Retirement can come with an amount of financial uncertainty attached, even for people who have taken the time to plan. This week, John and April aim to alleviate some of the stress that comes along with retirement planning by discussing the five biggest financial risks in retirement and how best to avoid them. Together, they have over 50 years of combined experience in helping clients plan for retirement and use that practical knowledge to illuminate what works and doesn’t work during the planning process.

“It's really important to understand that there are a lot of pieces to the puzzle,” says John. “We see people who don't even know what some of the pieces are. Or, they know about them but think that if they don't think about it, if they don't dwell on it, it won't matter. It does matter, and it will sneak up on you.”

They speak in detail about:

The five risks: outliving your retirement income, sickness or injury, market volatility, taxation, and inflation
Why traditional planning doesn’t work for retirement
Key differences between saving for retirement and wealth distribution once you’re retired
Achieving an optimal cash flow balance during retirement
And more

Listen now…

Transcript

April Schoen: All right. Hello, everyone. Good afternoon. Thank you for joining us today. My name is April Schoen and I'm sitting across the table in sunny, is it sunny outside? Sunny Tallahassee with John Curry. John, say hello.

John Curry: Hello, April. Hello, everyone on the call. Thank you for joining us today.

April: Yeah, so John is the author of Preparing for a Secure Retirement. So I know everyone will be excited too as we go through today's presentation. I'm going to give everyone a few minutes to log in today before we kind of get down to everything, we'll give, we're going to give about one or two minutes to get everybody logged in because I know we were expecting about 45 to 50 people on the call and sometimes it takes a little bit to get in.

So while we're waiting for everyone to kind of get logged in, let me first give you an overview of what we're going to be covering today. So we're going to be talking about the five financial risks that you will face in retirement. We're going to talk about why traditional planning doesn't work for retirement, what the key differences are between when you're working and you're saving for retirement and then wealth distribution, once you get to retirement. And then also, how do we have optimal balance in retirement, especially when it comes to cash flow. So we will, we're going to cover those today in our presentation.

The five financial risks that we're going to be going through today are, we're going to be talking about what happens if you live too long? Because it was kind of a funny thing to me, John. Oh, darn, I lived too long, right? So but we're going to be talking about from a financial aspect, what that means for you. We're going to talk about what happens if you become sick or injured along the way in retirement. Market volatility, how will that impact your retirement. I mean, just look at March of 2020.

No one really saw that coming. And some of the stress that I know a lot of our clients or people we've been meeting with here recently have felt because of it. Taxation, this is a hot button right now with taxation, thinking about not just taxation in retirement accounts but I don't know, John, if we'll get into it, talking a little bit about tax history and tax rates going up in the future and what that could mean. And then also, inflation. So we're going to get, we're going to talk about all of those risks today.

John: And all of these are very timely, especially when you have a presidential election coming. Because when you take a look at what's happened historically, and we'll be doing some webinars in October regarding this, by the way, about what's happened with the stock market, interest rates, things like that during presidential election periods. So I think that'll be important. And obviously, becoming sick or injured today with the virus. All of us are more concerned about that than ever. And it just heightens all this stuff,

April: Right. It does. It does. Okay, so well I do you want to go ahead and just make sure that you, those of you on the call, do have our contact information. Our presentation today should be somewhere between like 45 and 50 minutes. But just in case you need to get off the call early, I do want to make sure you have our contact information. And anyone on the call, we would recommend that you schedule a time for a 25 or 30-minute phone appointment.

You can do that with anyone on our team. It could be with me, it could be with John, anyone on our team. And this would be your opportunity to talk about any goals and concerns that you may have about retirement planning. And of course, we can also share with you a little bit more about how we help clients when it comes to retirement planning, which you're going to hear a lot about today as well.

John: Absolutely. And I would encourage you to take advantage of that call because invariably, somebody will say, Well, I have nothing going on. We'll have a conversation and something does come up that they need help on and we're able to either help them ourselves or refer them to someone that can.

April: That's right. That's right. Okay, well, let's get into today's presentation. The first thing that I want to do is just tell you a little bit about our firm. So North Florida Financial, we are headquartered in Tallahassee, but we have locations now from Jacksonville, all the way over to Louisiana, southern Georgia and then down to Tampa and Orlando as well. So, John's here in Tallahassee, I'm here today with him.

We had some client meetings yesterday. We're doing this presentation today, but I currently live in Jacksonville, so we kind of cover a wide area. So John has been in financial services since 1975. He's been helping clients with retirement planning issues like social security, Medicare, required distributions, IRA rollovers, and inherited IRAs, Just a few things have changed, John, in the last, you know, few decades, right?

John: My grandson the other day reminded me of a phrase I'd forgotten about, no duh. Absolutely, a lot.

It’s Happened Before. It Will Happen Again

April: Yes. There are just a couple changes that you see. You know, and I know one of the webinars that we did, we got some really good feedback from because, John, you were talking about through your career, what you've seen when it comes to different pandemics. So I just, you know, I know we're not going to spend too much time on that today. But I just thought it'd be good for people to realize that, yes, obviously, we're in a global pandemic right now. But we've been through things, we've been through pandemics in the past, we're going to get through this one too, just fine.

John: We will. And I was not only lived through it, but what I refer to that will get a lot of feedback on was the flu pandemic in 1918. And what I did is I went through a history of that some of the things that have happened. First, my Rotary Club has been a given update on things, but I'm of the opinion, and I think most of us as Americans, we feel this way, yes, we have trials and tribulations, but we always rally together and get through it.

I'm seeing more and more people wear face masks today than ever and being courteous and kinder, whereas just a few weeks ago, people were more in your face. So I was at Publix the other day buying some groceries and people were just very polite, you know, please go ahead. And you know, it was nice.

April: Oh, good. Yeah, I think you are seeing some more of that, just good. So, you know, even with every all the craziness going on in the world, we've survived things in the past and will continue to do so. So we're going to be just fine.

John: And I have news for everyone who's listening, there will be other challenges we don't know about yet. So the key becomes planning for your personal finances, I like to call it your personal economy, is more important than worrying about what's happening around the world or in our country, state or city.

Let's focus on your personal economy and make sure that you're in a position that you can pretty much weather any kind of storm. Later, we'll talk about some of the freedoms that I preach about all the time. But I think it's very important that we understand that if we take the time to get our act together, most everything else falls into place.

April: That's right. That's good. Well, good. And you know, I know, John, what we're gonna talk about today, too, are some of the lessons that we've learned about planning. So it, combined in our over 50 years of experience and helping clients especially when it comes to retirement planning, we're going to be able to kind of shed some light on that about what we've seen, what works and doesn't work.

John: Well, tell our audience a little bit about your background because this is not new to you. So share your background.

April: Yeah. So I, June, I celebrated a decade in financial services in June. So that was kind of a fun milestone for me. But I've been in financial services for a little over 10 years. I've been working with John here at North Florida Financial six and a half, almost seven years now. So Time flies when you're having fun.

John: It does.

April: And even with my career, I've primarily worked with, I kind of think of two ends of a spectrum, but really primarily who I've worked with are those people that are getting ready to retire. I always say maybe they're like 1 to 3 years from retirement and working with you and with my previous firm, I've really worked a lot with members of the Florida Retirement System and helping them get ready for retirement.

So, you know, they've got questions about their pension. They'll also have questions about social security and Medicare, like we talked about earlier. Maybe they've got questions about what to do with their drop accounts or deferred comp. So, you know, as you know, John, our work together, helping them kind of put all those pieces together to figure out what's retirement gonna look like.

John: There's a lot of moving parts. You got to find a way to make them all integrated and work together.

April: That's right. That's a fun part to me. I really think of it as like a puzzle. So it's like all these little pieces that I got to figure out how to get it just right. You know, thinking about those clients who we were meeting with yesterday who are retiring in January and February. And every situation is unique. That's one thing I love about what we do is there is no, no two plans are exactly identical, even if they do have some similarities.

You know, so for them, they're going to be 61 and 62 so they've got a couple challenges, right? They've got to figure out how to bridge the gap for health care until they're 65. They've got to decide when they're going to take social security. They've got to figure out if their pensions and their social security will be enough income, and if not, how do they structure some of that

John: And they are very likely to live 30 to 35 years in retirement. So they have major challenges and the fact that they're retiring so young, those challenges will be amplified because if you have inflation or taxation is going to impact over time. And I know we'll get into some of that in a few minutes, but it's really important to understand that there are a lot of pieces to the puzzle. And we see people who, they don't even know what some of the pieces are, or they know about them but they just, if I don't think about it, if I don't dwell on it, it won't matter. It does matter and it will sneak up on you.

April: That's right. Well good. Well, let's get into some information today. So as I mentioned earlier, what we've really kind of learned in working with clients over the last 50 years is what works and doesn't work for people, especially when it comes to retirement planning. So we first want to just kind of walk through an example with you. So by far, the most common approach that we see to retirement planning is something called the safe withdrawal plan.

You may hear it referred to as a 4% roll or the 3% roll. And the idea behind this approach is that you invest your entire portfolio in a mixture of stocks, bonds, mutual funds, and you begin to take fixed consistent withdrawals from this bucket of money that is variable and inconsistent. So let me kind of repeat that. We're going to take fixed consistent withdrawals from a bucket that is variable and inconsistent.

So right off the bat, we can see there are some problems here. I mean, that account is going to fluctuate on a daily basis. And so that alone brings with it some uncertainty and unrest. And if you, you know, you do like John and I do where we start studying like a sequence of return risk and how that will impact your retirement income you can see that can cause some issues. So we're going to talk about that a little bit more later, too.

John: But everything's perfect as long as the market does great. It's only when you have 2000, 2001, 2002, where you lose double-digits or 2008, where you lose 38%, in the s&p 500, that all of a sudden these things become important.

April: Or 2020, when the market drops 30, 35% in 23 days. No one panicked I'm sure, right? Everyone stayed the course. So perfect additions, right? But you're right, it works in perfect conditions sometimes. But there's some other issues with this plan too. Not only just Is it the uncertainty, it's not always the most efficient, either.

It requires the most amount of capital, most amount of money to give you less income. It creates more taxes for you, right? Because you're taking this interest only strategy, essentially. And then depending on how its invested anyway, you're going to have taxes if it's mostly retirement accounts. But a lot of taxation, the risk, there's more risk because it's always invested, it has to always be invested so there's always this presence of risk.

And one issue that we're seeing right now is low-interest rates. We're in a low-interest rate environment, which, you know, can be good if you're trying to buy a house. Not so great when you're in retirement and you have assets that maybe you don't want to be in the market but how do you still get a good rate of return, right? So we find that people tend to be more riskier than they normally would be because they're trying to have their assets continue to grow for them.

John: Or in some cases, they're trying to play catch up.

April: Yes, we see that too.

John: Because they're behind.

April: Right. With this plan, you can also lose liquidity because if we have this entire bucket we're trying to draw income from, it really kind of locks it up in prison. You now can't take any other money from the account outside what you need for income because that's just going to lower the amount that you could take later. And we hear a lot of times from people too, this, what if. They're afraid to take money from their retirement accounts because what if I need it later. There's always this kind of what if thought process.

So we got to have ways to kind of work through that. So we've really seen that that approach can leave a lot to be desired for our clients. And the main issue with that approach is that it just fails to acknowledge that there is a difference between saving money, saving wealth and distributing it. You know, we see where clients or even other advisors, when someone gets to retirement age, they treat it the exact same way that they did when someone was saving money.

And it is a completely different, these are two totally different goals at the end of the day. You go from Okay, I'm saving money, I'm taking income that I make and I'm turning that into net worth. And then I go into retirement and I start taking that net worth that I now have earned that I have on my balance sheet and start turning it into income.

So two totally different goals at the end of the day. So let's take a look at some examples here and kind of get into these risks around retirement. So John and I like using the example of climbing up a mountain. So let's just say about this for a minute, if we were planning to climb up and down a mountain, we really think of this as not unlike the typical person who is saving for retirement, right? On the way up the mountain our working years. And our job is to turn income into net worth so we're saving onto our balance sheet.

John: In 2000, I had the privilege of going to the Boy Scout Camp in New Mexico with a group of Boy Scouts. And getting prepared for that, because we were going to be hiking in the mountains up and down for 12 days, 85 miles, the guy who was working with me, so we need to make sure that we work on muscles you'd never think about because the biggest risk is coming down the mountain, not going up.

Coming down the mountain because you're off balance, you've got a backpack that weighs 50 to 60 pounds on your back, you're coming down the hill, many more accidents, and in serious mountain climbing, more deaths occur on the descent than the ascent. So that is stuck in my mind when it comes to retirement planning or financial planning in general, is one thing we're about to get into what happens with the accumulation, but when you get to the peak, that's nice.

You can enjoy the view, but now, you got to come down that thing. And I've had the pleasure of doing this for 45 years now. So I've seen a lot of plans that the majority of people had no clue what it looked like when they got to the top because they had no way of doing a rehearsal like we do for people to demonstrate that. So this is going to be very interesting doing a little counterpoint for the two of us because of our age differences. You want to reveal to them your age. I will, I'm 67. I'll be 68 in December.

April: No, I don't mind. So yeah, I'm 36. So I'm 36, I'm married, and I have two small boys that are four and seven years old. So, John, I talk about this a lot in our seminars, that, you know, we're in different places. Again, I'm married, I have small children. So the goals, the risk, those concerns that I have at this stage in my life are different from John who's 67. And closer to retirement. Maybe Oh, I'd work.

John: Correct. I'll have to wipe that little smirk off your face there. Closer to retirement.

April: Yeah, I always give John a hard time because, you know, he's not retired and doesn't plan to retire anytime soon. Although, you know, I did he retired last year for your birthday weekend.

John: That was very gracious of you.

April: So you had a nice long, like, I don't know, was it three or four days of a retirement weekend?

John: That's right. Friday, Saturday, Sunday and Monday.

April: And Monday, I think it was, I think I gave you for four days this year. Maybe if you're good this year, you'll have five days for your retirement birthday weekend.

John: I'll remember that.

Risks are the Same. How They Affect Individuals is Different

April: Yeah, so we like to talk about the different risks. So when, really what we find is when we're in our working years and saving money, the risk that we face are different, well, they're, the risk is the same, but how they affect us is different. So just like we were climbing up the mountain and going down the mountain, we like to use the example of gravity, right? Gravity is always there. It's always present. But it impacts us differently and we react to it differently when we're climbing up the mountain and we're going down the mountain.

And the same thing is true for these risks that we were, these five retirement risks that we're going to talk about today. The truth is, if you're still working, you face these risks today in your working years, but again, they are just, they affect you differently. So the first risk that we're going to talk about is mortality. And this is the risk of death. So while we're working on the, again, for me, for an example, the concern that I have, that I've taken off the table, but the concern is if what if something happens to me tomorrow? what if I die? What happens to my kids, my husband?

I want to make sure that they're taken care of financially. And I've done the planning that I need to do to make sure that that's happened, that I've taken that risk off the table for my family. But, you know, John, for you or for someone who's in retirement years, that risk is, it's almost 180-degree shift. It's not that I'm worried about dying too soon, it's I'm worried about living too long.

John: Well, let's be clear about something. No matter when I die, it's too soon. Okay, let's get clear on that one first. But you're correct. And also, what I've discovered, and I learned this before I got to be 66 or 67 by working with other clients over the years, even in my 20s and 30s who were in their 60s 70s 80s and 90s, but I realized early on that doing the things necessary to take care of dying too soon in my life insurance is now in my mind, the most important financial asset I have because the cash values of my life insurance are allowing me to help solve this problem of living too long.

So if I find that I, that my pension checks, my social security, my investments are not enough, because inflation comes roaring back like I did in the early 80s, then I can use some of the cash on my policies if I need to, to supplement my retirement. So with proper planning, the things you do today at 36 will actually help you big time, 30 years later, when you're 66, or 67.

April: Right, exactly. The next risk that we want to talk about is what happens if you get sick or injured along the way? When we're working, in our working years, what's at stake or what could be lost is our income our paycheck. So again, if something happens to me tomorrow, and I can't get up and go to work, there' an economic loss to my family. And so I've you know, again, from a planning standpoint, taking care of that, that's something we talk about with our clients to make sure that they're not going to have that issue.

John: And think about it. In today's environment with the virus, we're finding that it's getting more and more difficult to get both the life insurance and disability income policies approved, is taking much longer, because more and more people are concerned about getting it. So while these are risks that can be addressed, you can't just snap your fingers and say, Oh, I'm going to solve the problem. It does take time and effort. And you're not the only one who makes the decisions, the insurance companies get to make decisions.

And for me, at my age, I'm not so worried about loss of income if I am sick, I'm more concerned about the care that's required. So you start thinking in terms of Okay, what if I live to be 100 years old like I tell everybody, I'm going to do? What if I, the quality of my life is not so good? What if I have to go into a nursing home or in-home care? So that's where, if I have an illness or injury in retirement, I may end up depleting assets that I did not want to deplete. But that's also where my life insurance is important because if I do deplete retirement assets, the life insurance comes in after that to replace it for my family.

April: Right. And that's part of our overall planning that we walk through with every client, doesn't matter their age. But we talk about what happens if you become sick or injured. And so making sure that they've done proper planning to take care of that. You know, I know when we're working with people who are closer to retirement and we talk about long term care, just health care planning, in general, like you mentioned, if you need care, just making sure that they have a plan for that.

Yeah, good. More of the risks, and we've kind of talked about this earlier, but it's market volatility. I mean, volatility is always present. Look at 2020, for example, sometimes I feel like you kind of get whiplash or trying to pay attention and keep up with what's going on in the market. And so we're always going to experience some of these ups and downs.

And while we're in our working years, volatility can actually be our friend. If managed properly, if managed in the right way, it can actually help us achieve a greater rate of return over time. Again, especially if someone is younger and has a longer time horizon before retirement. But the same economic force in retirement can be a threat to our stability, our security, is that sequence of return risk that I mentioned earlier, which is the order in which we have returns, that can be the thing that can cause us to actually run out of money, especially when you're taking money out of retirement accounts.

Market Volatility Can be Your Friend… Fear Cannot

John: And especially in a down market. I look back to clients that we have been working with that even after 2008, they still had panicked, moved money over to money market funds or CDs. They missed a huge bull market because they were fearful of being in the market. So that's an example of where the volatility at they stayed, it would have been their friend, but it made money.

But because they panicked and got out of the game, sat on the bench, if you will, to use that metaphor, football game, for example. They're not on the playing field. So they're taking the break. But sadly, during the break, it was when the money was being made, right? They were not there to participate. So then they get frustrated even more, and say oh my god. I talked to a woman last Wednesday and Thursday, she says, no matter what I put money in it goes bad. So then quit doing it yourself.

Let the professionals help you, at least with some of your money, and if you want to play with some of it, play with it. But it comes down to really one word, fear. Fear is fear. And fear I was taught at a very young age stands for false evidence appearing real or false education appearing real. So we see all this stuff happening and many times we read into it and it's not quite what we think.

April: Right. Well, I think what's important too, especially for those on the call that may be getting closer to retirement, when it comes to how they have their investments, their retirement accounts positioned, they, it's imperative that they are positioned in a way to help them weather the storms, no matter what happens.

Whether we have good times in the market, like we saw from 2009 to the beginning of 2020. Or especially, it's more important to make sure that they are positioned in a way to weather any downturns in the market. So just like you mentioned, that they don't have to have a knee jerk reaction to move everything over to cash or something like that.

John: Correct. I know you'll get into it later but liquidity is extremely important there. In the world I live in now, just today, I wrote a check, put it in an account where I know that if the market is down, I have a certain amount of downside protection. And I also have some guarantees as relates to protecting my money with my accounts. I like that. I will settle for less yield in order to protect the downside because study after study after study has proven that the downside is where you're gonna get in trouble. I'd much rather have a little bit lower gains or potential gains because you can't promise the gain, but I want to protect the downside.

April: Right, right. And, you know, the clients we were meeting with yesterday, they said that essentially the same thing that they, at this point in their lives, they don't want to lose what they've worked so hard to build. And I get it. I understand it. I mean, you know, I can understand you're getting close to retirement.

John: Let me ask you this. You're 36 years old. Would you like to lose 38% of your money in one fell swoop?

April: No, no, I don't either.

John: So I don't think this an age issue. I think it's a mindset. It's not, actually everybody is aggressive until they have lost and all of a sudden, oh, my God, what did I do? But if you build your plan properly, where you have liquid assets and you protected the people you care about, then the money you put in there, you can pretty much set and forget. Let me just say something, most days, and you know this about me, I don't care about investments as much as April does. I understand investments. I've been securities licensed since 1980, I can do pretty much any type of investment.

But I tell people, I do not want your money if you're the kind of person that's going to constantly be worried about it every day. I don't look at mine every day, I don't even look at it every week. And, you know what, I don't worry about if things work out. But it's because we take the time up front to make sure every piece is covered. Now the client has veto power, they can say I don't want to deal with that. But we look at all these risks and take this into account.

April: Right. Good. And that's so critical. The planning is critical. To have a plan in place, and then you don't have to worry about it as much. The next thing that we want to talk about is taxation. So when we're, again, in our working years, putting money in tax-deferred vehicles like a 401k, an IRA, maybe you've got deferred comp or a 403B, that can feel like the best place to put $1 because, you know what are we always told? We're going to defer these taxes, you're not gonna have to pay taxes today. The issue though, is when you get to retirement, and now that account's grown and every dollar that comes out of it is 100% taxable.

John: And the fact that I was told that when you retire, John, 65 years old, you'll be in a lower tax bracket. Well, I got a newsflash for you, very few people we work with are in a lower tax bracket. They're not because by the time they get to social security, they get their pension or the 401k, the IRA, in these savings or investments, they take income, guess what? They're in about the same tax bracket?

April: Mm-hmm. Right. So taxation is definitely something we have to pay attention to. And it's something that you have to, there are things that you can do along the way to put yourself in a better position, especially when it comes to retirement. I'll give an example. Some clients we're working with that almost all of their assets are in retirement accounts and they're about to retire. So for them, we don't have as much diversification to work with from a tax planning standpoint because all of their assets are in retirement accounts.

It limits what they're able to do. So if you can start building other, some diversification in your assets, especially when it comes to tax planning, it gives you more options. It gives you flexibility. And I know in our next webinar that we're going to have two weeks from today, we're going to be talking about that, about tax diversification in retirement. Especially today. I don't know about you, and actually, John, I do know how your feelings on this but it's hard to imagine the tax rates will not go up from where they currently are.

John: How can they not go up? We're spending, before the pandemic, we were spending money and like drunken sailors on both sides of the house, I'm gonna be fair pick on both Democrats and Republicans, they have forgotten whose money it is up there. And here in our legislature, so there's no way that a reasonable person who understands money at all can tell me that the tax rates won't go back up, no matter who is elected. You can elect Mickey Mouse and Micky's gonna raise the tax rates. He's gonna have to.

April: Right. And so we have to do things today to prepare for that. The next thing that we want to talk about is inflation. So inflation really compounds all the risks that we've talked about so far. So if we're talking about dying too soon or living too long, if we're talking about becoming sick or injured, market volatility, and also taxation, inflation compounds all of those issues.

John: You know what inflation is to me? It's a silent thief. So you get your paycheck and you see money taken out for taxes, for income taxes, and social security and medicare that's screaming at you. Inflation is so quiet, it just sneaks up on it goes boom, got you. And you go, Where'd that come from? All of a sudden, you go to the grocery store and it costs you more. And most people tell us that at about seven years in retirement is when they feel it.

That's when they see it. Because if they have a cost of living adjustment, maybe it's enough, maybe it's not enough, all of a sudden, it's not enough. And I lived through this. I don't think you were around when we had inflation as high as it was 16, 17%. It's coming back. It was never that high again. But it will, we have economic cycles. And people who understand that they take advantage of that. People who don't understand it, they can't.

April: Right. Okay, John, so what we want to do, we talked a little bit about these for us. So let's talk about kind of our planning and how we help people and how it's a little different maybe than some traditional planning. But one of the things that we do, we begin with in our planning is helping people manage those risks, the risks that we just talked about, because we really find that its clients' inability to deal with those risks is what causes issues and problems for them in retirement. It's not always, oh, my account didn't do so great, or rate of return on with an IRA, it's those risks that, again, sneak up on you and cause issues and problems.

So we want to make sure that we first manage those risks and try to take them off the table. Those ones that are kind of broad and economic in nature, like market volatility, for example, that impacts all of us. And then also those risks that are more personal, like your personal economy, if you live too long, die too soon, becoming sick or injured. So we've got to cover both ends of the spectrum in that regard. We then want to talk about cash flow allocation.

John: I love that word. Cash flow. Doesn't that sound good? Instead of a budget or restricted, cash flow.

April: Mm-hmm. And, you know, it's different too, because instead of talking about asset allocation, how your assets position, we first want to talk about your cash flow allocation. How are your, how's your cash flow allocated, especially when it comes to retirement? So in the planning, we do working with people and showing them like that retirement rehearsal and pulling together all their retirement income streams and showing them what that looks like, that's part of it. Balancing What does it look like from a cash flow standpoint.

We also want to make sure that we have liquidity, free liquidity. And we define free liquidity as an asset on your balance sheet that's not required to provide you income. Because if it's required to provide you income, it's not really liquid. It's, again, locked up and kind of that income prison. But we want you to have liquidity on your balance sheet, money you get your hands on if you want it or you need it.

Sometimes I feel like clients probably get tired of us talking about liquidity so much but it's that important in your overall plan. Both while you're working and retired. And then we also want to make sure that we minimize taxes. And so we talk about how do we strategically do that. How do we do that not just this year in 2020, for example, but how do we do that on an ongoing basis? So we want to talk about different ways that we can minimize taxes along the way.

Every Tax Dollar That You Save...

John: Let's talk about that for just a moment from a different perspective. Every dollar that you can save in taxes is very powerful because that's money, it was lost money anyway. You were giving it away. It was gone. So if we can save you $1,000 or $5,000 in taxes, that's powerful money. You can do the taking go blow it, you know, go give it to kids or my case grandkids are great-grandkids, or you can save it for yourself.

But that is money that you have recaptured that you not only lost that money, you'd lost the earnings on it. We call that opportunity cost. So you didn't lose just a dollar, you lost the dollar plus all the earnings on it for the rest of your life. And you start looking at the numbers as big. That's why folks will pay so much in taxes. Now, April and I are not tax attorneys, we're not CPAs. Don't want to be. But we can look at things and say, whoa, wait a minute, what if we reposition this? What's the difference in taxes? And that's why the taxation part is so important.

April: Right I agree. Okay, so what we do in our planning, we talk about having like an optimal structure when it comes to retirement planning. So we first start with that free liquidity, making sure that you've got money on your balance sheet, like I said, before, that you can get your hands on if you want it or you need it. That's for threats and opportunities that may come your way. So we first kind of start there with making sure that you have that free liquidity.

From there, we want to talk about what sources of guaranteed income do you have? Do you have a pension? Do you have social security? If you do have those two things, is it enough to cover your basic living expenses in retirement? If it's not, do we need to create some more guaranteed sources of income for you to cover and to cover those basic living expenses?

From there, we also talk about having different, a bucket of assets that maybe is for discretionary income. Maybe you want to have, you know, an asset that's invested in a certain way that you can take income for it, from it to take a trip, or do renovations at the house, again, think something that's discretionary. And then also, maybe you've got a bucket that's going to be for growth.

So you don't need income from it now, but maybe you want that bucket to be for legacy purposes, or you want it to be there to grow for you to be able to have increasing income in the future. So it's important that we have balance between all of this. You gotta make sure you have liquidity, that you have guaranteed income to cover living expenses, that you have a bucket that's got variable income if you need it, and then also have income to grow for the future.

John: And I would add that the variable income and growth allows you to spend money guilt-free. Whatever is in there, you can spend it and enjoy it. It's not, ah, if I spend this I've taken money away that I want to leave to my children and grandchildren. No, you didn't. This is money that's theirs, flexible, use it for yourself, if you don't need it, pass it along if you want to, or give it to your church or charity.

April: Like the clients we were talking with yesterday, they're going to be 61 and 62. That's, it's critical for them to have a structure, right? To have the liquidity, they need the guarantee they're gonna have a pension, social security, but having income to cover their living expenses. Again, as you mentioned, they're retiring very young. And so they've got to have this bucket that's going to grow for them for the future to cover some of those risks we talked about, like inflation.

John: It's important. Very, very important.

April: So in our planning, when we work with clients, we really do have a series of conversations. First, we start off by having a conversation about philosophy. What's our philosophy around money, what's a client's philosophy around money, to kind of get a feeling of their money story. And then we take a look at some high-level data where someone today will have two distinct conversations. One of them is around protection and making sure that their balance sheet is protected from those risks we talked about.

And then we also have a cash flow discussion. This is going to be that cash flow allocation to make sure that we have the income that they need in retirement to live the retirement that they want to live. And then from there, we also talk about, we may make some recommendations and they get to decide if they want to implement any changes that we recommend and to what degree. And I think it's also important through this process is to have a conversation about what are some things that they could do today to put them in a better position?

John: Correct. And I like to remind people, this is your money. It's not our money. Our job is to help you make better decisions. But first with identify what you've got, what's working and what needs work. And then it's up to you. But in the final analysis, the client has to take action. If you need a new will because you have an outdated will or you don't have a will at all, at some point, you've got to take action to get that done if you want the end result to be positive. If you're not saving enough money for your retirement, then you've got to take action.

Now if you don't have proper insurance plans in place, you have to take action if you want that protection. So we're more like coaches, April, than sales reps. Here's what we see, here's what needs to be done. What would you like to do? And, you know, sometimes people don't take action and that's their plan. That's their right. We don't get much of that.

April: No, we don't. So, John, I want to switch gears now. I know we've got about 10 minutes left for our webinar today. So I wanted to switch gears and kind of talk through some of those vision questions that we sometimes go through with clients in talking about what their retirement gonna look like. So let me pull back up this.

So when we're talking with clients about their retirement vision, what is their retirement going to look like, we talk about relationships, housing, lifestyle, health and financial, because it's when you're, when it comes to retirement planning, it's not all just numbers. It's not all just how much money do you have in an IRA and numbers on a piece of paper. It's what do you want your retirement to look like and be like? John, I know, you'll talk about your different freedoms, especially when it comes to retirement. Do you wanna take a few minutes and talk about that?

The Four Freedoms

John: I can do it real quick. There are four. Relationship freedom, other words, who are the people I want in my world, time, freedom, money, freedom, and location freedom. You and I were talking earlier about a trip I'm taking. At the same time, there might be one if not two webinars that we'll be doing.

So I have the ability as long as I have my computer and access to the internet, I have location freedom. You and I've been working with clients for a long time over the telephone and computer well before the pandemic came along. So you're in Jacksonville, I'm here. Sometimes we have clients in another state or city or even down the street. And we're using the computer. So that's location freedom, that gives me the ability that if I want to get somewhere I can.

And I find that most people don't give enough thought to that. The most important relationships, what are you doing to nurture those relationships and enjoy them while you can. I'm 67 and I've had open-heart surgery, specifically a triple bypass in 2008. So that got me thinking about a lot of things in my world. I discovered I realized while walking with my two-year-old grandson one day after my surgery, that I was spending more time with total strangers helping them and not nurturing the relationships that were most important.

And pretty much everybody who's listened to this will find that they're out of balance a lot. You work like hell pleasing other people at work or your church, social activities, and then you realize, ooh, all that's important but what about the people that are really important? So that's why I put relationships is number one. You can have all the money in the world but if that's not working, then you have a problem.

April: That's right. Well, talk about relationships a little bit. You just hit that. So we talk about with clients is, you know, who are the people that are important your life? Who do you want to spend time with in retirement? Is it kids? Is it grandkids? Do you still have, you know, or do you have aging parents that you're going to have to care for? This all is involved in those relationships.

John: And you may not know the answer. So in my case, our son had an auto accident 2012. Well, I found myself having to take care of him, also an aging mother that I had to help. So all of a sudden, it put some financial pressure. Fortunately, I had saved and invested some money and was able to deal with that. But what if I hadn't? What if I had not accumulated the asset? All of a sudden, my retirement could be in jeopardy if I wanted to retire.

April: They call that the sandwich generation where you are having to care for parents and children at the same time and whatever that looks like.

John: I was fortunate that my mom did not have to move in with us but I was financially supporting her and helping our son and grandson. Yeah. Been there done that.

April: So we, so, again, those are things that may change along the way but it is important as you're stepping into retirement just what do you know today and how can you work around that? Housing, will you stay in your current home? Do you plan to age in place? Do you plan to move to a different city? Do you plan to downsize? Housing is always a concern, like the couple we were meeting with yesterday, they most likely will not stay in their home here in Tallahassee.

They plan to move to be closer to, they're about to have their first grandson, so that's the driving factor for them to move to another city. And talking with them, they don't know what they're going to do. You know, will they rent in the New City? Will they buy? There's a little bit of some conversations going on back and forth on that.

John: That's a nice word. Conversation versus debate.

April: Those are things that you need to think about comes to retirement. Lifestyle, what are the things that you've always wanted to do? Are there, is, did you want to do some consulting when you're in retirement? Are there organizations that you want to volunteer?

John: Did you say insulting?

April: No, that's funny. And so, you know, we talk to clients all the time, they're like, No, we've got a client who plays pickleball. I don't even know what times a day she, how many times a week.

John: And by the way, let people know that there is a podcast where I interview people here

April: Yes, four or five days a week, she plays pickleball. You know, we've got clients who golf several days a week. So just what are the things that you want to do? And I love that question about, what are you going to do with every day is a Saturday? So when you're retired, you know, you're not working Monday through Friday anymore so every day is going to feel like the weekend. So what are you going to do during this time? We have a client who I called this a couple years ago now, I called him to schedule time for him to come in for a review meeting.

And I just want you to picture this. So he's 90 years old, and I call him to see about scheduling a time for a review meeting. And he goes, April, I have got to give up some of my social commitments. I just don't have anything available in the next three to four weeks on my calendar. And I laughed, and I just love that idea that here he is, at 90 years old still living the life that he wants and has too many social commitments.

John: I spoke with him two weeks ago and he's still that way.

April: I think he will always be that way.

John: What, and how old is he? Isn't he 93, 94 now?

April: He's gotta be Yeah, cuz that was several years ago when we had that conversation.

John: Great guy. That's the beauty of our businesses is that we get to develop relationships with people. Yes, we're doing business, but they're more like part of our business family.

April: Mm-hmm. That's right. I love it. Health care, we spend a lot of time helping clients with health care, mainly because it's a major concern for them. What is health care going to look like in retirement? Sometimes there's some uncertainty there, too. But really, we just want to talk about what are the known healthcare concerns that we have now? Talking about your current health, how much do you currently spend on health care, what's that going to look like when you get into retirement?

John: I think it's important for people to know that when it comes to the retirement side, you said not just about money earlier, it's also understanding not only social security, but where does Medicare work. There are some negatives with Medicare when it comes to cost of Medicare, if you own too much money in retirement. These are all things that we take a look at in the planning process.

April: Right. Very important. And then, of course, there's financials. There is definitely a financial piece when it comes to retirement. So we walk through this with clients on what's your current income? What will your income be in retirement? Having a spending plan for retirement. We don't really like the term budget, I think it has a little bit of some negative connotation, but we do talk about having a spending plan for retirement so that you're intentional about it. So we want to make sure that we go through that with you as well. So just kind of some things to be thinking about there.

John: I have a comment there. Every time I go to a funeral every time, and I started this in my early 20s because of the friends thing, I don't see one. And what I do now I'll look, I don't see a trailer hitch on the hearse. I've never seen them put a Uhaul trailer behind a hearse, and take all of your money, all the jewelry, all of your belongings to the cemetery with you. it doesn't happen. So here's the question, and you referred to a little bit earlier about the what if.

I'm not going to spend this money because what if I need this? What if? What if? What if? So if you don't have a spending plan, you're going to be reluctant to enjoy the lifestyle you should have in retirement. And you may find that you're giving up things that you could enjoy today with a proper spending plan. It's usually because people have not done a good job of creating the guaranteed income streams you talked about earlier.

They don't have the true free liquidity. So they are locked into a plan where they can't spend and enjoy the money. To me, that's sad. I'm thinking of people that we've worked with for years that have over a million dollars in retirement accounts and they're afraid to spend $1. What kind of plan is that? Enjoy the money. Don't waste it, don't be frivolous, but design your plan where the assets are taking care of you.

April: Right. It's all comes down to planning at the end of the day, right? Good. So, first I want to just say thank you for everyone for joining us on the call today. I know we kind of touched on a couple different, we went through a lot of information, mostly centered those five retirement risks that you'll face in retirement. In two weeks, we're going to have our webinar on tax diversification in retirement. So we're going to go more into like tax history and kind of talk about the impact of taxation.

I would encourage you, if you're on the call, to schedule a time for a phone appointment, again, with someone on the team. Like I said earlier, this would be a 25 to 30-minute phone appointment. You could do that with John, with myself, with anyone on our team. And this would be your time to discuss any goals, any concerns you have when it comes to retirement planning. And then we'll share with you a little bit more about how we help clients when it comes to retirement planning and then we'll see if there is a fit and if it makes sense to work together.

John: Makes sense to me.

April: Got any closing remarks?

John: No, just one thing I would say is take some time, reflect on what you've heard today. And if we can help you, let us know. And I would encourage you to take advantage of the phone call because every time I've been on one something pops up that people didn't think about.

April: That's right. Good. Well, thank you so much for your time. We really appreciate it and we'll talk to you guys soon.

John: Goodbye, everyone.

Voiceover: If you'd like to know more about John Curry's services, you can request a complimentary information package by visiting johnhcurry.com/podcast. Again, that is johnhcurry.com/podcast. Or you can call his office at 850-562-3000. Again, that is 850-562-3000.

John H Curry, chartered life underwriter, chartered financial consultant, accredited estate planner, masters in science of financial services, certified in long-term care, registered representative and financial advisor at Park Avenue Securities LLC. Securities products and services and advisory services are offered through Park Avenue Securities, a registered broker-dealer and investment advisor. Park Avenue Securities is a wholly-owned subsidiary of Guardian.

North Florida Financial Corporation is not an affiliate or subsidiary of Park Avenue Securities. Park Avenue Securities is a member of FINRA and SIPC. This material is intended for general public use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Guardian and subsidiaries, agents or employees do not provide legal tax or accounting advice. Please consult with your attorney, accountant and or tax advisor for advice concerning your particular circumstances. Not affiliated with the Florida Retirement System. The Living Balance Sheet and the Living Balance Sheet logo are registered service marks of The Guardian Life Insurance Company of America, New York, New York, copyright 2005-2020. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities or Guardian and opinions stated are their own.

2020-108017 Expires 9/2022

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