We tend to spend more time planning about the present that we forget to put high regard to planning for our future. David, Karen, Bret, and Joe give advice that truly stick to real life. They provide some stories of their daily encounters with various clients as they try to navigate their own retirement and investment plans. Discussing two articles, “How Much Money Do You Need To Be Wealthy In America?” and “The Worst Possible Time to Retire,” they lay down the truths about the perception of comfort and wealth as well as the outlook of people retiring in America. They also provide some great overviews of multiple retirement topics from women on retirement to David’s 4% rule.
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Have You Planned For Your Future?
Welcome, David and Karen.
Great to see you. Hope you’re enjoying so far.
I’ve got to start with when I was down in St. Augustine at my daughter’s wedding. At different moments throughout the week leading to the wedding, I was thinking about retirement. I came home from St. Augustine shuttling down to Cape May to get the house ready, get it open because the kids were going down. I found myself falling back on thoughts and conversation about retirement. The reality of it is everything that we do or plan to come up requires a plan for how we’re going to live our future.
I’m glad that we have infected you. Not affected but infected with this disease of constantly having to think about how to put those plans in place prior to retirement. What we try to do is get people thinking about it. Many times, we sit at a conference room table and meet with folks about these Thrive Retirement Roadmap Reviews. The common thing that gets mentioned is, “This is the first time you got me to think about my retirement, not about getting there, but how to get through it in a successful way.”
Sometimes people spend more time planning a wedding, a vacation or planning this but you should spend a lot more time planning your retirement. I met a lady who came to our workshop. She wasn’t sure why she was here. She was a director of finance in a big company. She’s 70 years old. What she said is, “I’m not sure why I’m here but sitting in your workshop started me thinking.” We sat down and started going through the process. We talked about her required minimum distributions.
She has to start taking them and didn’t do great planning. She’s planned but realized at one point that all her money is in qualified assets. They didn’t plan for taxation in retirement. She understands that from going to the workshop, she said, “I don’t even need my required minimum distributions. What do I do with them? Do I put them back in the same account?” As we started going through everything, she was blown away by how much we focused on all the different areas, how we take such a holistic approach to retirement.
There are so many things in reality and in real life that mirrors so many of our conversations. My son-in-law’s father, whom I spent a fair amount of time with over the weekend at St Augustine, his wife unexpectedly passed away and put him in a position to try and understand, prepare, and plan for not only my son-in-law but the other four siblings in the family. There are so many different bumps, twists and turns that we all are going to experience. All means everybody who’s on the same road. It might be a different circumstance but they’re going to come up. The ability to be able to manage them when they do is so important. It all goes into the planning part.
Two things about mentioning the wedding. You can’t believe how quickly it comes. Our daughter graduated from a university. You look upon that field she’s walking to get her diploma and go, “I just remembered bringing her home. How did this happen? When did it happen?” That also occurs with people in retirement. It’s this far off thing that you don’t think is in the near term and before you know it, it’s here. I can’t tell you how often one of the comments that we get is, “I wish I would have met you guys five or ten years ago.” What I always respond to is, “It’s never too late.”
We had a couple in one of our workshops, an absolute sweetheart couple. The gentleman was 85 years old. His spouse was 92 years old. They were so attentive and were writing so many notes. After the workshop, they instantly came up to me and were thanking me. They said, “We don’t know if it’s too late for us or not,” and I said, “Tell me about some of the questions.” They spent the first half of their lives from a career standpoint as missionaries in Africa and then as a pastor of a church.
They said, “We didn’t make a lot of money, but we had this.” We’ve seen so many people over the past couple of years come through these workshops. We have a number of pastors, of missionaries that we’ve dealt with, so we understand the intricacies of their healthcare and the types of trust and benefits that they get. I said, “Come on in. Let’s sit down and have a cup of tea. We’ll talk and I’ll answer your questions because I got a lot of questions.” I thought it was great because there’s still a major spark in their eye at 85 and 92.There are so many things in real life that mirrors so many of our conversations. Click To Tweet
Our mission and plan is to educate. Perhaps you haven’t given retirement a thought, but you’ve realized, “It’s upon me.”
What I hope to get to share with our audience now throughout the different segments are two articles that came out. What’s important is a little bit of a dichotomy to them. One article, which was in Bloomberg, is How much money do you need to be wealthy in America? It is eye-opening. It goes through the different groups: Millennials, Gen Xers, Baby Boomers and others, and what the perception of what is it going take to be wealthy in America. The other article out of InvestmentNews is The Worst Possible Time To Retire: Market performance in the first few years of retirement determines financial security throughout one’s golden years. Here’s why the outlook for people retiring today is very concerning. Some of what Bret is going to be talking about is going to cover that as well.
Krause, I sat with somebody who came out to our workshop up in Northern Chester County at the Hankin Library. He had given us some great comments on our SOFA website, the Society for Financial Awareness, of how well the workshop from an educational standpoint had been for him. I had the chance to meet them for the first time. He had shared with me that he had a pacemaker put in the night of the workshop and I said, “Was it our information about what taxes look like that did that to you?” This guy is like, “I’m here so I don’t think so.” It seems like things are okay now, but I thought that was an interesting story. During the workshops, we’re talking about these 2018 tax changes and putting them together with the investments and retirement, navigating again, and that’s what the Thrive Retirement Roadmap is all about.
I’m glad to hear you reference the positive comments that the workshop’s received because that to me is so meaningful to be able to educate the readers. I can’t stress enough to everybody how important it is. We’re not selling. This is a real education. It’s real life. David, I’ll give you a chance to weigh in here too.
That’s why we’ve got nominated and ultimately appointed to be the Pennsylvania state chapter presidents of a national 501(c)(3) for a profit organization called The Society for Financial Awareness. Part of that moral code, ethics code is it’s all about education. We have a Facebook page that the people can visit, the SOFA of Greater Philadelphia. If you start to read the comments, it’s remarkable. It’s like people are telling people, “Go see this. This is the greatest workshop I’ve ever seen. It has helped me so much.” Bret, coming on it’s cool to see that. Many times, people in our world, all they do is talk about your investments and your investments.
The story that David, Karen, and myself are sharing on a weekly basis where your investments are always important, but everything needs to work hand in hand together with income distribution, along with tax efficiency, along with healthcare and where does legacy fit into that? Those are the reasons why we call it the traveling road show where we have Social Security workshops, we do tax workshops, we do income distribution workshops to try and bring a little bit of clarity where there’s confusion out there. That’s what our passion is at the end of that.
David had referenced a couple of articles that we’re going to talk about. I’ll lead you into that Bloomberg article. I’d love to get your thoughts on it.
It was interesting that only 11% of people talked about assets, which meant happiness for them, whereas the overwhelming response was a stress-free life and having peace of mind as what their definition of wealth is. David, Karen, and I met with a client and we’ve developed a relationship over time. As people are chronologically maturing, their risk tolerant continues to go lower and lower, but then greed is sitting on the other shoulder saying, “I don’t want to give up growth at the same time.” A lot of times when we sit with people and talk about investing overall, there are always three characteristics. There was a gentleman client who’ve been working with us. The three characteristics that I had mentioned to him were liquidity, growth, and principal protection. If those three things would be involved in an investment, those three characteristics sound like a good thing but the problem is there is nothing out there that has all three of those associated with it.
My one client had said, “When I was sitting in a credit union, I asked the question, ‘What are the three characteristics I should look for in an investment?’ The fact that you’re telling me the same thing years ago, it’s like history tends to repeat itself at the end of the day.” We did a two-year review with the client and the one comment that they made was, “We’re conservative. We feel good. We don’t want to lose money at this point in time, but how can we participate and possibly still earn a little bit of money?” We shared a solution with that. We went back to 2016 and had a two-year anniversary in 2018. The S&P 500 has gone up quite a bit to almost 50% over that two-year period.The ability to be able to manage the different twists and turns in life is so important. Click To Tweet
That $250,000 I invested was purely in the S&P 500 where it turned into $375,000. What can go up can go down as well? The client wasn’t wanting to have that much exposure to the pure market, so instead, we shared this alternative solution with them. When we did our two-year review, their $250,000 didn’t turn into $375,000, like the pure S&P 500 did, it only turned into $351,000. They still earned about 40% rate of return. We did not give up growth. We’ve had our principal protection, but we lost a little bit of the upside potential in what the pure market would give us.
Here’s what’s more important to them. When we sat down, we talked about the what if’s. We said if we were purely in that market, and what happened if we were in 2006, 2007, 2008 and 2009 again, what happens if that $250,000 we’re following in the S&P 500 went down to $125,000? I go, “In our example, our worst-case scenario, that $250,000 is only going down to $242,000 or only a $7,500 loss.” They said, “I’m okay with that.” There were a few fees involved when we called that almost like the insurance to make sure that our money would not go down, but we gave up a little bit of upside to ensure that we would not have any downside protection.
It’s those solutions like that that can give people that piece of mind and that stress-free life where they can still pick up some growth, but it accomplishes a lot of their goals and allows them to sleep at night. We call that a swan investment. We’re always trying to find those investments that have liquidity, growth and principal protection. We can never get all three, but which ones are we willing to sacrifice on? We did not put all their money into that, but it’s sharing stories with people like that. It’s why we stress the importance of going through that Thrive Retirement Roadmap Review wherein we get to that topic of investments and we can share different solutions that are out there.
We get an opportunity once in a while to create and produce a special program on Saturdays. Karen, I’m going to let you have all of the honors to talk about our show.
The next show is going to be geared towards women in retirement and how it differs a little bit. The reason that we thought of doing the show is in all my years of doing financial services, the one comment I got a lot from women who were single or suddenly found themselves single, either through a spouse passing away or through a divorce situation, is they felt comfortable talking to another woman. They felt that they had gone to different advisors and didn’t think that they were talking over their head.
What David, Bret, and I do is we educate our clients and the people who come in for the first time from a workshop. More than just talking at you and telling you what you should do, we educate and tell you this is why you should do it and give people options. I’m excited to say that we’re going to have a show, which discusses women in retirement. We’re going to have another one of our female advisors coming in. She’s located in Cherry Hill, New Jersey. Her parents are a regular audience, so she’s very excited to be on the show.
We’re going to have one of our partners, Del-Val Insurance Group. Fran is going to be speaking. Fran is a male but is inundated with women in his household. I happened to know his wife, who is a businesswoman, and they have a daughter. His mother is still around and he has to advocate for her. He understands that there are different situations that women find themselves in if their husband took care of everything. If he passes away, what kind of car insurance do they need? Do they stay with the same guy, gal or person?It is better to be able to understand the reasons why instead of speculating. Click To Tweet
It’s a bullseye hitting home for me because when my father-in-law unexpectedly passed away, my mother-in-law was left with all of a sudden having to deal with everything where her husband managed everything.
We found that when we talked to couples who come in and the husband says, “I take care of everything,” David and I say, “That’s great, but what happens if you pass away? Who’s going to be your wife’s advocate? Who’s going to take care of her? Who’s going to make sure she’s not taken advantage of?” I’m very passionate about that. We’re also going have another partner or somebody that we know whom we’ve worked within the community. She’s in real estate. She has her own brokerage and she’s an agent.
Something that we ask our clients who come in for the first time is, “Are you going to stay in the same home that you’re living in now? What does retirement look for you? Are you going to move? Where are you going to move?” If you’re going to move, you should make plans a couple of years ahead of time. She calls herself a real estate doctor. She will give you guidelines for what you should do. Sometimes people want to make changes in their house before they sell the house. Does it make sense to put money into doing that? Maybe it doesn’t. Retirement has a lot of different moving parts. Would you think about having an agent come in a couple years ahead of time before you’re going to sell a house?
The question is asked by a lot of people, especially when you start to have a conversation about, “What are we going to do when you retire?” Back when my oldest daughter was getting married. My wife and I were in a conversation about when Isabelle, who’s our youngest, “When she’s done school and everything, what is that going to mean? Are we going to sell our home in Jenkintown and relocate? What should we do?” My mother-in-law never wanted to sell her property and held onto it until she made the decision to sell it.
There are so many questions. It should be a good conversation for sure. Some expert opinion for our audience is going to come at it in two or three different areas of conversation. You’re the lead. David, it is true that all of those references that Karen made are of real-life scenarios that you hear from your clients or potential clients that joined you in the office. They come up and when they do, how you react or how you prepare for them does make a difference in terms of moving forward.
We get the luxury of meeting with new people up to 25 times a week and because of that, it’s more often that we bring things up that they have not yet thought of. That’s what’s important for people to understand why that Thrive Retirement Roadmap Review is so critical. One of our inquiries right away is, “Do you plan on staying in the home for the rest of your lives or do you see something in your future from a downsizing standpoint? What about geography? Are you going to stay in Pennsylvania, New Jersey, Delaware, Maryland or are you looking to go south? Are you looking to go west? What does that look like for you?”
Most times, people will go, “That’s a good question. I hadn’t thought about it.” Some of the thought processes are Pennsylvania, which is an incredibly favorable state from an income tax standpoint for retirees. You may be thinking of moving to Kentucky, Tennessee or Texas and we take it upon ourselves if you give us that guidance. We’re going to look up the state income tax codes and decide, but we also have to look at the economics behind and see if it makes sense.
Do you think a lot of people know that Pennsylvania is so favorable for retirees?
It’s probably 50/50. We have couples who will tell us that they’re going to move out of the Philadelphia suburbs and go a little further west, Harrisburg or Lancaster, outside of Pittsburgh where the cost of living is less. On top of it, all state of Pennsylvania is tax favorable. The differentiator for when people asks me, “What makes you any different than any other financial advisor or financial planner?” Right there it’s an indicator, we go so deep. We’ve been trained and had so much experience because of the amount of time that we spent in this industry.
Then number two, the amount of our daytime, full-time practice is not common. We’ve seen a lot of people and we’ve built our infrastructure. We’ve built our staff, our technology, and our systems to be able to go out there on a much larger scale and serve the community. We’re on a mission. We’ve talked about the tribe that we’re trying to build and it’s getting bigger and bigger. I love it because when we do go on Facebook or social media, we start to see these advocates of people who’ve come through the workshop, come in for the Thrive Retirement Review and they’re standing at the top of the mountain, not us. They’re saying it was one of the greatest experiences and has opened their eyes.You have that ability to take and tap into the knowledge that you’ll navigate your way from here. Click To Tweet
I sat with a wonderful couple, lots of money worth of $1.5 million. When they walked out, they realized, which was not on their radar initially, that in retirement, their expenses were so high. Some of that high expense was related to a vacation home down the shore that they had, that they were probably going to sell in the next few years. That could then bring their expenses down, so it would support the amount of money that they’ve got in their retirement assets. If they don’t do it, they’re going to erode that money. We illustrated to them through our software that they could end up running out of money in their mid-80s and they’ve got longevity on their side. Both are in their mid-60s and their sets of parents are in their 90s, so it’s important.
A perfect example of why it is so important to understand what that future reality potentially is. That, in some ways, is a tough conversation, “That place that you have down at the shore, you may have to move that.” That can be a difficult conversation but better to have it, better to be able to understand the reasons why instead of speculating.
I said, “Do you want me to be diplomatic or do you want me to be honest?” They always vote for honest. I said, “Sometimes I’ve got to tell you the reality, that it’s better to have enough fuel in the jet to get across the Atlantic Ocean versus boarding the jet and finding out you didn’t have enough.”
It is all about educating you. You have your own scenario and own circumstance. You have the ability to take and tap into the knowledge that you’ll get from here, which is priceless. I’ve got my Roadmap to Retirement copy. I’ve been waiting for a long time to get my copy of the book Navigating Your Way to Peace of Mind. David, another tool that was created with the result of being a way to educate consumers and people for what’s in front of them. Congrats again to you all in the success of it.
We’re all noodling around now in our second book. We’ll try to get that out within the next months. These two articles that I reviewed, How much money do you need to be wealthy in America? from Bloomberg, many Americans cite leading a stress-free life and having a peace of mind as their personal definition of wealth. That doesn’t sound too money-centric on the face of it but until you consider that money, or specifically the lack thereof, is a major source of stress.
To be financially comfortable in America now requires an average of $1.4 million up from $1.2 million in 2017. According to the survey that was done online, the net worth needed to be “wealthy” is at an average of $2.4 million, the same as it was in 2017 that was outlined on the online survey of a thousand Americans between the ages of 21 and 75. That gives you a little perspective of what the perception of comfort is and what wealth is. Whether you have that, you don’t have it, you got more, you got a little bit less, it still doesn’t discount you from going through something like the Thrive Retirement Roadmap to get an assessment of does everything work. Going to the other article out of InvestmentNews, The Worst Possible Time to Retire, market performance in the first few years of retirement determines financial security throughout one’s golden years.
Here’s why the outlook for people retiring now is concerning. It says the outlook isn’t good for clients on the verge of retirement now. The probability of being financially secure throughout one’s golden years without severely compromising one’s lifestyle or running out of money altogether depends largely on what happens in the financial markets in the first few years of their retirement. I’m going to have Bret address some of the things that we talked about in our workshop but hearing from what some of the market pundits are talking about, here’s a quote that says, “This is as close as you’ll get to an all-time market high and dangerously high valuation that makes it a very risky time to be in retirement.” The worst time to retire is when stocks have had a run for a while without an intervening bear market, which is usually a downturn of 20% or more from the recent highs.
We haven’t seen that. The last bear market in US stocks ended back in March of 2009 when stocks bottomed out during the financial crisis. Bear markets tend to occur every four years. We’re way overdue with the volatility, with some of the geopolitical things that we’re saying. Warren Buffet was a big believer, invest in companies that you understand things about. I talked to a couple of people who are recruiters, which we heard jobs were up or unemployment was down, but job creation was not good.
The penetration of people in the job position wasn’t great. I asked, “What do you think is happening with the job market now?” She’s like, “I’m not getting calls from my vendors asking me to go recruit for them.” Seeing that happen, seeing gas prices going up, seeing the ten-year starting to tick up, it’s certainly something to be aware of. We talk about what’s going to happen in the markets. You’ve got to count on how much money you can withdraw from the markets to supplement your Social Security, possibly a pension to make sure you’re filling that income gap. Bret covers a little bit of that during our workshops.
David does a great job talking about during the workshop something called the 4% rule. We always ask people in the room who’s heard of this and we get maybe 25% to 40% of the room where you get people’s hands up like, “I’ve heard of that.” Where they’ve heard of it is from their advisor. In 1994, a study from Morningstar had identified that 4% was the percentage of being optimal to last 30 years of retirement without running out of money. The problem was back in 2013, it was revised down to 2.8% because of a couple of reasons. We’ve got volatility in markets. We’ve got to always watch what advisors are charging from a fee standpoint. We are coming out of a very low-interest-rate environment as low as we’ve ever seen, and people are shifting from that more conservative mix of stocks and bonds. Putting those together is part of that Thrive Retirement Roadmap Review where the very first thing that we go through is Social Security maximization report.Real life is real education. Click To Tweet
We have to have a little bit of faith in the government that Social Security is going to last. I know what those sheets say, but they have not yet ever defaulted on Social Security. For the audience who may be in their 30s and 40s, maybe early 50s, it may not be necessarily a good thing but for those of us that are the Boomers that are in retirement, mid-50s and beyond, we can count on it. In putting together those pieces and about that 4% rule, “How can I maximize my Social Security and pull money out of my assets at the same time to give me that peace of mind? I know I’m at the worst time of possibly entering retirement.” We can’t stress our portfolios that high at that 4%. If we need $30,000 in retirement, we would need approximately $750,000 of a nest egg to be able to get that peace of mind using the 4% rule.
Bret Elam, nice job. Thank you so much, Karen. I want you to talk about our special program on the next episode.
Thanks, Krause. I appreciate it. We’re going to have a little bit more women empowerment hour. Time to focus on women’s needs in retirement and how their needs differ not from men but from couples. When we have people come to the workshop, a lot of times we talk about couples and how statistics speak about them. I noticed that there’s a lot of single women who are coming to these workshops, which I’m happy to see that they’re trying to get information. We have it both ways. We have women who are the head of household, who take care of everything as well.
On behalf of David Bezar, Karen Bezar and Bret Elam, we thank him very much as well. On behalf of all of our audience who are part of the show, I’m Joe Krause. See you next time.