast. It’s Retirement Planning Redefine with John and Nick and it’s pop quiz time. We’re going to have a little fun here with a retirement pop quiz. And don’t worry, it’s only five questions and it’s multiple choice. So we make this pretty easy. Guys, did you enjoy pop quizzes? When you hear that phrase, do you automatically get filled with dread or with joy? Nick, I’ll start with you. How you doing buddy? What’s going on?

 


Nick: Oh, pretty good. Fortunately, I was a pretty good test taker, so never bothered me that much.

 


Speaker 1: Okay.

 


Nick: But, so I luck out that way, but I know a lot of people dread it.

 


Speaker 1: Oh, for sure. Well, you know what? You are the first person, congratulations that I’ve talked to when I’ve doing the pop quiz that have said, all right, let’s do it. I have no problems with it.

 


Nick: I don’t know if I can go that far, but yeah.

 


Speaker 1: Oh, there you go.

 


Nick: At least not depressed.

 


Speaker 1: Not depressed. Okay. John, what’s going on my friend? How you doing?

 


John: Ah, doing all right.

 


Speaker 1: Yeah.

 


John: I was in between, it depended on the class.

 


Speaker 1: Okay. Okay.

 


John: If was something I enjoyed,

 


Speaker 1: Yeah.

 


John: It was, let’s roll. If it was something I dreaded, I was like aw man.

 


Speaker 1: I think that’s fair. I think, well, this,

 


John: Got to throw this at me right now.

 


Speaker 1: Yeah. I think that’s fair. But this should be pretty easy, because this is right up your guys’ alley obviously. Right. So this is retirement planning, pop quiz. So folks can play along with us here. I’m going to basically give you guys the question, give you the multiple choice answer. Let you give us the best answer from the choices. And then if you’d like to elaborate on something different or why none of them are a good idea feel free to do that as well. And I can never hear pop quiz anymore without thinking of the movie Speed from the 90s now. I only hear the Dennis Hopper going pop quiz, punk.

 


Nick: Great movie.

 


John: That was just on TV the other day. I was scrolling and I saw, and I’m like, oh man, like Nick just said, this is a really good movie.

 


Speaker 1: It’s a remote dropper. Yeah.

 


John: Yeah.

 


Speaker 1: Yeah. You’ll drop the remote and watch it. So, pop quiz for the guys here. Let’s see how we do. This is kind of just a retirement pop quiz, just five basic questions to check your preparedness or what you might have done and see if we should do things differently or whatever. So number one, I’ll give this one to you, John. At what age should people start saving for retirement A, when they begin working B, after they buy their first home or C, once they’ve paid off all their debt?

 


John: I’m going to have to go with A, when you begin working. Everyone probably has a different situation, but I’ll say that as soon as you start making income, it’s good to start saving towards retirement or saving in general. And yeah I’ll use one of my clients as an example, started out young, I think started with me when he was 24. And a big question was, Hey, I’m making money. What should I do? And we just started overfunding his retirement accounts. And seven, eight years later life happened, two or three kids.

 


Speaker 1: Sure.

 


John: Bought a house, all this stuff. And with all the expenses, he can’t save as much, but he’s built up such a nice nest egg from his 20s that he’s really in an excellent spot. So we just really started out strong and,

 


Speaker 1: That’s a good idea. Yeah.

 


John: Everyone’s seeing those charts where the sooner you start, the more you have at the end, but yeah, there’s a lot of truth to that. So I would say as soon as you start an income and have some money, I would definitely sock it away because you don’t know what the future’s going to hold.

 


Speaker 1: Now that’s a great idea because then when you do, when life does happen, which I was thinking about that with the home thing, it gets tougher. So then if he’s only able to put just a little bit away from time to time or on each paycheck or whatever, from the job getting the match or whatever, then you’re already up on the game a little bit. So I like that. Nick, want to chime in at all?

 


Nick: Yeah. I think the answer is just yes. As soon as you can start saving, you should even, and I know it’s something that’s talked about a lot, but even if you can just save up to the match and kind of get some free money from your employer,

 


Speaker 1: Right.

 


Nick: The sooner because it’s more about habits than necessarily the amount and just kind of getting used to creating smart habits is really a positive thing that last a long time.

 


Speaker 1: Yeah. That’s a good point too. And let’s be honest. See, come on, when you paid off all your debts, does that ever happen? Like we’d always be chasing something. Right. Somewhere through life.

 


Nick: Yeah. There’s always something.

 


Speaker 1: Yeah. Well I’ll do it after I this or I’ll do it after I that. Right. So you don’t want to go that route. All right, Nick, I’ll give you this one here. Number two, which of these is the best estimate of how much income you’ll need in retirement, A 50% of your income, current income, B 85% of your current income, C, 100% of your current income or D, none of the above.

 


Nick: This is one of those questions that I’ll probably annoy people with on the answers. There should maybe be like another option that lets you pick multiple. So the key kind of word in this is need. So in theory, 85% is probably the number for a lot of people.

 


Speaker 1: That’s kind of what we hear, right? That’s the term we hear. Yeah.

 


Nick: But at the same time, from the standpoint of many people that we talked to, they’re looking to, especially after the massive market run that we’ve had over the last 10, 12 years, even including this pull back recently, a lot of people have ended up with more money than they expected, and they’re wanting to do things and travel and enjoy, and it becomes less about need more about what actually do you want to do? So I would say somewhere between 85 and 100%. One other thing that we’ve seen for some people is, especially those that work at large employers. We’ve had a couple people pointed out recently in the last six months. We’ve got some people that were used to paying 100 to maybe $200 a month for health insurance per person. And now when they see what they’re going to pay with Medicare and so to supplement things like that, there’s some expenses that maybe are higher than what they expected. So I would say somewhere between that 85 and 100% is where a lot of people end up.

 


Speaker 1: Yeah. Yeah. I think we hear the 85. John, I used to hear this comedian. It was pretty funny a way of looking at it. If you’ve ever been on puddle jumpers. Right. Any of us that have gotten on a plane where you go to little island hopping or whatever, they ask how much you weigh. Right. Because then they say, well, you go, well, why? And they go, well, because we want to know how much fuel to put in. And this guy goes, well, fill it up. Here’s my credit card. Right. It’s on me, I’ll pay because the idea is, so you don’t want to just get sort of to retirement and then say, well, 85% enough. I would say 100% is what a lot of people are hoping for because they typically don’t want to go backwards in their lifestyle. Is that a fair assessment?

 


John: Yeah, I would say so. The big thing that typically where I think most people assume 85% is the mortgage might be gone or maybe you were saving 15% into your retirement account. So, that’s a spend that’s gone, but 100% is you want to maintain the lifestyle. But everyone as Nick kind of stated earlier, everyone’s different and everyone’s situation’s different. So very important to do a plan and make sure that you’re living off the income you want to live off of versus just needing, so.

 


Speaker 1: What you need. Yeah. Okay. Fair enough. All right, John, back to you and I’ve kind of basically just going back and forth with you guys a little bit here.

 


John: Yep.

 


Speaker 1: Number three, which of these do you find that retirees fear the most, pretty easy one here I think A, not leaving enough to the kids, B running out of money or C nursing home care? John, what say you?

 


John: I’m going with B, running out of money. That seems to be the biggest fear, because I think most people don’t want to go back to work. And then we hear a lot of times where we’re doing plans and it’s Hey, I don’t want to be old greeter at Walmart at some point. So, let’s make sure that the plans solid. So, one thing to alleviate this fear when we’re doing planning is, we try to be conservative with the rate of return we’re using, the expenses to make sure, Hey, it’s better to air on the side of caution versus be aggressive with these things because last thing we want to do is hit your mid 80s and you’re looking at your accounts and you starting to get a little nervous, so.

 


Speaker 1: Exactly, exactly. And I think that’s, everybody’s going to say B, although Nick, C is right behind it for many people. I mean like neck and neck.

 


Nick: Yeah. Yeah. There’s definitely in theory, I think a lot of times B and C, C can lead to B, realistically in other words, Hey, is there going to be enough money left over for me to have respectable care towards the end of my life? So ultimately it ends up leading to do I have the money, sort of thing, or have I planned properly and do I understand how that ties together? But yeah, I’ve got a few clients. What I’ve seen that a little bit more too is in a lot of single clients that they’re heavily focused on that, especially women oftentimes,

 


Speaker 1: For the long term care, you mean?

 


Nick: Yeah, for sure. And a lot of men like to use the line, just take me out back and that whole thing.

 


Speaker 1: Yeah.

 


Nick: Hear that plenty as well. But there’s so many people that are living longer and it’s, I was just up North and we were kind of, I was talking with friends and kind of seeing some long time friends and their parents that I haven’t seen in a while. And there was a bunch of friends who parents still had one of their parents alive, usually the mom and they were all in their 90s and,

 


Speaker 1: Right.

 


Nick: Still doing pretty well. And, but the circle of care needed to help make sure that they maintain. And my grandmother was with my parents and I know how difficult that is. And it’s a lot of work. So that’s definitely something that people are concerned about.

 


Speaker 1: Yeah. It’s got to be on the radar. It’s got to be part of the plan. And if you plan right, hopefully you won’t have to worry about either one of those. And then if there’s something left over, then you can do A as well and leave some money to the kids. So it’s all possible, but it’s got to have some strategizing going on there. It’s got to have some retirement planning redefined if you will. All right. So let’s see. Nick back to you here for the lead answer. Number four, which of these examples best represents a diversified retirement plan, A, a mix of 60% stocks and 40% bonds, B three rental homes and a good amount of cash in the bank. So rental income there. C, 10 to 12 different mutual funds or D, none of the above.

 


Nick: My answer is D none of the above. A lot of people, I think they think about like a 60, 40 mixes.

 


Speaker 1: Traditional, right.

 


Nick: A pretty traditional answer, but in our minds, this is the emphasis on the plan. For example, I’ll just use two sets of family members. So you’ve got one set of family members where there’s a pension involved. So that pension, between pension and social security live within their means, expenses are covered. They never saved as much as maybe they would have if they had had higher income and were able to save more. And they’re in a very comfortable position from a retirement standpoint whereas maybe another set of family members, a sibling earned more money over time, but also spent more money and don’t have as many kind of income producing assets going into retirement. And there’s a lot more stress there. And so, really the plan from a diversified plan standpoint, it’s really ends up being a function of people’s risk tolerance and how much sort of risk they’re willing to take. You can tell somebody that, Hey, 60, 40 mix of stocked bonds is great till you’re blue in the face, but if they don’t have market tolerance, then it’s never going to work.

 


Speaker 1: Right. Yeah.

 


Nick: And so, you have to adapt and adjust, and that’s our job as advisors.

 


Speaker 1: Yeah. And John, typically those 10 to 12 different mutual funds, they’re probably large cap. Right. So there’re probably a ton of overlap in there and 40% in bonds, I mean, bonds aren’t doing so great.

 


John: Yeah. I think, to kind of back when Nick’s saying here, when you look at what’s going on today in this market year to date with equity stocks being down and then rates going up, which in turn fixed income markets are down. So both of those at this point in time are down 10 plus percent. So that’s not a very good,

 


Speaker 1: Yeah.

 


John: Diversified strategy for this period.

 


Speaker 1: Yeah. 60, 40 is that traditional portfolio split. And it had its place for a long time, but it just doesn’t seem to be the case for many people, more and more people right now. So it’s always best again, to get it kind of customized. So yeah, I would say none of the above, or at least maybe a little bit of each of these three kind of sprinkled in is more diversified than just one of them. All right. Last question, John will lead off with you here. To make sure you do not run out of money in retirement, only withdrawal blank percent from your portfolio each year A, 1%, B 4%, C 6% or D just find a different strategy altogether.

 


John: Yeah. I’m going to go with D on this. The rule of thumb typically we hear is 4%, but I’m going to say this is one you definitely don’t want to live by the rule of thumb and you want to customize a plan to yourself because everyone’s going to be different. And if you just live by a rule of thumb on this one, there’s a good chance that you’re going to hit that fear of most retirees and that’s running out of money. Or if you’re just doing 1%, you might not be living to the best of your ability. So, definitely here it’s D and do a plan and figure out what’s your strategy.

 


Speaker 1: Yeah. Nick, do you concur with that one?

 


Nick: Yeah. I think an example from this is the last really seven to 10 years where a lot of people that were maybe risk averse, avoided some of the market. And we know that it was very, very difficult to get any sort of return on conservative money. So whether it’s cash in the bank, CDs,

 


Speaker 1: Right.

 


Nick: Bonds, those sorts of things. And so it made it difficult for people that were conservative to be able to sustain that sort of withdrawal rate and really it kind of emphasize the importance of having an overall balance. But yeah, again, one of the things that we tell people oftentimes is that one of the good things about kind of planning in the financial world is that there’s something for everybody, and that can be one of the bad things too, because it makes it hard for people to navigate. But usually, once you really kind of drill down and figure out what people are comfortable with, there’s some sort of solution out there, or combination of solutions to kind of get them to the point that they need to be. And that’s kind of the importance of planning.

 


Speaker 1: Yeah, definitely. And the 4% rule, it was a fine rule of thumb for a while, maybe back of the napkin. But most of the time you hear people say it’s more like maybe 2.9 or 3.1. And so it’s just better to find a specific strategy altogether versus relying on in general. Again, if you’re out to dinner and you’re just doing some quick math and you say, Hey, we’ll use 4% or something like that. Maybe that’s one thing, but really at the end of the day, getting it dialed in for what you actually need to do, get a strategy, get a plan and get started if you’re not working with a qualified professional, like the team at PFG Private Wealth. So reach out to John and Nick, if you need some help and you’re not already working with them and your checking out the podcast. You can find them online at pfgprivatewealth.com. That’s the website, lot of good tools, tips, and resources.

 


Speaker 1: You can contact them that way. You can subscribe to the podcast, whatever you’d like to do. Find all the information again at pfgprivatewealth.com or reach out to them at 813-286-7776. Guys, you did well. You passed. So thanks for hanging out and playing the game with us here on the show. And we’ll see you next time on Retirement Planning Redefined with John and Nick.

Ep 35: Not Your Father’s Retirement

On This Episode

If you’re of the age that your mom and dad retired 20 or 30 years ago, the world was a much different place when they walked away from their paychecks. Let’s talk about how things are different now.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Hey everybody. Welcome into the podcast. It’s Retirement Planning Redefined with John and Nick from PFG Private Wealth. Hanging out with me to talk about this being not our father’s retirement now. That’s our podcast topic this week, not your father’s not our fathers, whatever you want to say, we’re going to go into this conversation about how things are so much different even just 20 years ago when it comes to retirement. And some things to think about before we walk away from that paycheck. And there’s a lot that’s obviously changed and obviously we’re seeing a lot of turmoil coming off of COVID and things of that nature. So there’s a lot of good topical stuff in here for us to discuss, but let’s jump in and say hi to the guys first, Nick, what’s going on, buddy? How are you doing?

 


Nick: Pretty well, staying busy.

 


Speaker 1: Staying busy. Well, that’s always good. John, how are you, my friend? Last time we talked you were having some troubles with the kids. Everybody not sleeping and things like that. Doing better?

 


John: Yeah, for the most part, actually, I don’t know if I’ve mentioned it. We got them to share a room which has helped their sleeping habits a bit. So we’ve been sleeping through the night. So it’s been a few years, my friend, of consistent nights of sleeping.

 


Speaker 1: There you go.

 


John: Starting to feel pretty good again.

 


Speaker 1: Yeah, I like that. Well, very good. So you never know what’s going to make the trigger there. So I’m glad to hear that. Do you guys remember these commercials? I’m a little bit older than you, but I know a lot of our listeners might remember these as well, if you guys don’t. But back, maybe late ’70s, early ’80s, Oldsmobile was trying to rebrand and make the Oldsmobile a little bit cooler. And so they had these commercials and it would always say things like, “It’s not your father’s Oldsmobile.” You guys remember those at all?

 


Nick: I do actually.

 


Speaker 1: Yeah. And so they would try to rebrand it that way. So that’s kind of the idea I had for today’s conversation. It’s not our father’s retirement. My dad retired in ’93. He passed away in ’96. So he didn’t have a very long retirement, but even just the principles and some of the things are completely different here 30 years later.

 


Speaker 1: So let’s talk about a couple of these things and how the world’s changed and how really planning has also changed and what you guys do and what folks need to consider when they get closer to retirement. First of all, the concept of retirement is not actually that old, a hundred years ago you didn’t retire. You worked until you dropped. Right? So really retirement’s only been around since, the idea of it really since the late ’30s, ’40s, ’50s, ’60s, so on and so forth. And it was this thing where you got to 65, you retired, you were done. Maybe you sat on the front porch and did little, but nowadays more and more people work beyond 65. They want to, not just have to, they want to, and that’s okay. Right? There’s nothing wrong with that.

 


John: Yeah. I would definitely, we see that in our office here, Bob Perry’s 76, 77, he’s still working. We joke that his wife won’t let him retire, but he really enjoys coming in and the environment here and just being with everyone, it gives him stuff to do and he provides a lot of insight for us as well. So it’s great to have him around so I could see where in his situation or other people’s, if they’re somewhere they enjoy, what’s the point of retiring if you enjoy it?

 


Speaker 1: Right. Exactly. And not only that, Nick, but a lot of times people, again, they just want to do some other things and maybe you don’t need the full job income, like you used to have, the big career, but maybe you do need a little extra money to help with the plan or something, but it’s just a way to kind of have some fun and maybe make a little extra scratch on the side.

 


Nick: Yeah. I think ultimately what happens is that almost one analogy to think about, you see things like football players, baseball players, et cetera. Here you have people that retire early, they maybe have a career 5 to 10, maybe 15 years. And obviously their situation is a little bit different from a perspective of the money that they’re retiring with and the bandwidth they have to route the time between retirement and their life expectancy. However, there’s probably a little bit more similarities than people realize where ultimately when you see interviews with people like that, the things that you hear them talk about are missing the structure, missing the comradery, coworkers slash teammates, those sorts of things.

 


Nick: So, there’s actually a lot of similarities and it’s almost keeping that sort of structure and help keep my mind sharp, keep people engaged. We definitely see patterns from the perspective of, there are some people that they do a great job of having hobbies and they know that when they retire, they’ve got a list of things that they want to do, whether it’s travel, whether it’s hobbies, whether it’s a small sort of business. And then you have people that really struggle. And I was having this conversation actually with my parents this weekend. My dad is a retired fireman, but he’s been working, he had his own small business for the last maybe 15 years. So he retired as a fireman really early.

 


Nick: My mom’s a nurse. She works a couple days a week now, but she’s looking to slow down. And my dad was talking about a friend of his, maybe like 10 years older, that still does some work because he can’t just sit around, he’s got to stay busy. And my dad was like, “Well, he needs hobbies.” And I said, “No, you need some hobbies. You don’t have any hobbies.” And he looked at me like, “I had never really thought about that before.” And we’ve had different conversations, but the point that I’m trying to make is a lot of times, we look at other people, we look at other situations and we perceive ourselves in a different way. And sometimes just taking that self inventory and asking ourselves these sorts of questions, it really is important because there’s many more similarities that we realize. So…

 


Speaker 1: Yeah.

 


Nick: So we’ve tasked my nieces who are younger to help, start coming up with some hobbies for my father, their grandfather, to keep him sharp and engaged. So…

 


Speaker 1: Well, I think we went through this cycle. Like I mentioned earlier, a hundred years ago you just worked until you dropped. And then we said, “Oh, we can do this thing called retirement.” And then people started retiring and sitting around and doing nothing. And then you wither away that way too. So I think we’ve now started to learn over this past a hundred years that, okay, it’s got to be a bit of both. You, you work really hard, you get to retirement, you hit retirement, but you still need to be active. You still need to do things and have things that interest you, if you want to just sit on the front porch and make wicker baskets, then that’s great, do that, if that’s what you want, but more and more people are-

 


John: Real quick, Nick loves making wicker baskets.

 


Speaker 1: Does he really? I got to get one now, I need a custom wicker basket.

 


Nick: No wicker baskets.

 


Speaker 1: Oh man, just crushed my dreams right there. But anyway, I think that’s a really great point is having something to retire to. Now, the next point on this guys, is being retired, it can be more expensive nowadays than working. So, we used to see that 20% less is what you need in retirement. Well, that might not be the case now. And we’ve just been having conversations as well about inflation and stuff. So it can be quite expensive to retire if you’re not careful.

 


Nick: It absolutely can. Especially depending on where you live from the perspective of the things that you may be looking to get into or do. I live in a downtown area in St. Pete and I absolutely see how, anybody that lives in this space, all you have to do is walk down the street to grab a coffee, to grab a lunch and depending upon your lifestyle, you’ve just got more time on your hands to do the things that you want to do. So, so why wouldn’t it be more expensive if we’re just doing these things more often, more frequently, so it can definitely be the case. And that’s even from a discretionary standpoint, let alone the health care costs and all the things that people do to stay healthier, stay more engaged, live longer, all those sorts of things.

 


Nick: And ultimately, one of the things that we’ll have conversations with people, sometimes people come in with an open mind thinking like, “Hey, this might be happening. I may spend more money.” Other times we have people that they’re absolutely convinced, ” No I’m going to spend 50%, 60% of what I spent before.” And that’s sometimes the question to them is, “Why would you? Is that what you want to do? Or is this just something that you read?” Because I would guess ultimately you want to enjoy what you’ve saved up for and worked hard for. So, at what point in life or maybe even in the last 30 years, one of the questions, at one point in the last 30 years, have you lived only for needs and realistically here in the U.S That’s for most people that’s not too common, ultimately we live in the things that we bought. We enjoy the times that we want to spend with others, all those sorts of things. So, that’s an important conversation to have.

 


Speaker 1: No, I definitely agree with you there. John, retirees are facing more problems than ever too. Well society, we’re all facing more problems than ever before, social media, so on and so forth. Just the inundation of information, but longevity, I think maybe longevity guys might be a key to this whole conversation today because it magnifies all of these things. And that’s certainly going to be the case when juggling more problems because we’re living longer, so much longer, the body’s able, we’re figuring out lots of great ways to keep the body going, but sometimes we’re having some difficulties when it comes to the mental side, dementia is on the rise, things of that nature. And that gets pretty costly.

 


John: Yeah. Yeah. Previously we talked about retirement changing, people had pensions which lasted for their life. And the shift has been away from pensions to putting the responsibility on the individual where now they have just basically savings, whether it’s cash or investments or whatever, but now you need to be very cautious, we have to be very careful that that’s going to last you 30 plus years. And that’s why it’s important to have the plan to make sure that your money is going to last throughout retirement, which is really the biggest concern for retirees. Some other things we’ve seen popping up more recently and we’ve just dealt with this with a client where their they’re aging parents, they were providing financial assistance for their parents in assisted living facilities and things like that, or having helpers.

 


John: So I have one client where they’re were assisting their parents with that. So they weren’t really going on vacation and enjoying their time. And then the parent passed away and then with everything that’s happened recently, their son lost a job and then they were not helping out their son with expenses. So it was a double whammy for them is that they can’t truly enjoy retirement because they’re helping family members out, which again, no one plans for this, you just happen in this situation, but it’s something that you always want to keep track of.

 


Nick: Yeah. That’s kind of that sandwich generation that they talk about a little bit and it really started coming to the forefront back during the recession, ’08, ’09, ’10, where there was a lot of kids coming out of college, couldn’t get jobs, parents aging, all these sorts of things. So I would say baby boomers definitely have their hands full with all the different things that they have to juggle. And so having peace of mind of having that plan in place and understanding how their money is going to work in retirement is more important than ever.

 


Speaker 1: Yeah. Well, and like I said, longevity is probably the key to this whole conversation. So we have to sell fun. Right? We don’t have pensions now. Well, not many do. Right? So I think something like 15% or less of the population has pensions. It’s an interesting statistic, but we’re talking 30, 40 years. I was just chatting with somebody yesterday, guys who they’re 72 and their mom and dad both are still alive. They’re in their 90s and they’re also dealing with helping their 40 year old children. So there’s a lot in this to unpack.

 


Nick: Yeah. Yeah. We see it all the time. We see it all the time and it can be pretty stressful. And a lot of times what we’ll try to do and go through with people and this even ties into some other previous podcasts, that we’ll have from the perspective of, “Hey, my kids are looking to buy a house. I want to give them money for a down payment.” And we’ll talk about things like, “All right, well, where does that money have to come from? How does it impact your overall plan?”

 


Nick: So we try to walk it through and we try, we joke where we try not to be the money police and tell people what they can and can’t do, but we just help them understand the impact of their decisions and trying to make sure that they do it from a perspective of viewing their retirement first and making sure that they’re okay because they also don’t want to be a burden down the line for their kids. So it can be a really slippery slope and making sure that the decisions that are made along the way position them to be able to help, but it can be difficult, especially like you said, planning for that 30, 40 year retirement.

 


Speaker 1: Yeah, definitely. And it’s a situation where we’re just going to continue to see more of it. So having a good strategy, having a good plan is going to be paramount to getting through all these hurdles and things that we’ve got going on. Because I imagine at the end of the day, nobody comes in and says, “Hey, I’d like to have less of a lifestyle than I have now in retirement.” No one wants to go backwards. So you want to make sure that you are having those conversations to move yourself forward or at least maintain into retirement. So that’s our topic this week. So we all know things are different than they were 20 or 30 years ago. But when you really start dissecting it, especially from a financial standpoint, there’s just a lot to unpack.

 


Speaker 1: So sit down and have a conversation. If you’re not already with a team that can help you like the team at PFG Private Wealth, John and Nick, and the whole team there to get on the counter, reach out to them. (813) 286-7776. If you’ve got some questions or concerns, reach out on the website if you’d like to as well pfgprivatewealth.com, that’s pfgprivatewealth.com. Don’t forget to subscribe to the show. Retirement Planning Redefined on your smartphone there. If you’ve got an Apple phone, for example, Apple Podcasts is already on your phone. You can just open up that app and type in Retirement, Planning Redefined, and subscribe that way or Google or whatever platform you use. Most of that stuff’s already pre-installed on your phones anyway, but you can find it all at pfgprivatewealth.com. Guys, thanks for hanging out with me this week. I appreciate it. John. I’m bummed that he’s not going to make me a wicker basket.

 


John: I’ve been trying to get one, he won’t do it.

 


Nick: I’m not the creative type.

 


Speaker 1: Not the creative type. All right, guys. Well, thanks for hanging out again. I appreciate it. I’ll see you next time. John, take care, buddy.

 


John: Have a good one.

 


Speaker 1: We’ll see you later. Nick, take care. Have yourself a good week.

 


Nick: All right. You too. Take care.

 


Speaker 1: We’ll talk to you next time here on Retirement Planning Redefined with John and Nick from PFG Private Wealth.

Ep 32: Are You Flirting WIth Financial Disaster?

On This Episode

Let’s talk about some of the areas of your financial life where you might be flirtin’ with disaster and don’t even know it.

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Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Marc Killian: Hey everybody. Welcome into this week’s edition of Retirement Planning Redefined podcast. We appreciate your time, hanging out with John and Nick and myself as we’re talking, investing, finance and retirement. And of course you could check them out online if you’ve got some questions or need to follow up or have a chat about your own situation, get your retirement planning redefined at pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe to the podcast while you’re there. A lot of good tools, tips and resources to be found.


Marc Killian: And on this go-around, we’re going to talk about flirting with disaster. As Floridians, there’s certainly always the case where we have some disastrous situations can come up from time to time, but we’re going to talk about these from a financial standpoint and some areas in our financial life where we could do this and not even realize it. First off, let’s say hey to the guys. What’s going on, Nick? How are you?


Nick McDevitt: Doing well. Doing well. How about yourself?


Marc Killian: Doing pretty good hanging in there. Looking forward to today’s topic. Got some good, easy fixes I think for a few of these things, as well as some that are maybe a little more complicated. We’ll dive into that. Let you guys share. But John, how are you?


John Teixeira: Doing good. Doing good. Nick and I are actually in the process of planning a golf tournament for a couple of charities here locally with… the group we’re in is, again, 13 Ugly Men Foundation. And we’re partnering up with Bern’s Steakhouse to do a golf event at TPC Tampa Bay. So, we’re excited about that coming up.


Marc Killian: Very Nice. Yeah. Keep us posted on that. We’ll definitely like to learn more as we get closer to there. Well, hopefully, you guys won’t have any disastrous situations come tourney time, but let’s talk about them today. I got about five here, guys, I want you to just break down for us. And, like I said, some of these are kind of easy fixes, so let’s start there. They can definitely cause a lot of havoc, but, again, they are easy fixes. So, out-of-date legal documents. Not the sexiest thing in the world, but a pretty easy thing to fix.


Nick McDevitt: This is something that is a common oversight, a common mistake that people make. Some of the instances that we see where the documents are out of date or just not going to accomplish the things that they’re hoping to accomplish. Our scenario’s somebody moved from out of state and the… many people don’t realize that from an estate planning standpoint, from a legal document standpoint, a lot of those documents are different from state to state. So, that’s an important thing to review if you are somebody that has recently moved. A few years back, there were updates in Florida to durable power of attorney rules. And so, that’s a reason to have a review.


Nick McDevitt: But just like anything else, it’s important to make sure that you have in inventory or you take an inventory of what you have. Something like this, people never… or oftentimes, people don’t realize how long it’s been since they have updated their documents. There could be children that are alive now that weren’t before, parents that were alive then that aren’t now, a previous marriage, et cetera, et cetera. So, making sure that those documents are updated and chatting with an attorney about that is a really important thing.


Marc Killian: Yeah. We tend to set it and forget it with a lot of those. What are some of the key ones we should think about, John?


John Teixeira: I would say one of the biggest ones is a second marriage. That’s where you really want to pay attention to who the beneficiaries are, who’s getting what. And there are certain rules in the state of Florida. And, of course, defer to the professionals and attorneys on that, where a spouse is entitled to a percentage of the assets. So, if you want to make sure that, if it’s a second marriage, you have kids in the first marriage and you don’t want to disinherit them, you want to make sure your documents are definitely up to date.


John Teixeira: Another one we’ve seen, and Nick mentioned it, people moving in from out of state. If you have assets in other states, it’s important to make sure that you kind of have some documents for that state where the other assets are. So, example, I’m from Massachusetts. My parents have a house up there, so they had to make sure that… they basically had a will for up there and down here.


Marc Killian: Yeah. I got you. Now, a lot of times, the misconceptions with wills are if you have a will, the saying goes, you will go through probate, whereas a trust allows you to maybe not do that. Is there some other main documents that we should have? I’m assuming the power of attorneys, correct?


Nick McDevitt: Yeah. Durable power of attorney, a will. Oftentimes, people will confuse a traditional will with a living will. And essentially end-of-life documents are important to have.


Marc Killian: Like a medical power of attorney obviously, right?


Nick McDevitt: Yep, exactly. So, there’s kind of that core package that most attorneys will review with you, help you recognize, “Hey, is this out of date? Is this still applicable?” And we always recommend, obviously with any sort of legal topic, that you’re communicating with either an attorney that you have and are familiar with or we obviously have a few attorneys that we work with that we send clients to that we know and trust and will help make sure that they get through the process.


Marc Killian: But it’s often not as costly as we think it’s going to be too, to get these things handled. And once you get them in place, again, out of date, if you’re just making some adjustments, usually can be done through a phone call. So, kind of an easy fix, right?


Nick McDevitt: Yeah. We’ve definitely seen, especially over the last year, many, many companies, including law offices, have put their tech into hyper drive to make [crosstalk 00:05:18] easier for clients. So, yes, sometimes mentally things will feel overwhelming and that will slow us down from doing it. And this is one of those things that doesn’t need to be super difficult and can be done pretty easily.


John Teixeira: Yeah. And we actually have something we give to clients, it’s kind of a wills point checklist. It’s like 24 questions to consider, almost like a prep before you go see an attorney so you feel like, “All right, I’m a little bit prepared for this.” So, if anyone does want that, they’re more than welcome to shoot us an email or call the office and just mention that and we can get it to them.


Marc Killian: Yeah. Again, folks, stop by the website, pfgprivatewealth.com. Drop them an email. John or Nick @pfgprivatewealth.com is where you can email them. Yeah. That’s a great point. So, thanks for bringing that up as well.


Marc Killian: And, John, you mentioned another marriage, for example. So, the BDs, the beneficiary designations, having those incorrect, another easy fix. And it’s not just… we tend to think of, I don’t know, one item or one type of account, but there’s multiple places where you’re going to have these beneficiary designations. And updating these is, again, a pretty easy thing to do.


Marc Killian: I had somebody teach me that there’s a couple of Ds to remember, to kind of trigger you to double-check these: if you get a divorce; if you have a death; or a disability; or at minimum, at least once a decade. That way, you get the four Ds, if you will, to maybe update these or take a look at them.


John Teixeira: Yeah. Those are all really good ones. Actually, kind of going back to the will stuff. So, if you do have beneficiaries on some of these accounts, it does bypass probate. So, if there’s a beneficiary on a life insurance or a retirement account, it doesn’t actually go through probate; it goes directly to that beneficiary. So, that’s always kind of good to know.


John Teixeira: But yeah, divorce, very important one to update. Can’t tell you how many times Nick and I have done some reviews with some clients that are new clients and it’s… we’ve seen on the 401(k)s especially because that’s kind of a set-it-forget-it type thing, where you have an ex-spouse on there. We’ve unfortunately seen some people with 401(k)s where they get auto-enrolled. They just never put a beneficiary on there just because [crosstalk 00:07:27] signed up, it’s auto-enrollment for the company. So, those are two important things to really take a look at.


John Teixeira: And we don’t see this too often, but we have seen some people just kind of just have a fallout with some beneficiaries, whether it’s a child, a niece, nephew, whatever it may be. And we’ve seen some changes from that where it’s, “Hey, to be frank, I just don’t like this person anymore.”


Marc Killian: I mean, it happens. It definitely happens. And so, we’re talking IRAs, life insurance policies, 401(k)s, things of that nature.


John Teixeira: Yep.


Marc Killian: Okay. All right. So, those are, again, pretty easy fixes for some of that stuff. And the havoc they can wreak… I imagine having somebody come in and the new spouse is saying, “Hey, I found out that the old spouse is still on this life insurance policy.” That’s not good. And that’s not an easy fix at that point, but it can be taken care of ahead of time pretty darn quickly.


Marc Killian: Let’s move to some more complicated one here, guys. You could be flirting with disaster, talking about the ticking tax time bomb. Obviously, that is going to continue to be a mainstay of conversation in retirement planning in general because it’s such an important part of it, how we’re being… if we’re being as tax-efficient as possible, I should say. But with the continued spending that we’re seeing as a nation, it seems like this is only going to become more and more of an issue.


Nick McDevitt: Yeah. So, one of the things that we try to… so, when we talk about a tax time bomb, what we’re typically referring to is when people only save into accounts that are tax-deferred, a.k.a. traditional 401(k), a.k.a. traditional IRA. And so, when they are in retirement, the thought process is like, “Hey, I’m going to have lower taxes. So, no matter what, this is going to be a better deal for me.”


Nick McDevitt: And the thing that we try to focus on with clients and with people in general is that there’s a lot of uncertainty on what we know is going to happen from a tax perspective. And so, our really emphasis is not necessarily to be right, as far as, “Hey, we know that X, Y and Z is going to happen”; it’s that you have options so that no matter what, you can adapt to what’s going on.


Nick McDevitt: And the tricky part about that is if you’re two to three years out from retirement, you’re at your highest earning income years, you don’t have any Roth money for example or any just regular investment account funds put away, we may continue to have you save into a pre-tax account. But then once you retire, we may look into trying to do some Roth conversions or make some adjustments or plan for kicking in a strategy when you do retire. So, it’s not like it’s necessarily the easiest thing to navigate. Your best bet is that, as soon as you can, start to save money into different places so that you not only are diversifying your investments, but you’re diversifying how you’re going to be taxed in retirement, is really a thing that we emphasize with clients.


Marc Killian: Yeah. And that’s a good point as well because this is not as easy as a fix, but it’s something you can get on pretty quickly simply by working with an advisor, having them review your scenario and your situation and saying, “Okay, how can we be more tax-efficient?” and looking for ways to do that. And I just saw the other day that they’re estimating about 40 trillion is what’s sitting out there in uncollected taxes on traditional IRAs or 401(k)s. The government’s kind of salivating over this estimated $40 trillion as people go through these retirement accounts and start to pull the money out or whatever the case is. So, certainly places where you could have those conversations and hopefully be more tax-efficient. So, again, if you need the help with that, make sure you’re talking to a qualified professional like John and Nick.


Marc Killian: What about flirting with disaster, guys, when it comes to just no plan at all for long-term care expenses? This one obviously is going to be even more complicated, but most people just ignore it. I know it’s a daunting subject sometimes for folks, but there’s things you can do.


John Teixeira: Yeah. So, you’re right on that. Most people do ignore it. And there are some options out there. They used to be much better. Unfortunately, they’ve kind of gotten just not as strong. 10 years ago, you could get a really good policy from a good provider. And nowadays, a lot of these providers have left the space in essence and they’re not offering it anymore.


John Teixeira: So, what we’ve kind of seen more is kind of, and Nick goes through this part in the class, some hybrid vehicles where it’s a life insurance and a long-term care policy kind of bundled up in one. We’ve had situations where, from a planning standpoint, maybe getting… it’s very hard to qualify for it so we’ve had to put in some buffers to self-insure. Again, not covering the whole cost of it, but just trying to help out in the event that something were to happen. It’s very important, just limited options out there currently, but it’s definitely worth exploring your situation to see what fits for you.


Marc Killian: Yeah. And I imagine you’re going to exacerbate that by not having the conversation. So, if the options are becoming a little bit more limited and you’re also not taking the time to discuss it, you could be putting yourself even further behind the proverbial eight ball. So, definitely have those conversations. Don’t just stick our head in the sand, especially when it comes to long-term care expenses, whether it’s the 2 out of every 3 people or 7 out of every 10. Whatever the case is, it’s happening more and more because we’re living longer. So, we therefore have to deal with those outcomes that come with it.


Marc Killian: One more here, guys, on some places we can flirt with disaster. And then we’ll probably wrap up with an email question that we got into the site as well. But that’s the classic 60/40 portfolio. First, just run it down for us, what that is for folks. And then why might you flirt with disaster on that?


Nick McDevitt: Sure. So, there’s a little bit of jargon in there, of course. We try to stay away from it as much as possible. But a 60/40 portfolio is what’s considered 60% stock, 40% fixed income or bonds. And it’s tricky because really, the way that people invested a short while ago was different than the way that people are investing now. And really, what also happens… so, for example, these last few years, as bond yields or returns from bonds have gone down, people have kind of flirted a little bit more with taking more risk on the stock side. And so, it’s really important to make sure that when you are evaluating your overall portfolio and looking at how much risk you’re willing to take, that you really understand how these different parts work and move together.


Nick McDevitt: So, really, what it boils down to is that it’s important for you to have a liquidation order. So, for example, what some people used to do is, “Hey, I’m going to have a 60/40 portfolio. I’m going to pull from my account every single month without any sort of strategic plan on how I’m going to pull that money out or where it’s pulling from.” And when we have corrections in the market or volatility in the market, where we’ll see people really suffer is let’s say they had a million-dollar portfolio. We get a big pullback. All of a sudden, your statement debt, two months ago said a million bucks, says 800,000 or 750,000 now. It can make you or prompt people to overreact to the market.


Nick McDevitt: And then once that overreaction happens, basically you’re locking up your losses. You’re selling at lows. Then you’re going to want to buy back at highs. And so, it’s really, really important to make sure that the portfolio and the allocation that you have lines up with truly how much risk you’re willing to take.


Marc Killian: Yeah. John, it seems as though the 40% in bonds… I mean, the bond market’s been just as volatile as of late for a while. So, that seems like maybe one of those rules of thumb that might be a bit antiquated, going with that standard 60/40. But again, everybody’s scenario is different, so, like a lot of things, I imagine that it might be fine for some and not for others.


John Teixeira: Yeah, of course. And, like we say, we really want to start with a plan for the client and dictate the investment options and strategy based on that plan. There are some other what we consider fixed income vehicles that can kind of substitute the bond market that we’ve been utilizing when necessary. And, again, works for some people; doesn’t work for others. But it’s good to know your options and how it works for you.


Marc Killian: Yeah. Versus trying to see-


Nick McDevitt: And just to your point there, Marc, too-


Marc Killian: Oh, go ahead.


Nick McDevitt: … as far as the bond side of things. In general, as interest rates go up, bond prices go down. And so, one of the ways that we have built around that, just for clients, for those people listening that are clients, are essentially creating bond ladders in their portfolios that aren’t as negatively impacted as rates do continue to go up. So, there are ways to work and to build around these things, but typically, especially people that are holding this money in their 401(k)s, those sorts of things, there may be significant limitations to how they can adjust to them there. And that’s where they can get in trouble.


Marc Killian: Yeah, no, great points. Exactly. I mean, that’s kind of the point of doing the podcast as well, is to share some of these things for not only existing clients, but obviously for potential clients that might be listening to the show and just hopefully offering some good nuggets of information along the way.


Marc Killian: And with that said, that’s going to kind of wrap up our flirting with disaster. Again, five areas where you can jump on these things and maybe get these corrected pretty easily. At least a couple of them, for sure. And the other ones, it’s worth having those conversations with an advisor, if you’re not working with one, on how to be as efficient as possible.


Marc Killian: With that said, let’s wrap up with an email question this week. Again, if you’d like to stop by the website, we certainly encourage you to do so at pfgprivatewealth.com. A lot of good tools, tips and resources there. While you’re there, you could subscribe to the podcast on Apple, Google, Spotify or whatever platform you use. You can also drop the guys a line as well at pfgprivatewealth.com.


Marc Killian: And here is an email from Andy who says, “How much of my portfolio, guys, is it okay to have invested in just one stock? I’m sitting on about 2 million, but almost half of it is with one company.”


Nick McDevitt: Well, that’s enough to have a panic attack. So, usually, if you’re asking if you have too much in one place, you do. But all kind of joking aside, where we typically see this sort of thing happen is in one of two situations.


Nick McDevitt: So, situation number one, was inherited from a parent. And maybe that parent worked for a company for many, many years or they invested in that company for a long period of time. And now, all of a sudden, that money has ballooned into a big amount. And due to a combination of tax rules and laws, plus sentimental value, all of a sudden, that holding makes up a significant portion of the underlying portfolio.


Nick McDevitt: And option number two is just somebody that has worked for a company for a long time, 30, 40 years. They’ve been buying the company stock for years and years and years. And maybe the stock has performed well and there’s this kind of emotional and financial attachment to it. And so, in this situation, oftentimes what we’ll do is we’ll show them a comparison of that stock to the S&P 500, for example. And oftentimes, the S&P 500 itself has performed similarly or even a little bit better. And we’ll show them like, “Hey, look at, you can have the same sort of upside potential or growth potential by holding an ETF or an index fund versus just holding that one stock and protect yourself a lot more.”


Nick McDevitt: And another question that we’ll pose to them sometimes that we’ve gotten good results from in the past was, “Okay. So, if I was going to hand you a $2 million lottery ticket and you were going to invest that money, would you spend half of it on one stock?” And the answer is usually a cross-eyed look like, “No, are you crazy?” And so, that’s exactly the same sort of thought process, where usually it’s just way more risk than somebody needs to take. There’s ways to still have similar performance and reduce the risk by quite a bit. And it’s just not really worth it at that point in time, is typically the case.


Marc Killian: All right. Great question, Andy. Thank you so much for submitting that into the show. I know it’s cliche, but as your grandmama might’ve said, “Don’t have all your eggs in one basket.” So, have those conversations. And certainly, you’re thinking about it, to Nick’s point, if you took the time to drop an email to the show here. You’re obviously probably already thinking that direction anyway. So, follow up. Have a conversation with some qualified professionals like John and Nick from PFG Private Wealth.


Marc Killian: And that’s going to do it this week for us on the podcast. Thanks for your time as always. We appreciate it. Always check out with a qualified professional, as I mentioned, before you take any action on anything you hear on this show or any other. And you can find it all at pfgprivatewealth.com. For John, for Nick, we’ll see you next time here on the show. Thanks for your time. We’ll talk to you later.