Building a Plan to Achieve Your Retirement Goals

Episode 2: Audio automatically transcribed by Sonix

Episode 2: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
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.

Producer:
Welcome to All Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yelisey Kuts are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now here are your hosts, Trey Peterson and Yelisey Kuts.

Trey Peterson:
All right. Happy Tuesday morning all things financial podcast. Uh looking forward to sharing on retiring with confidence. Morning.

Producer:
And now for some financial wisdom. It's time for the quote of the week.

Yelisey Kuts:
Yeah. So we have a fun agenda here. Uh, this morning. And just to kick things off, why don't we start out with the quote of the week. And this is from Jim Rohn. Financial independence is the ability to live from the income of your own personal resources. How do you think people are doing with that today?

Trey Peterson:
Well, I think a good way to say that is retirement isn't an age, it's an asset level. When do you have enough? What I would call residual income or income from investments, that you have the option to work. Right. And I think for a lot of people, it's not even about, uh, retiring. It's about having the option to retire. Because in my opinion, one of the biggest things that money buys us is options. So do you have the option of being retired and what does that look like. So those are some of the things that we'll share on this morning.

Yelisey Kuts:
Yeah I think it's an interesting thing, especially when you look at, uh, the increase in levels of consumer debt. I think we're at an all time high with 17, some trillion in consumer debt. And, uh, you know, it's evident that a lot of Americans are having to borrow, uh, they don't make enough money from their jobs to pay for the things that they need to buy on a daily basis, on a weekly basis. Uh, so they're borrowing more than ever to be able to afford these things. Um, so obviously, you know, that isn't really in line with that quote. And I think also it just just not even American households, but it trickles down from the government. You know, we're I think 17 or 19% in total inflation, uh, I think since Covid or maybe just slightly before, um, so the cost of goods and services that's gone up significantly. And I think that that's affecting Americans. And also I think if you're in retirement, you know, think of a lot of the people that we know, even though pensions are declining and most people don't have them. But a lot of people have fixed sources of income, right? Whether it's pension income or annuity income. And if you have a fixed source of income, that's not going to increase. It's not going up. Then you're concerned with inflation. I mean, it's a very real concern. It's not you know, it's not something that you should take lightly. Because if the cost to to buy the things that you need every day is going up, but your income is staying exactly the same because you have fixed or guaranteed sources of income, that could be a problem.

Trey Peterson:
Yeah. And one of the stats that I just read from fidelity, which many of you know, is the largest 401k plan holder, as they said, 52% of Americans are not on track for retirement. And I think one of the things that we see on a weekly basis, as we serve families and meet with new families is we see so many people that, uh, can't believe that they're going to be 65 years old someday soon and wanting to retire. And so one of the things that I tell people is it's kind of like working out or setting any goal. It's not about getting there today, but are you on track? And I think one of the things I've found is even if you're on track, but you're not where you want to be, meaning that monthly or saving and you can forecast and know that you're going to be in a good spot. That alone brings a lot of financial peace. And I think what we found is a lot of people can get on track just by being disciplined, making a decision once and then managing that decision. And I think what I found is most people, if they do a good budgeting plan and I know people hate the word budget, but most people have an extra 4 to $600 a month if they're just intentional with their eating out, not paying for cell phone bills that aren't theirs, where, you know, in ten, 15, 20 years they're on a totally different spot because of compounding interest.

Trey Peterson:
So, uh, only 1 in 10 Americans working in the private sector is able to participate in, in a defined benefit plan. So I think one of the big shifts that we saw was in 1989, 89.5% of Americans, uh, had the option for a pension through their company. And just 30 years later, in 2019, it dropped to 8.5%. So what the 4k did is it put more responsibility on us. And I think we did a poor job of educating people that, hey, you're not going to have a pension anymore. Now it's up to you. And one of our goals is just to educate people and help them make sure that they're getting the information they need so that after 30, 40 years of working hard, they can retire with the same or a greater lifestyle.

Yelisey Kuts:
Yeah. And I think, you know, on a daily basis, we're we're asking people about their expenses. And, and I feel like out of all the questions we ask, I don't know why that one's the most difficult one. I don't think people run a household budget. And if they do, they don't do it very well. Like what? You know, what are some of the things that, like, come up with when you ask somebody to talk about their expenses? And how does the conversation shift when you initially ask them to? Actually when you've gone through the process and you actually settle on the. All expenses that they have on a monthly basis. Uh, how does that conversation typically unfold?

Trey Peterson:
Yeah. So I would say, you know, almost every week I sit down with the couple and I'll say, hey, one of the biggest things that we're going to figure out today is what are your monthly living expenses? And what ends up happening is they'll go online and they'll print out Dave Ramsey budget sheet or one of these budget sheets. And typically, you know, um, they'll lay out all of their fixed expenses, the mortgage, their insurance, maybe their property taxes that they pay every six months. But what's so unique about it is they'll come in and they'll say, our living expenses are 40 or about $4,000 a month. And I'll say, well, you're fixed. Expenses are 4000 a month. But Dave Ramsey talks about zero net budgeting, and I'll say a good way to find out what your monthly living expenses are is to add up all of your net income minus savings. So I'll say Jim and Jane, you know, what do you what do you bring in approximately every two weeks? And Jim will say, well, I get you know, uh, $4,000 every two weeks and I get paid 26 times a year, and then we'll walk through the same exercise with Jane and I'll say, well, you guys are bringing in $8,500 a month. Your budget says that your expenses are 4000 a month, so I'll say so you guys are saving $4,500 a month, and you guys added over $50,000 to your savings last year. And you'll say they'll look at each other, and then they'll look at me and they'll go, no, our savings isn't growing. Our savings is flat. It ebbs and flows, which means that your true living expenses are not the $4,000 of fixed expenses. They're the $8,500 that maybe that's not what goes out every month, but if you average it out for purchasing that vehicle from replacing the roof, people are spending more than they think they are, and that has a big impact on how long does the retirement estate last.

Yelisey Kuts:
Yeah, it's funny that you say that because the stats actually show that only 23% of Americans feel like they actually need a budget, only 23%. Well, you know, and we find that to be true. And obviously, you know, in a bigger way where that's reflected is in retirement savings. So not only, you know, obviously in the earlier years when you're just getting started, uh, you know, people often come in and they say, hey, you know what? I, I needed all the income to get by. I couldn't defer any of my compensation into whatever the employer sponsored plan was. Um, you know, I even even though they know that they're giving up the match, they're giving up free money a lot of times, just the the pressure of raising children and and doing what you can to get by and getting ahead in life. And people just don't have the disposable income. At least they don't think they do. We often remind people, it's not that you can't afford to. You can't afford not to, because, as Trey mentioned, only 10% of Americans have a defined, uh, I'm sorry, uh, defined benefit plan, right, a pension. So the onus is on us. The onus is on us to save, to take advantage at a minimum of the employer match, to defer your compensation. And obviously, now there's more options than ever. There's not just the 401 K, but Roth 401 K's are becoming available more and more. And people have to start thinking about the future.

Yelisey Kuts:
Because on our end, when we meet with folks that are in and nearing retirement, most of the time we're meeting with someone who has regret over not putting more money away or over not being more diligent. And it doesn't have to be a huge amount where a lot of people run into trouble is they're 50 years old. The kids are finally getting out of the house, they're going off to college, and they realize that their window, their opportunity to make that income is shortening, right? There isn't all the time that they thought, and they realize that that retirement is approaching and they have nothing saved for retirement. So they sometimes they make mistakes, right? Sometimes they get too aggressive. And we've seen how that can that can backfire as well. So we want to make sure that even if you're not able to do as much as you think you should do that, you should start doing something, make it automatic, have it come directly out of your paycheck, right, so that it's something that happens that you don't even have to think about. And over time, it actually will be very beneficial. And which is a great segue to something that we've already been talking about a little bit. But the three legged stool. Trey, can you talk about the three legged stool and and how that's changed? Obviously we know with pensions going away for most Americans, but why is that important to have different sources of income in retirement?

Trey Peterson:
Yeah. So as I step into that, one thing I'll say is if you're in a nearing retirement and in a nearing retirement means you're 5 to 7 years, maybe eight years away from retirement, now is a great time to reach out to us and have us put together what I call an income plan, to give you a picture of what your income streams look like in retirement, what you do for taxes. And one of the things I think we've CLSA is we have so many people that come in three months or six months before they pull the plug on retirement, and we can certainly help those people significantly. Uh, but if you're five to 7 or 8 years out, now is the time to look to say, hey, what changes can I make to make? Sure that I'm set up when I'm about to retire. So one of the big things that we talk about is that three legged stool, which is unique, right? The three legged stool is your Social security check your pension for those who still have pensions, which, as you know, uh, for baby boomers, it's common. It's less and less common with, you know, generation Y and X here. Uh, and then number three, uh, is your personal savings, whether that's a 401 K, a 403 b, a tsp of 47, a non-qualified account, uh, solo 4k is we can go on and on, but.

Trey Peterson:
One of the biggest things I tell people is the name of the game. In retirement isn't just to have this huge nest egg. In fact, if you were to ask me, of the 200 families that we serve, uh, every single quarter, you know who is the happiest of those clients? It's not just the guy that's got 5 million bucks and, uh, you know, has done a great job saving. But you don't know that he's living off 25,000 a month. Really? The happiest person or the happiest families we serve are those with the most guaranteed income. So for my wife, Stephanie and I, we don't have a pension. We own a business. We invest in real estate. Uh, we do some other things, but we're not going to have a pension. So we're saving and we're investing in real estate so that that real estate gives us residual income like a pension would. So one of the things we can help with in that conversation is with your investments. Are you diversified? Or maybe if you only have Social Security and retirement assets, are you creating a third leg so that you have more stability in your retirement?

Yelisey Kuts:
So let's talk about one of those legs specifically. Uh, we we've we've talked a lot about 401 KS and employer sponsored plans, but I think you actually have a really good example in how to kind of make it just a little bit easier to digest and understand how a 401 K actually functions. And I think your example, when you relate it and compare it to a mortgage and uh, and interest rates on a mortgage, and um, if you were to go to a bank and they were to tell you, hey, we'll give you the money that you need, right, to buy the house, and then we'll tell you how much to pay an interest later when you go to sell it. Can you, can you use that example? I actually I think it's a fantastic example and I think people would benefit from that.

Trey Peterson:
Yeah, absolutely. So if you, uh, if, if taxes are important to you and by the way, they should be I'm a big fan that we live in, you know, we live in the greatest country in the whole world. And I want to pay my fair share of taxes. I'm so thankful to live here, but I don't want to leave a tip on the table. Uh, so if you're one of those people, I would recommend that you pick up a book by a gentleman named Ed Slott. He's got a few of them, but Ed Slott is on PBS all the time. That's Slott. He's probably the leading authority in America on how to pay the least amount of taxes on your retirement assets. And one of the things that Ed Slott talks about that I like so much is he said, imagine that you're going to borrow some money to go build a house. And yellow says, you know, uh, the last three years housing has gone up significantly. But imagine you go to the bank and you go, hey, we need a half $1 million. We're going to build our dream retirement home. And the banker says, hey, I've got good news for you, Jim and Jane. Uh, we're going to borrow you that money. You qualify. Here's a check. Go build that dream house. Well, when you go to borrow money for something significant, whether it's a bank or a mortgage lender, what's the first question that you're going to ask? You're going to ask what's the interest rate? Imagine if that banker says, Jim Jane, don't worry about the interest rate.

Trey Peterson:
Go enjoy your brand new home when you go to sell it, or when you, Joe, are gone and your kids go to sell it. We will let you know what the interest rate was. You'd say, no way. There's no way we're going to borrow money at an interest rate that we don't know. But that's what our 401 K's are, our 403 B's, our TSP. Uncle Sam has said Trey Yellow say, put this money away. We'll even let you write off. Write it off on your taxes. When you go to take it out. We will let you know how much of it is ours. And one of the big things they're talking about is with this 33 plus trillion of debt. One of the things they're saying is Uncle Sam says, we still have all over this large pool of money. We can increase taxes not just on earned income, but specifically higher on retirement income. So one of the things that we talk about is, do you have a plan for your taxes or what we call a spend down plan around your RMDs? And yellow said you want to touch on RMDs and how they work. I think that'd be a benefit to everybody here.

Yelisey Kuts:
Yeah, yeah. And we talked about this in the last episode as well. Um, but RMDs, gosh, there's just so much anxiety for so many people on their required minimum distributions. So, you know, obviously one leg to this the stool. Uh, retirement savings 401 403 B's. All of those pre-tax accounts, they're fantastic. I encourage everybody, as I said, at least take advantage of the match. Right. That's free money that you're not taking advantage of if you're not contributing, at least to take advantage of that match. But beyond that, you know, the benefit of of deferring your compensation today. Is lowering your tax bill today, you can actually lower how much you have to pay in taxes by putting more into your 401 K. And the problem is Trey mentioned is on the back end eventually in retirement, whether you're using your 401 K to supplement your income, or for some people they don't need their 401 K, so they're simply waiting until they reach the age of 73, where they have to take those required minimum distributions, the RMDs. And that starts at about 4%. So the government basically takes a look. The IRS says, hey, what's your total pre-tax balance on December 31st in the year prior to the time you reach age 73, you're required beginning date, right? What is the total balance of all those pre-tax assets? They add all that up and you have to take about 4% that year or at the very latest by the following April 1st and the following year.

Yelisey Kuts:
But if you did that, you would have to take two RMDs if you waited until that time. So most people take it in the year that they turn 73. And you have to introduce income. And for a lot of people, if they don't need the income, as we mentioned before, is simply might mean that it puts you in a higher tax bracket and taxes are huge. And taxes, as you know, the example that Trey illustrated on the mortgage taxes are huge, especially since the tax code as we currently have it, it's it's expected to sunset at the end of 2025. So in 2026, we're expecting it to revert right back to where it was prior to the Tax Cuts and Jobs Act, right? So that for most people, will be an increase in how much they have to pay Uncle Sam. But the biggest thing is, depending on what your total income is, that will determine how much you have to pay in taxes, right? We have a progressive tax code. Your total income puts you potentially in a higher tax bracket. So that's where the challenges for a lot of people not knowing what tax bracket they will be in because the tax code is subject to change, but also maybe not knowing exactly what amount of income or total income that they might have, which will determine the rate that they have to pay on that additional required minimum distribution.

Trey Peterson:
Yeah. Wonderful. Well, we have five financial landmines to avoid before and during retirement. Um, I'll jump into the first one and then I want you to jump in. Uh, so five financial landmines that we see, that we see people make big mistakes. Number one is allowing your money to be mismanaged. So one of the things that we see often is people set up a 401 K. They picked investments ten, 15, 20 years ago. They've never rebalanced. Uh, maybe they're in a target account that does some rebalancing, but they've never done a review to say, how are my 401 K funds doing? Are they performing? Well? The other things that we see people make a lot of mistakes under mismanagement is they don't know what their fees are. I ran into a couple just a few weeks ago where they have a 401 K fee. That's 1%, which is around average. But then they hired through Financial Engines a group, uh, to manage their money, which they can do a good job. And they didn't realize that that was costing them an extra 1%. So all in, they were at over 2% between advisor fee 400 and K fee and expense ratios. And while 2% doesn't sound significant, you know, that's almost twice what a client at Guardian Will strategies would pay. As you can imagine, over time, that significant. One of the other big mistakes that I see within mismanagement is people that have their money in 3 or 4 different places, and that's really easy, right? You and your wife work at different companies. Maybe you each have given one of your orphan 401 K's to an advisor or different advisors. And what a lot of people don't realize is that when your money is in all these different places, it's really easy for those investments not to have a coordinated plan where they're looking together, and now your investments are mismanaged and you have a lack of efficiency which is costing you returns because they're actually working, uh, not together, but against each other. Uh, what's what's another landmine LSA that that we see often that. Yeah.

Yelisey Kuts:
Well, I just want to piggyback off of what you're saying too. So sometimes people come in and they think that they're very well diversified, and they think that because they have statements from I don't want to say the companies, but let's say they have statements from a few different companies, and they think that that means that they're diversified. And in our experience, what we found is someone wants to be diversified. So maybe they give half of their assets to one advisor, the other half to the other advisor, and they want to see who's going to do better, because maybe ultimately they think they're going to move all their assets to the advisor that outperforms the market. And what we find is when we compare their assets, they might be overexposed to a specific sector. Maybe now they have too much of the S&P 500. Maybe now they have too much in emerging markets. Right. They're not coordinated. They're not communicating with each other. And ultimately what it creates is an inefficiency that could lead to a lower return over time. So that's one thing that I want to mention. The other thing is sometimes people it's not that they have different statements, it's sometimes they've just loaded their accounts with a million different mutual funds. Right. So we're looking at 50 different mutual funds or 50 different stocks. And sometimes what people don't realize is. Even though you have a different mutual fund, it might be that the composition of that fund is very similar to the composition of another fund, and you're actually not achieving the diversification you're looking for.

Yelisey Kuts:
So we want to make sure that that we're avoiding that. And I think, you know, fees aren't the end all be all. That's not the most important thing. But fees are actually a big part of your portfolio. And not to spend a whole lot of time on this. But, you know, on average, most people with mutual funds, they're paying 1 to 1.5% in fees just to hold that fund. Right. Some funds take it a step further. Right. We have some funds that are front end loaded, right. Mutual fund A shares. We don't see so much of that now. But in the past, gosh, we'd see so much of that where, uh, somebody invests $100,000 into a fund or a family of funds, and on day one, they have $95,000. There's a 5% fee in up front sales charge or a commission that gets charged right up, right up front, right. So now that couple has to dig themselves out of a hole, a 5% hole. And really when we when we look at the funds that they have a lot of times their basic funds, right. You can have an ETF with the same portfolio composition. It can also, you know, just to kind of give you an example, imagine if you had a mutual fund, an S&P 500 mutual fund, and it charges a 5% commission right off the top right. And you and you were to compare that to an ETF of S&P 500 ETF that charges 0.1 to 0.3%.

Trey Peterson:
Well you know ETF is real quick.

Yelisey Kuts:
So it's an exchange traded fund. So a lot of times with mutual funds there's a there's a um there's a money manager. And his job is to pick which of the funds if it's at let's say just for simplicity, let's say it's an S&P 500 mutual fund. That money manager, his job. What he gets paid to do is to pick which of those 500 funds in the S&P 500 are going to be the winners. Right. So maybe you'll have some Apple in there. You'll have Microsoft. And that person can decide what what percentage of assets is made up of Apple, Microsoft or whatever company he chooses. But his job is to pick the winners, right? And if he does a good job, obviously the fund performs well. Uh, an ETF kind of takes a different approach. An ETF says, hey, we don't need that middleman. We don't need that money manager to choose the funds. In fact, nobody can can choose the funds successfully over time. Right? There's so many articles that show that that over time, most money managers, they don't end up outperforming the market. So what an ETF does is it basically has an equal weighted share of each of the 500 companies.

Yelisey Kuts:
Right? It's actually considered sector based investing. It doesn't have to be an ETF that represents the S&P 500. It could be an ETF that represents the energy sector or the tech sector. Or really it could be as specific as you want it to be. But it's more or less it represents the entire sector. So it doesn't require somebody to pick the winners. And what it does is it lowers the fee substantially. In fact, most ETFs, they're 0.1 to 0.3%. That's the expense ratio, how much you have to pay on an annual basis to hold the fund, compared to 1 to 1.5% on most mutual funds. So it's not that there's any secret formula here. Anybody can buy an ETF, right? They're available everywhere. In fact, most people there's there's been so much pressure in our industry to use ETFs because of the cost savings that a lot of times they're integrated in most portfolios. And a lot of people, especially retirees, have been able to benefit from the lower fees that ETFs offer.

Trey Peterson:
Yeah. Well, uh, with that said, one of the things I want to encourage everybody is if you just want a better education on the types of investments that you choose, what goes into your portfolio, feel free to reach out to Elissa and I at G wealth.com or ATF Podcast.com, and we can set up a complimentary consultation showing you the types of funds that you currently have and help educate you on some of the things that are available. One of the things that we say so often is nobody cares about your money more than you do. And I know Alyssa and I would be honored to sit down with you, walk you through your investments, and share with you some of the different options that are available to you. Uh, the second landmine that we want to talk about is thinking that you can beat the market. Elsa, you oversee a lot of, uh, the investments that we manage in the market. Do you want to touch on people that think they can beat the market and what that looks like by timing the market?

Yelisey Kuts:
Yeah, absolutely. So this is kind of a really interesting one, right. Because a lot of times, especially over the last couple of years, people would come in and they'd ask, hey, are you guys active managers? And really I think what people wanted to know is, hey, are you looking out for my best interest? Are you going to be taking advantages, advantage of of the ups and the downs like they wanted to see activity on their account. And a lot of times activity can be, uh, misunderstood, right? Just because someone is really active and they're placing trades doesn't mean they're looking out for you. In fact, uh, we have we have a quote that we, we love to use, and it's, it's it's this it's not about timing the market. It's about time in the market. Right. So over the last 30 years and I've, I have uh, I have a stat here over the last 30 years, if you missed the market's ten best days over the past 30 years, your returns would have been cut in. Half. Well, that crazy, right? If you just the best ten days over the last 30 years and you get half the return.

Yelisey Kuts:
I think most people don't realize how difficult it is to time the market. And a lot of times during a bear market is when we have some of our best days, when the market gives us some of the best returns. So sometimes you think, hey, you know, I avoided that huge loss. You probably also avoided the return, right? So we want to make sure that we're making good, educated decisions that are supported by facts. And they're not emotional decisions because it's easy to get emotional, right. Whenever we open our accounts, we open our statements and we see that the market corrected or pulled back a little bit. And it's really easy to want to pull out. And really, in the earlier years of retirement, this is where it's especially important to stay the course, because in the earlier years, when you're not drawing on that account, it's actually going to be to your benefit to leave the money there, because more than likely, you're not going to be able to time those ten best days or actually, in any given year, the best days that the market really accounts for the returns.

Trey Peterson:
Well, I think what's even interesting is, uh, you know, one of the things I love about our team here at Guardian is we manage all of the investments in-house. Uh, it's not a third party doing it. Uh, it's actually staff members, partners and employees right here at Guardian that have been managing and choosing funds, you know, for over 20 years. Uh, the second one, that or the third one I want to talk about is not having a plan for your Social Security benefits. We see a lot of people that spend so much time figuring out, when do I take the pension, how much do I give my spouse if I take a reduction and they get more, is that a good decision? Well, one of the areas that we see a lot of people, uh, I would say not invest time in is their Social Security. That seems like they just they assume it's synonymous with retirement. I retired and I turn it on and well, for some of you, that's the right direction. For others of you, having a Social Security strategy can have a huge impact on a couple of things. You all say, well, you talk about what is the benefit of having a Social Security strategy.

Yelisey Kuts:
Having a Social Security strategy. You know, when in 2015, when the 2015 Bipartisan Budget Act came out, uh, there were a few Social Security strategies that were eliminated or removed. And I feel like people just thought that, you know, now it's simple. Now, you don't really have to put a lot of thought into it. But really, Social Security is a decision that is it's huge. It's actually one of the biggest decisions you can make because, you know, it's it's not only one leg to the three legged stool. Uh, but it's a huge amount of income over the course of your retirement. If you're retired for 20 years and you take the amount of income that you're going to receive from Social Security, and you put it side by side next to the income that you're going to receive from your pension or from your retirement savings. And, you know, maybe you're going to receive more from your pension or your retirement savings. But the biggest difference is 100% of every dollar that you get from the pension is taxable. 100% of every dollar from the 401 K that's taxable to with Social Security only up to 85% of it is taxable on the federal level, up to 85. It doesn't mean 85% will be taxable, but up to 85% is taxable. And then here in Minnesota uh, potentially it could be tax free in the state level. So Social Security has some advantages when it comes to taxation. But also the biggest thing to consider is survivor benefits. People don't think of it in terms of survivor benefits. And what we mean by that we often say, hey, make sure it's not just a me decision, but it's a we decision. How does this affect the two of us? Right when one of us is no longer here? Because inevitably, right, one of us is is going to pass away eventually, right? And most likely it's not going to happen with both of us holding hands, walking on the beach together.

Yelisey Kuts:
Right? That's just not the way it goes. But eventually one of us passes away. And what happens then? At that point, your income might be cut in half or not necessarily cut in half, but cut down substantially. So now you have a lot less income to work with. But you're in the single tax brackets. And what we find is expenses often don't get cut in half. So you have a lot less income. You're paying more in taxes on it and your expenses are about the same. So it's not a good strategy for success. So we often encourage people when you look at your Social Security benefit, especially if you're married, maybe it doesn't make sense for both of you to delay until the age of 70, right? We're not saying that right. That's not the solution for most people, but maybe it makes sense for one of you to delay in your benefit as long as possible, so that at some point, when it's just one of you, when when one of you passes away, that the other person has a good Social Security benefit to fall back on, not just because they want more income, but actually because they're paying less on that source of income versus other sources that you might have. So integrating Social Security, making sure that all the pieces are working together, that they're communicating with each other. Right. That's the most important thing when it comes to planning and being strategic on your Social Security benefit, coordinating it with the other sources of income that you might have.

Trey Peterson:
Yeah. Well said. Number four. And this one's I would say one of the scarier ones because we do see this where people come in and maybe there are six months or two years from retirement. And when I look at their expenses and I look at their assets, uh, they are at risk of depleting all of their assets too quickly because they didn't have a plan. They think that retirement is an age. I'm 67 or I'm 66, I'm 65, I'm 70, which means I get to retire. And fortunately or unfortunately, retirement isn't an age really. It's an asset level or an income level. And I think one of the scariest things that we have to do sometimes is tell people you don't have enough assets to retire at the time that you want to retire. Now, the good news is. We can put together a plan so that when you do retire, that you don't run out of money where you can't go to work, because now you're in your late 70s or early 80s. But one of the things that everybody needs to do before retiring is put together a plan to say, how long do my monies last? And people are living longer than ever before. I think I read an article a few months ago that said, for the first time, life expectancy dropped by a few months.

Trey Peterson:
But you know, people are still living into their mid 80s, some into their early 90s. And if your assets only last 10 or 12 years and you retire in your late 60s and now you have a year, three years or five years where you're dependent on your kids or grandkids or the government, that is not success. So one of the things that I think we do a really good job of helping people is not selling them, that everything's going to be okay if it's not, it's showing them. If we look at your true expense, when you stop your income, do you have enough money where it's going to sustain you throughout the rest of your life? If you've never run a longevity of assets analysis before Yelesin, I'd be happy to put that together for you. You can reach us at (612) 286-0580. We do that complimentary because one of the things that Yeliz and I have agreed on that if anyone's been to one of our classes, if anyone's listening to one of our podcasts, we want you to have access to to great information and great knowledge so that when you retire, you can retire. Once retire will have complete financial peace. We have one more financial landmine. You say you want to jump into that.

Yelisey Kuts:
Yeah. Not aligning your investments with your risk tolerance. Um, you know, that's really it's it's a big one for people because I think that, you know, the old adage that, you know, most financial decisions are made out of fear or greed. That's true. You know, people make bad decisions all the time. Either they're they're chasing returns. That really when you look at the risk level, it doesn't line up with where they are in life, right? They might be closer to retirement or just it doesn't line up with their investment time horizon. Um, and sometimes they're making poor decisions because of that and sometimes. Right. You see what's happening in the market. You see all the volatility, you see all the things happening in the world, right? It's an election year. Everything that's happening in Ukraine and Israel and Palestine. Uh, and there's a lot of fear that can come with that. So sometimes people are looking at that and they're putting their money under the mattress. Right. They're just they don't want to have any risk at all. Uh, maybe they've been through 2008. Maybe they've been through 2001 and they've they've seen their 401 K's get cut in half. And maybe now that that's that's deterring them from making good financial, responsible decisions, uh, because of the experiences that they've had. And everyone has a different risk tolerance. What we often want people to do is identify some of those concerns, identify where they're at in life. And to piggyback off of the previous one that we had, um, you know, having those difficult conversations, what we find is a lot of times you can actually correct for some of these things, right? You don't have to make poor decisions, and they don't have to devastate your retirement plan.

Yelisey Kuts:
You could actually make good decisions now and going forward that can help you make some adjustments that'll set you up well for retirement. But you have to have the conversations. And sometimes, even if they're difficult, you have to have those conversations. And for me, that's hard, right? I'm naturally I'm not very confrontational. Uh, but I think even for me, as I sit down with clients, it's important for me to be honest with them, right? Even if the reality is a little bit sobering and it's uncomfortable for both of us. I'd rather have, you know, that we can, that we need to make adjustments, and also to show you the impact of those adjustments. And a big part of that is finding somebody who's willing to do that, finding somebody who's willing to to sit across from you to have this conversation, who's willing to look at your goals and objectives, and hopefully they can match a solution, put together a solution that matches those goals and objectives, and helps to set you up well for retirement. And a big part of that is looking at your risk strategy, right? Is your risk. Does it line up with where you are in life, with how much time you have left before retirement, and what does it look like after retirement? Hopefully that that it matches all of those things and hopefully that person cares enough to put your interests ahead of their own.

Yelisey Kuts:
Yeah, yeah. I think the last thing I'll say is, you know, in 2008, I still remember the the caption on a headline where three out of five seniors had to return to the workforce or stay in the workforce longer. Um, and that really, you know, that really speaks to risk, risk level within their portfolio. But, um, on a more specific note, uh, sequence risk sequence of returns, um, that's a very real thing because, you know, we're there's different stages in life. And a lot of times we're meeting with people in the accumulation stage of life. They're still working, right? They still have. Maybe they have a few years left before they plan to retire. They're considering retirement. Uh, but eventually you get into the distribution stage in life. And that's where sequence risk is actually very important because, uh, if you were to model out two different families, if you will, and, and you were to, to, to to push out the data, let's say, for 20 years for each family, and you were to make the average return exactly the same for both families. Let's just say let's say it's 6%. 6% is the average rate of return for both families in retirement. But if you were to mess with the numbers a little bit and, and say that let's say five of those 20 years were were years where the market was, was uh, was negative.

Yelisey Kuts:
And for the first family, you make it the first five years in retirement. And for the other, other family, you made it the last five years in retirement, but the average return stayed exactly the same. If you were to put in distributions during the distribution stage, the family that has the the negative years on the front end runs out of money significantly faster than the family that has a negative years on the back end. And that's what's known as sequence risk sequence of returns. Right. And that's why it matters when you retire. Timing retirement is actually, you know, maybe that's also out of your control, but that has a huge impact on the longevity of your assets. If you retire today and the market has a correction for the next couple of years and you're taking distributions, that's going to affect your portfolio dramatically compared to somebody who retires. And they have a good couple of years in the first couple of years of retirement and the negative years or the downturn later on or retirement. So that's something called sequence risk, obviously. Uh, you know, for the sake of time, we don't have a lot of time to go into that. But if you're interested in seeing how that works, happy to put together a sequence of returns distribution for you to show you how that might impact your retirement.

Trey Peterson:
Absolutely. Well, I. I think to wrap things up, if you are somebody who is trying to decide, when do I get back in the market? Or I've been high risk, how do I reduce and when do I reduce? And is now the time? We'd love to help you with that. You can reach us on our phone number below on the screen, uh, or by shooting us an email or jumping on our website at ATF, podcast.com or google.com. Uh, thank you everybody for jumping on today. We are looking forward to meeting with you and helping you have complete financial peace in retirement.

Producer:
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 all things financial.com and set an appointment today.

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