[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation, or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
[00:00:17] Speaker B: Welcome to all Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellow SE Coutts are retirement planning specialists, here to provide a unique and conservative approach to managing your money. Now, here are your hosts, Trey Peterson and Yellow Se Koots.
[00:00:37] Speaker A: Welcome to all Things Financial podcast, episode number ten, Trey Peterson and Yellow Se Koops.
And today we're going to be talking about, are you approaching retirement? We have a six step checklist to help you prepare to make sure that you can retire once and retire well. Going to cover four unseen icebergs that could sink your retirement plan. And I think a lot of what we do, yellow say, is not just helping people make the right decisions, but really avoid big and costly mistakes. So we're going to talk about some of those today. We're going to talk about why it pays to have a plan and how you can establish a formal plan that continues to get updated as health changes, expenses change, the market changes, political changes. You need a plan that's flexible, that changes as life continues to change. And then, of course, we want to talk about communication.
One of the things that we know as financial advisors, one of our roles in serving families and individuals is having good communication. You always say, you're married and I'm married. And we know that in all relationships, whether it's around finances or whether you're raising kids with somebody, or even if you're going on a date, weekend communication is one of the keys to successful relationships. So one of the things that I often like to ask people is, when is the last time that you had a conversation with your advisor? Are you sparking those conversations, or are they doing a good job bringing things to your attention where you feel like they have you in mind and they're reviewing your plan, not just talking about returns once or twice a year. So we've got a lot to cover today.
[00:02:19] Speaker C: Yeah, for sure. And, you know, and everybody has different preferences, too. We have some clients that they want to check in once a year. Sometimes we're the ones who have to, you know, chase them down a little bit, because not everybody wants to meet with their advisor as often as they even should meet with their advisor. So people have different preferences. But I think it's important to at least get in at a minimum, once a year. And then on top of that, have a few other touch points, whether it's through email or through phone communication. But it's just, it's important to be on top of these things.
[00:02:48] Speaker A: Absolutely. Well, as we jump into our episode today, like we always do, we just want to offer a complimentary retirement analysis. One of the things that we find is a lot of people, whether they've managed their own assets or they've had a relationship with their advisor for 10, 15, 20 plus years, or as one of our clients, they had a relationship with her advisor for over 40 years. A lot of people have never had a second opinion from a team that is in a fiduciary model that does holistic planning. And so one of the things that we want to offer is to do a tax analysis for you, a spend down plan, and look to see are you still getting everything that you can get, and have you compared what you have to other things out there. So if you're interested in having that done with us, like so many do, you can reach us on our
[email protected], or you can check out our podcast. Learn more about
[email protected] dot and now.
[00:03:48] Speaker B: For some financial wisdom. It's time for the quote of the week.
[00:03:55] Speaker A: We've got a quote of the day. And what's so funny is I love quotes. I've got them all over my house. I've gotten them, I have them written all over in my journal. And I kind of live my life by quotes. But this one's by Jim George, and he says, it's not how you start that's important, but it's how you finish. And one of the things I found in what we do is that we have so many individuals and families that we serve that they maybe didn't start saving right out of college or even maybe at 25 or 30. We've got a few clients. I can think of one woman in particular.
She didn't start saving until her mid forties because she was a single mom raising two kids on a low income. And it hit her at 45 that the next 20 years were going to go by quickly and she paid off her debt and she got serious. And over those next 20 years, she saved about two thirds of her income and ended up having a nest egg of over a million dollars between her saving and her portfolio, performing extremely well. So one of the things that we want to talk about is it's not how you start, it is how you finished. If you've got five years or ten years or 15 years, and you feel like you're behind the ball. If you sit down with somebody and develop a plan, you can make up for lost time by getting after it.
[00:05:13] Speaker C: Well, it's, I guess, you know, for me, I mostly agree with the quote, but I think it's a little bit about how you start. Wouldn't she, wouldn't you say? I mean, that matters a little bit, especially for, like, our younger listeners.
You know, even though you can definitely make up for lost time, you can definitely get disciplined right towards the end. You know, we call that the retirement red zone. I think it still pays to start well. And we've, you know, I'd like to see more of that, too, because I think both it's important to start well and to finish well. Obviously, at the end of it all, when it comes to retirement, you know, if you are finishing well, that certainly matters, too well.
[00:05:51] Speaker A: I think what this is saying also is, you know, we talk about compounding interest all the time. And, you know, if you, if you jumped into the investment world, you know that having interest on your interest over time is like the 7th wonder of the world. However, what I think is important is that hard work and diligence and effort can make up for starting late and you end up in a great position even if you would have been in a better position had you started soon. So if you're listening to this and you go, hey, I got started late, I've run into people that don't even want to visit the financial conversation because they're so discouraged by it. Yeah, I think one of the things that youll find is that by sitting down with myself or yellowstate is that we can put together a plan that instead of leaving discouraged or feeling like youre not going to make it or you dont have enough, we can put together a plan between what youre saving your expenses and a debt paydown plan where you can leave with financial peace. And I think thats one of the things that we do well for people is develop plans that give them financial peace, even if everything isn't in the perfect order that you would have wished it would have been at 25.
[00:07:03] Speaker C: Okay, well, let's go ahead and move on to step number one, building your human capital.
There's a lot of conversation, especially recently on automation and what that's going to do to potentially the job that you have right now. People are concerned like, is my job going to be obsolete here in the next couple of years? And there's a lot of good reasons for that because, you know, there's so many things that are automated now. Like you look at, you know, self checkout at the grocery store, a lot of people are doing electronic record keeping, even like their tax prep. We're in tax season right now. A lot of that's being automated, too. And, you know, obviously technology makes things a lot easier for us. It improves our standard of living. But also, you know, there is that risk, especially as we're getting older and we're less likely to want to pick up new skills and to pursue those types of things. And I'm just thinking about a client who came in last week, and she's actually very qualified, very skilled in a certain area, actually. I think she's. Is she a mortgage lender, Trey? I think, you know, I'm talking about.
[00:08:08] Speaker A: Yeah, she's a mortgage lender.
[00:08:10] Speaker C: Yeah. And for her, you know, obviously the mortgage industry with interest rates where they are today, you know, they've experienced a lot of layoffs, a lot of people who have unfortunately been unemployed in that area. But she's looking for a new job and she's finding that, hey, like, the skills that I needed 20 years ago aren't the skills that I need today. So making sure that you're keeping up with those things. There's actually, there's a study that the dol came out with and they said they're looking to see, like, what skills are actually needed to make sure that you can, you actually find yourself in a position that, where you could actually you're employable over the next ten years. And there's three things that they identified. One of those is soft skills like being able to communicate successfully, interacting with other people well, having good communication skills. Another thing that they outlined or identified was process skills, skills that help a person acquire knowledge quickly, like learning and critical thinking, and then also engineering and equipment maintenance. So obviously you don't necessarily have to go in any one of those directions, but it's important to make sure that, like, if you're still, if you're hoping to be employed, you know, well into your sixties, potentially it might make sense to just pay attention to what's happening in the environment technologically and seeing how you can integrate your skills with what's available in the market today.
[00:09:25] Speaker A: Absolutely. Well, I think it's a little cheesy, but I heard a quote by Alex Hermosi, who's an entrepreneur out of LA. And he said, everybody always talks about investing in the s and P, but nobody talks about investing in the s and me and I heard that, and I was like, man, I don't even think I like it. But really, what he was saying is most people don't invest in themselves. They invest more money in their annual family vacation, the money they spend on that vacation. In fact, most people spend more time planning their seven days or their one week of vacation a year than they do planning out their life. And so one of the things that I think building your human capital is talking about is truly investing in yourself. Don't just get degrees to get degrees, but what certifications, what skills do you need to pick up that make you more valuable to be a higher income earner? You know, you all say one of the things that we talk about is we're always so impressed with people who saved a large retirement nest egg, but maybe they never made more than 50 or 60 or $75,000 in a year. But we've also seen where you have people that they make a quarter million or a half a million plus, and they actually didn't save that much of those dollars. And so one of the things that we've noticed, though, is if somebody has both, if they've developed the skills to have a high income and they've been disciplined and had the ability to put off things that they wanted, that's where people have the ability to save a lot of money and end up with a large nest egg not only gives them options in retirement, but also gives them the ability to leave behind a large legacy for their kids, that charity or that church they love so much. So one of the things I would just say is invest in yourself. Look to see in the field that you're in, what certifications, what training, or maybe less formal. Who do you need to learn from to increase your skills, to get paid more in your lane?
[00:11:30] Speaker C: Yeah. You know, as far as investing, you know, hearing. Hearing you say that kind of reminded me when I first got out of grad school and we had done so much reading. Like, the reading load was so heavy that I remember thinking to myself, like, I'm just looking forward to, like, spending the next couple of years never looking at a book. Like, it was just. It was that intensive and, you know, and obviously, like, you know, that. That faded. And one of the things that, like, I think people would just, you know, it would be good for you simply to have, like, a reading routine, whether you have one or two or three books that help you stay just educated and relevant on any number of topics. Like, I think that's just something that a lot of people aren't doing nearly as much. But one of the things that you mentioned, some of our clients, they haven't really had impressive salaries, or they haven't really made much. And I'm always just amazed at how well some of them have done at saving. You know, maybe it's out of necessity, maybe it's knowing that, like, hey, like, I don't make that much. Here's my ceiling. I know what it is, and I. This is what I have to work with. And I'm always amazed that at the other side of it, you know, we have some clients who've managed to make a lot of money. Their annual income is quite high, and they have very little in savings. And I think, you know, you don't. You never want to put people into a box. But, you know, I was wondering, maybe you could address this a little bit. Why is it that, like, when the engineers come in or certain people that have certain personality types, you can almost predict what they have and how well they've saved, and then you have somebody who comes in who makes half a million dollars a year, and that person is in sales and they have nothing. Like, what is it about those two personality types that, you know, what's interesting.
[00:13:11] Speaker A: Is I think that different industries, oftentimes they attract a certain person. I remember five years ago, I went to an event that was invited to this group of, like, the top ten financial advisors that were a part of one of the IMO's independent marketing companies that we're a part of. And I'll never forget sitting in the room listening to the other nine advisors who are all in their fifties and sixties talk. And all of us were not just similar in our communication style, but we had similar interests. We all had houses with ten or more acres. We all had a, you know, large breed dogs. We all were big on family. So it's so interesting is that even though we were in the same career, a lot of our hobbies and our interests were the same. But what goes along with that is, as you said, yellow say, when you and I run into somebody that's a salesperson, whether they're selling manufacturing, whether it's data, whether they're selling communication plans, most salespeople are not savers. Most salespeople are spenders. And I don't know if it's because they feel like they work harder for commissions than maybe an engineer that has that big salary where it's not guaranteed. It's really based on how many calls you made and how you delivered that presentation.
But it does seem like most salespeople are eternal optimists, and they think we see a lot of real estate agents. They may 2300,000 a year and they're 65. And they might have a million bucks in their retirement, which, if you think about it, it's only three times what their salary was for over 30 years or maybe the last ten years where you get an engineer that they made 65, 75,000 a year, and they walk in, they've got a million and a half or tip or 3 million or $5 million. So I think there are careers that don't just draw us based on our skillset, but also based on our habits and personality. And so one of the things that you and I were talking about was average salaries per state per age. If you want to touch on that. I think that's interesting to people.
[00:15:19] Speaker C: Yeah, well, I mean, I don't think it comes as a surprise to anyone that typically, the older you are, the more you earn. And on average, in Minnesota, since we're in Minnesota, I know that we have listeners all over the country, but in Minnesota, if you're under the age of 25, your average salary is. Let me take a look at this. $42,000. It almost doubles by the time you get to from the age of 25 to 44, and then it peaks at $94,000 for those between the age of 45 to 64. So we're going to talk about Social Security in just a few minutes here. But the reason why that's important is Social Security is based on your highest 35 years, 35 working years. You know, we've actually, we have a lot of conversations on income planning and whether or not somebody should get a part time job in retirement and what the overall effect is on their Social Security benefit, chances are the older you are, the more you're making on average. Right. You've been in your career a little bit longer, you have more skills, more experience, so generally you make a little bit more money. And people are often wondering, like, how does that affect my Social Security in retirement?
If I continue working, if I get a part time job? Well, because it's based on those highest 35 years, you actually have the potential to increase your benefit even after you file. Now, we know that the cost of living adjustment increases your benefit. Every October it's announced, by January, your benefit is adjusted. But I'm not talking about that. I'm talking about actually increasing your benefit based on the amount you've paid in. So if you're replacing one of those 35 years, even in retirement, even after you've already filed your Social Security, you have the opportunity to increase your Social Security benefits. But conversely, the opposite is true.
We actually have a number of people that are working in retirement and they're not replacing one of those 35 years. And the problem, the challenge for them here is, hey, here I am. I'm working in retirement. I have this job. I have this earned income. I'm paying into the system. I still have to pay my fica taxes. Right. I still have to do that, but I have no opportunity or possibility of increasing my Social Security benefit because I'm not replacing one of those 35 years.
[00:17:32] Speaker A: Right. Well, I think one of the things that Dave Ramsey says in relation to salary is that your income is your greatest wealth generator. And I think when we meet with people, one of the things that I've noticed is when they get into a spot where they've got big commitments eating up a large portion of their income. As an example, if youre not familiar with Dave Ramsey, hes one of the probably top gurus in the country for really helping people free up their cash, pay off debt, live debt free lives, which I think bad debt you want eliminated. Theres good debt, like when you have a home mortgage thats under 4%. Thats good debt, in my opinion. But one of the things he talks about is your income being your wealth generator. I think whats hard is when we get people in and their housing takes up more than 30% of their income or their housing and vehicles takes up 50 or 60%. And now they can't just sell the car because maybe they're upside down or they don't want to sell the house, but they bought a bigger house than they can afford. And so one of the things that we really recommend to people is make sure that you follow margins when it comes to setting your life up. When you purchase a house, in my opinion, it should be less than 25% of your take home pay. When you buy vehicles, it should be less than, you know, let me say this way, you shouldn't be buying vehicles that are the same amount as your annual income. You should be thoughtful in these things. So your income is one of your greatest wealth generators. And one of the things that we see in people that have been successful saving for retirement is that they live on a smaller portion of their assets than those that really didn't do a good job saving. Step number two, I'll go ahead, unless you want to add.
[00:19:16] Speaker C: Yeah, I think we're moving on to just some of the budget deficit and debt issues in our country and also just as a household, I think everything you're saying is spot on. I think everybody understands that. Everybody knows, hey, if you continuously over time spend more money than you bring in in one year, like you're going to have a problem.
What's that?
[00:19:41] Speaker A: Or if you just spend what you do bring in or.
[00:19:43] Speaker C: Yeah, or if you spend what you do bring in. Right. You're not saving anything. You're not, you're not preparing for retirement. You don't have a rainy day account. And I think most of us know that, hey, that's not a strategy. That's, it's not a winning strategy. You know, and in the previous podcast, we talked about how more people than ever are carrying their credit card balances forward each month. That overall debt is hitting, hitting record highs. However, as a nation, we dont apply the same standard. If you were to say, hey, over the last 50 years, how many of those years do you think as a nation we actually had a budget surplus out of all 50 years? If we were to go back for the last 50 years, only five times have we had a budget surplus.
The last one was in 2021. Most of us know that we cant run our household budgets that way, but when it comes to our national budget, that's actually what we're doing.
I was just looking at the Congressional Budget Office, the report that they release, and they do this every six months. They release a report and it's designed to make a projection over the next ten years. So it's a trailing projection. Every six months. There's going to be another report that looks at the next ten years. Based on the report that was released in February, they're expecting to add $20 trillion from 2033, I'm sorry, from 2023 to 2033. That's an average national annual deficit of 2 trillion per year, which is like historically high. I mean, we've had years that have been higher. But just to kind of, as far as to establish a baseline, in 2023 last year, our budget deficit was almost $1.7 trillion. So we spent more than, than we brought in. And for those that are curious, you know, we brought in last year it was 4.44 trillion in revenues and we spent 6.13 trillion. That's where the 1.7 deficit comes in. So we're spending more than we're bringing in. And I think a lot of people have a misunderstanding on how this actually works. Like a lot of people, you know, I've heard people say, well, why don't we bring in more money? Well, the government doesn't necessarily bring in more money. The way they bring in more money is by taxing us more. You know, that's how more money is brought in. Now, obviously, there's things that they can do to stimulate growth. They can incentivize businesses to make more money, and potentially that could increase revenues. But it's not like the government's out there producing goods and services. They're not out there risking capital and going out there and trying to make a new product or develop a new way of doing something to help stimulate growth in the economy. The way that they bring in more revenue is through taxation. So I'm often surprised, like, how people look at that. But it's actually a huge problem because those levels are like when we're looking at the overall levels of spending. We had a couple of crazy years in there during COVID where our national deficit was huge. And look at the amount of inflation that that led to. I think that during COVID it was either four or $5 trillion that we injected into the economy, and inflation peaked at like 9%.
And that's something that really affects retirees, wouldn't you say? One of the biggest concerns that we hear all the time is like, hey, what's inflation going to be over the next 30 years during my retirement, as people are approaching 65?
[00:23:08] Speaker A: Well, I think what's so significant is when you start retirement, we talk about succession or we talk about how important it is that the market starts off strong at the beginning of retirement. Whats probably equal to that is inflation. Even though the 105 year average on inflation is 3.27%, over the last four years, its been over double that, basically. So you look at how that impacts retirees. Theyre doing something they didnt want to do anyways, is their paycheck stops. Maybe they turn on Social Security, and now theyre pulling more money out of the retirement assets than they would have had you in 2018 2019. And its an uncomfortable feeling because theyre no longer contributing to the retirement plans. Now theyre pulling from them. And then if you think about it, in 2022, the market was down 20%. So its one thing to pull from your portfolio and you see it continue to climb because the markets doing really well. Its another thing in 2022 when your stocks are down 25% to 35% and your bonds are down 13% to 15%, and now you either have to not spend and pull from checking in savings or now you have to solve a loss to get you that paycheck. So inflation is significant, especially for those that are retiring in the last three that have retired in the last three, four years. Yeah.
[00:24:29] Speaker C: And we've heard this number for a long time, that 10,000 Americans are retiring every single day in the United States. I think, Trey, you mentioned that this year that's actually not true.
[00:24:39] Speaker A: Yeah. This year it's 11,000. If you think about that, baby boomers, there's more baby boomers, more people retiring than ever before. And one of the challenges that poses is that Social Security is paying more people that benefit. And based on the studies and yells that you can get into the weeds on this, but there's only ten years of that trust left where we had a surplus. And in ten years, that'll be gone. And solicitory is only going to pay $0.76 on the dollar unless they have a buyout, unless they make some big changes. Two of the big changes they're talking about doing, which many of you have probably heard about, read about, number one, is pushing out full retirement age. So for anybody approaching retirement today, or even you and I, LSA, if you go online to SSA, dot gov comma, create a username, account and password, our full retirement age, meaning we can collect our full Social Security benefit at 67. They're talking about pushing that out to age 70, 72, maybe 75. And then they're also talking about doing means testing, which basically is cutting off what they declare is the rich. So even though there are people that have paid in, they may say, hey, you're going to make it with or without Social Security, we're going to cut you off and save it for those that need it. So we do potentially have some big changes coming.
[00:25:59] Speaker C: Yeah, it means testing can come in a variety of different forms. Obviously, Medicare is already a means tested program with a income related monthly adjustment amount that determines how much you pay for your part b, premiums. But the interesting thing about 2033, that's when the trust fund is expected to run out. So Social Security is actually, and I didn't know this until I looked it up recently, Social Security has been running a surplus for like 30 years. It's actually, it was surprisingly a healthy program. And, Trey, what was the story that you mentioned with Ida May Fuller? Because that story, I mean, it's indicative of the problem with Social Security.
But surprisingly, they've managed to run a surplus. And Social Security, basically what happens is it's about how much people are paying in versus how much people are collecting a benefit. I mean, that's. It's as simple as that. So as more people are paying in, people are able to collect a benefit of the back end. And actually, Social Security was able to accumulate $3 trillion based on people paying their FICA taxes. 6.2% for you, 6.2% for your employer on your behalf. And that's where we managed to accumulate $3 trillion surplus. And now in 2020. 2020 is actually the first year where Social Security barely broke even. 2021. That's when they had to dip into the trust fund. And what Trey was talking about, where the trust fund actually totally runs out, the projection for that is in 2033, which comes at the tail end of that congressional budget report that I mentioned, that talks about the $20 trillion in spending that we're expecting over the next ten year period. And it doesn't even include the bailout, the potential bailout of Social Security. But item eight. Fuller. What was. What was the story with her? I've heard you mention that.
[00:27:41] Speaker A: Well, I'm sorry. People are familiar, but August 14, 1935, FDR signed into law Social Security. What's interesting is, at that time, full retirement. Aiden was 65 years old, so that meant you could take your benefit fully at 65. What's interesting is Ida Mae Fuller, the first gal that ever paid into Social Security. By the way, she paid less into the program between 1937 38 and 39 than she got in her first paycheck, which was a pretty good deal for her. But they anticipated the reason they set life or the reason they set full retirement age at 65, is because in the late 1930s, the actuaries anticipated that people would live to be 67 to 68. That was kind of their average life expectancy, at least projected. Well, item a fuller. The first scale that ever collected Social Security ended up living to be 100 years old. So, one of the challenges that we've seen is people are just living longer than they anticipated, which obviously means they're drawing on Social Security for not just years, but decades longer than they anticipated, which obviously is an issue.
[00:28:48] Speaker C: Yeah, I think it's a problem that, like. And it's a good problem that people sometimes can spend more years in their retirement years than they did in their working years. Like, people are living much longer. So even though, surprisingly, I think it's actually incredible that they managed to run a surplus for all those years and actually accumulate $3 trillion in the trust fund.
And the other thing that's a little surprising is they did that. So they took the money that that came in an excess from what they had to pay out. They invested it into, like, treasuries and interest bearing treasury securities, and they only earned an average of 1.4% like, in my opinion, they should have pursued a higher rate of return that could have preserved the trust fund a little bit more. But obviously, it has to be in a safe type investment.
[00:29:39] Speaker A: They didn't know that we had a safe option.
[00:29:41] Speaker C: Right.
Yeah. So, anyways, you know, payroll taxes after 2033, payroll taxes, and even today, they make up, you know, the. The majority of the. The benefit that's paid out is made up of payroll taxes. But eventually, there's going to have to be some type of bailout. There's going to. The government's going to have to step in and we're going to have to correct the problem, because I don't think. I don't think people are too excited about $0.77 on the dollar when it comes to their Social Security benefit.
[00:30:11] Speaker A: I mean, think about how significant it is. I just read that 1.4 million Americans are turning 65 this year, and that.
[00:30:20] Speaker C: Number 4.1, I think. Right?
[00:30:23] Speaker A: Yeah. What? I said 4.1.
[00:30:24] Speaker C: Oh, sorry. I thought you said 1.4.1 million.
[00:30:31] Speaker A: And what's interesting is that's going to continue through 2027. So they actually, the experts call this peak 65, or I think what's my favorite is the silver tsunami. I can't wait till our next class to teach everybody about the silver tsunami.
[00:30:48] Speaker C: You think that's going to go over well?
[00:30:50] Speaker A: Why is successful people retiring over the next few years? But it matters. And so I think one of the things that people need to be thinking about is have you run a scenario with your financial advisor. If Social Security does get that 24% pay cut, how does it impact you? Is your portfolio prepared for you to draw down more in assets if your Social Security does get reduced? And I don't say that to scare people. I say that to prepare people. And so one of the things you want to do is look to say, hey, if Social Security has an issue, am I going to be okay, or do we need to make some adjustments on my expenses? Yeah.
[00:31:29] Speaker C: And not to overdo it on this point, but as I mentioned during COVID it was like four or $5 trillion that was pumped into the economy that led to peak inflation at 9%.
Obviously, the congressional budget report that can be amended, more than likely it will be over the next couple of years. But the amount that's going to go in, the amount of debt that we're going to have to assume, especially when we consider bailing out the Social Security program, to make sure that people can continue receiving what they receive like it's probably safe. To assume that we're not going to hit that 2% inflation target that the Fed keeps talking about, that objective 2%. As Milton Friedman mentioned, this is what it takes to grease the wheels of our economy. More than likely we're not going to be a 2%. And that's for a lot of people. That's a scary thought because a lot of us have fixed or guaranteed sources of income, whether it's a pension or some other sources that we have, that really they have no cost of living adjustment. Or if they do, is the cost of living adjustment even enough to keep pace with inflation? So it just leaves people in a position where you have to plan for these things. Inflation is a very real consideration when it comes to planning for your projected retirement date, the expenses that you have, the sources of income that you've accumulated, and that allow you to fulfill whatever your standard of living is in retirement.
[00:32:54] Speaker A: Let's move on to step number four, schedule a checkup for your portfolio. So yellow said, we recently met with a couple, probably two weeks ago, a new couple actually, that we started serving and just wonderful people. I always tell people, one of the things I love most about what I do is not just that we get to help people win with their money, but that we get to meet with people that no matter what we did, if we owned a gas station, if we had a restaurant down the street, there are people that we just love to serve because of who they are. But we met with this couple and they've done a really good job. They didn't have high incomes, but he invested about a third or 40% of his assets into his company's stock because he got to buy it at a discount in his four hundred one k. And one of the things that we found is that while over 30 years this company had performed well, they've had a rough five years and hes got about 40% of his retirement nest egg sitting in his companys stock. And one of the challenges that he has is he knows he needs to diversify. But how do you decide how to do that? How do you know if things are down right now with that company? Do we wait because he sat there for 30 years and he takes a little bit of a loss? Do we do it over time? One of the things I want to encourage you is if youre somebody that maybe youve inherited some stock or maybe youve purchased a lot in specific stocks and you know the diversification is going to be important in your next season of life. One of the things that we can do is a checkup on your portfolio to say, what does a good strategy look like to not move all of your money into a CD and be totally safe. But how do we diversify over different mutual funds and ETF's so that you can have nice returns without all of the risk that you currently have? Thats one of the things that we offer through our fiduciary financial advisors. You can reach out to
[email protected] or through ATF podcast. And one of the things that we can do for you is just give you an honest second opinion. I think part of what I love about what we do say is, like last week I had a couple, they go, hey, just to be honest, we love our advisor. Weve had a great relationship, but it hit us that weve never had a second opinion. And as I walked through things with them, I found that their advisor is doing a great job serving them. And I told them, I said, hey, your advisors fees are reasonable. The funds that he picks have picked for you are performing. I actually think that you should stay with this person. However, one of the things I've noticed is that you guys don't have a Medicare agent, and we have a Medicare agent, Christine, right here in our office, and she may be beneficial to you. And as your advisor continues to service you, just keep us in mind. Maybe he retires, maybe he moves out of state, but as long as he's doing what he's doing, I think you should stick where you're at. So I think one of the nice things that we do is we give people what I would call is a true second opinion. And we also have no problem letting you know if your advisor is doing a good job.
[00:35:51] Speaker C: Yeah. As far as the employer stock, we see it all the time where people hang on to a certain position because maybe they worked at the company, maybe they inherited a stock that was grandpa's favorite company. Grandpa said, no matter what you do, don't sell that position. And really, when it comes down to it, in my opinion, it's a very simple and straightforward method.
You want to find out what type of ratio do you want when it comes to bonds and equities? If you're in a, let's say you're at a 60 40, 60% equity, 60% stocks and 40% bonds, do you really want one position to make up 60 or 70% of your equity position, of your equity stake, do you really want one fund to be.
You're basically at the mercy of that company performing. And that's why typically when someone is in that position where they have a lot of employer stock, or they have one specific stock that they have a huge position in, usually we just say, hey, let's put together a plan. Let's have a plan to begin selling and integrating into one of our diversified portfolios. And let's not let that plan be dependent on whether or not that fund is up or down. Let's just stick to the plan, whatever that is, because it's better to diversify. It's better to not be dependent on one company performing well, especially if it's a significant portion of your retirement. The one last thing I'll say is, if you do happen to have a lot of employer stock, reach out to us. Ask us about NuA net unrealized appreciation, whether or not you're eligible, whether or not it makes sense in the end, it can really save you in terms of taxation. If you simply roll over the entire account into a traditional IRA, the entire account will be subject to ordinary income taxes. Eventually, if you're able to do unrealized appreciation, we can get a portion of that employer stock to be taxed at long term capital gains rates, which could be beneficial to you. Obviously, there's a few other conditions that go into that, but I'm happy to talk to you about that. If you do have employer stock within your, I'm sorry, employer stock, then your employer sponsored plan.
[00:37:49] Speaker A: Yeah, that's really helpful. Step number five, sprint to the finish and maximize your savings. Growing up, one of the things that my mom always said when I'm, you know, at my age, talking about my mom, but she'd always say, finish strong. And what she was always talking about is whether I was at the end of football season, wrestling season, rugby season, whether I was going from the 10th grade to the 11th grade, or high school to college or college to my career, she'd say, make sure you finish strong. What a lot of people tend to do is we get so ready for whatever's next that we don't finish what we're doing well. And I want to encourage you, if you're a year, three years, or five years out from retirement, finish strong. Practically. What does that look like? I think it looks like maximizing your retirement accounts, maximizing that Roth account. One of the things that we see a lot is people that are about to retire, or maybe they're, within five years, they've had a lot of expense changes. Maybe they've got adult kids that are finally out of the house and now they're saving three or $4 a month on groceries because one, two, three or four of the kids are no longer eating groceries at home. Maybe those adult kids are finally on their own insurance plans. Maybe they finally have their own cell phone plan. And now you're finding that your savings is growing like it hasn't before. Don't miss the opportunity to max out your retirement plan. Make sure you're contributing to the Roth for you. And if you're married, you and your spouse.
What people I think, tend to not realize is that if they don't have a plan when those extra dollars come in, they're just going to spend them. Because most people spend whatever is there. And so instead of just spending what's there? When you have transitions in life, like in this example, adult kids growing up, or maybe you downsized your own. Let's look at what you're doing with the new save dollars. And are you maximizing them for retirement to bolster your retirement portfolio like Dan?
[00:39:48] Speaker C: Yeah, that's, that's really good wisdom from your mother. Did she know Jim George personally or.
[00:39:56] Speaker A: I won't let her know. You said that.
A little younger than Jim George.
[00:40:00] Speaker C: Yeah, right. Making sure that we finish strong. And I'm glad you mentioned cell phones too, because my kids keep asking me when they're going to get a cell phone. My daughter is ten and my son is eleven. I keep telling him never. I don't want to add that as a budgetary item. So when they're 18, they're free to have cell phones on their own plan.
[00:40:17] Speaker A: So funny, I thought it was you protecting them, but it's.
[00:40:21] Speaker C: Of course, yes.
You know, it's a two for one kind of thing, protecting them.
[00:40:27] Speaker A: And also my wallet, number six, yellow. Actually, you do a really good job talking about protecting your savings from what we call a sequence of returns risk. And if you want to touch on how that maybe more so impacts people that are at the beginning of retirement than anybody else, I think that'd be helpful.
[00:40:45] Speaker C: Yeah. And I think a good way to start the conversation is back in 2008 when we experienced the correction that we did, people retired during that time. And I still remember there was a caption at the Star tribute and it said three out of five seniors are going back to work or staying in the workforce longer. And the reason for that is there's a number of studies that talk about sequence risk and what that actually means. So it's one thing if we experience a correction and the market retracts a little bit and you're 40 years old, you're still putting money into your 401K. In fact, you're doing the best thing. You're buying low at that time. That's the best time to put money into your 401K. You still get the employer match and you have a lot of time to continue contributing. But when the employer match goes away, when the contributions go away, the income goes away, and you have to begin drawing on those accounts. Sequence risk is referring to what happens if you have a good couple of years in the beginning of your retirement versus a bad couple of years when you have to already draw in the portfolio. The reason why it's a huge difference is because if the market retracts and we have a correction, you have to pull money out of your 401K or your IRA or retirement savings. You're selling low. You're not buying low, you're selling low. You're actually realizing those losses. And a lot of times we hear things like, hey, it's just a paper loss. Don't worry. Hang in there. Be long term. Like, that's great advice for a 20 year old, a 30 year old. But when you're already pulling on your accounts like more. So it comes down to recognizing what stage you are, what season you are in life, and what stage you're in. So if you're in the accumulation stage, absolutely, hang in there. Be long term. It's just a paper loss. You haven't lost until you've sold. All of that advice is great advice. But once you're in the distribution phase, once you're relying on those investments in your retirement savings to help get you through retirement, that's where the advice has to change a little bit. That's where you have to be aware of sequence risk and how that could affect your portfolio. And you certainly don't want to be somebody who has to stay in the workforce longer out of necessity because it jeopardizes the longevity of your retirement savings.
[00:42:55] Speaker A: Yeah, that's well said.
Let's revisit the six steps that we talked about. I'm a big fan of action steps and revisiting. Maybe it's because I slightly up ADHD. But number one, use your human capital by continuing to work and add skills to your tool belt. Don't forget, invest in the S and P and invest in the s and me. Step number two, determine your.
[00:43:19] Speaker C: Still doesn't sound good.
[00:43:22] Speaker A: It's memorable.
[00:43:23] Speaker C: Yeah, very memorable.
[00:43:24] Speaker A: Step two, determine your Social Security strategy and maximize your future payout. I think yellow say one of the things that you and I see is that people are so intentional with their retirement assets and their investments, and then they're so not intentional or they take Social Security in a way that isn't strategic. Right. And I think one of the things that people don't think about is that your Social Security is a pension that you've paid into through the government your whole life. And being strategic with that pension can have a huge impact, not just on the beginning of your retirement, but on the rest of your life. And so one of the things I want to encourage you is if you've never had somebody put together a Social Security strategy, one of my associates, Ryan Moffatt, he's a Social Security expert and he can actually help put together a report showing you our top three recommendations based on your expenses, your tax bracket, and how you keep most of your benefit, including what does it look like if you're married and one of you passed away early? Because Social Security is one of those benefits where a lot of it is tax free and you could do some, what we call survivor planning to make sure that the survivor spouse is going to be okay. Number three, LSA, maintain your safety net with your emergency fund by utilizing different insurance options. You want to touch on that?
[00:44:53] Speaker C: Yeah. You know, there's, there's a lot that can be said on life and long term care insurance and to kind of piggyback off what you're saying, I hope that, you know, my intention wasn't, like, to, to terrify everybody into filing for their benefit as soon as possible because there won't be anything left for you. Like, that wasn't my intention. You know, sure, the silver tsunami that might be coming for you, but I don't think that we need to make decisions based out of fear and, you know, but we do need to make good, practical decisions, especially notification there. I'm not sure what that's all about, but we do need to make good, practical decisions. And especially when it comes to something like long term care here, 70% of people are going to need some type of assistance in retirement. The average stay in a nursing home is like three years, but the cost continues to go up. The average cost continues to go up and it outpaces the rate of inflation that we have for almost every other item based on the CPI. We want to make sure that we're making good decisions there. If you have an existing life insurance policy, make sure that the cash value isn't getting eaten up and that policy is going to be there as long as you need it to be there. Long term care, you don't necessarily have to have a traditional long term care policy. There's a lot of alternatives, and those alternatives are continuing to grow.
And there's more opportunities there as well that aren't as costly potentially, or maybe could help you bridge the gap and insure for some of that risk on your own versus leaving it all up to an insurance company or self insuring completely.
And then the next thing is scheduling a checkup for your portfolio. Call us today. Like that's something that we do on a daily basis. That's something that we love to do. We're passionate about that. Out of all the topics we discuss, we love helping people specifically on their finances, making sure that their investments are in line with their goals and their objectives, and putting together solutions that match your goals and objectives. If there are things that aren't in line with your current portfolio, absolutely.
[00:46:49] Speaker A: Thank you for joining another all things financial podcast. We love what we do. If you're in the Lakeville Burnsville area or like yesterday, if you're in California and you'd love to do a Zoom appointment to say, you know what? I'd love a second opinion from a team of fiduciaries and certified financial planners, specifically around Social Security, maybe Medicare, maybe tax strategy, maybe you've got a spend down plan and you want to see how our spend down plan would compare to that. Because one of the things that we found is if you have multiple buckets of money, real estate, roth buckets, iras, individual accounts, joint accounts, brokerage accounts, it's important that you know where to pull from in what order. And I think that's one of the areas that we excel in. Feel free to reach out to us. Our phone number here is listed on the screen in just a moment. You can reach out to our email, treealth.com or yellowstone.com. and our cell phone number are office number.
[00:47:47] Speaker C: Please don't give me my cell phone number.
[00:47:49] Speaker A: Let me give you the LSA cell phone number.
Our office number is 612-286-0580 thanks for joining us for episode ten. We look forward to seeing you next week.
[00:48:03] Speaker B: Episode one thanks for listening to all things financial. You deserve to work with retirement planning specialists who care about your money and take a unique approach to your financial and retirement needs. Visit allthingsfinancial.com and set an appointment today.
