Developing YOUR financial plan – Getting THROUGH retirement, not just TO retirement

Updated : Sep 11, 2019 in Articles

Developing YOUR financial plan – Getting THROUGH retirement, not just TO retirement


>>LYDIA PALMER: Good afternoon. And welcome
to another meRIT webinar. This virtual event series was created exclusively for RIT alumni
through the RIT for life commitment to your continuing professional and personal education.
I’m Lydia Palmer, director of marketing and communications here at RIT and your moderator
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And with that, let’s get started. Today’s webinar is developing your financial
plan, getting through retirement, not just to retirement. This is the third and final
installment of a series of financial planning on financial planning. A recording of the
first two installments is available on the RIT Alumni Association YouTube page. Our presenter
is Joe Boyd, an RIT chemistry alum from the class of 2004, a financial advisor at Brighton
Securities an independently owned financial services firm serving clients in Rochester
and around the country for more than 40 years. Following his time as a QA/QC chemist and
project engineering, Joe has been in the financial services industry for 7 years, 6 of which
have been with Brighton Securities. As a scientist, by challenge, Joe drives a
data driven and thoughtful approach to financial advising. He specializes in critically analyzing
complex client information, researching various strategies and making recommendations to clients
that are designed to help them address their specific needs. He wants his clients to know
not only what investments they have but also why they have them. Joe is a valued volunteer
at RIT and has frequented the Rochester alumni chapter events.
He lives in Victor with his wife Becca and values his family time with their son Aaron
and his daughter Melody. Joe, it’s yours, take it away.
>>JOE BOYD: Thank you very much, Lydia, and thank you everybody who’s able to join us
today. For anyone that’s in the Rochester western
New York area, you probably have been dealing with a lot of weather constraints, um, so
we appreciate anybody that was able to attend today.
Today, we’re going to be over the last segment, developing your financial plan, um, and what
I tried to achieve through this presentation is try to simplify it the best that I can,
um, because when you take everything into account, um, there’s a lot of moving parts
and typically tornado warning to do it on your own is going to be rather challenging
and we’ll talk throughout the presentation about what other tools that there might be
available readily accessible to you. Um, but with that we’ll start off with things
that we want you to learn. One of the things is the different elements or factors to consider
in putting together your plan. Also, how to build your unique plan and I would like to
stress the unique portion because similar to everybody’s fingerprints and faces, um,
your plan, your financial situation is going to be different and, therefore, your plan
will be different and, again, I mentioned this in previous seminars and I’ll say that
again and that is oftentimes clients will ask me well, how do I compare against other
people my age? And I have to tell them that, well, overall, you’re doing fine, just like
everybody else, but everyone has different needs and desires and living standards and
things like that. So it’s really hard to compare you against somebody else because you’re so
different. Um, the next thing we’ll go over is how to
get started, again, trying to simplify some some things to get you started in the right
direction. And then also how to assess your trajectory along the way and make sure that
you’re staying on track, so to speak. So let’s start with the elements to consider,
um, fundamentally one of the first questions that I ask is, you know, well, when do you
want to retire? And>>LYDIA PALMER: Joe, let me just jump in
here and let everyone know there’s a polling question on the side we have a couple of polling
questions through the webinar and if you can please go ahead and answer those questions
while Joe’s continuing, um, that’ll give him an idea of who he’s talking to out there.
Thanks.>>JOE BOYD: Yep.
So the dates that we’ve listed have have specific milestones associated with them. So before
59.5 anybody who wants to retire before 59.5, they need to take into account and consideration
that they have enough assets that are not necessarily retirement focused like in an
IRA or a 401K because if you take money out before 59.5 generally, um, you will incur
10%, um, penalty for early distribution. On top of being taxed at taxing income.
At 62 is currently the earliest that you can take social security so it’s for people that
are planning on taking social security at 62 and retiring at 62, um, that can come in
to play in regards to, um, what income sources you see are available.
65 is the age at which most people currently are eligible for Medicare and health care
is a huge consideration for a lot of people ’cause unless you’re really lucky, you’re
like some of my either Government employees or, um, teachers those that work in the New
York state education system, um, you don’t typically getting a retirement health care
benefit and so 65 is typically one that, again, unless you have the resources to self fund
or self insure yourself that is a big consideration to take into account.
And for everyone born after 1960, 67 is going to be the full retirement age and that goes
down as low as 66 for those born between 19 between 1943 and 1954 and before that 65 was
the full retirement age and then 70 is the latest that you can take social security where
you get the greatest amount of the social security benefit and, again, depending what
your income are and what your expenses looks like, sometimes 70 is going to be the option
that they need to take. The second biggest consideration or maybe
even first if, I guess, if you really want to think about it is how much do you want
or need to spend in retirement? And so the things to consider is, you know there’s two
sides. There’s the how much income can you expect in retirement and then how much expenses
do you have in retirement? And is there other money left over for other things like travel
like going out to dinner more often or concerts and things like that or is there a deficit
again, and if there’s a gap, the question is how much can you generate income from the
investments that you have, um, and when we talk about how much do you want or need to
spend in retirement? Again, those fixed expenses like mortgages, car payments, um, utilities,
cell phones those are all things to consider and if you want to give yourself a better
opportunity to be able to retire earlier, typically one of the things you want to consider
is definitely getting as many of those fixed expenses eliminated or minimized as possible
going into retirement or before retirement. Also, what kind of lifestyle do you want in
retirement? And this goes to the polling question that’s been put up and a lot of people initially
think, well, I’m not going to have my mortgage. I’m not going to have these other expenses
or bills that I have currently, um, but when I think about it, and talk to clients well,
I would say at least you want to maintain your quality of life or standard of living,
um, but if you’re doing a great job and you’re saving and you’re making sure that you’re
being prudent and saving for tomorrow by sacrificing a little today, ideally you’d want to be able
to take a little raise or be able to travel a little more than you currently do. So the
expenses that you currently have typically will just be translated to a different expense,
again, like a vacation home or, um, just vacation in general. RVs are a big thing.
>>LYDIA PALMER: A question>>JOE BOYD: Uh huh.
>>LYDIA PALMER: There used to be a sort of a formula that said you need, like, 75 or
80% of your annual income in retirement, um, is that still valid or is that just something
that we don’t even discuss anymore?>>JOE BOYD: Well, so, we need to make a distinction,
right? There’s two things. The retirement income and retirement spending. So when I
and that question of how much do you want or need to spend in retirement, I’m talking
about monies after tax and so if you look at how much retirement income do you need?
That’s probably before tax. So a 20% discount taken into account for taxes and things like
that, um, is probably a fair estimate, um, so, again, I go based on retirement spending.
So net of taxes and how much do you need and then I work my way back to what the retirement
income would be, again, based on tax rates and that’s something that’s a little harder
to predict because we know what the spending dollar is, right, after taxes what we don’t
know exactly what the tax rates could be in the future, um, sort of plan based on retirement
spending versus retirement income, I think, is is made a a better approach.
So a good place to start is how much do you spend today? And again, I go after tax what
is your monthly income or that you see for paychecks and what does that translate to
on a monthly basis? Um, and then from there, we say, okay, let’s inflate this to account
for inflation by, you know some people say 2% because we’re a low interest rate environment,
some people say 2% and some people say 3% and some clients who want to be more conservative
and thereby put a drag, so to speak, on, um, the projections, we use as high as 3.5% inflation
rate because then what we’re doing is hoping we have less inflation and, therefore, they’ll
have more assets saved up to be able to account for less retirement spending than what we
were currently projecting. Um, the next consideration, the element so
to consider is how much can you save each year. Everybody save each year? Everybody
has different capacity and different lifestyles and really who I can to a lot of clients in
the beginning and we start off budgeting conversation, a lot of times people say, well, I can’t save
any more, you know? I’m not living high on the hog. I’m not spending, you know, like,
crazy. I feel like I’m just getting by and paying for different, um, regular bills and
things that I have and but when we really dig down to individual spending items, um,
you find out that we if you don’t keep track of what you’re spending, whether it would
be through some sort of budget app or something like that, or even Excel like my engineer
clients like to do, um, you you bleed a lot of expenses and cash so by looking and evaluating
on what you’re currently spending on a line item by line item level typically we can find
a lot of savings. And even if we can’t, there’s things that
I talk to clients about try to minimize your expenses like calling your local cable company
Time Warner spectrum in our area or Comcast in other areas and negotiating a lower monthly
bill. Or replacing that with, you know, lower cost alternatives, whether it would be like
Hulu and Netflix or Amazon video and things like that. And so you’re accomplishing the
same thing, you have the entertainment you want but maybe not in real time, um, but you’re
able to reduce your expenses and then with that savings, you’re able to continue take
that savings and put it towards, um, saving for retirement.
And it looks like based on the result, um, a lot of you I’m sorry, I was looking at the
previous the poll. A lot of you are are good. Planning on having about the same to spend
in retirement. Other elements to consider, income sources,
what guaranteed income sources love in retirement? So those that are older have worked for a
company that has been established for a long time and may be luckily enough to have something
called a pension, those are fantastic to have. The risk is that sometimes people rely too
much on their pension and they don’t do enough saving outside of their pension whether it
would be a 401K or IRA or even an individual account, um, and the risk there is that pensions
typically don’t come with a cost of living adjustment so whatever that number is, when
you retire, that’s your number for the rest of your life. And, um, some of it we’ll talk
a little bit later on is inflation. And that will eat away at the purchasing power of that
pension so you need some additional money to to allow yourself to keep up with that.
Social security, this is interesting because, you know, there’s more than likely going to
be changes of some sort and I’ll and what those changes are going to be exactly, there’s
a lot of speculation out there right now, um, but for those that have received the recent
social security statement, something that you might notice below your benefit estimate
is the statement that by by 2034, the the contributions to the social security fund
relative to the the liabilities or what they owe in benefits it will be 79 cents on the
dollar, um, so what I talk to my clients about if you’re younger like me, well, congratulations
it’s 79 cents more than that we thought we were going to get because previously we were
thinking oh, Jesus, it’s not even going to be around, but for older people, you know
I don’t want to say that that this is definitely going to happen but I would think they would
be more protected than people like ourselves, um, and then there’s also the potential for
a needs based testing. So depending on what other assets that you have and the income
that you’re able to generate off that, you may not get social security, um.
Then there’s there’s a lot of people who are into real estate and have rental property.
So if you’re skilled in being able to be handy to making a rental property and you’re lucky
to have rebel tenants that pay their rent on time, that could be a great source of income
in retirement as well and then obviously, hopefully, everyone joining us today has retirement
accounts of some sort, whether it would be a 403B like at RIT or a 401K at a typical
corporation. Sometimes people have 457, deferred comps if they work for the Government. And
if you have nothing, um, then hopefully you have an IRA or will consider starting an IRA
or Roth IRA. And then there’s other investments that you
might have outside of retirement accounts and whether it’s because you’re doing a great
job of saving everywhere else and you got extra money left over after all your bills
are paid, hopefully, that you’ll put that money to work and other investments, um, and
then last but not least inheritance. And it’s not one that I would typically say you can
expect, um, but depending on people’s situations, um, in my conversations with clients, it’s
it’s really almost 50/50. Half the clients say, you know, I’d like to be able to leave
something for the children. Because my parents weren’t able to do anything for me and then
the other half say, nope, we’re spending whatever we can and if there’s anything left over,
then they will get that. But at the end of the day, you know, there’s articles out there
that talk about how from the baby boomer generation to the subsequent children or even family
members, um, there is going to be a pretty significant amount of the assets that will
be transferring from one generation to another, so that might be you know, an inheritance
might be more and more of a factor moving forward and I would just caution not to expect
unless you know in advance that you’ve been told by your parents or relatives that you’re
going to get something. And if you do get something like an inheritance then use it
for to kind of help supplement your retirement so it’ll allow you to retire earlier.
Again, inflation is definitely something to consider because you’ll feel it over time.
You know, it doesn’t happen right away, um, ’cause you might be one even if it’s 3%, it
kind of creeps up on you but if it keeps going up, 1, 2, 3% each year compounding over itself
then that definitely changes. And for those that are risk averse or like having a lot
of money in the bank, while it may help you sleep at night, the fact of the matter is
is that, as inflation continues to, um as the years go by, inflation is guaranteed to,
um, have you lose purchasing power over the long term and again, the longer that you have
just sitting in came, the longer it’s just going to reduce its purchasing power.
Um, and then the other element to consider is, you know, how much growth do I need from
my investments? Sometimes I have clients that like to check on it on a daily basis. They’re
somewhat neurotic about it. There’s some clients I’ll get the monthly statement and that’s
when I look at it. Other people say quarterly. Some say annually and some say never. This
answer I would say would be depending how close you are to retirement. If you’re younger
and earlier even midpart of your, um, accumulation phase, saving for retirement and you’re younger,
then checking it maybe annually to quarterly is probably advised, um, if you are getting
within, you know, 10 years, and then maybe you want to at least do quarterly if not monthly
and then, um, I don’t know if you ever want to do daily unless you can unless it’ll it
won’t bother you physically, um, but, obviously, the closer you get to retirement and once
you’re in retirement, the earlier parts of the retirement you’re going to want to keep
track of it, um, more regularly, and I’ll talk a little bit more about that as we go
to other slides. Other things to consider, you know, what other
short term or intermediate term financial goals do you have? I’ve got clients that are
doing renovations, expansions on their house. Some people that want to consider going out
still go on vacation on an annual basis. A lot of people are getting married, buying
houses, buying first house, second house. Whatever it might be so these are all things
to take into account because if you’re saving as you go along the way, unless you’re able
to fund these other short term and intermediate term financial goals through your income,
then you need to, again, plan for saving for even these other goals so that when the time
comes up for your new boat or your, um the wedding, then you have the funds available
and you don’t have to take it out of your retirement account.
Um, cost of health care, again, we talked a little bit about that. The options before
age 65 are typically very limited, um, and more expensive unless you have something,
again, from your employer. And then options after 65, um, everybody currently will have
access to Medicare and Medicare is a great benefit for those that are in retirement because
they typically get really good coverage, um, for a much more reasonable cost than they
would on their own, um, in the private marketplace. Um, and then the one of the other things to
consider is, you know, what are your priorities? Everybody, um, is different in how they how
they view this. Some people who have had experiences of losing close friends or family earlier
on in life, they typically are the ones that take the approach of, hey, tomorrow is not
guaranteed so I’m going to live for today. Those that have had longevity on their side,
are typically the ones that live a little more frugally today and want to have a more,
um a more, um, higher standard of living for for the future. And really what the plan allows
you to do is try to come up with some sort of balance that works for you.
Um, the you know, the other priority of what’s more important to you? Is it retiring early
or spending less? Because if you retire later, then typically it gives you well, it’ll definitely
give you more time for your investments to compound and grow, um, and if you retire earlier,
you have less time. So the amount of the income that you can generate on a smaller dollar
amount, obviously, is less than a bigger dollar amount even if you use the same percentage.
And we all know that compounding is the most beneficial in the much later years an it is
in the earlier years. So even a difference of 1, 2, 3 years can have a big effect because,
again, the earlier you start taking money out of your retirement accounts to fund retirement,
um, the then that’s when the investment has time to really grow and compound more for
you. Another big discussion item that a lot of,
um, clients sometimes don’t agree fully on is education funding. Um, what I found is
that sometimes spouse will have their education fully paid for their experience, oh, this
is something I want to do with my children if they have children. The other is self has
self funded their education well, my kids can do the same. So, again, just getting on
the same page as to, um, what the goal is for education funding, if that is a goal.
And then, you know, what is that priority? And oddly enough, a lot of clients, um, feel
that education is so important even with the cost that there is, that they are willing
to fully fund their children’s education and, therefore, are willing to work longer and/or
spend less and have less to spend in retirement if they have a certain retirement age that
they want to retire by. But again, understanding that, um, that priority of where does it fall,
um, will help you in the planning process. One thing that I will add and this might be
because I personally pay for my own college education at RIT, um, is that you can always
take loans for college, but nobody is really ever going to give you a loan for for retirement,
um, and then the other priority of risk aversion. So we know that the higher risk higher reward,
opportunity with investments, um, and although mathematically it’s easy to understand what’s
sometimes harder for people is the emotional aspect of seeing the value of their investments
go up and down by 10, 15, 20, 30, you know, 40%, um, a lot of people can’t handle that
emotional aspect, so if they’ve been through 1 or 2 significant downturns, typically, they’re
more risk averse which means that they might have to save more. Or live or work longer
in order to have a comfortable retirement. And some people who have not yet saved enough,
not only have to work longer, maybe you live on a little less, but they have no choice
but to take on more risk based on, you know, again, where they where they stand and how
much retirement assets that they have. So all these different things, um, come in to
play and have an effect on each other. Next, how to start building your unique plan.
Um, so the first thing, you know, once you understand how much that you’re spending today,
um, is trying to figure out, well, how much do I need to have saved by retirement? And
a lot of people have heard about maybe, like, that magic number, um, that you should have
and, again, that’s where maybe the 80% of your income comes into play. Um, and so that
is a good start. So what is your current income or what is your spending needs, um, going
to be? And then taking it that dollar amount and inflating it into the future and I found
a nice calculator online that you can go to and figure out, well, if I’m spending $5,000
a month today, and I choose 3% compounded inflation rate, what dollar amount will I
need in 20 years or 30 years or 40 years, um, and, you know, I ran those calculations
really quickly for everybody. In 20 years, $5,000 at 3% compound inflation is going to
be 9,030.36. In 30 years it will be $12,036. In 40 years so in 20 years, um, 3% compound
inflation is going to be result in 81% more money to keep up with the with the purchasing
power today, if things go up by 3% each year on average. In 30 years that’s 143%, um, more
money that you’re going to need. And in 40 years, it’s 226% more that you’re going to
need. And so the longer that you have from now until retirement, obviously, the more,
um, that you need to take into account for inflation. And even for people who are close
to retirement now, um, one of the things that we discussed that I discussed with clients
is longevity. And a lot of people really underestimate that they’re longevity, um because the fact
of the matter is, people are living longer because once you get closer to retirement
or as you get the older that you get, I think the more contentious you get how your your
lifestyle and the healthy choices that you make, um, regarding exercise and eating well
and then on to here on top of that we have the best innovations regarding health care
that come out regularly because from our the health care companies that will allow us to
live, um, longer. So those are, um, you the way to get started is, again, to figure out
what is your current monthly, um, spending that you’ll need inflated by the number of
years toward retirement and then what you want to do from there subtract out your other
income sources so that if you do have a pension. If you do have if you can expect certain amount
in social security. If you do have rental income and things like that. If you subtract
that from that inflated number, then you have, you know, the amount the gap that’s left over.
From that gap, you can annualize it, um, and divide by the distribution rate. And the distribution
rate is essentially how much are you going to be taking out from your investments each
year and the example that I give is if you have a 5% annual distribution rate on a million
dollars that’s $50,000 a year. Now, the sub bullet point that I put in historically people
have used a 4% as kind of a target for distribution. But those have have worked well in periods
when interest rates were a lot higher and I mean, I mean, in some instances late ’70s/early
’80s I believe it was interest rates were were midteens, double digits. So the fact
that you could get I think it was, like, 15 or 18% from a CD, um, could easily support
a 4% distribution. So if you took a million bucks and you put it in a CD that’s giving
you 4% that’s generating $150,000 a year that’s great. Although we don’t live in that environment
right now and depending on how long we’re in these low interest rates environments,
um, you’re going to need more money in a lump sum to be able to generate a certain amount
of the income versus if interest rates go up then, again, you should be able to generate
more income, um, on the same dollar amount respectably.
Um, now, how do you get started? To get an account for all the different parts that we’ve
been talking about, a good place is figuring out your net worth statement. So what are
your assets? So if you have different investment accounts, savings accounts, if you own a business,
um, if you own property, um, you list all that stuff out as your assets and then what
liabilities? So if you own a home, then you have a mortgage and then you have those liabilities
and rental income rental properties there’s liabilities and if you have a business there’s,
um, money that you owe the bank still, you know, those are liabilities and then take
the assets minus the liabilities and you have your net worth, um, and when we look at net
worth statements for clients, typically what we want to see are a significantly more productive
assets than hard assets. So hard assets may be like jewelry or your primary residence,
um, or even vacation property if you’re not renting it out during the offseasons or when
you’re not there. And the productive assets would be, you know, like investments, things
that have the opportunity to appreciate or generate income, um, for you so you typically
want to get more of the significant amount of the productive assets than the hard assets
as part of your net worth statement and for clients that do have a lot more hard assets
then than investment assets, obviously, we talked to them about figuring out a plan to
transition some of those hard assets into more productive assets.
Your social security statement so I provided a link to go to my social security the SSA.gov.
You go to click on my social security and there’s a sign in, um, link and for those
that have not gone on there, um, once you do then you’ll be able to access your social
security statement in real time whenever you want, um, for those that are under the age
of 65, I believe you’ll get them every 5 years, um I forget what age that they start and then
every 5 years, thereafter, that. But if you sign on to my social security set up my social
security access, you know, they won’t give you send you any more statements because you’ll
be able to get them. And for those that are over the age of 65, I believe you still get
them, um, as well.>>LYDIA PALMER: Joe, we have a question on
>>JOE BOYD: Yeah.>>LYDIA PALMER: On the hard assets.
>>JOE BOYD: Uh huh.>>LYDIA PALMER: You listed a primary home
as a, quote, nonproductive asset.>>JOE BOYD: Right.
>>LYDIA PALMER: Are we assuming that real estate is not is going to continue to accrue
value anymore or just not at the rate that it used to?
>>JOE BOYD: Um, what I’m assuming with that statement is that the financial crisis taught
everybody that we can’t expect that there’s going to be some sort of guarantee appreciation
in our primary home residence. Now, if we get it, that’s great. You know, you’re able
to buy a house for 100, 200,000 and it appreciates a couple hundred thousand dollars over 30,
40 years that you’re there, that’s great, right? But at the end of the day, um, to count
on that and then of that not happen could be detrimental to your to your retirement
plan. So while your primary residence is an asset and has it the opportunity to appreciate,
I set the expectation with my client that we are not assuming that this is going to
grow at a certain rate and that you’re going to be able to sell it for a certain amount
of the profit at some point in the future. And if you can, then that’s, again, a bonus,
um, but the financial crisis, again, has shown us that we can’t assume that it will and expect
that it will. So that’s why I say it’s not a productive asset ’cause also, it doesn’t
generate income for you, um, in retirement as well. I mean, it’s your house. It’s what
you live in. And if you’re lucky enough to be in like New York state or a higher taxed
state there’s, you know, property and school taxes and I call that the mortgage that never
goes away. And so, again, depending depending on where you live, it’s going to be higher
than others and some clients depending, again, on their financial situation, have relocated
to a different state or downsized from, you know, a huge house in a nice school district
down to a more modest house or a house that works for them, maybe, you know, closer to
the city or in the city, um, and I see that more and more happening, again, sometimes
out of necessity and sometimes just out of that’s what they would prefer over time.
>>LYDIA PALMER: So that’s interesting because it is a significant change from previous generations
who considered their home to be really one of their primary assets?
>>JOE BOYD: Well, it’s going to be a primary asset but it’s not going to be I wouldn’t
I wouldn’t consider your home as a as a primary or productive asset for retirement purposes.
So in retirement you’re not it’s not like you can, um, generate income from your house
to help live you know, to live off of. Well, without, like, reverse mortgages and things
like that, um, and, again, we can’t use the critical guarantee that it’s going to appreciate
a certain amount over 10, 20, 30 years and that you’ll be able to pull out that appreciation
to then invest and have it generate additional income as well. That’s that’s what I, um,
recommend to my clients, you know, and I think that maybe goes more to the, um under promise/under
deliver aspect how I approach retirement planning, um, because, you know, I don’t want to have
a conversation with a client where, you know where we’re expecting their house is going
to appreciate 1, 2, 3 5, whatever, percent over a certain period of time and then it
doesn’t happen and then we say, oh, jeez, you know what? You can’t retire your house
hasn’t appreciated as much and you’re not going to be able to sell as much as you thought
it could. I hope that clarifies things or makes sense.
>>LYDIA PALMER: I’m getting great thank yous so I think that’s clarified. Thank you.
(Laugh.)>>JOE BOYD: Um, let me just go back real
quick, sorry. A lot of people if you are lucky enough to
have a pension and get a pension benefit statement you should get one every single year, um,
but understanding things like when you’re full retirement age, how long that you need
to be employed to be fully vested, um, based on how many years that you’re employed, what
the percentage of your final average salary is that you can expect in the form of a pension,
how your final average salary is calculated, sometimes it’s top 3 of the last 5 years.
Sometimes it’s 5 of the last 10 years, whatever it might be, um, that’s good to understand,
again, to make sure if you want to retire by a certain amount of the time that you’re
going to have the pension that you’re going to be able to expect based on the way that
you’re the pension calculations work for your particular pension because those calculations
are different for different employers. And then again the employer retirement health
care benefit is one to, again, get information on that if you plan on retiring before the
age of 65 or even after the age of 65, if you have really if you have a lot of health
care expense needs, um, that’s something to to make sure that you have information on.
I’ve just met with a client yesterday who’s a teacher and looking through her options
’cause she’s 59 she will be 60, um, in May, and looking through that over the next 5 years,
you know, we looked at what her options are as a retiree, oh, this is the way we’ll go
and I showed her homeland security the worst case scenario and what you’ll have out of
pocket for a catastrophic health care year versus this other one and that’s you’re saving
this much amount. And even in the conversation which one are you on currently? The other
one. Why are you paying, you know, triple the cost of the of the other one, and she’s
like oh, I don’t know. It’s even one of those things sometimes people don’t take the time
to look into those details, um, to see if maybe, you know, they’ve got the best health
care plan and ’cause if you can maintain a high level of care for a lower cost, um, then,
you know, there’s probably savings there and with that savings, again, you can redirect
that towards a considerable retirement savings as well.
>>LYDIA PALMER: Hey, Joe, we have one more question here. You mentioned reverse mortgages
when addressing productive assets. Can you briefly help us understand what these are
and are there circumstances where this can be financially beneficial?
>>JOE BOYD: Um, well, so I don’t talk to a lot of clients about reverse mortgages because
typically they’re lucky enough where they don’t have to look into them. But from what
I’ve looked into on reverse mortgages because I think some of us have seen those commercials
on TV, um, it’s where you essentially get income from the bank on your house and so
if you owe your house free and clear, that you essentially the they kind of take the
mortgage from you so to speak and they make you those monthly payments on your house over
a period of time and then they will own the house essentially upon your passing, um, but,
you know, again, hopefully, a lot of the people on this call won’t need to look into something
like that to generate income. Um, but, you know, I didn’t want to, I guess, say that
it’s not going to be productive in retirement and then have I guess somebody, um, there
and be like, oh, oh, but what about reverse mortgages and things like that. So I guess
for reverse mortgages know that they exist. That they could help you out if you need it,
um, but don’t set up your retirement plan, um, under the assumption that you’re going
to use a reverse mortgage, um, in the future. I hope that helps.
Um, the next part, how to assess your trajectory along the way, okay. With a plan, um, you
don’t want to do it once, set it and forget it. You want to check it at least annually
and again, as you get closer to retirement, maybe follow up on it semiannually or maybe
quarterly and then again even once you enter the early portions of retirement keep an eye
on it and check it or more frequently rather than later on once you have been living through
retirement for a while. Because one of the things that’s really hard for a lot of people
is transitioning from getting a paycheck and paying their bills to not getting a paycheck
anymore and figuring out, okay, I have to live on a budget and so making that transition
by reviewing where you stand and where your income sources are going to come from and
what your expenses are and what and what other factors that there might be, um, helps a lot
of my clients feel better in the early parts of retirement because they’re look okay. Can
you go over again exactly where my income is going to come from and how much I can expect
and where I can spend and doing that in the early parts of retirement definitely helps,
um, and so if we kind of go back to that lump sum dollar amount.
(Clears Throat.)>>JOE BOYD: And we try to use that as our
target number, um, so if we go through the calculations, again, to see where you are,
um, you in your assets and on the way to getting to that target number, um, if we if during
that calculation you find that you’re above that target number by, you know, um by a considerable
amount maybe 5%, um, for a greater than one year time period or maybe a couple of years
then, you know, through rerunning those calculations, um, you might be able to get the decision
of retiring earlier or spending more in retirement or retiring at the same time and having more
to be able to spend in retirement ’cause you have a bigger dollar amount that you can generate,
you know, more from that same 3, 4, 5% distribution that you expect to take out. Maybe you can
take the retirement spending age and saving less? And maybe you can keep everything the
same and just update your investments to have less risk? So instead of having 100% stocks
maybe 80% stocks maybe instead of 80 maybe 60, or 50. That’s keeping track of all of
this allows you to do and conversely if you’re below target, um, for an extended period of
time, you know, greater 1 year you’re going to want to reevaluate to see, okay, what adjustments
do I need to make adjustments do I need to make do I need keep my savings and investments
the same or retire later to have the same retirement spending that I want or depending
on your priority. (Clears Throat.)
>>JOE BOYD: Um, and you want to retire definitely by 62 or 65 or whatever that age is, you know,
are you willing to reduce your retirement spending and thereby maybe have less for things
like vacations and other discretionary spending items? Or keeping all that the same and, you
know, just just saving more? So living a little less for today and saving more for tomorrow
to try to get back on track. Um, and then also the depending on how you’re allocated,
if you’re not already 100% stocks, you know, and you don’t want to retire later and you
don’t want to reduce your retirement spending but you can’t save more, then the only other
lever that you can then move is increasing the risk profile of your portfolio in order
to give yourself a bigger growth opportunity. So these are a lot of the different, um, factors
or levers that you can move around to try to get back on track.
Before I go to the things to keep in mind (Clears Throat.)
>>JOE BOYD: For a lot of people that have, like, a fidelity or even through their 401Ks,
um, they have a lot of good tools and more and more 401Ks people called record keepers,
you know, people that keep track of your accounts and your contributions and everything else
like that, they’re coming out with more and more tools to help the the their investors
or their customers do a better job of figuring out how much, um, can I expect to be able
to have in retirement and sometimes there’s the the calculation of, hey, based on your
current savings rate, based on how you’re allocated, based on, you know, you retiring
at 65, we project you can have, you know, $10,000 of in retirement spending in the future.
Again, it’s, you know, taking into account inflation and things like that.
Sometimes, um, if you do or just work directly with fidelity or an IRA or things like that
I know fidelity had commercials about their green line and again, by taking into things
like when you want to retire how much you want to be able to spend in retirement and
how much you have in investments and how they’re invested, what other income sources that you
have in retirement, that provides another type of plan and kind of making sure that
you’re staying on track so to speak. So, you know, if you don’t have access to any of that,
um, I think that I’ve provided the the information for you to try and do some rough calculations,
um, some of the planning software that I use for my clients, um, are a little more sophisticated
in that they run Monday ti Carlo simulations Monty Carlo simulations and based on the clients
and savings rates and how they’re invested it will run calculations, you know, not only
to retirement, through retirement and taking into accounts of distributions and ups and
undoes of real historical marketing conditions to give them a probability of, you know, in
these 1,000 scenarios an 850 of them you were able to meet or exceed your retirement goals
based on the criteria that you set up, um, but in, you know, 150 you ran out of money
early. And so, yeah, so you ran out of money before he died. And the reason why why that’s
useful going back to something that I mentioned earlier, there’s no guarantee, radio I got?
Nobody has knows unless you know exactly when you’re going to die or how long you’re going
to be with us here on earth, um, it’s a constant balance between okay. Living for today but
being prudent and saving for tomorrow and, hopefully, a lot of us will have a nice long
life and benefit for living tomorrow and, unfortunately, some of us won’t of that benefit,
um, and so, you know, until the want to save, save, save, save and something happens to
you, you know, right before retirement or at retirement and then, you know, have all
this money left over and you didn’t get a chance to live for today, um, but at the same
time you don’t want to live so much for today and save nothing for tomorrow that you’re
never able to retire and that’s where, again, having a plan allows you to do is figure out
that balance of okay, what do I need today and what do I need to do so that I can have
what I want tomorrow as well? And then some things to, again, assess and
keep in mind, um one of the things I tell my 401K clients for businesses that I’m the
advisor on the 401K and I meet with the participants, I say pick an anniversary. Whether the anniversary
date that you started work, the new year, your birthday whatever it might be, when that
anniversary comes up, set it in your Calendar, go online and increase your savings by 1%.
And, um, I am very confident that you will not even notice it because, hopefully, you’re
getting a little raise, um, and if you’re increasing your contribution by 1%, you’ll
still see some of that raise but again you’re helping yourself out over the long term by
saving a little more each year and you’re going to get to a significantly higher savings
rate before you know it. And while still being able to live, again, for today. And that little
difference over a long time frame of 20, 30, 40 years will have a significant impact, um.
The other thing to keep in mind, you know, saving for retirement is actually the real
easy part, um, and that’s what we call the accumulation phase, um, and something that
if those are interested, I can send some examples of from different wholesalers and different
graphs that I have, um, you know, if we skip down to the to the bottom of sequence of returns,
you know, in the accumulation phase, it doesn’t matter, um, when you have the up years and
when you have the down years in the illustrations that I have, it’ll show the exact same up
and down years but in in reverse order for one scenario versus the other scenario and
you end up at the exact same number, all right? So saving for retirement is the easy part
because you can’t control when the market is going to be up or down all you can do is
control your savings but in the generating income or distribution phase throughout retirement,
now, that’s the hard part. That’s the hard part because the again, kind of skipping down
to the bottom two bullet points, you know, A, returns are not symmetrical and the sequence
of return risk is not does not work in your favor, um, and so here’s an example so if
you’re generating, let’s say, 5% off, you know, that million dollars, well, if the market
were to stay flat you’re down 5%, right? If you’re down if the market is up 5% and
you take out 5%, then you’re going to be about flat. Now, if you’re at a 10% loss, all right,
and you take out 5% and now you’re down 15% and if we go from, um, a million dollars to
$850,000 to get back to a million dollars, you need from from $850,000, you need 17.6%
growth to get back to even, not the 15% that you lost, and that’s why I have that statement
where returns are not symmetrical, 10% loss will hurt you more than a 10% gain will help
you. And if for those that are more mathematically inclined or interested, if you look at investments,
whether it would be a mutual fund that have done really well over the long term and that
have outperformed, you know, whether it would be peers or their respective index what you
find they’ve outperformed because they had smaller losses in the years that there were
losses. So if you have a smaller loss you’re starting from a higher point and so you don’t
need a a higher as high of a percentage growth to stay ahead.
So when you’re in the distribution phase, that’s typically when a lot of people, um,
come to the realization, I don’t know how to do this. And if they try to do it on their
own and they don’t understand the sequence of return risk and again, returns are not
symmetrical they incur a 10% drop in their portfolio and there’s a drop between distribution
and the drop in the market and you’re looking at a 25% growth that you need just to get
back to even and so in those situations it’s a lot harder to help those people ’cause they’ve
already incurred the loss and then they look for professional help. Um, and going back
to the sequence of return risk, because in the earlier parts of retirement, or even right
before retirement that’s why, you know, it’s recommended to kind of keep an eye on it and
maybe become a little more conservative ’cause you don’t want that big drop, um if you have
bigger drops earlier on in retirement and you’re just unlucky being able to experience
those drops early to get back to the gaps is significantly greater and so your chances
of running out of money in retirement are a lot greater than if you have even modest
growth in the early parts of retirement but then you have big drops later on in retirement
because, again, you’re starting from a higher point.
Um, and so that sequence of return risk is very, very important for those that are close
to retirement and in retirement, um, to be aware of and protect themselves from as they
go through retirement. Sorry, I talk a lot. I think I went over than
what I was originally allocated, but, you know, what I’d say is hopefully I’ve given
everybody enough basic information and tools to go out and, um, start their own plan. If
you have any follow up questions, um, or need clarification, feel free to reach out to me.
>>LYDIA PALMER: Thanks so much, Joe. Actually you did not go over. You’re spot on time.
>>JOE BOYD: Oh!>>LYDIA PALMER: And I know you said before
that this creating the plan is a big step for most people and that’s important.
>>JOE BOYD: Uh huh.>>LYDIA PALMER: So I want to remind, um,
again, all of our attendees that Joe’s two previous webinars from this past August, late
summer, early fall, are on the RIT Alumni Association RIT Alumni Association YouTube
page so go back and review those and suggestions on how to plan for retirement and manage your
household budget This is all the time that we have right now.
Additional questions can be emailed to RIT alumni at RIT.edu or Tweeted to @RITalumni
with the hash tag #ritwebinars, and we will direct your questions to Joe. Note that everyone
will receive an email from us in the next few days with a link to today’s webinar recording.
Many thanks again to Joe for being our distinguished speaker and thank you all for being our listeners
today and joining us for today’s webinars. Our next webinar is scheduled for next Wednesday
March 22nd and will feature Dale Davis Lummis from the class of ’96 and executive IP counsel
for GE’s power division and it will be how to protect your ideas over patents, copy rights,
trade secrets and what you should do before presenting to the public or submitting a paper.
This webinar registration is live right now at RIT.EDU alumni events or you can look for
your emailed invitation to this webinar in the coming days. Thanks again to all for joining
us. Please exit the webinar by simply closing your WebEx window and let us know what you
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