Don’t Make These Income Planning Mistakes

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Are you planning for your retirement with the confidence that you’re making all the right moves? In today’s episode, we’ll unveil the crucial income planning mistakes that could jeopardize your retirement and show you how to craft a financial plan that’s built to last decades, not just years. Tune in to ensure your retirement strategy is foolproof against common pitfalls and ready to secure your financial future.

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

Here is a transcript of today’s episode:

Marc:

Are you planning for your retirement with the confidence that you’re making all the right moves? Well, on today’s episode, we’ll unveil the crucial income planning mistakes that could jeopardize your retirement and show how to craft the financial plan that’s built to last decades, not just years. Tune in to Retirement Planning Redefined. All that, coming up next.

Hey everybody, welcome into the podcast, John and Nick joining me once again to talk investing, finance, and retirement here on Retirement Planning Redefined with the guys from PFG Private Wealth. John and Nick are financial advisors helping folks get to and through retirement. You can find them online, if you’ve got some questions, need some help, at pfgprivatewealth.com, pfgprivatewealth.com. And we’re going to talk about some income planning mistakes this week here on the podcast.

What’s going on, gents? How you doing, Nick? What’s going on, buddy?

Nick:

Good, good. Just staying busy. Just crazy that we’re almost April. I guess we’re approaching April at this point. Just had some friends in town, so that’s always a little bit chaotic. But no, everything’s good. No complaints.

Marc:

John, how’s it going in the crazy household that is yours my friend? You doing all right?

John:

It is crazy. I don’t want to get into it. But yes, it is a madhouse. I’ll leave it at that. But, yes.

Marc:

But having little ones always is, but that’s good.

John:

Yeah, you know well.

Marc:

Well, and it’s April, right? It’s a busy time of year, too, a lot of things happening with taxes and financial strategies and everything. Anyway, it’s spring, all that good stuff.

So, let’s talk about some income planning mistakes. Let’s kick it off with something simple. I teed it up a little bit in the intro there about being retired for decades, not just years. I know that we all fundamentally think that, John. We’re like, “Yeah, of course, we’re going to be retired for decades.” But somehow or another it disassociates, I think, as we’re getting thirties, forties, maybe even in our early fifties. We don’t really put as much thought to it, I guess, as we should.

For me, for example, all the men in my family die young. I’ve already had heart surgery at a young age, so I could easily jump onto that path of, well, I’m not going to live that long, so whatever. I am not going to really worry about planning for decades. But that’s just a bad move, especially if you’ve got people that you love, loved ones that you may want to make sure they’re taken care of too. So, ways to think about it, right?

John:

Yeah, the worst thing you could do is plan to retire for a few years, and next thing you know, run out of money, you don’t know what’s happening anymore. But no, we get this quite a bit where I can remember clearly Nick and I were doing a plan and the money around the eighties, it was looking a little tight. The person was pretty excited. We were like, “We need to make some adjustments to make sure it lasts age 100.” He is like, “No, I’m good.” He’s like, “I’m not lasting until 80 or 83.” And we were like, “Okay, well, we’ll still do our due diligence to make sure your money lasts for a while,” but [inaudible 00:02:55]

Marc:

What if you’re wrong? That’s the thing. And did this person have a spouse? Were they married?

John:

He had a spouse there. He was semi-serious, but we ended up making some adjustments to it. But that is something we had quite a bit. When we do our planning, we make sure it goes to age 100, because you can’t predict the future. And with technology and everything that’s going on now, people are living longer.

Marc:

For sure.

John:

It’s just the healthcare industry, there’s just always new innovative things happening. But it’s a mindset that I will say people need to understand.

And that goes with building a portfolio. Just had a conversation with a client this week, and we’re doing some things, and they’re just looking at everything short-term. I had to remind them and say, “Hey, you’re looking at a 20, 30 year period where there’s some long-term money here. Not everything is the next five years.” And just talking to her made her realize that of just saying, “Hey, I’m still invested for the long term. I can’t make adjustments just based on expecting the next four or five years.” So, that is a mindset people really don’t understand with the investment portfolio. You still have some long-term money, because your retirement is going to be 20, 30 years, not just four or five.

Marc:

No, a great point. Glad you were able to have that conversation with her and get her eyes moving. I think that’s a real value add right there that people don’t often take into account when working with a financial professional. We tend to think, “Well, it’s the X’s and the O’s. They’re going to help me figure out the dollars and the cents.” But there’s also really thinking through and behavioral analysis a little bit, behavioral changes that we have to walk through, because you guys see this day in and day out.

And Nick, I’ll throw number two over to you. Part of that, as John was just saying, “Hey, you’ve got to set things up for short-term and long-term,” social security is going to play a big factor in that. So, starting it too early could really change your long-term numbers.

Nick:

Yeah, there’s an extra emotional attachment to social security, which we very much understand.

Marc:

Whether you’re mad at it or not, whether it takes off or not.

Nick:

Yeah, and we totally understand that. For us, we always try to integrate the social security decision with the overall investments and the overall plan. Just like with anything, we always approach it from the perspective of, hey, our job is to tell you the impact of the decisions you may make, and then ultimately it’s your money.

But, for sure, one of the biggest negatives, especially if they’re financial situation is pretty solid otherwise, starting social security too early these days makes a difference. Really the last few years have really played that out. Anybody that started social security before COVID and maybe didn’t necessarily need to, between the inflationary adjustments that have happened, which they still would’ve received, that inflationary adjustment compounds with the delay. And so, the jumps in benefits for anybody that’s waited those few extra years have been substantial, and people that are starting it now are pretty happy that they waited, and it’s made a difference for them.

Marc:

Well, if you don’t have a strategy, you could be costing yourself tens of thousands. This could be big dollars over the course of your lifetime. I get it. We’re all terrified about what’s going on in the world, because every five seconds it seems like there’s some new, crazy, weird, wonky thing happening in the world that is 2024. But you’ve still got to make sure that you’re making the right decision so that these planning mistakes don’t come back to bite you 10, 15, 20, 25 years down the line. So, good points, for sure.

Hey, John, what about bonds? For years, you’d go 60/40. You’d go standard portfolio. You’d go to bonds as we age for safety. Last couple of years though, they ain’t been all that great. So, is it still one of those things where assuming it’s a safe source is a good move, or not?

John:

Yeah, I would say it’s not to assume that that’s going to be 100% your source of income. We’re going to-

Marc:

From a safe side, right?

John:

Yeah, yeah. We’re going to touch on inflation and things like that. We’ve talked about being retired for decades, so you want to make sure that you have some equities in the portfolio so you are keeping up with costs of living going up. If you’re just in bonds and fixed income, you’re going to lose out on a lot of upside. And then, if you look at the past years, although interest rates have gone up obviously the last couple of years, there was about a 15, 20-year period where you get a bond and it’s giving you two or 3%. That’s nearly not enough to supplement most people’s income.

Marc:

Oh, for sure.

John:

So, you definitely want to diversify, make sure you’re planning for the long term for some growth, and also you want to adjust to an environment where interest rates are very low and the bond yields just aren’t enough to sustain what you’re trying to do.

Marc:

And at the time we’re taping this here, it’s just at the very end of March, it’ll probably be out sometime here in April of ’24, Powell still saying that even though the numbers came back in, inflation was a tad higher, I think, just last month then what they anticipated core inflation. He’s still saying that nothing’s changed for him, and that they may be looking at cutting rates throughout 2024. So, who knows?

But Nick, that does play into inflation as John just teed it up. Our fourth point here is it’s going to play into it no matter what’s going on with the dynamic that we have right now. But even just basic inflation, even if you just go sticking with the normal 3% we’ve seen for years and years and years, if you don’t take this into account, and again, our topic being income planning mistakes, you are seriously messing yourself up, because five grand right now, if that’s your expenses, is not going to be five grand in 10 years. It just isn’t.

Nick:

Yeah. I would say too, especially in this area, I think there’s been some studies at the inflation rate in the Tampa Bay area has been higher than other places.

Marc:

Okay.

Nick:

I’ve had multiple conversations with clients where there’s been this… I think because there was such a period of scarcity in getting decent fixed rates, whatever it was, eight to 10 years, it’s like people are just taking a deep breath and just saying, “Oh, finally I can get four and a half or 5% on my money again,” which is great, but the issue is that some are assuming that it’s going to last for a long period of time. Last year is a really good example from the perspective of that five-ish percent, whether it’s a CD or money market or whatever, solidified last year. We had some clients that shifted more over, and we had many conversations about it. But again, it’s like the S&P then did, what, around 20% or something like that?

So, there was an opportunity cost there. When the market’s up like that, you really don’t want to lose out on those years. And so, the inflation is compounded. For example, even just people that are in Florida and live in a condo, maybe they’ve lived in a condo for a while, all the condo rules and association rules have changed. They’re like, “I’ve seen association fees double in the last two or three years,” and it’s really putting a lot of pressure on people. Even if their mortgage is paid off, but they’ve been on somewhat of a fixed income, there’s a lot of pressure happening there.

And so, yeah, we try to just keep emphasizing even if it’s a small portion of the money, even if it’s only 20 to 40% of the overall portfolio where we have something related to growth, more marketed towards that, getting them to understand that, hey, this is for money down the road. No matter where the rates are right now, the one thing I can promise you is they’re going to change. And so, that’s been a little bit of a different conversation than we’ve had to have probably, I’d say, the 10 years previous to that. So, it’s going to be interesting to see how people start to react when the cuts do happen.

Marc:

Yeah, because you’re talking about having to keep up with inflation, you need to have some stuff at growth. You’ve got to have some stuff at risk, basically, so that you can pick up gains in the market, things of that nature, wherever it’s coming from. But you’ve got to have some money out there taking a few chances, because you do have to keep up with or outpace inflation.

I guess that really just brings me to my last point here, John, and you guys can both jump in if you’d like to on this, but you’ve got to have other income streams besides just social security, plain and simple. That’s all fine and good, but you’ve got to have some other income streams and some of that needs to be safe, and some of that needs to help you with the future money, which is growth.

John:

Yeah, 100%, Mark. Social security might cover thirty to forty-percent of someone’s expenses, and covers a portion of what they need for income there, but really important to have some other income stream, whether that be real estate, whether it’s your investments.

Right now, we’re talking about rates, rates are really strong. We have a lot of clients looking into these income annuities, because they look really appealing right now. Because as interest rates go up, those annuity products typically tend to look a little bit better. So, just having that guaranteed income or just reliable income source to put on top of social security really gives a nice buffer.

I don’t want to speak for Nick, but I have found when you have your floor of guaranteed income, it helps you make better decisions even with your other money, where if the market’s volatile, but you say, “Hey, I have X amount of dollars guaranteed income coming in in this pool of money here that’s set aside for growth,” even when it’s a little volatile, it’s just giving you a little more peace of mind to saying, “Hey, I know my baseline expenses are covered, so I’m going to be okay.” We find that that does help people make better decisions when they have multiple income streams.

Marc:

Yeah, you got to do it, right, Nick? It’s just the point of the fact that you want to have that diversification not only in income but also with tax buckets. You just want to have some general good broad diversification in your entire portfolio.

Nick:

Yeah, absolutely. The diversification, and I alluded to it earlier, it’s just as important as ever. Having the higher floor on fixed rates has been helpful the last couple years, but the phrase that I’ve used quite a bit lately is zoom out. We need to zoom out and continue to zoom out, because that’s really important, for sure.

Marc:

That higher view of things versus trying to narrow in?

Nick:

Yeah.

Marc:

Yeah, I got you. Well, so there’s some income planning mistakes that we can certainly make, so make sure that you’re avoiding these. And of course, if you think, “Well, I don’t do this every day,” or, “This is something that I just can’t wrap my brain around all the time because I’m just too busy living my life and working my own job,” or whatever the case might be, that’s why you have a financial team to help you out.

So, if you need some help, and of course you’ve got questions, always reach out to a qualified professional like John and Nick before you take any action to see how something’s going to fit into your unique situation. They’re financial advisors to PFG Private Wealth. You can find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com.

And don’t forget to subscribe to the podcast Retirement Planning Redefined on Apple or Spotify or YouTube platforms. That’s going to do it this week for us. We’ll be back with more on future episodes. So again, hit that subscribe button and we’ll catch you next time on Retirement Planning Redefined with John and Nick.