Achieving Financial Freedom
Key Points – Achieving Financial Freedom
- Have a Fun and Safe Fourth of July Weekend!
- How to Go About Adding Financial Freedom to Your List of Freedoms
- Have You Achieved Financial Freedom But Don’t Realize It?
- Having a Fluid Financial Plan Is Critical in Your Quest to Achieving Financial Freedom
- 20 minutes to read | 38 minutes to listen
Happy Fourth of July to all the pre-retirees and retirees out there! Along with celebrating America’s independence this weekend, Dean Barber and Bud Kasper hope you take a moment to assess where you stand in the journey to achieving financial freedom. Dean and Bud discuss what financial freedom is and how you know you’ve achieved it in this Fourth of July weekend edition of America’s Wealth Management Show.
Find links to the resources Dean and Bud mentioned on this episode below.
- Schedule: 20-Minute “Ask Anything” Session
- Download: Retirement Plan Checklist
- Education Center: Articles, Videos, Podcasts, and More
Celebrating Independence Day by Achieving Financial Freedom
Bud Kasper: The Fourth of July is upon us.
Dean Barber: It’s a great time of year. It’s summertime with a lot of summer fun, family get-togethers, cookouts, barbecues. And of course, we’re celebrating Independence Day.
The Long Journey to Financial Freedom
I think this is America’s holiday. So many years ago, Bud and I started thinking about retirement in terms of financial freedom. From a very young age, we’re seeking our own freedom. When you’re under the thumbnail of mom and dad and you turn into your teenage years, you’re saying, “Gosh, I can’t wait to get out of the house and get off to college. Then, I’ll be independent.”
But once you get into college, you’re anything but independent. You have more responsibility than you ever had before. Then you’re finally thinking, “Once I get out of college and get a job, I’ll be independent.” But that’s not independence either because now you are beholden to your employer. Even if you are self-employed like what Bud and I did years ago, you’re still not independent because you have the responsibility of so many people and employees that are working for you.
It’s not until you can make the decision to do whatever you want to do every day and it’s no longer about money when you finally reach financial freedom.
Have You Achieved Financial Freedom but Don’t Even Realize It?
There are so many people out there today that have achieved financial independence and don’t even know it. And they might be miserable in their jobs. They’d rather retire or do something different, but they don’t know that they attained financially freedom because they haven’t done the proper planning. They’ve probably focused too much on underlying investments and don’t understand how to put together a cohesive plan that allows you to say, “I’m going to be OK.”
Bud Kasper: You’re right, Dean. People are seeking validation. But the struggle is, how do you validate? Well, we’ve come up with a way of doing that and it’s called a comprehensive financial plan.
Dean Barber: And we’ve been doing it for decades.
Bud Kasper: People need to understand that there are formulas that exist that allow us to go in and challenge ourselves at a time for retirement when we no longer have a paycheck. That is the greatest fear that people have when they finally pull that trigger. So, how do you go about doing that? Well, we’ve provided a way of doing it.
Financial Freedom All Begins with Building a Plan
Dean Barber: We certainly have. Just three weeks ago, we started making the same financial planning software that we utilize for our clients in our office available to people to where they can begin to build their own plan from the comfort of their own home. We’ve received an overwhelming positive response to it. It’s neat to see. This is just a way that you can begin to build your financial plan.
The reason I wanted to discuss financial freedom on Independence Day weekend is to help people realize that they might have already achieved financial freedom, but don’t know it yet. Or maybe they’re closer to achieving financial freedom than they realize. Some people simply ask us, “How far out am I? When will I reach financial freedom and how will I know that it’s there?” It all starts with building that plan.
And as you’re building that plan, please understand that the input is critical to give you the proper results on the output of the financial planning software. If you have any trouble or questions or whatever, one of our CERTIFIED FINANCIAL PLANNER™ Professionals is happy to visit with you to help you understand what you’re doing and make sure that you’re getting the inputs right.
The Validation That Comes from a Financial Plan
During my 35-year career, so many people have talked to me about what they want their retirement years to look like. What does financial freedom look like for them in terms of spendable dollars and things that they can do? Lo and behold, we build a plan and they’re there.
And they’re like, “What? We could have retired a year ago? We could have retired two years ago?” Yes. In fact, I talked to someone one last week and the financial planning team did a lot of good, solid work with them. Guess what happened the day after the meeting.
Bud Kasper: What?
Dean Barber: Retirement. They gave their resignation and said they’re retiring.
Bud Kasper: Validation. That’s the word. People want to validate that they can do that. One of the ways we do it through the financial planning program is determining the probabilities of someone’s success? Well, how does that work? It comes up with a percentage. For example, let’s say your probability of success is 70%. Is that good enough? Probably not.
Dean Barber: Because it’s the detail behind the planning itself. This is not one of those quick do-it-yourself, five-minute deals online that’s going to give you a magical answer in a hurry. It’s super detailed.
Having Clarity from a Financial Plan Is Pivotal in These Uncertain Times
Again, with it being Fourth of July weekend, we’re talking not only about the independence that we’re celebrating in America, but how to attain and reach financial independence. How do you know that you’ve achieved financial independence and that everything’s going to be OK?
I have so many stories around this from conversations that I’ve had with people and ways that myself, Bud, and other CERTIFIED FINANCIAL PLANNER™ Professionals at Modern Wealth Management have helped people realize, achieve, and maintain financial freedom.
I was visiting with one of my clients this last week. She lost her husband about three years ago and is 80 now. In December, she said really wanted to do something for all her kids and grandkids. She wanted to take them on a trip at Breckenridge and rent a big house. While she said she can’t ski anymore, she thought it would be something her family might enjoy. So, I told her to ask them and tell them that she’s paying for it.
Then, she asked me, “Can I afford to do that?” She estimated the whole trip’s going to cost about $25,000. I plugged it into her plan and got the validation that she could afford it. There was no change in her probability of success.
A Comprehensive Financial Plan Accounts for the Possibility of Poor Market Conditions
Well, when she met with me last week, we were discussing the trip again. She planned everything but was nervous about all the things happening in the market. The market is obviously down quite a bit. She was down about 8%, but that’s recoverable. We build that into the plan. We always consider that there could be poor market conditions at any point in time.
She had asked me if she should cancel the family trip because of the poor market conditions, and I said absolutely not. We went back to the plan and the $25,000 for the trip was still in there. And it still worked. There was no change. She felt so much better after gaining confidence that her plan would be OK following the trip.
Living Life the Way You Want To
Think about the bad news that is coming at us in waves right now, though, Bud. Recession, inflation, and higher interest rates. The housing markets is slowing. The stock market is in a bear market. Bonds are losing money. It’s just like, what should I do? Well, if you have a plan already in place, and you can see the results of what’s happened so far and how that’s affected the plan, then you have the confidence that you need to do the things that you want to do. Live the life the way you want to live it.
Bud Kasper: You really do. It’s important to understand that there are ways of validating these type of financial events to attain confidence that it’s not going to disrupt what the larger plan is going to need to do for the rest of your life. For the woman in Dean’s example, I hope she makes it to 100. God bless her.
Dean Barber: I know. I do too.
Bud Kasper: By the way, we can show you what the probability would be if you passed away at 80, 85, 90. You give me a number and we can pressure that plan to tell us whether the reality is there that you can have the type of lifestyle that you want for that length of time.
The Factors That Come into Play to Determine Your Plan’s Probability of Success
Dean Barber: Let’s get into some of the detail behind how this plan gets built. We were talking earlier about how it’s not just a quick down and dirty situation with how much money you have and how much income you want. There are all kinds of factors that come into play.
When are you going to claim your Social Security? What are the different strategies around claiming that Social Security? In a plan that I worked on with one of our CFP® Professionals earlier this week, we had boiled it down to about eight of 600-plus iterations of how this couple would claim Social Security. We built the plan and then we plugged in those eight options to see which one was going to provide them the highest probability of success.
In this example, there were also some pension options. You had a single life pension, a joint and 50% survivor, a joint and 75% survivor, a joint and 100% survivor. You need to put all four pension calculations in and determine which one of those pension calculations and Social Security iterations gives you the highest probability of success? In other words, it takes pressure off the underlying portfolio so that you can afford to be more conservative in those retirement years.
Bud Kasper: Right. And if you’re 65 or older, what’s the impact going to be to Medicare? It all needs to be integrated. Outline all the salient facts that are financially predetermined because of your age. Should you take Social Security now or postpone it? One of the first things we do in the financial planning process is anticipate spending. A lot of times people come in and I tell them that we’re going to create a budget. They go, “Budget? We haven’t had ever had a budget.” And most people don’t, but now we need a budget.
Thinking of a Budget as a Spending Plan
Dean Barber: Let’s change the nomenclature, Bud. Let’s call it a spending plan because I think that sounds more appealing to create a spending plan for retirement. What do you want to spend and what are you going to spend it on? Then, we can see if can you spend everything you want to spend or do you need to have some trade-offs? Maybe there are some of the things that aren’t quite possible and you’re willing to live without.
Bud Kasper: That’s what I was getting at was the anticipated spending. We’ll figure out your core spending patterns that includes the things you need every month to exist. Then, we start reviewing wishes, wants, and so forth. Those can include things like vacations. How often do you want to take a vacation? Every year? How long do you want to be on vacation? Six weeks? That permits the person to explore the possibilities that exist, but they want to have a financial validation that it’s not going to disrupt their ultimate goal. And that is being safe and secure in retirement.
Then Comes the Distribution Plan
Dean Barber: Yeah. All those different pieces come in, so it does get super complex. After you create the spending plan, you need to create a distribution plan. The distribution plan is really a consideration of which sources of income you turn on at what time. And from which account do you take money from at which time?
The reason that’s so critical is because how and when you take your income from different sources and from different tax buckets, whether it’s taxable, tax-deferred, or tax-free, will to a very large degree dictate the amount of taxes you will have to pay. In other words, the amount of taxes you can avoid by doing a proper distribution strategy. That’s really the trickiest part of this whole thing.
If you can reduce your tax burden throughout your retirement lifetime or your financial independence lifetime, that’s another thing that takes some pressure off your portfolio. You can maximize Social Security. If you have pensions, we make sure that we get the right pension option in there. We reduce taxes by creating the right distribution strategy. Then, we can come back and say, what’s my portfolio doing? Is it positioned properly to give me everything I want?
Paying the Least Amount Possible in Taxes Over Your Lifetime
There’s so much detail that goes into the plan. We want to make sure that you can get an accurate view of where you stand today. That way you can see if you are on the right track to reaching financial freedom. Or perhaps you’ve already done it.
Speaking of Spending, Congress Has a Spending Problem
Bud Kasper: Yeah. We have strategies for what I refer to as tax avoidance. There are several ways to do that. One of the most important ways is through Roth conversions. We also have a perfect example of how spending can be done thanks to Congress. Boy, do they know how to spend?
Dean Barber: You don’t even need to have money when you’re a Congress person. Just spend it.
Bud Kasper: Yeah. Just fabricate it.
Dean Barber: Well, let’s get another couple of trillion here.
Bud Kasper: Yeah, sure. $6 trillion, that would’ve worked on top of what we already have.
Dean Barber: Would’ve been a total disaster.
Bud Kasper: Well, we got more.
What Do SpaceX and Financial Planning Have Common?
Dean Barber: The amount that Congress spends just keeps sky rocketing. Speaking of rockets but also switching gears as well, I heard the song Rocket Man by Elton John the other day and was thinking about Elon Musk and the story behind SpaceX. Have you really studied that at all, Bud?
Bud Kasper: No.
Dean Barber: It’s fascinating. And I think it’s pertinent to what we’re talking about today. Elon Musk had this vision that we could colonize Mars. SpaceX was originally formed to begin the quest to colonize Mars. I know that sounds just so far out there, but as the story goes, Elon Musk needed to buy a rocket, so he went to the Russians to buy one. The Russians wanted too much, so he got up and walked out of the meeting. On the plane ride home, he gets on his computer and starts designing his own rocket. Then, he hires all the engineers that he needs to build his rocket.
I think there was somewhere around a half a dozen rockets that they built that were unsuccessful. They blew up, crashed, or something went wrong. But he finally got it right. They are now responsible for taking supplies and astronauts to the International Space Station. They’re getting paid a ton of money from the governments to do these types of things. You always think of SpaceX as just this fun thing that Elon did, but he was doing it to show that this is possible. They outdid NASA. The story’s very fascinating. If you haven’t studied it, you should take some time to see what was behind Elon Musk’s thinking. What was in his mind and how did he pull that off?
The Answer? Being Innovative
Bud Kasper: So, I’ve got to ask the question. What’s the value in colonizing Mars?
Dean Barber: I don’t know. That’s far beyond my imagination or anything like that. But at some point, it could become a reality. Probably not in my lifetime or your lifetime, but at some point. He’s an innovator. He was looking for things that people said were impossible that he could say are possible.
The reason that I bring that up is not just because of the Elton John Rocket Man song, but because Elon was willing to dig deep and look into whether something like this was possible. Oftentimes, potential retirees that have already achieved financially freedom or come close to it, but they don’t know it. They don’t know what steps to take to validate whether it’s possible for them to have that financial freedom.
Beware of the Financial Salespeople
And they don’t know where to start or where to go. There are so many people in the financial services industry that are nothing more than product salespeople. They’re not doing the planning work that needs to be done to validate whether you can stop working. There is so much power in having the clarity and confidence from a comprehensive financial plan.
Achieving financial freedom means you can do whatever you want to do every day. It no longer needs to be about money because you’ve accumulated enough to know that you can have the lifestyle that you want. It doesn’t matter if you ever earn another dime. That’s financial independence.
Bud Kasper: It goes back to that validation point that I made earlier. Or if you want to think of it this way, people that are preparing to retire want to know that they can have a safe landing. Elon figured it out and we can figure it out for people as well once we’re given the opportunity to do so.
Rockets and Retirement Are All About Safe Landings
Dean Barber: That was really Jeff Bezos‘ deal with Blue Origin was the safe landing. Bezos was another fascinating story. So, Blue Origin versus SpaceX. Both those guys started this at about the same time. But what Bezos did was build a rocket and simply test the rocket to take it up a few hundred feet and then see if it could get it to safely land. They did that multiple times before ever attempting to get the rocket into space.
Bud Kasper: Look at the savings in terms of being using the same ship over and over. That’s just incredible.
Dean Barber: Bezos didn’t lose the number of ships or the rockets that Musk did. But yeah, you’re right. A safe landing or a smooth ride is what you really want. Can you maybe retire at 50? Maybe it’s 55, 60, 65? Maybe you can’t reach that financial freedom until 70? The key is to begin to build a map.
The Guided Retirement System Is Like a Retirement Road Map
We use a system called the Guided Retirement System. A portion of that Guided Retirement System is the financial planning software that we utilize. It’s kind of the beginning point to it. And we are making that software available to anybody.
Are you on the right track for financial freedom? Have you already reached financial freedom? If not, what do you need to do to get to a point where you do everything you want to do every day for the reasons that are important to you, and it’s no longer about money? Because if you don’t know where you’re at, how do you know where to go or what to do?
Bud Kasper: Right. Going back to Elon Musk again, he innovated. The ability that we’re providing you to start the plan yourself at no cost or obligation is one of the most innovative things I’ve seen in my 38 years in the financial industry. It’s amazing.
Maximizing Your Social Security
Dean Barber: It allows people to begin to build out that plan from the comfort of their own home, office, or wherever they want to do it from. You can get that plan as detailed as you want. There’s the ability to link your accounts to it so that it can actually see your exact asset allocation. You can put in your Social Security figures, right from your Social Security statement at ssa.gov.
If you want to know how to maximize Social Security, we need to use another piece of software that we don’t have online. It’s a Social Security maximization software that can run the 600-plus iterations on how they can claim their Social Security that the normal 62-year-old would have.
That software would help you find the optimal way to do that. Oftentimes, the optimum way to plan Social Security can deliver as much as a $100,000 or more of additional income from the same Social Security with the same working career and the same life expectancy. How you claim your Social Security will have a big impact on the probability of success of your overall plan.
How Can You Survive This Recession?
Bud Kasper: I like that. That’s true. But when we look at what we’re dealing with right now, people are asking themselves, “Can I survive the recession?” The reality is that we are going to probably have a recession.
It’s still questionable as to whether we really are going to have one or not. However, it’s painful going up to whether that definition is made. You need to get confidence to understand whether you’re in a position to do that. We’ve been doing something with our clients that we refer to as de-risking. We recognize that we are in a difficult period and that there are things that we need to change, maybe in the plan or on the investment side, to ride out these difficult periods.
You Survive It with a Forward-Looking Financial Plan
Dean Barber: That’s what the plan’s all about. We call it the Guided Retirement System because it’s like a GPS. There are things that happen that can’t anticipate. For example, nobody really saw the Fed raising rates as fast as they did and have this year. And it looks like they’re going to continue to do so. That has dealt some turmoil to the market. So, how did that impact your ability to do everything you want to do? Is it still on track? Did you build your plan intentionally to take into consideration the possibility of a poor market condition at any point in time.
As we begin to wrap up here, I want to again wish everyone a happy Independence Day weekend. I hope everybody has a safe weekend and all kinds of fun with the family. Bud and I are talking about getting to financial freedom so that you can do what you want to do every day for the reasons that are important to you. It’s no longer about money. That’s what I call financial freedom, Bud.
As We Celebrate Our Freedoms, Don’t Forget About the People of Ukraine
Bud Kasper: No doubt. I can’t help myself, but I keep going back to the people of Ukraine. We’re celebrating our independence and all they’re doing is trying to get their lives back in some way, shape, or form. They’re getting a lot of support. It looks like the G7 is starting to come around some more. I think they see the vulnerability. I don’t want to change the subject, but a lot of the countries have vulnerability if Vladimir Putin for whatever reason says, “You’re next.” They better have a unified resistance for that.
Dean Barber: Yeah. Our hearts go out to those people of Ukraine. That’s certainly a sad situation.
Bud Kasper: I wanted to give you the ultimate sacrifice. I was at restaurant and they said, “What do you want to drink?” Generally, I get a Moscow mule, but I didn’t say it. I said, “I want a Ukraine mule.” They go, “What’s a Ukraine mule?” I said, “Well, I kicked Moscow out and put Ukraine in.” They said, “I like that.” I said, “We’re going to use that from now on.”
Dean Barber: Good idea. Have you ever had a Mayan mule?
Bud Kasper: No.
Dean Barber: It’s tequila.
Bud Kasper: Are you serious?
Dean Barber: Yeah, I’m serious. You don’t get out much, do you, Bud?
Bud Kasper: No, but I don’t go to those radical routes. That stuff can be dangerous.
What Are the Necessary Characteristics to Achieve Financial Freedom?
Dean Barber: Bud and I have been talking about how a person can determine if they’re financially independent. This guy and his wife have been clients for a good number of years, and last week, he asked me to describe in two to three sentences what makes people successful from a financial standpoint. Bud, what would your answer to that be based on your client base and the people that you’ve met and worked with over the years. Are there some characteristics that these people have that make them financially successful?
Bud Kasper: Absolutely. The first one that comes to my mind is start early. For the young people out there that are just out of college and going into their new vocation, when you think about what the ultimate goal is, are you thinking about that at that age? No.
Dean Barber: No, but it’s discipline.
Don’t Wait; Act
Bud Kasper: It is. That’s my point. You need to work for it and earn it. You need to have discipline to save and stay out of debt, if all possible. Plan for the future. Don’t wait; act.
Dean Barber: Yeah. So, I simply said to my client that the people that I know that have achieved financially freedom or are on their way to doing so have some similar characteristics. Most of the time, they’ve never been greedy. They’ve always lived below their means. They value things in life other than money. And they know that money in and of itself is never the goal. Money is how you get to pay for those goals.
They think about money in a different way, which allows them to accumulate. They can set it aside and forget about it, knowing that in the future that they’re going to need to rely on that money to drive their income so they can reach that ultimate pinnacle of financial freedom.
And he says, “Well, what book did you read that from?” I said, “Well, it’s not in a book. It’s life experience.” Bud, and I have had the opportunity to help so many people get to that pinnacle of financial freedom. And it’s not just getting to financial freedom, but maintaining it. I have several families that we’re now working with the fourth generation of the family. It’s so cool to see how those values have been passed down from one generation to the next.
Passing Financial Freedom Down to the Next Generation(s)
There have been open conversations with the kids, grandkids, great grandkids, etc. to instill those values, allowing them to have financial freedom. However, few people do that because they’re so concerned about the here and the now. They’re looking for the next top thing, the Bitcoin, the GameStop, or whatever. They’re focused on the get rich quick type of a thing. Those people never become our clients because it doesn’t work.
Bud Kasper: Yeah. And I can’t say that I’ve had dozens and dozens of those type of meetings, but we have had several. It’s usually the people that had the most success to get to the goals that they wanted to achieve, who now want their adult children to have that same experience. And once again, it’s no different than what we talked about a moment about ago. The best way to have success is to get started now and start early. That helps the chances of a smooth transition with as little tax as possible.
Creating Your Own Future
Dean Barber: Bud hit all good points there. But another thing is, I think that these people always understand that they need to look forward. They need to have a plan and have objectives or goals. I’ve said many times on America’s Wealth Management Show that you can create your own future by the actions that you take or fail to take today. One of the things that I know that can lead to financial freedom is creating a financial plan.
That’s why we’re making the same financial planning software that our CERTIFIED FINANCIAL PLANNER™ Professionals use for our very own clients available to everyone. You can do it from the comfort of your own home. Just click on the button below that says, “Start Planning,” and you’re going to be on your way to building out your financial plan.
That forward-looking plan can let you know where you are on your path to financial freedom. There are a lot of times that people don’t think they’ve reached financial freedom, but they already have. And then there are some people that think they have, but they haven’t. The plan gives them the bad news that they’re not quite there yet and they have a little bit more work to do.
Bud Kasper: Yeah. But at least you have that option. Because if you don’t or it’s too late in terms of your age, it’s going to be more difficult to make up for the time that you should have been committing more of your efforts into the planning of your retirement from that perspective. I don’t have facts on this, but I bet there aren’t 10 firms in the area that actually do planning.
Our Planning Is Comprehensive
I think some of the definitions of planning are different from what we have at our firm. Our planning is comprehensive. It really gives a person the most in-depth understanding of what they can create or save to function during their retirement years. The probabilities of success is a numeric way of grading that probability.
Dean Barber: I want to go to Bud’s whole idea of planning because it’s not just the creation of the financial plan with a CERTIFIED FINANCIAL PLANNER™ Professional. It’s then the review of that plan by a CPA. They take a look at that financial plan from a tax perspective to get the couple or individual the income they need over their lifetime with the least amount of tax possible.
It’s looking at risk management. What happens if one spouse passes early or if there’s a long-term care stay? What happens if there’s a critical illness? It’s also looking at estate planning and how to pass the assets that couples accumulate to the next generation in the least taxing way and most efficient way possible.
When you have all those subject matter experts that can sit together and collaborate on behalf of the individual client, that’s unique because it is comprehensive. It covers all the bases that people need to be thinking about.
Bud Kasper: You’re right. People are unaware. You don’t know what you don’t know. And you’re not going to find out till you take advantage of the offer that we’re making you.
Where Are You on the Path to Financial Freedom?
Dean Barber: Yeah. Find out where you’re at on your path to financial freedom. Maybe you’re already there. Maybe you can tell your boss next week, “Hey, I’m done. I’m out of here.” Or maybe you have a little bit of work to do. Everybody stay healthy and stay safe. We’ll be back with you next week. Same time, same place.
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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.