Lottery winners often spend all of their winnings within 5 years of getting the money. Why? Because they failed to have a plan. Don’t let that happen to you. In this episode, Victor shares top strategies for making sure you have the best chance of making your money last in retirement.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA®) and Certified Financial Planner™ professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
Click below to read the full transcript…
Announcer: Welcome to “Make It Last” helping you keep your legal ducks in a row and your nest eggs secure with your host, Victor Medina, an estate‑planning, elder law attorney, and certified financial planner.
Victor J. Medina: Everybody, welcome back to Make It Last. I’m your host Victor Medina. I’m glad that you can join us. This Wednesday for another fun adventure in the world of legal and financial retirement planning. Got a great show for you today. What we’re going to be talking about is whether or not your money is going to last through retirement.
I don’t know about you, I love to think about winning the lottery. I don’t actually ever play it. I know the math involved, but I do think about winning it. I save a buck, but I am getting the value of the fantasy that I can play. When you end up thinking that through, you’ve got to consider whether or not you’re going to get a lump sum. Are you going to get an annuity for life?
They’ll give you those two options when you buy the lotto ticket. If you’re thinking about getting the lump sum, you might think about winning the lotto and figuring that you’re set for life. That’s how we all want to retire.
I find it interesting, because almost every report around lottery winning basically says that all the lottery winners, the majority of them spend through their money very quickly. Some of them within five years of the day that they receive the money. I know it sounds hard to believe but it happens. The question is, why? Why is this?
The answer is pretty simple, which is that the people who win the lotto, they fail to plan ahead. This is a windfall and they don’t ever think about themselves. First of all, either having to plan because it’s so much money that who needs to plan around that, or they didn’t think it through ahead of them winning.
In other words, they didn’t go in and put a full plan in place as though they were going to win the lotto. It’s the lotto, they’re not supposed to be winning it. From that perspective, it’s understandable that they don’t have a plan on how to spend their lottery winnings. Although most pre‑retirees and retirees don’t have the same fortune as lottery winners, they face a similar situation.
They need to be smart with their money so that it lasts a lifetime. This is the reason why every book that I write in the name of this show is Make It Last. That is the principal goal for someone entering into retirement. They want to make it last for themselves, and they want to make it last for the people around them.
Most people set aside money as they’re working so that they one day can retire and have a nice nest egg. In order for that money to last to retirement, it’s very important to have a plan to convert your savings into retirement income, to have additional savings be withdrawn to meet the cost of living increases over time.
It sounds like it can be a daunting task, but it doesn’t have to be if you plan properly. What I want to do today in today’s show is I want to show you some steps to take in order to help ensure that your money last throughout your retirement years.
We’re going to be talking about what percentage of your income are you going to need in retirement to live comfortably. We’re going to tackle something head on, which is should you get an annuity? If so, what kind of annuity? What are the retirement calculators you should be using to estimate whether or not your nest egg will be around as long as you are?
See how I worked in the tagline to the show there? Skill, folks, skill. I want to go through that [laughs] all today. Before I do, I do want to let you know about a couple of events that are coming up that you may want to participate in. One of them is pure fun, just fun, on Saturday, April 27th.
Those of you who know what I do for fun is that I sing in an a cappella group. On April 27th at 2:00 PM at the Pennington Presbyterian Church in a free concert I will be performing with my a cappella group. We will give you an hour of wonderful music produced only with the sounds of our bodies, voices, concoction, all that fun stuff. Just voices and 12 of us up there singing and dancing and having a good time.
If you’d like to join us, as I said it’s an absolutely free concert. It is in the sanctuary, which is on Main Street in Pennington. We will be giving away that concert. It’s an hour, it’s a lot of fun. All right, back to business. We do have two events that are coming up that I want to share with you, invite you to join with us on Monday, this coming Monday.
We have what has been previously only a client lunch and learn. We are opening up to you, the radio and podcast listeners. What we’re going to be doing at that lunch and learn is we’re going to end up sharing tax planning tips for the next year. We’re going to be ahead of the planning for what we’re going to need to do for taxes.
Instead of trying to do this in December or trying to do it between January and April, we’re going to be giving you some tips to proactively plan for your income taxes. Again, that’s going to be client lunch and learn. You benefit if you attend because we’re going to be serving some light lunch options. Basically some sandwich platters and things like that.
We’re going to be focusing for the next hour, an hour and a half of that program on planning for taxes for 2019, doing it ahead of time. You can join us, but you do have to preregister. It’s being held here in our Educational Resource Center, here in Pennington at 230 West Delaware and there’s limited space.
We only have about 35 seats for that. I just checked in with our events coordinator and we’re about half full for that event. If you do want to take advantage of it, you have to pre‑register. I urge you to do that pretty quickly because it’s just around the corner.
You do that by texting the word, Invite, I‑N‑V‑I‑T‑E. If you text the word, Invite, to 609‑554‑5936, we will get your request, send you back and forth some text to get your information, then we will put you on the list.
Second, I’m just as excited for this one as I am for the client lunch and learn, we have another event going on in May, just a week later, it’s May 9th and May 14th. They are two workshops that we’re holding for inspiring women in retirement or empowering women through retirement.
If you’re a woman, married, single, divorced, widowed, and you are interested in learning all of the things that it will take in order to get yourself properly positioned for retirement and learning the things that you need to learn about all of those subjects, then I urge you to attend that seminar.
This workshop is going to cover a number of really, really important things. Look, from the beginning, we’ve got to understand that the numbers are in favor of women largely controlling or being responsible for household finances. The number that I read recently is that 90 percent of women will be eventually responsible for the household finances but only 20 percent feel prepared.
These are off of two different surveys. What we’re going to be doing is we’re going to be focusing in, specifically, on the subjects that are crucial for women to know. For instance, we’re going to teach them the difference between, or teach you, because you’re going to come to this, the difference between an income plan, a savings plan, and a withdrawal plan.
We’re going to teach you how to put that plan together that works regardless of the market’s ups and downs. We’ll be discovering ways to identify and reduce the amount of risk in a portfolio, understanding Social Security pitfalls. We’re going to be five things that you absolutely need from your financial advisors and five reasons why retirement planning is different for women.
Specifically for married women, we’re going to let them know what they need to know about retirement. Now, if they anticipate outliving their spouse in the future…By the way, the numbers favor that.
Gentlemen, you are going to die first. I’m not sure how to sugarcoat that at all, but we have to make accommodations for that. The women in your lives, your spouses, need certain information to be able to be secure and protected when that happens.
I’m also going to teach you two risks that are already inherent in your portfolio that most people don’t even realize. If you want to join us for that, again, that’s May 9th at 1:00 PM or May 14th at 6:00 PM. It’s going to be held here on our Educational Resource Center at the Medina Law Group at 230 West Delaware.
We’ll invite you in very light refreshments for that, just probably cookies and coffee. Too much work to get done to actually feed you any more than that. I don’t want you to be in a sugar high. I don’t want to be in a diabetic coma. You’ve got to be focused on what we’re going to be doing in that session.
If you’re interested in joining us, same thing you have to do, which is to text the word, Invite, I‑N‑V‑I‑T‑E, to 609‑554‑5936. That number is 609‑554‑5936. Text the word, Invite, we’ll go back and forth with you, collect your email, and get you registered for that Empowering Women in Retirement workshop.
Let’s get back to the subject for today. We’re just trying to figure out whether or not your money is going to last through retirement. I expect that today’s topic should grab your attention, considering that one of the biggest concerns of retirees is outliving their savings.
That’s what I want to discuss is how to help ensure that your money last as long as you do. By the way, if there were easy ways to do this, you wouldn’t need any financial advisors or financial planners. In other words, we could just grab this information and manage all of that without the help of a professional, then the profession would not exist, whatsoever.
Back in the day, it was much easier. I don’t know if you can remember what the world of financial planning and financial advice would look like even just 20 or 30 years ago. To put it plainly, it wasn’t there. What we had were stock brokers or insurance agents.
There were no advisors, because these people were all product sales folks. If you wanted to get into that game, if you wanted to do that dance, then you would go to these people that sold the product and buy the product from them, whether it was a stock, or a mutual fund, or an insurance product, or anything like that.
You didn’t need planning. The reason why you didn’t need planning is that, back in the day, almost everybody had a pension or they had enough, within Social Security, to meet their needs. There was no worry that their planning wasn’t going to work out. They had guaranteed income for the rest of their lives.
Today, we are living basically in a pensionless society unless you’re a state worker or somehow involved in one of the public service workers, like a law enforcement or something similar, you don’t have a pension. By the way, that’s the majority of us. The majority of us do not work for a pension‑giving employer.
Because the majority of workers will retire without a pension, they’re going to need a plan to deal with a nest egg that they have accumulated over the years. In order to do this, we need to avoid procrastinating and start planning ahead.
We’d like to think about retirement essentially as a time to relax and enjoy life, dream about trips that you’re going to take, play golf play every day, different courses, cruise around the world.
I know that a dream of my wife and I is to finally be able to afford and, quite honestly, be old enough, to go [laughs] on one of those Viking Cruises that we saw advertised at the beginning of the “Downton Abbey” show every single week.
When it was on the air, that was probably the best advertising I ever saw because we saw, the ad that they would roll, the commercial, and we begged, “That’s what we want to do now.”
Unfortunately, we did some research and the average age of that is about probably 20 years older than we are. We both need to have enough money as well as having to be at the right sort of living situation with the people who are contemporaries around us to go.
Whatever it is, whether it’s spending time with your family or cruising around the world, it sounds exciting, if that’s what you’re thinking about for retirement. Planning on how you’re going to pay for all of that probably sounds as exciting as getting a root canal. Unfortunately, it needs to get done.
Unfortunately, today, I too often see pre‑retirees come in unwilling or unsure about how to put together a retirement income plan designed to help them last through their lifetime. When we meet with clients, we’re trying to answer a few central issues about how to make sure that they can make it last.
When we ask them, especially if they’ve been involved with an advisor somewhere else, somewhere in their lifetime, “Well, did you ever speak with this individual about how to put this together?” Too often the answer is, “No.” In fact, most of the time the answer is no. The reason is that the advice that they have been getting is all have been about accumulation and investing advice.
They’ve never really been dealing with spending advisor, decumulation, or how to make it last. I sort of exist and our companies exist, and our professional outside of this radio show or podcast, outside of this, my professional existence is around helping people become proactive and build a game plan around their lives to help them get confidence in this second act of their life.
We do that in the legal capacity by helping them draft fantastic estate plans, helping them think about long‑term care, asset protection planning, and also within the financial sphere. I am one of the very few attorneys that also have all of the credentials to be a financial advisor and work as a fiduciary for our clients, helping them manage money and put those plans together.
We’re helping them do that with their finances in retirement, as well. If you’ve got questions about how to do that, you can certainly come to our office, engage in a complimentary consultation with us, or we’re going to go through retirement roadmap, and just help you figure out if you’re going to be OK at the end.
We’re going to put your goals and objectives into retirement and give you answers about, “Will you be able to be taken care of? Will both of the spouses be able to be taken care of?” The good news is that it’s never too late. I understand that planning for retirement can be a daunting task.
Even if you don’t see it as the equivalent of a root canal, the amount of work that goes into that and the confidence level that you may or may not have with the answers that you’re getting, they can seem overwhelming. Even if you’re already retired, building a plan for the remainder of your life can benefit. We’re here to help you.
If you’re wondering if you have enough to last for retirement or if you need help building a plan, my firm and I are here to help. We encourage you to reach out to us. You can do that by calling the firm directly at 609‑818‑0068. Just give us a call, and we’d be happy to sit down with you about this.
Today, we’re going to focus on some steps to take to help you ensure that your money lasts as long as you do. If you feel that, at some point in time, these points make sense to you and you’d like to get a second opinion, you can reach us. Let’s get into the details about this kind of planning, how to make sure that your money lasts.
The first thing that we want to understand when planning for retirement is that no two plans are going to look the same. This is an important part of the discussion because many times you rely on advice that you share with neighbors and friends, and that can be dangerous.
The reason why it can be dangerous is because you don’t know their life even as well as you might know them. We hold a lot of secrets back from one another. The neighbor down the street who we think his life is very transparent, there are things that are going on there that you have no idea about.
Because we know that facts change from one family to the next, it’s impossible to think that planning for retirement is some form of a cookie cutter approach. Each individual or couple are going to have different lifestyle goals, going to have different family dynamics, going to have different income needs, and much, much more.
Before you start planning for retirement, you should visualize what you want your retirement to look like. Now, I know that this sounds like a wishy‑washy, squishy soft skill or activity. It has nothing to do with crunching numbers and getting answers on a spreadsheet. By the way, it shouldn’t look like that.
There’s so much more to life in retirement than looking at a number and a withdrawal rate. We want the math behind that to fade into the background so that you can actually focus on enjoying what life is or living through life and not have to worry so much about the numbers or not worry about the information that’s coming out from the financial news networks about what’s going on the market.
You don’t want to be impacted by that. You won’t have a plan that can withstand that, so you can just focus on life. We only know what that life is going to look like and whether or not your plan matches it, if you can have a good clear vision about what you’re looking for in a retirement. What do you want to do? What resources are you going to need in order to meet your goals?
Some key questions that you may want to ask yourself before you begin the planning process include the following. How do you see yourself spending time into retirement? Are you going to be sedentary? Are you going to be active? Will you be traveling? Is that traveling something that’s going to cost a lot of money because it’s a vacation or is it going to be dealing with family?
Are you going to go sightseeing? Are you going to buy an RV? Are you going to travel the country and spend time in different areas? I don’t know what you’re going to do. How do you see yourself spending time in retirement? How much do you have saved? That’s a hard number. You want to know what that is. What future expenses are unavoidable?
What are the things that are going to be land mines going in the future that you’re going to have to navigate through? They may include health care, it may include mortgage, it may include planning for somebody out. You might have special needs child. You might have planned for somebody else’s need on that.
Then how much do you expect to receive from a pension or Social Security. In other words, where are your sources of guaranteed income for life so that you know how much of the bucket…
Victor: The first question right about what your future expenses that are unavoidable. Those are going to give you the size of the bucket that you need to be working with. The amount that you get in guaranteed fixed income tells you how much of that bucket is already filled so that you know how much more you have to fill.
Let’s do this. Let’s take a really quick break here. What we’re going to end up doing is come back and keep talking about how to make sure that you know that your money is going to last to retirement. Don’t miss the rest of the show. We’ll be right back after this quick break.
Announcer: Life is better when you have your legal ducks in a row. One area attorney can help you get your financial ducks in a row as well, Victor J. Medina, fills dual fiduciary roles, an estate‑planning and certified elder law attorney, and also a credentialed certified financial planner professional.
Through his law practice and independent registered investment advisory company Mr. Medina serves high‑wealth individuals seeking conservative advice and a professionally managed approach to retirement wealth management.
To learn more about Victor’s 360∞ Wealth Protection Strategies, call 609‑818‑0068. That’s 609‑818‑0068 or listen to the newest episode of Make It Last radio, Wednesday mornings at 11:00 on 1450 Talk Radio.
Investment advisory services offered through Palante Wealth Advisors, LLC, a New Jersey‑ and Pennsylvania‑registered investment advisor.
Victor: Hey everybody, welcome back to Make It Last. We’re talking about how to make sure your money lasts through retirement. Before the break, I gave you some key questions to think about before you began a planning process. The number one step is to start to plan ahead. We gave you some categories like how you see yourself spending time in retirement? What do you have saved?
What are your future expenses? What kind of fixed guaranteed income are you going to get in retirement? Stuff you know is going to come in forever and ever, like Social Security or pension. Another beneficial thing to do before planning for retirement is to make a list of goals. By the way, I’m going to encourage you to make these goals specific.
Think specifically about what you want to do in retirement. If you want to travel, where do you want to go? How do you want to stay? There was a great article in “The New York Times” that took a number of travel bloggers and people that traveled for a profession, and asked them what they did in traveling to make something special.
One of them stayed at a lower hotel and always got a driver and a car wherever they went so that they could bypass a lot of the commuting and the time spent in travel. That may not be you. You might love to take advantage of the public transportation wherever you’re going to visit. You might splurge on the hotel, I don’t know.
Whatever you want to do, start to think about it rather specifically. If you want to purchase a second home, what state do you want to be in? What are the prices for homes there? What are the carrying costs for that? What are the property taxes, maintenance?
I have another friend of mine who inherited a home in Florida after his father passed away. His carrying costs are nearly $2,000 per month, so for him to know that he’s going to hold on to that home going forward in retirement, that’s a budget item that he knows with specificity exactly what is going to be going on.
Whatever it may be, whatever you’re going to be doing in terms of planning for retirement and setting goals, we want to make sure that those goals are specific.
It’s always a great place to start on the road to planning for an ideal retirement because once you have these goals listed and the answers to the questions that we were talking about earlier in mind, written down even, you can now move forward to the first part of retirement planning, which is determining whether your anticipated spending is achievable given the amount that you have.
To break that down, the very first thing that you’re going to do in terms of retirement planning is answer the question about whether what you want to do you are capable of doing. If you don’t start with the answer to that question, what might happen is you might shoot off half‑cocked in a direction that will devastate your retirement in the future.
If you don’t understand that your goals are achievable or not achievable and understand the adjustments that you’re going to have to make, the threat is not in the beginning because like the lottery winner, there is a big pile of money there. You can just draw from it. You will not fail to do those goals that are the closest in time to when you start out through retirement because the bank of dollars are there.
Where the threat comes is at the backend of that when you consumed it too fast, too quickly, to sustain it through retirement. Then you get towards those slow go or won’t go years and end up having to change your lifestyle completely because of the failure to do planning and to recognize whether or not you are going to have enough to get through retirement.
How much are you going to need? If we take away your specific calculations for your expenses and just start to talk in generalities, there was an old rule of thumb that said that you needed to replace 75 to 80 percent of your pre‑retirement income in retirement to live comfortably.
Now, this rule of thumb believes that certain costs such as mortgage payments, work‑related expenses such as clothing, commuting, things like that and other things are going to decrease or go away in retirement. Here’s the truth.
While some costs may be reduced, others will likely increase. One of the things that retirement is famous for saying is that in retirement every day is Saturday, which means that planning for what you’re going to be doing probably will need money in order to get through the day.
You will be consuming money. You don’t have to live every day lavishly. Think about your Saturdays. You don’t spend the same amount every Saturday, but there are some Saturdays that you spend money. Here’s what’s not happening on Saturday, if you were somebody that works from Monday through Friday. On Saturday, in your entire career, you never made any money.
The only thing you did was likely spend some money. The cost that might increase in retirement include travel, entertainment. Now, hold on. You’re going to say to me, “But Medina, I’m not going to do any of those things in retirement.” First of all, beat us. Yes, of course, you’re going to do it.
Let’s say that you want to just argue with me for the sake of arguing. Well, here’s one that you can’t avoid. Your health care costs are going to go up. They’re going to go up. You probably have had your health insurance paid for through your employer or, at least, the vast majority of it, for most of your career.
Well, guess what? When you’re done being retired, you’re going to start paying for your own health care. You’re going to start paying Medicare premiums. You’re going to pay Medicare D Supplement. You might have a Medicare Supplement Plan, out of pocket expenses.
There’s going to be stuff that you’re going to have to spend money on. With that being said, it may make sense to assume that you will need just as much an annual income in retirement than you made during your working years.
Even if you look at that as a hard number, let’s say that you need $70,000 a year, because that’s what you were making and that’s what you were spending. By the way, when we talk about your annual income, we’re talking about the annual income that is consumed.
You don’t necessarily need to be saving additional money into retirement, which one with a consumption rate is. You might make $90,000 a year but only spend 70. Let’s just say, for example, we’re going to be talking about spending the 70,000. That’s a number, but that number is not static. You also want to take into consideration the potential for inflation.
More likely, the likelihood of inflation and its impact on the cost of living for where you retire and when you retire, so cost of living increases. There are some that applies across the country, but there are also ones that are regional. The cost of living in Nebraska may be different than in the Northeast and in New Jersey. They’re both with ends but very, very different.
You want to think about that. Let’s think outside the box for a second, though. I want to show you a hypothetical example because you might be getting a little bit lost in the numbers. Let’s say that you have somebody who’s earning a $100,000, your nice round number, and they save 10 percent of their income.
That’s a great number to be working with. If you’re still in sort of the planned accumulation phase, the pre‑retirement phase, I really encourage people to be somewhere between 10 and 15 percent of their income in savings. That’s a good savings rate.
100,000. Based on the 75 to 80 percent rule of thumb, that person would have to anticipate spending between $75 and $80 thousand a year in retirement. It actually may make more sense to assume that the person is going to spend $90,000 annually. $100,000 minus the 10 percent that they were saving for retirement.
That’s probably a better benchmark around that because it’s going to be a little bit of a moving target. Some expenses are going to go down, your discretionary expenses may go up but it’s a better number to be working with. Thinking about spending exactly what you were making before then working with a lower number because that’s probably not going to happen.
Next thing I wanted to do is know your expenses. How many of you out there enjoy building a budget? Now, you think that that’s a joke line because everyone’s going to say, “No.” There are actually some of you that love building a budget and tracking your expenses.
There are also people that we meet where they are the complete opposite. These people have got plenty of income coming in through their working years. They actually don’t need to pay attention to the little details. That’s an instinct that I have to fight in my own life.
I’m running three different companies. I got a radio show I got to do every week. I’ve got seminars and workshops that I’m doing. The last thing that I want to think about is building a budget and being held to a budget. As long as there’s enough income coming in, that should be enough for me.
That’s my instinct, but I realize that if I just go at it that way and I fail to plan, I’m living with people, who are clients, who are examples of where that starts to become a place of pressure. If you don’t have that planning in place, as we’ve been talking about, there’s a threat to the way that it will affect your future in retirement.
Building a budget is important. I don’t know exactly where you are on that. Retirement is a different animal. Even if you’re somebody that during your lifetime didn’t think about building a budget, retirement is completely different. It may be a good idea to understand your expenses before you build a game plan.
When you create a budget, I’m recommending that you start by breaking down anticipated expenses into two different categories, those things that are necessary and essential and then those things that are discretionary, you don’t have to have them.
Essential expenses, necessary expenses are expenses that you can’t do without, such as housing, food, utilities, health care, long‑term care, taxes, insurance, and other unavoidable monthly bills. When in housing, you might have property taxes and everything else that’s in there. Those are the essential expenses. Those are going to be the ones that come in every month.
If you don’t pay them something significant is going to change in your life. If you don’t pay your housing expenses, you won’t be in your house. [laughs] If you don’t pay your food, you won’t eat. There are going to be significant impacts to not paying these essential expenses.
The discretionary expenses, on the other hand, are things like travel, entertainment, gifts. If you don’t pay those, nothing major is going to change in your life. You will still be in the same home, you’ll still be eating food, you’ll still get the health care that you need, so on and so forth. Those are the two categories.
By the way, if you own a home, if you own a real property, it might be wise to set aside a little extra for expenses like major appliance replacements.
I [laughs] can’t tell you how many times we’ll go in and build a retirement plan for somebody and we’ll say to them, “Look, this is what we are planning to do. We’re going to shift these assets here, shift these assets there. This is your plan going forward. Is there anything else that we need to know about before we get started?”
I want to say like 7 times out of 10. When I come, I’ll say, “Well, I have to buy a hot water heater here. I have to get the porch fixed.” There’s going to be things like major plans replacements, improvement projects, other repairs that are going to occur during your retirement. The key is calculating the anticipated expenses.
In knowing that those are going to be part of your essential expenses first, and then account for discretion or expenses on top of that. Once you have an idea about how much you might spend in retirement, then you can begin to calculate whether or not you have the resources to sustain that level of spending.
As I said to you before, the first calculation here is to see what the size of the bucket that you’re going to need in order to make it through retirement is going to be. Is it going to be a big bucket? Is it going to be a small bucket? The next step is then to figure out the sources of income that you will be receiving into retirement.
You can include things like Social Security, pension, you might have rental income coming in, you may be being paid back a loan that you gave somebody. Once you have these amounts total up, you are now going to see how much of the bucket has been filled.
What remains in that is your shortfall. Your shortfall is going to be the amount of income that you need to create from your own personal savings. Let’s use some numbers. Hypothetically, let’s say that your desired income, remember we talked about that before, is $90,000 a year.
What you’re doing is you’re going to keep spending on that. You put all of your essential expenses into play there. What you determine is that, in fact, you’re going to need $90,000 a year. When you do the math, you figure out that your fixed income sources are essentially 30,000.
That means that you are going to have a $60,000 shortfall, and you need to find a way to solve for that income. This is where you need to roll up your sleeves and do some of this proper planning. Working with a financial professional, an expert who specializes in retirement planning, could help moving forward from this step.
They’re going to have strategies, they also have the benefit, by the way, of experience, knowing how these plans have worked for other people. They’re going to have the opportunity to share that experience and that skill about that planning with you…
Victor: …and get you to move forward in a way that makes a little bit more sense or will work, have a better chance of working. Let’s do this. Let’s take a quick break because we have a few other things to take into consideration as we were doing.
What we’re going to do after we set up this first plan, other considerations that we have for retirement income planning that I want to share with you and ways to avoid it, what we call, the maybe income plan. That’s a big one. Stick with us. We’ll be right back after this quick break.
Announcer: Imagine, if the attorney you trust to protect your legal interest could also be trusted to protect your retirement wealth, one trusted advisor to all fiduciary roles, Victor J. Medina. Mr. Medina is an estate‑planning and certified elder law attorney with a national reputation. He is also a certified financial planner professional.
Through his law firm and independent registered investment advisory company, Mr. Medina provides 360∞ Wealth Protection Strategies for individuals in or nearing retirement. His unique approach offers advantages to high wealth individuals seeking conservative advice and a professionally managed approach to their retirement wealth.
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Victor: Hey, everybody, welcome back to Make It Last. We were talking today about how to make sure that your income will last as long as you need it through retirement. We spent the first couple of segments of the show talking about how to create your income plan and think about making it through retirement.
We’ve been giving you some big round numbers to be working with as you go through it. One of the things that I’ve shared with you is that each situation is going to be different. I don’t want you to take the numbers that I’m giving you. Well, it’s going to be $90,000 for me.
“I just have to figure out my Social Security income and I’ve got the rest for you to figure it out.” No, this needs to be specific to you and what it is you’re doing. By the way, in terms of looking for other benchmarks or rules of thumb, we’ll share another one with you.
You may find this to be valuable. According to the Schwab Center for Financial Research, if your portfolio is roughly 25 times as large as the amount that you withdraw from your portfolio in the first year of retirement, you can be reasonably confident that your savings will last 30 years.
Again, to generate that $90,000 we were talking about, we were going to need to draw out $60,000 in year one, if you multiply that times 25, you’re going to get a number about $1.5 million.
That’s the number that you can feel reasonably certain that you’ll make it through retirement because between investment returns on that, if you were smartly invested and then taken down by the cost of inflation or what the rise in inflation is going to be, probably a good chance that you’ll get enough to make it through 30 years of retirement.
By the way if you live to your 31, no answers. I don’t know what to tell you [laughs] about that. We do want to make a plan that does take into consideration a longer time period than you even anticipate living. You don’t get to come and knock on my door and ask me for a handout because you wanted a plan for 10 years sooner.
Next thing to do is to think about continuous planning. By the way the deeper you prepare, the more you start to learn about where you stand in different planning stages. Some individuals will find themselves well on track. I have a friend of mine that has a very large number in mind.
They said, “When I hit the $2 million, I know that I’m ready to retire. I anticipate that I’m on track to do that in 5 years, 10 years.” Others are going to realize that they’re further away from their desired vision than they thought. Of course this is obviously something that I don’t wish on anyone, I hope it doesn’t happen.
The least that it can do is to start to prepare someone for ways to bridge the gap. In other words, knowing that information will give them the opportunity to start to re‑engineer their planning. To make small tweaks. They’re going to make tweaks about two different things. They’re going to make tweaks on the consumption rate for what they’re going to be using.
They may be making tweaks on their savings rate, if they still have the opportunity to do that. They may even make tweaks within their investment strategy to increase the likelihood that they’re going to be successful. They may have to rearrange some of the chess pieces there, in order to make sure that that works.
It’s also very important to understand that planning for retirement is not a set‑it‑and‑forget‑it activity. You may come out of this, and I know some advisors do this. This is not the way that we work, but you may come out of this with one of these tombstone plans.
That is the size and weight of a tombstone and they’ll tell you you’re going to do this, you’re going to do that. It’s got a whole bunch of papers behind it.
All you do is take that and say, “Well, I’m done with planning because I have this tombstone plan. We’re basically done. We’re done with all of that.” That’s pretty dangerous. I don’t recommend that you do that. Your retirement plan probably should be reassessed annually to account for changes in your life, such as spending taxes, inflation market conditions, whatever.
We had a new tax law that I covered last week in the radio show, in the podcast. By the way, if you missed that and you’re joining us either for the first time or you’re a regular radio show listener. Remember that we have this show available as a podcast. You go to Apple podcast, or you go on Android and search for Make It Last with Victor Medina.
You’ll see the white‑and‑orange logo with the name of the show. Subscribe to that and you’ll not only get every episode delivered to your device magically, automatically, but you will also be able to go back and listen to other shows. Last week, we did talk about the way that taxes have changed with the new tax law and how that’s going to affect retirees.
If you set a plan up three years ago and you anticipated a certain tax rate. Well, the law’s changed, the cheese got moved here. We need to reassess your plan. Here’s what can be frustrating about this process. Many times the reassessment of the plan leads to zero change in your behavior.
I want to let that sink in for a second, that the act of reassessing is essential. I’m telling you, it is super important. At the same time, the majority of time if you’ve got a great plan, is that the conclusion is that you do nothing different. We are wired to thinking that action means progress, or something better.
This is why people trade their accounts, sell out of positions, change what they’re doing. There’s some excitement that they need to have by holding onto control over something and exerting that control. It’s often better, especially with a smart plan, to leave it alone. You absolutely want to be proactive in learning about how different changes affect your life and your plan.
Don’t gravitate towards an instinct to change something, simply because something has changed. A well‑thought‑out plan, especially with somebody that focuses in on retirement matters, a well‑thought‑out plan is not going to require a lot of changes. It’s going to anticipate that as part of what it did in the planning. It thought about those things.
Now, let’s talk about some considerations for your retirement income plan. As I mentioned before not only is there a potential for inflation, there’s a likelihood an inflation is coming. It’s should be considered as part of your retirement plan. Unfortunately, it’s often overlooked.
When we evaluate the calculations that people have either done on their own or received from their flunky advisor that doesn’t know enough about retirement. [laughs] Sorry about that. When that happens, we find that it is not taken into consideration. Not only is it not taking into consideration inflation, but if it has considered inflation, it has largely calculated it too conservatively. I don’t want that to be confusing.
In other words, they put the inflation rate too low. They are not anticipating what happens if inflation is greater. By the way, this is where we want to hedge on the side of being conservative with our planning. We want to anticipate a higher than average inflation rate because there’s a risk on that decision either way.
If we decide that we are going to take a lower inflation amount, the risk is that if we are wrong, we run out of money. If we take the bet that the inflation is going to be higher than normal, the risk is that we’re going to be wrong. The consequence is that we’ll have extra money at the end.
See, that’s a much better position to be in. You’re making decisions today that are going to affect you for decades from this point in time. If you do not create an income plan or adjust your income plan for inflation, cost of living increases, it can fall short of your expenses.
Now, not trying to be cute with it. I’m going to give you a number that I think is proper. Most people say that inflation will range between two, three percent per year. I think that three percent is the recommended inflation percentage to plan for. I think you should account for that. If you have a calculator that allows you to put a number in, then put three percent in because again, if you are wrong about that, all that will happen is that you’ll have extra money.
By the way, you may see some adjustments to Social Security benefits. Even that has taken some years off. Even that has fallen short of what the actual inflation number is. Even if you see inflations and Social Security benefits from year to year, your pension, other financial vehicles typically are not going to have a built‑in protections against inflation.
If you’re going to be making withdrawals from your IRA, there’s nothing protected in there against inflation. As I mentioned, it may benefit you to be proactive with your planning and make adjustments annually, if not more often, based on circumstances to keep up with the changes, including things for inflation.
Now, a proper plan already included cost of living adjustments or inflation adjustments. That’s the way that we plan. We use a high number like three percent. We take you out to at least age 95. By the way, there is some good academic underpinning theory that said you should plan for longer because of the way that the health care is making it possible for people to live longer and longer.
Next, another consideration when preparing retirement income is to work with a financial professional. You knew that one was coming, but one that specializes in retirement planning. What do I mean by this? When you’re working, a run of the mill, traditional financial professional can help you build a nest egg to help you get to retirement.
By the way, it’s not all that complicated. There’s an investment strategy. If you leave it alone and you keep contributing to it, by the end, there’s going to be a bunch of money there.
When you decide to retire or when you’re planning to retire in a horizon that’s, let’s say, 5 to 10 years out, you’re likely going to want to work with a financial professional that works with people like you day in and day out. Why is it do you think that people gravitate towards doctors that specialize in older people as they get older?
It’s because they have seen the entire spectrum of things that affect that older person and can help them plan for it. The same thing is true with financial professionals. Those financial professionals that focus in on retirement planning understand the differences between a person or a couple who were in their mid‑50s to mid‑60s and someone who’s 20 or 30 years old or even 40 years old.
When it comes to something as significant as retirement, I believe one thing over others, which is that it’s extremely important that you work with a financial professional that focuses on helping individuals and families plan for retirement. Don’t make the same mistake that many Americans do, which is to spend more time planning for your next vacation than you do retirement.
Don’t be too proud to ask for the help that you need not only in terms of asking a professional to help you, but to search out and find that professional that works specifically with people in retirement. I’m going to give you a resource for this.
If you’d like to know what questions to ask your financial professional, I’m going to give you a free report to do that. What you all do is you text the word, Questions, to 609‑554‑5936, so 609‑554‑5936. Put the word, Questions, in there. Hit the Send button, and what we will send you a free report that will give you the nine questions that you need to ask your financial advisor.
This will help you select somebody that is specifically working with people in retirement. This is a fantastic resource. I do urge you to use it because you do want to be working with somebody that really focuses in where you need it. Couple of quick things before we finish for today.
I want you to avoid the maybe income plan. Here’s the way that works. Look, life makes a big turn once your retirement date comes in. From the first day of work as a teen, which…By the way, that was me. I was 14 years old. I was stacking boxes in the warehouse of a uniform supply company. I got very familiar with Chinos and Oxfords.
From that very first day until the last day where they’d give you a gold watch, we’re conditioned to be living on the income that we earned from a job. The first thing that happens when you retire is you lose that income stream. One of the biggest challenges for retirees is replacing the income earned while they’re re‑working.
While many retirees are good at earning a nice, consistent income, they’ve got very little experience when it comes to creating an income once the salary stops. Fortunately, when it comes to converting your retirement savings into retirement income, you have several viable options.
For example, there were investment companies that offer plans to invest your money and then, systematically, spend down the funds to create an income. There is a downside to this approach. The downside is that there’s a risk that the plan will not perform as projected.
It’ll cause one or two things to happen. Either the income that’s coming out of there is going to get reduced or you’ll consume the balance of that quicker and the money won’t last. That’s what I call the maybe plan. Maybe it will work, maybe it won’t. We’re hoping that it does. The way to get the more guaranteed plan is to consider a fixed annuity.
Insurance companies offer products that will help remove the investment risk and offer a fixed regular income that will continue for as long as you live. There’s a downside to this approach, as well. The downside is that the income produced by the annuity may not be enough to maintain your current standard of living.
In other words, you’re going to give the insurance company some money and they’re going to give you a guaranteed income stream as though they’re investing that for you, but they’re going to guarantee that that number is there for the rest of your life. That number is going to be something driven by math that they’re going to have, but it may not be precisely what you need.
That’s the first risk. The second risk is that the funds themselves may not be readily liquid and available for things like unexpected emergencies. This is a good tool to fill up the rest of the bucket on the essential expenses, but it may not be the best tool for discretionary expenses to have a liquidity around there.
Also, you need to keep in mind that the annuities are generally guaranteed by the financial strength of the issuing insurance company. There’s no federal insurance for this. You want to be selecting insurance companies that are very highly rated.
Don’t get confused in that world, because even ones that have an A rating, something similar, A might be number 6 out of 15. We really want to know not only what their rating is, we want to know where their rating stacks up against the other ratings in the entire system for what they’ve got.
At the end of the day, it’s very difficult to know, for sure, whether or not you are going to have enough money to last especially if you’re doing this on your own. You should be solving for essential expenses first and then looking at discretionary expenses afterwards.
Get the guesswork out of the equation, and then you can start to put money into the stock market and do other things and put more money at risk. One thing’s for certain. No one can guarantee how long they will live in retirement. Instead of planning for life expectancy, it may be better to create a plan that lasts through your lifetime, no matter how long that you live.
I hope that this has been generally really good information and it’s soaked in. Now, it’s time for you to be proactive. Just don’t sit here and listen to this. We need you to take action on that.
One of the ways you can do that is to absolutely come in and meet with a financial professional like what we have in our firm, who focuses on people in retirement and give you the opportunity to do that. All you have to do is give us a call at 609‑818‑0068.
As a reminder before we wrap up, real quick. A couple of events coming up. Remember we have the event on April 29th, which is how to proactively plan for income taxes, and that’s at 12:00 noon. Lunch will be served. Then we have two seminars on May 9th and May 14th for empowering women into retirement. May 9th is at one o’clock in the afternoon. May 14th is at 6:00 PM.
If you want to attend either one of those, text the word, Invite. It’s like, “Invite me.” Invite to 609‑554‑5936, and we will be pleased to see you attend and be our guest at either one of those events.
Victor: Finally, if you’d like to come hear me sing, [laughs] we’re going to be at the Pennington Presbyterian Church at 2:00 PM, my a capella group, singing for you, free concert. Enjoy it. It’ll be worth an hour.
That’s it for the show. We’ve been trying to go through as quickly as possible. We can’t wait to join you next week on another episode of Make It Last, where we help you keep your legal ducks in a row and your financial nest egg secure. Catch you next time. Bye‑bye.
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