Building a Stable Foundation for Retirement with Pension-like Income

Episode 11: Audio automatically transcribed by Sonix

Episode 11: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
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.

Speaker2:
Welcome to All Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellows Coots are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now here are your hosts, Trey Peterson and Yellow C coots.

Speaker3:
Welcome to all things financial podcast. Trey Peterson and Melissa coots. Episode number 11. Man, what retirement planning looks like in 2024. I'm actually really excited about the topics that we have today. Uh, if you watched or tuned in before, you know that yellow and I are really passionate about helping people retire once and retire well. And one of the things if you're about to retire, or maybe you're one of the 2 or 3% of people that you're planning five, 7 or 10 years ahead, we're going to talk about things that you probably haven't thought about. You think about the last 30, 40 years. And really, the name of the game is save as much as you can, and then hopefully in your 401 K or with your financial advisor, it grows as much as it can. But now as you prepare for retirement, you're going to see that there is a whole lot of things that you probably haven't thought about to maximizing your retirement. One of the things that we hear so often is people say, man, I'm so scared about shutting off that paycheck. And now all of a sudden living off checking and savings or maybe the 401 K or that brokerage account.

Speaker3:
Or maybe you're thinking about starting with the Roth account first. And one of your big questions is, hey, I've got all these different buckets of money. What do I touch and what order? So we've got a great conversation today. You always say, what are some of the things we're going to talk about? Yeah. So our agenda for today, we're going to talk about some little known facts about retirement, some interesting things that we found there. Um, we'll talk about personal pensions and some, uh, kind of like you mentioned, like where do you draw from first? And it's the answer to that is going to be different for everyone because we all have different sources of income. We all have different needs. Uh, sometimes there's an age gap between you and your spouse. Sometimes one person finds an amazing part time job at a retirement or has other sources of income. So that's going to be a little bit different. But it's important to understand how those different sources function based on tax classification and what you have and the asset level that you have and the needs that you have.

Speaker4:
And now for some financial wisdom, it's time for the quote of the week.

Speaker3:
Why don't we go ahead and jump in though, to the the financial wisdom, the quote of the week that we have in today's from, uh, the one and only Warren Buffett, the great Warren Buffett. Absolutely. So someone sitting in the shade today because someone planted a tree a long time ago. You've probably also heard the best time to plant a tree is yesterday. The second best time is today. And I think one of the biggest differences that we see in people that have all the pieces for retirement versus those that didn't, is they just started early. Now, one of the things that can encourage a lot of you is we've also seen where people didn't start maybe until 40 or 45. Uh, we even have a woman that we get to serve. And, uh, she didn't start until she was 50 years old, after a divorce, married to someone that was terrible with money. And what was so amazing is that from age 50 to 65, between what she invested a lot of it in her company's stock and how the market performed, she ended up with a million bucks before retirement in 15 years. Uh, and she really cracked down. I mean, she basically lived on, uh, uh, the lowest expenses possible to save. I think she ended up saving like, two thirds of her income, which is really impressive. So if you're maybe, maybe you got a late start. But one of the things that we want to say to you is, uh, it may not be too late for you.

Speaker3:
And maybe you're young. And I want to encourage you to start today, even if it's with 3% of your income and then working your way out. Get started today. So overview of some of the things we're going to talk about today. Number one little known facts about retirement. What is life like for retirees in 2024. One of the other things we're going to talk about is setting up your own personal pension. So I won't give it all away, LSA. But one of the things that we one of the big questions we get a lot is, hey, my company is offering this pension. Do I take it in a lump sum? Do I take monthly payments? Do I take it where I get 100%? The biggest benefit, but it excludes my spouse? Do I take it where I include them? Where I get the biggest reduction and they get the same amount 100% as I do 75%, 50 or 25? And obviously, depending on your age, depending on your other income and investment statements, uh, the answers are different for everybody. And so one of the things that we help people with is to make that big decision. You've paid into that for ten, 20, 30, 40 years. How do you make sure that you don't make a mistake right at the very end? Is your safe money in a place that's really safe, or is there a better option? The other two things we're going to talk about is being proactive, not reactive.

Speaker3:
Yeah, I think you'd agree with this. One of the things that we see a lot of people do is they buy a target account and the 401 K, they let it sit, it, uh, sit and they forget about it. And no one's checking on it. No one's rebalancing it. It's doing good enough so they're not making adjustments. And we'd rather see it being something that's going to perform, uh, greatly, not average or below. And then have you heard from your financial advisor lately? I met with a couple last week, and they had to talk to their advisor in three years. And I was like, man, that is not somebody that's serving you. Uh, that's somebody that, uh, is likely a salesperson and not an advisor. So let's talk about well, let's go ahead and jump right in. Um, ten little known facts about retirement in America today. Um, generation X, you know, we we, uh, we often look at our book of business or the clients that we serve and, uh, you know, we for, for years, we would say that the average age is 65. And then we actually did a little bit of an analysis on our clients. And sure enough, 65 was the average age. Uh, but we are seeing a lot of people who are a little bit younger and part of generation X that is now retiring too, you know, and I kind of thought this was interesting.

Speaker3:
You know, there's a New York Times article last year that that was titled, uh, hate Generation X, get in line. And I just thought that was really interesting because, uh, you know, and it really talked about this idea that people born from the 60s to the 80s, like, as if they had these amazing job opportunities, they had higher wages. They did everything with their Excel skills, and they had these amazing 30 year mortgages with low interest rates. And, you know, we know it wasn't quite that rosy. But the thing is, many Gen Xers are actually getting ready to retire. And there's a lot of things that are important to consider. You know, of course, when we talk about people, uh, in generation X, that's, you know, typically people born between 1965 and 1980. And there's a couple of things that I think are good to point out, because not only do they affect generation X, they affect to all of us. It's just so happens that there's a lot of Gen Xers that are retiring soon. Um, and one of the things that that's important is, um, you know, even though Gen Xers are often like, described as being very resourceful, very independent, uh, one of the things, one of the financial responsibilities that they're encountering is having to care for their aging parents.

Speaker3:
And, you know, depending on where you're from, you know, my folks are from Ukraine. And, uh, you know, I. I really can't have a conversation on long term care or assisted living facilities, uh, home health aide, stuff like that. Because, you know, it's kind of assumed, you know, like the kids take care of the parents. And, uh, and actually, you know, here and there's a stat from the CDC here in Minnesota, I'll share that just a second. But something like 85% of caregivers, they actually end up caring for a relative or a loved one. So the responsibility does end up falling a lot of times on the children. And Gen Xers are actually having to experience that now more than ever, as their parents begin to age and as they begin to need some care and assistance. Um, you know, here in Minnesota, the CDC reports that, uh, 23.5% of adults over the age of 45, uh, end up being a caregiver to a friend or a family member, um, you know, and that's that could be hard to balance, you know, if if you're 45 years old and you're looking at retirement being less than 20 years away, um, you know, how much of your resources go into caring for somebody else, while at the same time, you have to balance the idea of making sure that you're setting yourself up for retirement? No, that's well said. And I think, uh, we know the baby boomer generation tends to be called, uh, the sandwich generation because not only are they still taking care of some of their adult grown children, but they're also taking care of their parents.

Speaker3:
That's actually the next topic, and that's where we're going into our next topic. Yeah. So one of the things that, uh, that's worth looking at is when you start planning and actually, I was talking about this in our class the other night is I said it at our class. I said, if you only do two things before you retire, the two most important things, in my opinion, is one is you need to look at your true living expenses. So you'll say, you know this almost every week I send out the couple and I'll say, what do you guys think you spend per month? And they'll say, well, we don't really live on a budget, but we filled this budget sheet out and they'll hand it over to me in preparation for our appointment and they'll list out their mortgage if they still have one. Their property taxes, their insurances, some groceries. And that list will say something like, you know, $4,000 a month. And I'll say, hey, that's really helpful to know what your fixed expenses are. But really, what we're talking about is your true living expenses. And I'll say, the best way to get to that number is something that Dave Ramsey, one of the top financial gurus in our day, will say.

Speaker3:
It's called zero net budgeting, which really means you add up all of your net income minus savings. So I'll say to this couple, what do you guys bring in per month? And after spending a few minutes adding those things up, you know, their expenses end up being or their income ends up being about 7500 a month or whatever it is. So I'll say your expenses are 4000 a month, your income is 7500 a month. So you guys are saving $3,500 a month. Well, the husband will look at his wife, and the wife will look at her husband and they'll go, we're not saving 3500 a month. We're not saving anything. Our savings may ebb and flow, but year over year, it's staying at 10,000 or 20,000 or whatever that number is for you. So what we know is your fixed expenses are 4000, but your living expenses are 7500. And the reason I bring that up is because you might be living on 5 or 6000 a month, but then your adult kids, maybe they're still on your cell phone plan. Maybe they're still on your health insurance. Maybe you're helping your parents with groceries or gas money. So all of a sudden you're spending an extra 1000 a month or 1200 a month, or $1,500 a month on expenses that are not yours. And you also say, one of the things that we see is there's a lot of people that could easily cut 4 to $600 a month out of their budget without changing their lifestyle just by living intentionally.

Speaker3:
And there's a lot of families that we work with that have saved a half 1 million or 1 million bucks, and spending an extra $500 a month over 30 years is the difference between being okay in running out at an early age. So one of the things that you want to consider is, do you have additional expenses because of the people that you're taking care of and are some of those things that over a year that you can hand off or hand back to the people that you're supporting? So yeah, I've always kind of thought of it differently. You know, I have a ten, 11 and two year old and, uh, the advice I'm always getting is, hey, you know, it just it goes so quickly, you know, you really need to cherish each and every moment. Before you know it, they're going to be grown. And, uh, you know, everybody tells you that and, you know, enjoy it while it lasts. And it sounds like really good advice until, uh, your your 40 year old son Doug is still living in your basement and, uh, you know, and, uh, you know, those, those pesky kids, they just they tend to hang around a little bit. And, uh, if that is, is is an expense that you have to contend with, in addition to potentially caring for your parents and preparing for retirement.

Speaker3:
Uh, you know, it could be a tall order. And not to mention, you know, when most people talk about having a budget just like Trey, just like you said, you know, they they can't even spell the word budget. A lot of times they're so disconnected from what they. Truly spend, uh, you know, Yahoo Finance did a report and they actually showed that 47% of parents financially support at least one of their children. Well, 47%. It's actually it's up it's up a little bit from the year before. Um, and here's the worst part. The percentage of adult children who live with parents who don't contribute to any of the expenses, the household expenses is like 61%. Wow. Now, you know, obviously, we actually we have some clients that that have some children with chemical dependency needs and children who, uh, you know, maybe just haven't been able to establish themselves in their career or whatever it is. And, and it's one thing to give somebody, you know, help as they need it and help them get, get, um, established in life. But sometimes, you know, that's, uh, you know, when ten, 15, 20 years have gone by, I think at some point it's just, you know, that just needs to be added to your budget and your overall plan because maybe things aren't going to change. Yeah. That's good point number three. One third of retirees are living on Social Security alone.

Speaker3:
So here's what's interesting. For over 50% of Americans, your Social Security paycheck ends up covering half of your overall retirement income every year for the rest of your life. A third of retirees don't have a pension, and they don't have any retirement savings, so they're living on Social Security alone. What's scary about that is you look, is Social Security has a cost of living increase, which over the last ten years has averaged 2.75%. That's designed to reflect inflation, which is CPI for urban. The U stands for urban. But one of the things that people on Social Security or maybe a fixed pension are finding is that that pension that's fixed and that Social Security that has the cost of living increase are not actually keeping up with inflation. So one of the challenges that we see a lot of people have is that when they go to retire, they need to cut their expenses by 25 to 30%. And not only are they not cutting them a lot of them have the same expenses or because now they have six Saturdays and a Sunday, they're actually spending more. So if you're somebody that's concerned, hey, do I have enough retirement? One of the things that we offer is to do an analysis to say, how long does your money last? In fact, I met with a wonderful couple yesterday that attended one of our classes, LSA, and, uh, they'd never worked with a financial advisor before.

Speaker3:
They've done a good job saving. They had a 401 K. Uh, they'd saved a little over a million bucks. And they said, we have no idea if we can retire at 65, 67 or 70. They said, we've never done an analysis. We have no idea of what taxes look like in retirement. They had never had a conversation around, uh, required minimum distributions, which are those taxes that are forced upon you at age 73 to 75, depending on your birth year. And we walked through and I was able to show them, hey, if you guys stay on track with your current expenses, your money's going to last until you guys are 93 and 98. And they both kind of laughed and they said nobody in our family's ever made it past age 85. But the reason I say that is if you've never done an analysis to say, am I going to be okay if I retire in a couple of years, does everything look good? One of the things that we'd love to offer is a complimentary analysis to say, does everything look good? Is everything in order or can things be, uh, improved? And you can give us a phone call at our phone number below? It's going to be on the screen, or reach out to us at our email tray at google.com or LSA at Google. We'd love to help you with that. Yellow.

Speaker3:
Say what's next? Yeah. So the next thing is, uh, we touched on it a little bit is, uh, budgeting for retirement. Uh, you know, and more specifically, the lack of budgeting. You know, we we talked about how that's sometimes an issue for folks. They they, uh, you know, they have no idea what they're spending their money on, where their money is going. And we often say, tell your money where to go instead of wondering where it went. And, you know, I think we make, uh, we make a lot about, you know, the different stages of, of life. We talked about the accumulation stage and how that might be different where you're just contributing to your 401 K your, your, uh, deferring your compensation. You're doing your due diligence. You're making sure that you're making good decisions over time, uh, delayed gratification and, and that kind of thing. And then eventually you get into the preservation stage and eventually the distribution stage. But I would argue that, like, you know, for us, we're not necessarily talking about those stages as much as we are the different stages within a retirement. And I actually think you do such a good job explaining the go go years, the slow go years and no go years. Maybe you could touch on that a little bit. Then I'll jump right back in. Yeah. So one of the things that we find is when you if you think about it, if you're still working, you spend like you likely spend most of your money on the weekend, right, on Saturdays and Sundays and probably most of it on Saturdays.

Speaker3:
So now all of a sudden you retire and you go from working Monday to Friday, Saturday, Sunday to six Saturdays and a Sunday. So people tend to spend more money because you have more. Time for home remodels. Uh, maybe you decide to upgrade your vehicle. Uh, you guys travel more, you eat out more. So typically, what we find is outside of any debt that you've paid off right before retirement, typically, you end up spending, you know, an additional 10 to 15% a year. And that can be for five years. That can be for seven years. And if you're young and healthy and, uh, you've got big hobbies that can be up 10 to 15 years, which is significant. But then what we see is when people hit their 70s, typically they're not taking as big A vacations. They've already done that remodel on their home. They've bought the car that they're going to have for a long time. A lot of couples are even sharing a vehicle. Then you hit your 80s. We call those the no go years. Uh, I recently had a couple that we invited to one of our client appreciation events and they go, hey, uh, we're in our mid 80s. We've decided not to go out anymore. If we want to see people, we invite them to our.

Speaker3:
Also. You can come see us. Uh, but we're not going out. A lot of them, uh, each of them had, you know, some things that caused pain for long walks. And so, anyway, so typically in your 80s now we start seeing your expenses drop outside of medical. And so one of the things that we can build out is your go go years, your slow go years and your no go years to say how long does the money last as we enter in these different seasons of our life? Yeah. And the part that I want to touch on is the go go years. Because usually that's in your early 60s or mid 60s sometimes. And the reason why these are the critical years is because you have some flexibility at that time. Uh, maybe if you're married, maybe, you know, one benefit on Social Security is turned on, maybe one pension is turned on, but maybe not both. Right. And for sure, you know, your RMDs are potentially ten years away. So there's some flexibility in terms of the type of income you introduce. And that really could make a huge difference, uh, for the rest of retirement. And the reason why it can make a big difference is, you know, in those earlier years when income is low, you have opportunities to do a few things. Some people, they just end up turning on both Social Security benefits and they bridge the the other income source need from other places.

Speaker3:
But for others, they take advantage of those earlier years and they do some Roth conversions. Income is low. Maybe you're in a lower tax bracket. Maybe it's a bracket that you're never going to be in once. Eventually you get those RMDs, um, you know, so Roth conversions are a really popular alternative and a great alternative for many folks. Uh, they not only do they accomplish what you would expect converting money into a Roth IRA, uh, but sometimes people do that for legacy and inheritance purposes. Uh, the other opportunity is maybe living off of those pre-tax accounts, bridging the income gap with your IRAs or 401 KS. Right. Because that was the idea all along. Put money in your 401 K or IRA, uh, defer your compensation. And then later, when you eventually reach retirement, you're going to be in a lower tax bracket. So maybe that's exactly what you need to do, uh, to live off of some of those pre-tax accounts where income is low in those earlier years. But another alternative is your after tax accounts. You might have some highly appreciated stock. Uh, we know that stock that's been held for at least a year and a day gets the benefit of long term capital gains treatment, which starts at 0%, 0%. Our ordinary income taxes, that starts at 10%. It goes to 1222 2432 um, so anyways, on our on our long term capital gains, you might be able to live off of the highly appreciated stock if you're still in the 12% tax bracket or below.

Speaker3:
Um, and you don't actually have to pay anything in taxes on the gain that you've, you've accumulated over that time. So there are alternatives. But really the biggest thing is just understanding what you have, what your options are, what makes the most sense, laying everything out and having somebody guide you through that and not just giving you one solution because you know, somebody is is, you know, it just seems like everybody seems to have the same prefabricated solution for everybody. And what we find is, you know, there is no one glove fits all. It's important to explore all the different options to make sure that whatever you end up doing that, it's consistent with your goals and objectives for retirement. And in those in the go go years, as Trey talked about, it's that's I would say that's the most critical time to get it right. Uh, in those early years of retirement. Absolutely. Are we on point number five? I got so excited I missed it. Uh, yeah. Well, actually. Hold on. So, um, we're on point number four, the second part of that and really, you know, it kind of all goes goes in together. But there is actually a Harris poll was conducted in 2023. Uh, it's a consumer budgeting report. And it found that, like, I was actually shocked by this number.

Speaker3:
74% of Americans reported that they had a monthly budget. Like, if you just heard that on its face value, like, I feel like people don't know what it means to have a budget because we encounter so many who don't know. Think about this. We meet with easily 3 to 400 new people a year between the advisors that we have. Cpas and our insurance agents. And what I've found of the people that I meet with are less than 25% actually have a budget. So I don't know if they went, maybe they went studied a bunch of Harvard grads and well, you know, I was going to say is, you know, and think about who we're meeting with. We're meeting with people in their 60s. You would assume that, like, hey, it's they're more responsible right now. They're part of the baby boomer generation. Well, I think I think what's interesting is, is just because you have a budget doesn't mean you're, you're responsible. So we also meet with a lot of people that, you know, by the time they're in their 60s, they're millionaires. And they didn't live on a budget, but they live by margins, which is how my wife and I do things. We don't set a dollar amount. We set percentages and we save X amount per month. And then whatever the other is, is, is there. We live by margin. So there's a lot of people that they don't have a budget, but they live below their means and they've got great savings and great equity in their home and a great 401 K.

Speaker3:
So you don't necessarily need a budget, but you do need to live by margins, and you do need to make sure that you're, uh, saving before you get paid so that you're you don't have to worry about it. But we also run into people all the time that outside of the 401 K, they're not saving anything. Or not only are they not saving anything, they're adding to that credit card every month, and they've never taken the time to look at what 25% interest on a credit card looks like. And they never pay it off. And based on what they're paying, they never will. So yeah, there's a lot of variables that we see. Yeah, I mean, obviously, and we know that the credit card debt, um, balances that people are carrying forward, that's at an all time high. Uh, but one thing that I actually from the study that I, that I thought was pretty accurate, uh, it found that 83% of those people. So 74% say they have a budget, a monthly budget, 83 say they overspend their budget on a monthly basis. They do it regularly. I kind of thought to myself, well, if you're going to overspend your budget or the margins you've outlined for yourself, what's the point? You know? Right.

Speaker3:
It's, uh, it's just a constant reminder that you're not getting it right, you know, for sure. Uh, and then, you know, the last thing I'll share on this is, uh, 24% of Americans actually say they have no emergency savings, and 39% say they have less than one month's income saved up if there was a financial emergency. And, uh, you know, those numbers are staggering. It's it's quite low, you know, and, uh, especially based on the priorities when surveyed. Hey, like, what do you think is the most important thing that you need to have in your financial resources? In line for most people said it's for their emergency savings. You know, 48% of people said that that's the most important category, uh, followed by 36% who say investments and retirement planning are the most important category. Well, all right, number five, your standard of living is probably going to change in retirement. So I think one of the great things that people can do is is really take control of their money back. And what do I mean by that? When we meet with people that are having expense problems or debt problems, it's typically because they've overcommitted to fixed expenses. So let me give you two arenas I met with. Uh, actually, here's a great example. I did a coaching call for a large group of really young men. Uh, it was about 165 men the other day. And I offered to this group of guys, I said, hey, I said, if any of you want 30 minutes complimentary, we actually don't even serve people in their 30s and 40s unless it's, um, you know, kids of a client of ours could be because we're so focused on retirement age.

Speaker3:
But I said, if you're on this phone call and you want 30 minutes, I want to give you 30 minutes of my time just to help you get things in order, because I think sometimes we overvalue the idea of running into, uh, becoming rich or wealthy, but we undervalue what stability looks like. And one of the things my dad always told me growing up is he said, Trey said most people spend their whole life living 30 days behind with stress and anxiety, not enough money, and if they just had a little discipline, they could spend their whole life living 30 days ahead. So one of the things I'd encourage people to do is to sit down and and have a monthly meeting where a bi weekly meeting with your spouse on what are your expenses, where's the money going? And so the two mistakes that we see a lot of people make is they overcommit. So let me give you an example. Last Friday I had a phone call with a sharp guy. He's 40 years old and has five kids. Wife's a stay at home mom. He makes $130,000 a year. And he said, Trey, you said something on the phone call that nobody's ever said.

Speaker3:
He said, everybody always talks about having a budget problem. He goes, but we don't have any debt. He said the problem is, is that we purchased a home in Minnesota last year. Our interest rate is almost 8%. And he said, even though I make 130,000 a year, our mortgage is 45% of our take home pay every month. So I told him. I said, man, you actually don't have an income tax problem or excuse me, you don't have an expense problem, you have an income problem. I said, based on the city that you live in, you don't make enough money for a family of five to be comfortable unless you know, you had a significant down payment on a home, or you lived in a home that was potentially way too small for you. So one of the things that they made a mistake on, though, in my opinion, is that they weren't in the right financial position to purchase, uh, what they ended up purchasing. So here, 45% of their income every month is just going towards their NI, their home insurance and their home taxes. So how do you live on the other 55% when your wife's at home and you have five kids? The answer is you can't either his wife has to go back to work, they have to downsize their home, or he has to earn more money. So I only say that to say as as you're thinking about retirement, don't go purchase a home that's above 33% of your take home pay every month.

Speaker3:
That's a really good number to use if you want to be comfortable and housing isn't important to you, keep it below 25%. The other mistake that we see people make is they go purchase a new vehicle. I ran into a couple the other day. They finally paid off some debt. They had extra money every month, and then he decided that he earned an $85,000 a month or $85,000 truck. They purchased this truck. They put a chunk of money down, but their payments $1,300 a month. And I'm like, man, you're spending $1,300 a month on a vehicle, and you had just paid your other vehicle off. If you have the money to do that or if that's a priority, then it's not a problem. But if you're tight every month because you have a nice truck, uh, in my opinion, uh, living above your means is not a way to live in financial peace. So watch for those fixed expenses, because it's very difficult to reduce them without eliminating those big payments every month. Uh, so watch out for where you have your fixed expenses with one of my suggestions. What else you say? Well, I think to to piggyback off that a little bit, we there's a lot of talk about downsizing. Downsizing your house. The kids are out of the house you don't need.

Speaker3:
Or maybe you don't even want to take care of a house that you know is big enough for a five person family. And a lot of times people think that by downsizing, they're actually going to reduce their monthly expenses substantially. And we've seen that, you know, sometimes that's not the case. And I think that the biggest problem, the biggest challenge that people have to overcome is their own estimate and their own valuation of their own property. Sometimes that's not very accurate compared to what it actually might bring in. So people overestimate the value of their homes all the time. And then when they go to sell, a lot of times the biggest mistake they make is, um, you know, everybody knows that, like, hey, it's time to sell my house. I better get everything in order. I better make these updates. All the things that maybe you sit down with the real estate agent and they point out all the things that in your house that are outdated and need to be repaired and need to be worked on. And we found and actually there's a number of studies that support this. Sometimes you're throwing away money that doesn't end up getting recouped when you go to sell the property. Yeah. So what are some of the areas that are worth investing in? Actually, let's do this. What are some of the areas that people think they're going to get their money back and they don't.

Speaker3:
Well, I've always thought this and and I know you and I have kind of agreed on this, like, hey, you know, if you're going to put those dollars toward something like, I mean, everyone says kitchen and bathroom, right? Put the dollar, update the kitchen, update the bathroom. That is one way to ensure you're going to get that money back when you go to sell. Um, but that's actually not the case. Um, you know, so there's actually there's a magazine, uh, it's called, um, gosh, what is it? Um, I think it's called renovate. And they did a they do a national survey and national study every single year. So you can actually you go to their website and you can, you can hit the dropdown menu, and you can toggle between each year to see, hey, in 2023, what type of home project, uh, was able to aid in the resale value of your home and help you recoup the cost? And there's a few things that are a little surprising out there. And unfortunately for me, I was wrong. Kitchen and bathroom remodels are pretty far down on the list. Uh, number one for 2023, which that was actually the an HVAC conversion. Yeah, yeah. And number two, the Ronnie and Unexciting do an HVAC conversion. Like your wife doesn't come home and go bam! Thank you for improving our HVAC system. Well, I guess I could do the work properly. Maybe.

Speaker3:
Right. Especially if you have one of those hotter states. Maybe it's broken, but the improvement of it is the second one that you just said this was. Garage door. Yeah. Garage door replacement. Apparently 102%, uh, cost the cost of that is recouped at 102%. I can't even imagine my wife being excited about a garage door compared to a kitchen or bathroom. Fancy garage stores out there. I actually had to replace a garage door last year because a I think you should share the story. It's an amazing story, so I'll tell the story. I'll tell it quickly. But, uh, actually, two years ago, uh, my vehicle had a light that said my brake fluid was low. And I've been driving, you know, for a long time, right? 20 plus years, my own vehicles. And I've never had a vehicle that said my brake fluid was low. I even thought, like, is that even a thing? Because I'm not a, you know, I'm not a mechanic. And I thought, well, I don't know how long you can go with your brake fluid being low, but I'm gonna be smart and I'm going to go within a day or two. So the day after, I was like, I'm gonna drop my vehicle off because the last thing I want problems with is my brakes. And I backed out of my driveway. I had forgotten something in the house. Uh, so I was like, oh, I better pull forward.

Speaker3:
So I pull forward. And I was, you know, probably going five, six, seven miles an hour. And, uh, I stomped on the brake and it was winter and the brake didn't work, and I thought that I hit some ice, and maybe I did, but the pedal went all the way to the floor and my vehicle didn't stop. So we went through the garage door and I ended up smashing it to pieces. It was a wood garage door, and I was like, what in the world? I must hit some black ice. So I had my vehicle towed in, and they found that a chipmunk or a squirrel had eaten its way through the brake fluid line, and all of it had poured out. And so my brakes effectively didn't work at all. And I was like, man, thank God I wasn't driving down the highway. And all of a sudden my brakes were gone. Yeah, um, you know, I have enough. I have enough life insurance to take care of my wife and kids, but maybe maybe enough to that it would have made my wife's next husband rich. And that's not something I want to do. Really. And so the moral of the story two what are the chipmunks and squirrels within your portfolio? Yeah, I'm just kidding. Well, so then I had to replace my garage door. Right? And so the problem is my house was built in 89, so I replaced it with a new door that visually it matches the other doors.

Speaker3:
But it's not wood, it's insulated. So now over time I'm going to have to replace the other one. So the good news is, at least I know in Minnesota I'm going to get 102% of that back. So at least I feel better about this. Yeah, it's amazing how you had no idea what kind of a blessing that was. Yeah. I'm gonna I'm gonna I'm gonna make 2.7% on that money that's here. A few other things I'm gonna highlight real quick. So if you do a minor kitchen remodel, you can recoup 85% of that if you replace your windows. 68%, uh, a bath remodel. 66 I really I just want to get down all the way to the kitchen remodel. Okay. Yeah, we do a major kitchen remodel. You can only on average here in the United States in 2023 recoup 41% of the cost. Well, that is surprisingly low. That's not a good investment. Do they? Do they measure what you get back in wife's happiness? That's on another year rather than you did. And it turns out some men value that more than others. Okay. Let's what else. So let's let's go to number seven. 80% of American retirees never leave their state. Oh, probably because of how often people talk about leaving their state. I think it's because we live in Minnesota. Everybody talks about leaving. But if you think about it, like when I graduated college, I had a job offer and it was a really good job offer, but it was out of the state.

Speaker3:
And I remember thinking these guys outside of like tripling the income, they couldn't pay me enough to leave my family, my wife's family, my sisters, my brother, because I value family so much. And you think about this, a lot of people don't have great families, and I was blessed that I do and did have a great family. So if you don't have a great family, maybe that's the 20% of people that move. But if you do, it's pretty difficult to give that up unless you have a great opportunity. Or maybe you have the kind of family where you see them more when you're in another state, or as much as when you live with them. You know my sister, she lives in Oklahoma, and I think I see her more with her living in Oklahoma than I did when she was in Minnesota down the street. Yeah. So here's what's interesting. 80% of American retirees never leave their state. Uh, and some of the reasons might be health care. I talked to a couple yesterday at one of the classes, uh, two days ago, and they said, man, we'd really love to move, but Minnesota has amazing care for our adult daughter who has special needs. And we've looked and there's basically no other state that offers the same health coverage that offers the same benefits.

Speaker3:
Uh, that actually helps financially with, uh, people that come in and, and help when they're gone. And so what's interesting is, uh, there are a lot of things that may be keeping you or holding in your state. And we've even seen people that maybe they have an adult child that has special needs. They've moved away and they've come back to Minnesota because for all the tax that we pay, Minnesota actually has a lot of care for things like that. What are some of the other things we see? Well, I do I do take issue with one of the things you said, because I, I seem to remember not last winter, last winter was fine, but the winter before. I remember you talking about potentially leaving the great state of Minnesota. Yeah, well, I think I'd remind you that everybody talks about it, right? They sure do. They talk about favorable tax rates and all and better weather and all kinds of things. But you know what I think we've seen more often than not is people that are retirement age that end up moving back to Minnesota or actually moving from states like away from states that you typically think like, hey, most retirees are are attracted by moving to Arizona or Florida or California. And we've had a number of people over the last couple of years that initially started in Minnesota, moved to those states and then came back.

Speaker3:
Right. No. That's true. I'm going to move to point number eight. Most people have a retirement portfolio that is not keeping up. So you let's say in our office, uh, my licensing is all the safe investments. Your licensing is all the risk. Risky investments or investments, I should say at risk. But one of the things that we do see is people's portfolios not keeping up. So sometimes we're having conversations with people, uh, or at least, you know, you are in our meetings about they have too much risk. Yesterday I was having a conversation with somebody, uh, about not having enough risk. So she was 70. She is 73 years old, and she likes safety, but she had 65% of her money in bond funds that over the last five years have had a loss. They've actually not made any money. And, you know, one of the things you said and you touched on, but the performance of bonds has not been great lately. Can you touch on that for a second? Yeah. And I think the bigger problem is, you know, when we ask prospective clients or people who are looking for a second opinion, like how much time and effort has your advisor taken to get to know you, to understand what your specific goals and objectives are, and how much time have they put into the solution? Making sure that that matches what you're hoping to accomplish in retirement. And there's a huge disconnect.

Speaker3:
And like every time we do a second opinion, like it doesn't really take much effort at all to find these inefficiencies within somebody's portfolio. Like they're telling us one thing, but their portfolio doesn't match what they're telling us. And I think if if anyone, just anyone doing like, even like a halfway decent job, where to take a little bit of time, they could identify these things and make improvements on, on behalf of their clients. Um, and sometimes, you know, it's a matter of, you know, do you have too much equity or bond exposure to level one or, you know, one way or the other? Sometimes it's it's, you know, being overexposed to certain industries and sectors. I talk about this all the time, and sometimes it's just, you know, assuming too much risk and in one way or another, or paying too much in fees. Um, and that's, you know, that's one of the places that we like to start. Obviously, we not only do we, we, uh, review investments, but also just like your overall plan, making sure you're drawing from the correct places and that you're, uh, you're aware of the taxation and all the various things that go into planning for your income and retirement. Well, I think the other thing is, most people, I think, especially Minnesotans, tend to be loyal people. And it's great to be loyal. But I think sometimes we can be loyal to a fault.

Speaker3:
And what I mean by that is you've worked with your advisor for ten years, 15 years, 20 years, and you've never had a second opinion just to make sure that your guy is still doing the best that can possibly be done. And for a lot of people, that's confirming that he or she is. But some people don't realize that they're in an older model of investing, or there was somebody that has fallen asleep and hasn't made any adjustments on their portfolio in a long time, and adjustments should have been made. So that's what. Oh go ahead. Sorry. I'll just say so it's worth having a second opinion. And I think one of the things I love about what we do is we're certainly not perfect, but we're genuine. But we tell people all the time, hey, your advisor's doing a great job. But we also run into where people's advisors are not doing a great job. They, the advisor, knows that you've been with them. They assume that you're not leaving, so they may not be giving you the attention that you need and deserve. Uh, there's definitely a lot of complacency in, in, you know, one of the things that we hear from people all the time is, hey, I haven't heard from my advisor in like a year or two years. And, uh, I'll just let you know that the quickest way to hear from your advisor is to hire us and move your assets together.

Speaker3:
I can almost guarantee that they'll call you. And, you know, I say that jokingly, but I can't tell you how often that happens. Where? Oh, I can't tell you how often somebody says, man, I didn't realize it was like what I wasn't getting. And then when they leave, doesn't matter if they have a half a million bucks or 2 million bucks. A lot of times the advisor they had doesn't notice for three months. Four months, six months, a year, and then we'll call and say, hey, what happened to you? No. It's fine. Six months later. Yeah. Uh, point number nine. I think this one's actually a really interesting. Over 35% of retirees still have a mortgage at age 65. One of the things I want to say is I think there's a lot of things out there that's not necessarily misinformation, but it's not the best information. So let me give you an example. Every almost every week I'll have somebody come in and they'll say, um, we still have a mortgage. And they say it almost like they're embarrassed by it, or they failed and they should have had it paid off. And I'll tell you, is it nice to have your mortgage paid off in retirement? Of course it is. The less debt, the better. However, there's a lot of people that they've done such a good job saving. They borrowed money at the right time, like many of us were.

Speaker3:
Their interest rate is two and a half or 2.75 or 3%, and their investments are averaging 8% or 10% or 12%. If you have a 3% mortgage and and your portfolio, your retirement is well funded, I wouldn't necessarily take a chunk of money out of an account that maybe its in a money market at fixed it for four and a half or 5%, and go pay off a mortgage that's at 2.7% for a lot of you, that borrowed money is almost free. And obviously what I mean by free is it's very inexpensive. So I tell people all the time, if you have a mortgage and your interest rate's under 3%, quit making extra payments. You'll you'll likely never see that again. In fact, you're probably going to wish that you could double what you're borrowing at 3%. And so I just want to encourage you. Just because you still have a mortgage doesn't mean you failed, or doesn't mean you failed in planning for retirement. In fact, that might be a great financial decision, especially if you're an efficient portfolio, even a moderate conservative portfolio that maybe has been averaging seven 8% or more over the last decade. So don't be discouraged because you still have a mortgage. In fact, some of our clients that are in the best position still have a mortgage. Yeah, I 100% agree with that. And I think we have to wrap it up for, for this podcast. But yeah, it's, it's it's a little bit more complicated and uh, than simply saying hey debt bad, mortgage bad.

Speaker3:
You know, there's, there's, there's more nuance to it than that. And, and I know sometimes we're just conditioned to think in those terms. You know, we've always heard that this is the right way to do it or this is something I need to avoid. And really, you know, when you have a conversation with someone like, like Trey or myself who have these conversations on a daily basis, we can help dissect what makes the most sense for you and your specific situation. Yeah, absolutely. Well, uh, I know we're wrapping things up. Here's what I want to say to wrap things up, if you've been listening or you just started listening, uh, you might have a great advisor or you might have somebody that prepares your taxes that's doing a really good job. But if you ever had a conversation with somebody that has everything under one roof, I think one of the things that, uh, the families that we serve value so much is whether you need all 6 or 7 of the services that we offer or you need one of them, our goal is just to serve you in the things that you need. Maybe that doesn't lead to us working together today, but what plan do you have? Or who's your backup advisor? If your guy retires, are you happy with the person taking over their book of business? Are you happy knowing that their son or daughter that's taking over the business is going to serve you as well as they did? And so one of the things I tell people is we're great to have as a backup plan.

Speaker3:
And that way if anything ever happens, you have a relationship that started with somebody else to serve you in your needs. So if you've never had a second opinion and you don't have a backup plan in case your tax preparer retires or your financial advisor retires, or in case something sad happens, we run into people all the time and they'll say, hey, we went to one of your classes five years ago. I'm so sad to report that my advisor passed away from cancer. Or, uh, you know, something terrible happened, and I haven't heard from anybody in their office. And I got a letter that basically he's been done for six months or a year. Do you have a backup plan? So, um, one of the things that I want to offer is just to start a relationship in case anything ever does change. If you're interested in having that conversation, feel free to reach out to us, our phone number below my email trey at G wealth or yours, the LSA at G wealth. And we'd love to start a relationship just so that you do have a backup plan in case something were to happen. Don't say anything to add to that. No, I think we covered it all and, uh, we look forward to next week. Have a great week. Thanks for tuning in.

Speaker2:
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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