Retirement is not without its challenges...
What are the key financial risks and how can you safeguard your future?
In this episode, hosts April Schoen and John Curry unravel the top five financial risks in retirement, and share insights on how to effectively manage and reduce them for a secure future.
You’ll discover:
The surprising impact longevity can have on your financial security.
Why traditional financial planning may not be enough for your retirement.
How market volatility could be a hidden danger in your golden years.
The role of taxes in your retirement income and how to plan wisely.
Essential questions to ask yourself as you prepare for retirement.
Mentioned in this episode:
Transcript:
April Schoen: Hello, good afternoon and welcome. My name is April Schoen, and I'm sitting here with John Curry.
John Curry: Hello everyone. Hello, April.
April: And glad to be here today. And what we're going to be talking about are five financial risks in retirement, and how do you avoid them? How do you reduce these risks? Now, these five financial risks, we face them all the time, not just in retirement.
We face them when we're in our early years, mid-career, even as we're getting close to retirement, you'll see how these five financial risks really are always present. But they impact us differently when we're in our working years, and then also when we step off into retirement. So I'm excited to get into that today.
John: I would say that when you get into retirement, post retirement years, especially, you're going to have more of a multiplier effect.
April: Yeah, yeah. And we'll talk about how even those are compounding, right? That compounding Absolutely. So let's take a look at, as we're going to be going through this today, what we're going to really talk about is one, why doesn't traditional planning work for retirement? And it's because of those risks. It's because those risks impact us so differently when we're in our retirement years than they do when we're in our working years.
So we're going to go through that today and talk about what is, first of all, you might be asking, well, April, what is traditional financial planning? What does that even mean? So we're going to talk through what do we see that you know, from a traditional standpoint for retirement.
Again, it's one of the things that we can find that is a very common approach to retirement planning, but is not the one that always gives the best result. So we're gonna talk through first, what is that, and why it doesn't work for retirement. That's because of these risks that we're gonna talk through, and how they impact us differently in retirement versus when we're working.
And of course, then we're going to get through and talk about those risks and some key tactical things that you can do to reduce those risks. You may not be able to get rid of them totally, but how do we reduce them? And sometimes it's even just acknowledging that they're there, that they exist.
And if they come up for us, how are we going to handle them? And then lastly, we're going to get into some questions to ask yourself as you're getting ready for retirement. So questions to ask yourself so you can be prepared for retirement. So we'll walk through that as well. So what are those five risks? I just said five financial risks several times, and you may also be wondering, well, what are they?
So what we're going to talk about today, these risks, are living too long, becoming sick or hurt, market volatility, and boy, aren't we seeing that in the last few weeks, taxation, and inflation. So those are the five financial risks. There are more, obviously, these are just the big ones and the ones that we really want to talk about as concerning retirement and the impact they have.
John: I think it's interesting. You got three out of the five that are front and center every time you turn the TV on right now or read a newspaper, if you see people look at newspapers anymore, or check your social media, whatever, but you see it every day.
April: Mm, hmm, mm, hmm. The market.
John: A lot of uncertainty because of not knowing what's gonna happen with the tax laws.
April: What's happening with taxes? Inflation, we've been hearing about that for the last several years, and we're still hearing about it. Those top two, the living too long and becoming sick or hurt, these are things that impact us on an individual basis, right? So how you, John, may be impacted is going to be different how I would be impacted by those two things. This is all going to be about our personal economic, financial situation.
John: I used to say, all the time living too long or and possibly dying too soon. But no matter when I die, it's too soon.
April: Too soon! I know you might be living too long. How is that a financial risk? But we're gonna get into that. But yeah, those really impact us all on more of an individual basis. And then the other three, market, taxation, inflation, these are all broader economic risks that impact all of us.
So let's get into a little bit about what is traditional financial planning when it comes to retirement. How does it work and how may it impact you in retirement? So again, we find this to be a very common approach, but it doesn't always give the best results. And you may have heard of it by many names. It could be called the 4% rule, the safe withdrawal rate. You may know it as an interest only strategy.
So we kind of walk you through how it works. The idea with this traditional approach is that you save as much money as you can. The whole goal is to amass as much money as you can inside your retirement account, or your investment account. And then when you get into retirement, you're now going to start taking, like, a fixed percentage out every single year.
And that's where it got its name, being the 4% rule was, that's how it first started. Was to say, I'm going to take 4% out of my portfolio. So the first thing I just like to know, here we are. We have this investment, this retirement account, that one is in the market and is volatile and is up and down, is not fixed. It's not linear.
And we're going to start taking out these consistent withdrawals. So you can see how there's already some tension, there's already some conflict between these ideas. And honestly, the 4% doesn't always give you a lot of income, because if you think about 4% on a million dollars, that's 40,000 a year. So does it feel like I'm getting a lot of income from that bucket?
John: Not at 4% it doesn't.
April: No. So then it can lead us to feel like we're getting less income because we're restricted to how much is it that we're taking out of this account. We have to pay more taxes, because, no matter if it's in a retirement account or if it's in a non retirement account, if we are doing this interest only strategy, it's always taxable all the time.
We have no reprieve from taxes. We have to take more risk, because it has to be invested all the time. We can't take it out of the market, because it's got to keep up with that 4% if not more, over time. And we have less liquidity, because if I now have this bucket earmarked for income, I can't use it for anything else.
John: It's locked up.
April: It's locked up. Or if I do, that means I'm gonna have less income the next year. So we have to have a way to plan for liquidity, because we know that you're going to have times in retirement that you're going to need access to money, whether you want it or need it. So we've got some clients we met with a few weeks ago, and they want to take a big trip to Africa.
They want to take the kids, all the grandkids, the whole family, go over for like, two to three weeks. It is a big trip, but you could just see how excited, their whole face lit up talking about going on this trip. They've been playing for a long time. So that's not going to come out of their regular income.
This is going to be this liquidity need that they're going to have of something that they want to do. You know, I was telling the client earlier in the week who's retiring next year, and she's like, you want, I got to get a new car. I want a new car before I step off into retirement, which is a very common thing for us to talk through with clients. And again, how do we have that liquidity? So we're going to talk through some of those things,
John: And some of them want to buy a motor home.
April: Yes, yes.
John: $150-200,000 investment in a motor home.
April: So again, while we find this to be very traditional, it doesn't always give us the best outcome, and that's because we have to realize that when we get to retirement, we start taking money out of our investments, out of our retirement accounts, that it's different. It's different than when we were saving money all those years. So I want to use an analogy of if we were climbing up and down a mountain.
So imagine, you know, when you're in your working years, your in your saving years, this is when you're climbing up the mountain, and so you're taking income and you're saving that back on your balance sheet, or your earning, maybe even, like pension credits, all of these things that we're doing in our working years with the eye towards retirement.
And the goal is we get to the top of that mountain, hooray. And this is when we step off into retirement and we start going down the mountain. And when we're doing this, we're climbing up and down the mountain, there are certain forces, like gravity, that are always present.
It's present when we're going up the mountain, it's present when we're going down the mountain. But they impact us differently. So if you're like me, and if you've ever like, tripped and fallen, like going up the mountain, you're going up a hill is very different from when you're going down.
John: Let me jump in first on here. In June of 2000 I went with the Boy Scouts to Philmont Boy Scout Ranch. And in getting prepared for that 12 day hike, 85 mile adventure, I hired a trainer to work with me, and he taught me something that I had never thought about. He had done mountain climbing.
He said we got to work on muscles you never use because you're thinking, you're just going to go up the hill. That's easy. Coming down is where most people get hurt. Broken ankles, broken knees, hips. So we got to work on reverse engineering what you think you need. And it was amazing, because he had me work on muscles I'd never even thought about. And at the time, I was 50 something years old.
At the time of doing that, I was doing better than some of the young kids, because they, while they were more flexible and younger, they didn't have the right muscles developed. And I think about that every time we discuss this, about going up and down the mountain of financial issues. It's no different in the real world. It's just gravity, it's also rocks on the ground, or a stump or a root rather.
April: That's right, yeah. And so, like, just like gravity is always there. It's the same thing when we think about these financial risks of they're there when we're, you know, in our working years and when we're in retirement, but they impact us so differently.
John: Looking forward to, I want to add something when we get into the distribution phase. More about what I'm experiencing now, and how this planning has helped me deal with that.
April: Absolutely. I mean, what's great is I love when John and I go through this, because we have, you know both, you know, both perspectives here. I'm 41 and John is 72 and so while he's still working, he's not, you know, fully retired, we still have two different perspectives of being more on that kind of early, mid career versus in retirement.
John: Correct.
April: So we can share with you both of our viewpoints here. So let's talk about some of these risks that we face. So the first risk we're talking about is mortality. That's the one we said earlier, is living too long. So when we're in our working years, the risk isn't living too long, right? It's what if I die too soon.
So for example, in my case, I'm married, I have two boys. They're ages eight and 11, and so the risk that I have to my family is, if something happens to me tomorrow, I pass away, that the family has lost, you know, my income. Now they have this financial change to their world, and I've taken that risk off the table because of the life insurance that I have.
But when we get into retirement, it's not dying too soon. It's the opposite. It's living too long. It means that I'm outliving my resources. And as we go through these other risks, in fact, mortality, or sometimes we like to call it longevity, that actually compounds all the other risks that we face. John, I've heard you say a million times, if we saw tax rates go up to 50 or 60% but you only live two years in retirement, does it?
John: No big deal.
April: No big deal. It doesn't really impact you. But imagine living 20, 30, 40, years in retirement.
John: Now you're in trouble.
April: Now you're in trouble. So it's this idea, and I hear this all the time from clients of I don't want to be a burden on someone. I don't want to have to go back to work at 80 if I don't want to. And that's what they're talking about here. It's this idea that I'm outliving my money, outliving my resources. There's also the risk or threat of what if I get hurt or sick. So again, in my working years, if I got hurt or sick, it's what happens to my income.
So I'm still here. I didn't die, but I can't work. I can't bring in an income for our family. So like in my case, it would all be on Brian, my husband, to support the family. But when we're in retirement, it's not a loss of income, because you're not really going to have a loss of income from that case, because your income is more, not from an earned basis, like in your job. It's more about the cost, the expenses, the cost of care.
John: But may I challenge you on that? What about the people we see, though, that have not done a good job of proper insurance? So now their investment accounts, their retirement accounts, have to become double duty.
April: Sure.
John: They're having to take money out, sometimes at the worst possible time and the worst place tax planning, out of the retirement account. Because they have 30, 40, $50,000 that they got to spend because they were not properly insured.
And that's true of all types of insurance. The car insurance, your health insurance, life insurance, whatever you have a choice to make. Do you insure it yourself by taking that risk with your assets? Or do you have professional insurance to cover that?
April: You know, I think, what I think of when we talk about this is when you had your amputation in 2021, and had to have all the remodeling done at your house. You know that you didn't have that on the agenda for that year. You didn't plan for that.
John: Came out of my assets. Out of savings account. Of course, I had the money to do it, so it didn't cause me any inconvenience, but I'd rather have that money in my pocket than give it to the other people.
April: Sure, sure. But those are things that can happen that we do have to dip into our assets for that, or have, you know, needing care for a longer period of time.
John: We don't sell Medicare Supplement policies, but it's the same thing with dealing with my cancer now, and also the amputation, but also the cancer bills. Between Medicare and my supplemental policy, I've not had the dip into my personal savings or investments to pay that whopping $15,000 every three weeks that they charge to do this chemo therapy infusions. And the $5,200 every three weeks of those chemo pills. That's a lot of money.
April: That's a lot of money.
John: And I've had 21 of those damn things so far. So they just do the math, that'd be a huge amount of assets gone.
April: Absolutely. Yeah. So that's why it's like, it's very important that we make sure that we have a proper plan for that, for how you know, if I know, we say a lot of times too, if, if we live long enough, right, we're going to need care, right? Knock on wood. I hope that's true for all of us, that we live a very long time in retirement. And so you may be faced with this, you know, how do I, who's going to provide that care, and then, and how do we pay for it?
There's also market volatility. And I'm sure most of you know we've seen a lot of that in the last few weeks. It's been pretty bumpy. And when we're in our working years, volatility, while we may not like it, it may not be fun to see your retirement account or your investment account down on paper. It can actually help us have a better rate of return.
John: Let's talk about that. You're the investor guru among the two of us. You've taken over that role more and more. Explain to people why that's the case. Why is it good?
April: Yeah, so while I don't love seeing the market down, I do know that as I am putting money into the market every single month, I am buying stocks at a lower price. I am buying them when they're on sale, when the market is down. And so now I have more money in the market to participate in that recovery when it comes back, because it's going to come back.
John: Well said.
April: And so that's going to help me actually have that return than if it was just up all the time.
John: It's like going to publish all of a sudden, they've got a 20 or 30% sale on the groceries you like to buy.
April: You stock up.
John: Stock up. I talk about tuna. I love tuna, so I always buy tuna when it's on sale. So if you go in the store and it's 50% off,I'm going to buy everything they got.
April: So yeah. So it can help us, from that standpoint in our working years. It helps us, you know, in that case, too. Many of our clients are still saving money in retirement. So it can help anyone who's like saving, especially on a regular basis.
John: So let's pick on the old guy here. So tell me what my risk is with the volatility at age 72 and most people listening are probably not 72 but if they're getting close to retirement, they'll feel that down the road.
April: Sure, sure. So the risk here with the market is that the market volatility may be the thing that makes you run out of money. So go back to that living too long, and that's what we fear, right, that we're going to run out of money. So when we're in retirement, we start taking money out of our investment accounts, out of our retirement accounts. Well, we hope that they're going to kind of keep pace with that.
If we're taking money out, ideally, in an ideal world, our investments would keep pace. But when we take money out of the market, when it's down, we've locked in our losses. Now that money has to work even harder. It's not even just recovering how much I took out for a withdrawal, it's how much the market is down, and it's got to work that much harder trying to get back to where it was.
John: Most people listening to this can think back and remember to 2008. September 2008 the market was down like 43%. It's not uncommon to see someone's 401k down, 35, 40 even 50% depending upon how they were invested. So imagine you're taking income out of that, and your account drops by 40%. You can't recover from that. If you're taking income out. A lot of people panicked and put all their money into money market funds. How many times will we see those,somebody is earning 1.7% because they were scared?
April: I mean, in that case, if someone was invested like 100% in stocks, right? And they saw the market go down 40% so like, they got a million January 1 back, and they took out 100,000 over the course of the year, and it's down. You know, now you're talking about having less than 600,000. So how is that going to impact? One is gonna be a lot of stress. I don't even wanna think about it. First of all, we'll talk about the financial side, but just the stress that you would go through feeling that. And then the financial side. Now, what's my income gonna look like?
John: Well, I didn't need the income because I was still working, but I sure didn't like seeing mine go down.
April: Me either. I was really young, too. Nobody likes to see it, but it does feel very different. Now there's also taxes. So let's talk about taxes for a few minutes. As you mentioned, we've been hearing a lot about that lately. So when we think about saving money, and we hear this a lot. So again, if I'm in my working years, what are we told to do? We're told to put as much away as we can, in what? In a 401k.
In some sort of tax deferred vehicle. You know that might be a 403b or 457 plan, but we're told, oh, put away as much as you can so that you can, I'm going to use air quotes, save on taxes. But you're not really saving them. You're just deferring them to the future. And so while we're in our working years, it can feel like the best place to save $1 because we're going to get that tax deduction today.
In retirement, it can feel like the worst place to pull $1 because of the taxes. John, how many times do we have clients where they do want to go do something, or maybe they need money for something, and we talk about, okay, great, you know, take it from your IRA, and they're like, oh, but what about the taxes? I don't want to do that because of the taxes.
John: That's because they're guilty of allowing the tax tail to wag the economic dog. And we have to understand that if we're going to choose those accounts, it's going to be the most expensive place for most of us to take money for vacations, things like that, or educating grandchildren. And that's why, in our process we tell people, you gotta have both. Gotta have some money that's in the retirement accounts, and some money that's not in retirement accounts, so you can enjoy your life when you retire.
April: You know, I know we had a client last year who they were, like, dead set on taking a bunch of money out of their retirement account to pay off a mortgage on the house. And we said, you know, can we show you a different way? Or you would be interested in seeing a better way to do that because of the amount of taxes they were going to have to pay? So there's definitely some things you can do to structure that, but we got to kind of keep an eye on that, and we're all guilty of it.
And most of the clients that we see, too, are in that situation. So if they're, let's say, retiring from the state of Florida, for example, you can find you've got a pension and you've got Social Security, and those are both taxable incomes to start off with. And then you start adding on what you're taking out from the retirement accounts gets added on top of that. And so now you can find it. It pushes you up into a higher bracket.
John: Let's talk about some of the tactics that are being used to convince us to maximize that. We're told we're saving taxes, and we're told of the lower tax bracket in retirement. Hardly any of our clients are in the lower tax bracket that we see. Most of them are the same or higher because of what you just described. They've got all this money they saved and when they're forced to start taking it out, either the RMDs or they just needed more money every dollar gets taxed.
So they're not going to be in a lower tax blanket in most cases, and that's not even considering the fact tax rates can go up and will. Just a matter of when, which, by the way, that whole discussion about taxes is why we have so much volatility right now, or a lot of it because there's so much uncertainty. Will the tax laws stay the same, or will they, you know, change and go back to higher brackets? It's all tied together.
April: Absolutely. And this last one here is on inflation, and we've heard a lot about inflation over the last few years, and usually, when I think about inflation, most of the time, we don't really feel it, you know, we know it's there. We know it's happening, but it's more subtle. If inflation is at that two or 3% it just kind of gets absorbed into our everyday spending and we don't notice it as much.
I think we've all noticed it the last few years. And I remember even them kind of saying, yes, inflation is, you know, nine or 10%. Oh no, some things at the grocery store were up 50%. So it's not just across the board. So we definitely felt inflation the last few years. Also, I feel like the more we hear about in the news, the more we pay attention to it as well. So when we're in our working years, how we combat inflation is we earn more money.
And how do you do that? You do that by getting a promotion, I get a pay raise, I changed jobs. It's having these cost of living adjustments, raises, allows you to kind of keep up with inflation. In our retirement years, what ends up happening if we don't have a way to combat inflation, I love how it says here to spend less. Who wants to spend less in retirement? Who wants to have less of a life in retirement?
John: So in a time you have more time and to enjoy the relationships with the people you love and care about now you're forced to spend less because you're worried about running out of money, especially if you're healthy, and might live to be 90 or 95 or 100 years old?
April: And so we don't want that for you. We don't want that for our clients. We want to have a plan in place that we can combat inflation, because we know what's going to happen. We know you're going to need more income tomorrow than you need today. So you have to have a plan for that. So let's talk about how do you start to minimize and reduce these risks. And this is, you know, part of our planning process that we take clients through.
And when we're thinking about this, the first thing that we want to do is, how do we manage those risks? How do we take as much of that off the table as possible? So we look at these risks to say what plans do we have? How is our financial plan situated today to handle living a really long time in retirement? What about if we get sick or hurt along the way?
Now we know we're going to have market volatility. It's never going away. It's just a question of how much and how long and what that looks like, but we know it's going to be there. So how do we manage that? Keeping an eye on taxes, because while we may not have full transparency in what taxes are going to look like 10, 15, 20 years from now, we can strategically plan to reduce those over time.
And then, how do we also combat inflation, to have more income later? And we do that a few ways, and this may actually sound counterintuitive to you, but we actually start with what we call cash flow allocation. That's just really what is your retirement income gonna look like? What is your, how is your income structured in retirement? So before we started looking at your investment accounts and your retirement accounts, and how are you allocated?
It's not asset allocation, it's cash flow allocation. I think this is one of the most important conversations that we have with clients. It's one of the main reasons I feel like clients come to us and our team for help is to get clarity about what is my income going to look like in retirement? Not just on day one. I can't do that math, whatever it is going to be, 30 years from now. So we want to know both of those things and plan for that.
John: I was thinking early on, you made a comment about most common methods of planning. We don't want to do the most common. You want to do what's uncommon so you get uncommon results. Better results, better security, peace of mind.All that is important.
April: Absolutely. And when we're looking at assets, we want to talk about what is going to what bucket on our balance sheet is going to provide liquidity for us? Like I mentioned earlier, there are going to be things that are going to come up. Life happens, both good and bad. There are going to be opportunities that come your way. There are going to be threats that happen, that you're going to need and want to get your hands on money.
You've got to have a place to go get that. You know I was telling a client yesterday, what if you and your wife want to go take a big cruise or a big trip? We have to have a place earmarked already that we know exactly where you're going to go and how that's going to be structured. What if we have a tornado come through, like we did last year, and now we need a new roof, and we need an air conditioner.
We need a new car. All these things that come up that are going to happen. We got to have a place to go get those things. So we need to have liquidity. And then we talked about taxes earlier. We want to be able to have some plans in place to minimize taxes, if possible. Especially if we can do that year over year on a more strategic or tactical basis.
And when we think about retirement income planning, we look at several different buckets. I'm gonna walk you through this, and we come back to this balance structure. I have to call it like an ideal structure for retirement planning, over and over and over again with clients. So I was just talking with someone yesterday morning.
He's retiring in July, and we had gone through and done a full financial plan for him, including doing what we call his retirement rehearsal, where we're showing, hey, exactly what the retirement income is going to look like. I think sometimes the order of operations. Which accounts am I going to tap into, when? Which assets bucket am I going to take income from? Which ones are going to be positioned more for growth?
And so we came back to this page, and I said, you know, remember, I was talking about that, let's, let's line these up again about what assets that you have are going to fit into these buckets. So, for example, we first look at guaranteed sources of income. Guaranteed income sources.
That might be Social Security, if you have a pension, what your guaranteed income is going to be in retirement. And this is going to be your baseline for your retirement income. And the question that we want to ask is, is this going to be enough to cover your basic living expenses?
If it's not, we may need to create more guaranteed income so that you do have enough to cover those basic living expenses. And you may be thinking, how do I do that? You may be thinking, I don't know what my basic living expenses are. That's very common. You know, when we kind of get to that stage in our life, we probably haven't budgeted in a very, very long time.
And I don't like the word budget. John doesn't like the word budget. We don't necessarily want our clients on a budget. We like having a spending plan. So I don't necessarily want a budget, but I want a spending plan for retirement. How do I want to spend my money?
John: See, that sounds so much better. I have a spending plan. When you spend what I want, what I planned on, guilt free. I don't have to worry about it. I could just go enjoy it. If I got $1,000 in my pocket, I can go spend it, and not worry about it. No guilt, no shame.
April: I was talking with a client this week, and she's in her early 40s, and she gets hung up on this feeling like she's got to always, I'm not saving enough. I'm not saving enough, I'm not saving enough. And I said I want to challenge our thinking here. What if we just put in a savings plan and you say, okay, I'm going to save this amount to match your goals. And then while you spend the rest of it.
John: Just go enjoy it.
April: Go enjoy it.
John: My experience has been when you do that, people go do that for two or three months, and they go, I'm not going to spend all that money. They increase their savings again anyway.
April: Absolutely. So part of that looking at guarantees is two sides, right. Here's the income I have coming in, and then we also want to have a spending plan so we can see, do we have enough guaranteed income to cover our basic living expenses. Once that's taken care of, we actually we need two other distinct buckets on our balance sheet.
We need one that says variable income. I like to think of it as discretionary income. So as I mentioned earlier, if you want to take a trip, you want to remodel the house, there's some sort of repair that's come up. You want to help the kids and the grandkids, right? We know that you're going to need to tap into money for things.
We've got to have a place to go get it. Hopefully it's also easy to get, to make it easy for you. So you have to have discretionary income. So these are things that are going to be over and above the basic living expenses. And then we also want to have assets on our balance sheet that are continuing to grow. Think back to that inflation, where we know you're going to need more income tomorrow than you need today.
So ideally, we're not taking income from everything on day one. We want to have assets that are continuing to grow for our future. And then this middle bucket is this liquidity piece. Of course, that can be used for all the sides here. We can tap into that liquid bucket for income, discretionary income. You can have that continue to grow, but we've got to have a place for that liquidity along the way too.
John: So let's spend a moment talking about why that's so of worth. How many times have we seen people who have the guaranteed place. They got their pension, they get Social Security, they're good there. And then the variable side, maybe they don't pay as much attention to that, or it's too aggressive or tied up in retirement accounts.
That money, while it, quote, looks good on the balance sheet, it's not really liquid. It's liquid, but there's a price to pay for it, called taxation. If the market's down and you take it out and get hit with taxes, it's even worse than we talked about earlier. So spend a moment talking about why that middle bucket is so important.
April: Yeah, you know, if we kind of think back to some of those risks we were talking about even earlier too. You know, one of them I think about this liquidity bucket is we think about market volatility. And you know, this is where this liquidity bucket can come in.
Because if we are having a year, let's think back to 2022 when stocks were down 20% bonds were down 10% and if you're taking money out to support your lifestyle during that time frame, that's where, again, you get hurt, because you're locking in those losses.
So one thing that this true look, this liquid, liquid bucket, if I could say, it easy for me to say, if this this liquid bucket we can use. I think about a few things. But one is, yeah, on the years when the market's down, we have another place that we can tap into that's not a market based asset, ideally, that we can tap into and not disrupt our investments so that they can recover.
So that's one place for sure, where we see that liquidity coming in. Also, if we needed a big expense for something, you know, we would just want to go buy a new car. You know, you may not want to disrupt your other income plans that you have going on.
So if I've got this retirement account, let's say, and that's my discretionary income bucket, I left my discretionary income that's coming in. And I may want to have that continuing, coming in on a regular basis, so I may not want to disrupt my income plan just because I also need a car. So again, we know these things are going to come up. We just got to have a place to tap into them.
John: I think one of the most common places we see that is somebody wanting to buy the house. They've been guilty of maximizing their retirement accounts. They've ignored the true liquidity part of the equation, and they don't have the money, and they have to take money out of the retirement account or go borrow money in order to get into their house. And either way, it's going to be expensive because you pay taxes or you pay more interest, either way.
April: So having this structure here, really, kind of comes together, and we think about back to those risks and how it helps us. You know, if we think about, okay, the risk of I'm living too long, well, that's where your guaranteed income comes in. That's going to help you offset this risk of longevity is having more income that's guaranteed that lasts as long as you do.
Guaranteed lifetime income. So it helps take that risk off the table. If we have, if we get sick or hurt, John mentioned this earlier, there's a lot of things you can do to mitigate that risk. It might even just be looking at what sort of Medicare plan you're on. Again, we don't sell Medicare plans, but it's making sure you have the right insurance for that.
It's also having a plan for how to pay for care. So again, if that happens, what are we going to do? What's the contingency plan for that? For the market volatility, one, we're going to have our guaranteed streams of income. That helps, because not our income is coming from market based assets.
So maybe we have to pull less from market based assets and our income is an impact as much well. We've got that liquid bucket, even, we can tap into it and let our investments, our retirement accounts, continue to grow. On the tax side of things, this is when we really want to know how do we structure these different buckets to minimize taxes over time. And sometimes there's not a lot we can do there. Sometimes it's more about just maximizing the income to pay for the taxes.
And then also, if we think about inflation, this is when we're going to have those growth assets. We want to have assets that are continuing to grow, and that's going to help us offset that inflation. So even just like, having this structure for retirement is really going to help offset the different risks that we were talking about earlier. John, any other thoughts here on this structure? We'll shift gears in a minute and talk about.
John: I've got some personal comments. Some people are going to know this, some won't. A year and a half ago I was diagnosed with cancer, and I'm talking with the oncologist about my future. She said, life expectancy? I said, yes. And she said, Are you worried about, you know, anything financial? I said, No, because I have guaranteed streams of income that will never go away. It's like you said, as long as I live, that comes in.
And a lot of that came from taking a chunk of money in retirement accounts, and designing it to where I had a guaranteed income, like a pension plan. I also have accounts, and I told her I could die today. So in my 50 years in business, I've sold life insurance. Still do, I own life insurance because I could die today. My clients could die today. At the same time, I use annuities for some of my income because I want guaranteed income and I can live to be 100 years old. And I want to know I have that certainty.
So those two ends, if you will, two bookends are taken care of. In the middle, I have checking accounts, I have savings accounts, and I have my investments, my variable accounts. So I can tap into that if I need it. I said, but I'm totally at peace with that, totally at peace. And I'm still working, so I'm still adding to that.
But it's so nice to know that in my case, all my expenses and less of my expenses are covered by my guaranteed income, so I don't have to tap either of the others. I can and will if I need money or otherwise. I got a trip coming up with my brother in August, we're going out west, and I'll tap into some of the savings to commit with that. No credit card, or if I did have a credit card, it would be to get the miles and pay it off when I get back home.
But that's tremendous peace of mind knowing that I don't have to go charge 10 or $15,000 on the credit card to have a vacation, and then come back and worry, how am I going to pay that back? And that's where the liquidity comes in. And to have the peace of mind of knowing, as I told her, worst case scenario, if I blow all the money, I still have other assets I can tap into.
April: Absolutely and that's where that structure comes full circle, right? Is to see how all of that plays together.
John: And the good news is, I put most of the stuff in place when I was your age and younger because if I had waited until I was in my 60s, it wouldn't be as strong. So the younger you are, the sooner you start, the better off you are. And good coaching.
April: Let's switch gears here and think about, if you're getting ready to retire, you're starting to think about retirement. What are some questions that you should be asking yourself? What are some things that you should be thinking of? And what we want to talk about today is, what is your vision for retirement? What is it that you want your retirement to look like? Not my retirement, not John's retirement, co workers retirement, but what do you want your retirement to look like?
And when we're working with clients, one of the first things that we talk about and that we help our clients with is getting clarity on this, because sometimes we're guilty of just being and I get it we're so busy with work and our families and we're thinking about that day that we get to retire, but we may not know what is this actually going to look like for us?
And our clients that have thought this through and they think about what their life's going to look like in retirement, and they think about, what are they gonna do with their time in retirement? What's their purpose going to be?
Those are the clients that are happier in retirement. So there's really, there's more, of course, but we're looking at five different aspects. Relationships, housing, lifestyle, health, and financial. Like I said, of course, there's more aspects to retirement than that, but we're going to kind of start with these big five ones.
John: But those are the most important of the five in my opinion of all of them.
April: So let's start with relationships. So as you're going to be stepping off in retirement, who are the important people in your life? Who do you want to spend your time with? I love thinking about, okay, if every day now is Saturday and Sunday, if you're not working anymore, like most of us work Monday through Friday now, every day is the weekend. What are you going to do with your time? Who are you going to spend your time with? Is it kids? Is it grandkids? Is it aging parents to take care of? Will you be supporting them in any way?
So, like, who are the people that you're going to spend your time with? I can think of clients that have retired and moved to be near children and grandchildren, other clients who are just for them to spend time with friends.
So we were talking with someone earlier this week, and her kids want her to move to be closer to them. And she's like, you know what, but I have my life here. I've built 34 years of friendships, and I have my church community and those are the relationships that are important to her.
John: I think about some that's making me chuckle. They just insisted on moving to be near the kids and the grandkids. After a while they go, this is not working because I did not sign on to be a full time nanny or grandma. I'm not going to babysit every day and every night. And I think about some people like that too, where they go, man, that was a mistake.
April: Good to have boundaries. What are the expectations that are there? For sure. So, like, who are the people that you're going to spend time with? And maybe it's even you're thinking of, oh, I haven't been spending time with that person, but I want to. Friendships. My son asked me this the other day. He's eight, he's in third grade, and he goes, Mommy, do you think that I spend more time with my teacher than I do with you?
And I said, yes, yeah, you do. You spend more time with her. And then, you know, you get makes you start and think, you know, we spend more time, usually, with our co-workers than we do with our own family. So now, if you're stepping off into retirement, and you're not around those people anymore, who was going to be like in your social network?
John: And that's a big issue. I hear a lot of people psychologically and emotionally, they retire and they're frustrated. They're lonely because their entire social world was built around work. They had no other outside interests.
April: Yep, and that factors in to you. It's like coffees right? Of being able to have that but yes, for sure, thinking about on the relationships. Housing. Will you stay in your current home? Will you downsize? Will you move to another city and state? These are things we want to think about before we retire. If you plan to stay in your current home. Are there any renovations that are needed? We talk about aging in place.
So there are things that we need to do to be able to stay in our home long term, and having a plan for that. We hear a lot of you know, oh, the house is just too big anymore. You know, the kids aren't here and it's too big, or the yard is too big. We hear that a lot as well. The yard is too big we want to move to something that's going to be more manageable.
John: Or I don't want to clean the pool.
April: Or I don't want to clean the pool. Yep, hear that too. So just thinking about housing, you know, will you stay in your current home, or are you planning to move somewhere? Or what's going to be the financial plan for that? Lifestyle. I said this question earlier. You know, how do you see your future when every day is Saturday or every day is Sunday? How about the things you've always wanted to do but life got away?
So what are the hobbies that you want to pick up? What are you going to do with your time? Is it golf? Is it pickleball? Will you volunteer? Will you start a part time job? I say a job, but will you start, you know, a business? Will you have, like, a part time job? You know, what are you going to do with your lifestyle in retirement?
I'm thinking of some clients that volunteer so much with their church that they said to me, April I don't know how we ever had time to work. We're so busy with all of these outreach programs through our church that it keeps us busy all the time. And they were, they were so happy, and you could just tell, because they just had such a sense of purpose in what they were doing.
John: They were making the contribution. Time and money.
April: Yeah, thinking about what to do from a lifestyle perspective, and then health. Healthcare costs can be a big unknown. So how much do you currently spend on healthcare? Are there any known health concerns that might impact you along the way? So we're going to build a plan for all of that. But at least, just like, having an idea here about what the health side may be.
And I think about John here too, is just not even just the financial side. Most of these are financially related, but like, what are the things that we're doing for our health? I know that's something that you've really worked a lot on in the last several years and before that. And I know we had a podcast we did too where we talked more about that kind of health side of retirement, and how important it is.
John: It's a big deal. The things that I did 15, 20 years ago, this is true for all of us, will pay huge dividends in your 70s, 80s and 90s. And one simple, I shared this with a friend this morning at breakfast. One of the simple things is your grip, in your hands and your wrists. Dr Peter Attia talks about this a lot in his podcast and in this book, that people who have a good, strong grip, because their hands are strong, the forearm is strong. Legs are strong.
They are less likely to break bones if they have a fall, they're less likely to even fall. And I'm doing things now with the prosthesis that people in the gym come over to me. You saw me the other day, carried a thing over my head with water in it. Stepping over hurdles. Sometimes I'll carry kettle bells upside down. Do that work on the grip as a strength.
But all those things that when I got serious about my health and dropping from 284 pounds down to hovering around 215, 216 now, are paying huge dividends for me. Can you imagine how difficult my life would be with the prosthesis if I still weighed 284? Hell, it's bad enough as it is. You know that being 284 and not having the strength I have now?
And my oncologist, she'll say every time she comes in, the reason we think that you're doing so well is because of your mindset. But also you're not sitting around woe is me. You're in the gym two or three times a week, working, doing stuff, walking a lot.
All those things are paying huge dividends. And I think about the folks we saw Tuesday that were up from The Villages. He's 81 years old, walking three miles a day. And three days a week in the gym for an hour and a half to two hours with a trainer at 81. He's tough, mentally and physically.
April: Health is wealth, as they say? Yes. So definitely looking at the health side.
John: Let me flip on that for a second, because you're about to get the financial. So what if you have all the money in the world but you have poor health? What good is the money? You can't really enjoy it. You can't go do things. That's what I keep asking people. And they say, well, I want to take this trip, but I'm not going to do it because I have to pay all taxes to take the money out. Okay, so you're going to leave all the money behind. Someone else is going to do all the things that you said you wanted to do, but never got around to. How many times have we had that conversation with people? Dozens and dozens.
April: Dozens. All the time. So on the financial side, a few things here for you to think through, as we were talking about some of those risks earlier. How do you earn your money today? Where does your money come from? Do you have any debt today? Do you want to have a plan to have that paid off before you retire, or will it already be gone by the time you retire?
How much are you putting into savings today? How much are you saving for your future? And then also having that spending plan for retirement. Again, I know a lot of us don't have a true budget, and that's okay, but just starting to think about what does that spending plan gonna look like for retirement?
John: I just thought of this. You may have heard of the ladies who said, I got in trouble with the bank and my husband because we got overcharged because she ran out of money. She's but I said, honey, I still have checks. She had never balanced a checkbook in her life. She just kept writing. As long as I have checks, I can write it.
April: As long as I have checks, I can write them right.
John: Sweetheart. That's not the way that works.
April: That's not the way that works. Okay, yes, so definitely putting some time and effort into understanding what is that financial side going to look like. So today, as we kind of went through and talked about, what is traditional planning for retirement, why isn't it, even though it's very common, why isn't it the best approach? What are those, some of those five financial risks that we can face, and how do you try to take those off the table?
And then, as you're starting to think about your vision for retirement. What do you want retirement to look like so that you can be prepared. So you can start thinking, what are some things that maybe I need to do now before I retire, so I can get ready for that next phase. So one is, I would encourage you to do a focus session. This would be a 30 minute call with us to talk about any questions or concerns that you have about retirement.
We're going to help you get clarity, like we talked about earlier, about what do you want retirement to look like? We will talk about any opportunities that we see for you. Usually on these calls, even in like a 30 minute call, we can have a tweak. We can have a few tweaks or ideas to help you. And we don't charge for the call. It's complimentary.
And then what will happen during this call again, will help you get clarity, and then it can help us decide if it makes sense for us to work together in some capacity. We're not a right fit for everybody, but I can tell you that at the end of the call, we'll know if it makes sense for us to move forward in some way. So there's a couple ways that you can do this, a book, a call.
You can go to our website, which is curryschoenfinancial.com and there's a button right there that says, schedule a call. It's in the upper right hand corner, and that'll take you to my calendar. You can select a 30 minute call and book that yourself. So again, that's curryschoenfinancial.com and click on the schedule a call link in the upper right hand corner.
Or you can call our office at 850-562-3000. Again, that's 850-562-3000. You can talk to Luke or Leslie on our team, let them know that you listened to one of our calls, our videos, and want to book a time for a focus session. And it's important for us to do this because there's really a cost to waiting. If we don't have clarity, if we don't have direction, we may not know what we need to do between now and retirement.
That might mean that we don't hit our goals on time. We have clients that come in and say hey, I want to retire in 10 months from now, but we gotta see like, can we actually do that? We don't want to wait until the last minute and then find out, oh, this isn't gonna work. I need to make some other arrangements.
And time, as we all know, is valuable when we start thinking about, you know, time is a very precious asset when we think about wealth building. Whether that is like saving now, in the future. So there's definitely a cost of waiting. We all have good intentions of saying, oh, I need to do that. I need to book that call, but I encourage you to kind of do it while you're thinking about it.
And sometimes we have some obstacles where we say, oh, this sounds really good, but I want to do this, but I already have an advisor that I'm working with. That's great. That's wonderful. If that's you, we work with a lot of clients that already have someone that we're working with, and it's really for us is about, how do we provide value and add value to what you already have going on?
We may have emotional barriers. We may be worried about, what are they going to think about me? What are they going to say about me? Do I really want to face all of this? We can kind of have those emotional barriers too. And actually, I have a sign in my office that says this is a judgment free zone.
John: I was just gonna say, we don't pass judgment. Our philosophy is really simple. You come in, we talk, we see where we can help you. If we can help you, we'll tell you. If we can't, we're gonna tell you that.
April: And we've seen so much. There's nothing that someone can bring up that we haven't seen before that's going to shock us. No. And then there's also this perceived cost. What is this going to cost me? So as I said, with the call, it's complimentary. There's no charge for the cost. There's no charge for the call. And then we do have different ways that we work with clients.
And we'll be sure to go through that with you and talk about how we build financial plans, and we do charge our planning fee and what the cost is for that. So you'll know exactly how much that is and what's included, so you can decide if that's right for you. So again, as we're going to wrap this up today, I guess I encourage you to schedule time for your focus session. Again you can go to our website, or you can call our office as well. 850-562-3000.
John: And I have a comment to make. Most of the time we get so busy and we procrastinate, we get distracted. I'm just gonna make a firm statement. Save time and money, invest in yourself, hire us and let us help guide you through this. We can save you a lot of time, a lot of aggravation. And time is money. Time is money.
And I think back to all the times that I was willing to let go of some money and time and hire a good coach, whether it be with my fitness, business, and it made a huge difference. And I see us as being in that position where we can coach and guide people and save them a lot of time and a lot of money.
April: Thank you guys for joining us today, and we look forward to seeing you on the next one. Bye now.
John Curry: Goodbye.
Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the division of retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the division of retirement. This material is intended for general public use. By providing this content Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address, 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
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