Making a Big Purchase in Retirement
In this webinar, Dean and Logan discuss making a big purchase in retirement. Retirement is supposed to be that time of your life where you’re doing all the things you want to do. Sometimes we see people foregoing things that they can do because they don’t have the clarity they need.
Making a Big Purchase in Retirement
Dean Barber: I’m Dean Barber, founder, and CEO of Modern Wealth Management, along with Logan DeGraeve. Logan’s one of our CERTIFIED FINANCIAL PLANNER™ Professionals. Logan, welcome. We’re here to talk about making a big purchase in retirement.
I want to set the stage here because many think about what they want retirement to look like. They lay out the plans, go through a lot of work, and inevitably people will get two or three or four years into retirement, and they find some things that maybe they didn’t think about before because they’ve had some time to think about things, experience some things.
What Would Happen if…?
“Why wait?” – Logan DeGraeve
So now they’re saying, “Hey, what would happen if I wanted to buy a second home? What would happen if I wanted to do something for a child or a grandchild?” All these things come up, so we’re going to talk about how people make those decisions in retirement. So many people will just say, “Well, that wasn’t in our plan so we can’t do it,” if they don’t have that plan put together.
Logan DeGraeve: I have one better for you too, Dean. It’s not only in retirement because you are right. Every day is a Saturday. You have a lot more time to think. People come in five years from retirement, and say, “Hey, look, it’s my dream and my goal to have a house, a second home somewhere.”
Why wait? Why give up those five years when you’re working, and you can use it because the financial plan may be saying, “It doesn’t matter.” You may be at a 99% of probability of success, and you may go with a house to a 99, do it. Don’t give up those five years.
Story Time: Our Dream is to Live in Arizona
I have a story. I had a client that came in about five, six years ago. They were about five years from retirement, and said, “Our dream is ultimately to live in Arizona. We want a house in Arizona.”
The wife didn’t do well here in the cold weather with some health issues, and I’d done enough financial plans to say, “You guys can afford this now.” What did they do? They bought it. She moved down there while he finished up his last three years of work up here. They split time, and they love it. They would have never known that if they wouldn’t have come in and talked to me.
Dean Barber: Are they living down there full-time now?
Logan DeGraeve: Yes, sir.
Dean Barber: Awesome. That’s awesome.
Logan DeGraeve: In fact, I go see them once a year because it was that important to them that we told them they could do it. We didn’t rob them of the most precious commodity we all have, which is time.
Build the Plan to Help Achieve Your Dreams
Dean Barber: Yeah, there’s something to be said about that, Logan. We call it living your one best financial life. When you say dream and dream big, let’s build that ideal plan first and then go from there.
The critical foundation is ensuring that the complete financial plan using our Guided Retirement System™ is in place and updated regularly. Because when these things come along, we want to give great advice, and we want to do it soon.
Story Time: What if We Buy a Second Home in Wisconsin?
A few years ago, I had a client of mine with a lot of family from Wisconsin who I worked with to plan all these trips and everything they wanted to do. It was laid out perfectly before COVID hit. They couldn’t do the traveling they want, so they called and said, “Dean, what would happen to our ability to continue to travel and do all the things we want if we would buy a second home in Wisconsin?” I said, “Well, let’s go through the math. Let’s see what happens.”
We plugged it into their plan, and you know what? They could do it. Their plan worked, them buying that house. We had to go through many scenarios because while they had enough cash to pay for the house, none of the money was in taxable accounts. They would have had to withdraw some pretty big money from IRAs to do it, so we wound up putting about 30% down, taking a mortgage out for the rest, and then just set up a systematic withdrawal to make the mortgage payment.
A Big Purchase Can Impact Other Factors in Retirement
Logan DeGraeve: Dean, that’s a great point because people doing this themselves without a financial plan aren’t thinking about, well, maybe I want a $400,000 house. It’s going to cost a lot more than $400,000 by the time you pay federal and state taxes. One more thing, how old are they? Think about Medicare premiums. You got to have the tax plan with the overall plan. If you don’t, you’re going to be surprised.
You’re Not Going to Have Two Home Forever
Dean Barber: You’re exactly right. Another thing when people start thinking about a second home, which generally happens from what I’ve seen, it’s a few years into retirement. When people start thinking about that second home, one thing I have to remind them of is that you’re not going to have two homes forever. There’s going to become a point in your life when you’re not physically able or not wanting to travel back and forth and upkeep two locations.
What’s the period that we’re going to own the home? When we sell that second home, whether it be the one therein or the primary residence, they move to the second home. Or the second homes get sold, and they continue to live in their primary residence, whatever. That money is going to come right back into the plan. That has to be taken into consideration.
You Don’t Know If You Can Make a Big Purchase in Retirement Until You Put it in the Plan
“You don’t know what you don’t know.” – Logan DeGraeve
Logan DeGraeve: You know the best part of our jobs every day is I took on a client about a year ago, and we went through the planning process, and I was like, you guys are going to leave a lot of money behind. They said, “We have this idea, it’s always just been an idea, but hey, we’re not rich. We’re not going to be able to afford a second home.”
The stigma that, “Oh, I have two houses.” Well, we went through the planning process and said, “You guys can afford the second home.” And they said, “I just don’t even know if we will do it.” Went down, looked, got a phone call, “Are you sure we can do this?” Absolutely. They did it. And they love it. You don’t know what you don’t know.
Dean Barber: That’s right.
Logan DeGraeve: The most important thing.
Without the Plan, It’s Impossible to Understand What You Can Do
Dean Barber: Well, and think about what we try to provide as clarity so that people can then have confidence in the decisions that they’re making, ultimately putting them in control of their own financial life.
Without the financial plan created in the first place, it would be virtually impossible for people to see that this is reality. Typically, you have one person in the family that is that more conservative, saying, “We can’t afford it. We don’t know what’s going to happen, and we shouldn’t spend that money now. Neither of us knows what’s going to happen in the future.”
Then you have the other person saying, “But look, we’re only going to live once. Can’t we do this?” And they go back and forth.
We’re there to say, “Let’s not think about this from an emotional level. Let’s look at the facts and if it can happen. Are there trade-offs that need to be made or can you continue doing everything you want to do?” Once you get all those facts upfront, you can make the right decision.
Making Memories or Leaving Money Behind?
Logan DeGraeve: That’s really the most important thing because you and I say all the time, “Hey, if you don’t spend this money, you’re going to leave a lot behind. Buy that second home, spend time with the grandkids at the beach or the mountains, whatever you guys prefer.” You can’t take away that time. What’s more important; enjoying it while you’re there with them or ultimately leaving them an asset?
Story Time: Giving From Warms Hands Instead of Cold Hands
“What if we could do things today that you guys could actually witness, see, and experience and give from warm hands as opposed to cold hands?” – Dean Barber
Dean Barber: You reminded me of a scenario that’s become a big deal to me over the last couple of years. I began a planning relationship with a couple several years ago, and we’ve done a lot of work on getting money into a tax-free situation.
We’ve done many Roth conversions, and we’ve set this couple up to where there’s no possible way they can spend even the interest that their accounts are making. One of their big goals was to leave money to their two daughters and their grandkids, so we started a conversation.
Now, this is a big purchase discussion in retirement because I said, “What if we could do things today for your daughters and their families? What if we could do things today that you guys could witness, see, and experience and give from warm hands as opposed to cold hands?” I said, “Think about what you’d like to do.”
So, the husband and wife went, and they talked about it. They said, “OK, here’s what we want to do. We want to start giving dollars. We want to allow our one daughter and her husband to buy a home with mother-in-law quarters,” so that if they need a place to stay in the future, they can have the family there.
It’s All About the Plan
They did it for one daughter. The other daughter said, “We’ve always wanted a lake home.” Great. They bought the lake home. Here’s a scenario where this guy comes into my office and says, “Dean, I would have never done these things without your counsel.” Without the planning work that we had done, we could have never given the counsel we did.
Logan DeGraeve: That’s what we see every day. When doing a lot of getting-to-know-you meetings, people always say, “You say every financial plan is different, but is it?” It’s different.
Dean Barber: They’re all different.
Financial Planners Counsel You on Your Options
Logan DeGraeve: They’re all different. It’s what you want to do. A good financial planner is there to give options so we can make educated decisions. You said earlier that you have to do a lot of planning in that first scenario. A lot of people come in and say, “I will never take out a mortgage. I haven’t had one in 15 years. I’m not going to get one now.” And that’s fine. Rates are low. Maybe it makes sense. Perhaps it doesn’t, but it’s our job to give you options.
Dean Barber: You’re exactly right. I think the thing is that when you talk about a big purchase in retirement, what you’re talking about is the fact that we all have just one life. As we’ve learned in the last several months with COVID and all the other things that are going on, life is precious. It could be short. I had clients that had parents in hospitals and things; they couldn’t even see them.
Logan DeGraeve: Babies being born!
Keep Emotions Out of the Decision-Making Process
Dean Barber: Right. It’s just crazy. You never know what’s going to come, so you need what I call “permission” to do what you want to do. You’re not making a decision based on emotion if you can see in black and white that it’s possible and won’t affect your lifestyle. It’s not going to affect your ability to continue to increase that income to keep up with inflation in the future. Suddenly, you’re making an informed and intelligent decision.
Logan DeGraeve: Right. The only way to do what you’re talking about is with proper financial planning, not an investment advisor. It’s a CERTIFIED FINANCIAL PLANNER™ with a team of insurance CPAs–
Dean Barber: Estate planning attorneys.
Logan DeGraeve: Estate planning attorneys, too, because you have to look at the tax side of things.
Dean Barber: Absolutely.
Logan DeGraeve: And if you don’t, then you’re going to be in for a rude awakening.
Looking at Debt as a Tool
“If you can write a check, you’re not in debt. It’s just smart leverage.” – Logan DeGraeve
Dean Barber: You said a little bit ago, Logan, that people, once they get out of debt, can’t envision going back into debt. In the scenario of the couple I told you about earlier, they didn’t want to go back into debt. So I said, “Look, to get enough money to buy that house, here’s going to be your tax hit by taking it out of the IRA or we can finance it and here’s how much we have to take out. Here’s your tax hit.”
The amount of money they’re going to leave behind to their kids and grandkids is so much more significant by taking out that mortgage than it was if we’d had taken all the money out of the IRA, paid the taxes, and paid cash for the house.
Logan DeGraeve: The beautiful thing about it is that it’s a great planning technique. If you take out a mortgage and decide two years into it that you don’t want to deal with it anymore, you’re not in debt.
Dean Barber: Pay it off.
Logan DeGraeve: If you can write a check, you’re not in debt. It’s just smart leverage.
Dean Barber: There is smart debt, but there’s also crazy debt. The crazy debt is what you want to avoid, but there is smart debt.
Story Time: I Want My Dream Care
Another example, had a client a few years ago say, “Hey, I’ve always wanted this exotic car.” It was a $110,000 sports car.
Logan DeGraeve: That’s a nice car.
Dean Barber: Nice car. “And can I buy that car?” So we go through the planning process. You can buy the car, and you know what? They had a special 0% financing on it, so we didn’t have to take all the money out.
Logan DeGraeve: No reason not to use their money.
Dean Barber: Right. There are so many scenarios, Logan, but what I want people to understand is that when you talk about making a big purchase in retirement, there’s not a book to read on it. There’s not a set of rules for doing that.
The only way you’re going to figure out whether you should make a big purchase in retirement and if there will be a trade-off is to have that comprehensive financial plan done. Work with all the professionals under one roof so that you’re considering everything before you make that decision.
“It’s not always about money.” – Logan DeGraeve
Logan DeGraeve: I can’t stress enough the importance of doing it sooner than later. Why rob yourself of that extra five or 10 years in that house in Florida or Arizona or wherever you want to go. I’ll put you on the spot here. Where do you have the most fun with your family?
Dean Barber: At my lake house.
Logan DeGraeve: Exactly. What about if you would’ve waited until retirement to have gotten that? How many years would you have given up of summers and memories and time?
Dean Barber: It’s irreplaceable.
Logan DeGraeve: It’s not always about money.
Dean Barber: Well, money is the fuel that allows you to do those things. But Logan, when you sit down with people for the first time, and you say, “All right, let’s talk about what’s important to you. Let’s prioritize the things in your life that are most important.”
How many times has somebody come to you and said, “The most important thing to me is how big my bank account is.” Never? That’s just not it. Money’s how we get to do the things we want to do. Without the right education and the proper planning techniques, people don’t really know what’s possible.
Make Sure You Understand the Impact on Your Plan that a Big Purchase Can Have in Retirement
Logan DeGraeve: It’s true, Dean, and it’s OK. Maybe they know they have enough money to do this, but what’s the distribution planning? What are the taxes going to look like? What’s the Medicare cost going to look like?
People come to us, and they have the stuff. They’ve worked hard. They may have Social Security or a pension. Now, how do we make that work for you in the most tax-efficient manner? That’s ultimately why I have a job and why you have a job.
It’s Not All About the Investments
“The financial industry has made people believe that investments are the most important part of an overall financial plan.” – Dean Barber
Dean Barber: Right. What you’re drilling down to there is the critical part. Our industry has done a poor job of explaining what CERTIFIED FINANCIAL PLANNER™ Professionals do.
The financial industry has made people believe that investments are the most important part of an overall financial plan. Still, investments are the last piece that should be discussed because you really can’t even define what that money needs to do until you’ve done all the planning.
Financial Planning is Dynamic
Logan DeGraeve: And it’s ever-changing. We talk about it all the time; financial planning is dynamic because I may have a client that’s retired for three years, and they may come to me and say, “Hey, we’re going to get a house.” That could ultimately change how your investments need to be managed. Absolutely. That’s why we sit down with our clients a couple of times a year, maybe quarterly, to review these things.
Dean Barber: You have to do it. When that plan is built, and those things come up in your life that you say, “OK, what would happen if we did this? What would that do? Do we have to make some trade-offs? Or are we good to do it?” And I like what you said. That’s the most rewarding part of what we do is witnessing people doing the things they want.
Logan DeGraeve: Telling them they can retire. And you just said it. Your best memories in the last five or 10 years are at your lake house. Right?
Story Time: Practice What We Preach
Dean Barber: Yep. No question. We’ve taken some great trips on top of that, but those are things that my kids will remember forever. That’s a big deal.
Just a quick personal story, Logan. When I started in this business and started doing financial planning, I watched people go into retirement and not do the things they want to do. I realized how critical it was to coach them, teach them, and give them that “permission” slip. Then I said, “I’m going to take that and put it into my personal life. And these are the things that I’m going to do.”
When my kids were in school, we used to. We had a motor home at that point in time, and the day they got out of school, we would load up the motor home. This was before the GPS and smartphones. My wife would get out the atlas, and we’d hop in the motor home. We’d head out. We’d go for a month and can’t get that back.
But I knew whatever that cost, I already knew that I was saving enough to get to where I wanted to be, so I had permission to spend that money. I love what you said earlier, “If you can do it now, why wait?”
Some people get into this mindset. I got to continue to save and continue to build that nest egg. Maybe you’re already there.
“How Much Money Do I Need to Retire?”
Logan DeGraeve: You’ve won the game. And defining winning is different for everyone. You get the question all the time, “How much money do I need to retire?” I don’t know. It depends.
Dean Barber: It depends on what you want.
Logan DeGraeve: At the end of the day, and I think you would agree with me here, the worst thing a financial planner can do, and I mentioned this earlier, is rob someone of the most precious commodity we all have, which is time.
We want lifelong clients of Modern Wealth Management. If I work with a client for 15 or 20 years and they no longer have their health. If I’m talking to them and they say, “I have this pile of money, but gosh, Logan, I wish you would’ve told me 10, 15 years ago I could have done these things, and now I can’t.” That’s not a position I ever want to be in, nor do you.
Seeing the Impact of Planning is Rewarding
Dean Barber: No. The cool thing is that after almost 35 years of doing this, I’m working with third generations of people, and they get to see what I did for grandma? What do I do for mom and dad? And let’s put that into place for me. So that’s rewarding.
The other thing that I want people to understand is that it’s not about a financial product. There are so many people in the financial services industry that are only interested in selling a product to earn a commission, and that’s one thing that we never ever do.
Story Time: Sometimes You Can’t Make it Work
Logan DeGraeve: Quick story about that. I had a client come in at the time that had been tied up in an annuity. They had the surrender periods and had to hold it. It didn’t make any sense to get out of it. They weren’t liquid enough. They had the money to do this.
Dean Barber: But they couldn’t do it.
Logan DeGraeve: But they couldn’t do it. We had to wait five years. What’s been the theme of this discussion? Time. That’s sad.
Nobody Should be Sold a Product
Dean Barber: Because they got sold a product and nobody should ever be sold a product. That’s why I say investments should never be discussed until the plan is complete. When the plan is there, you now have options for how you can accomplish what you want to accomplish. Let’s pick the one that you’re most comfortable with.
Logan DeGraeve: For me, it was a hopeless feeling in that situation because there was nothing I could do because of a previous act by another financial planner.
Dean Barber: Yeah, or they’d have called themselves a financial planner, but they were just a product salesman.
Those people are rampant in our industry. The industry’s tried to change it, but the lobbyists are too strong to enact great change. When looking for a financial planning firm, it’s critical to look for a firm that’s got thorough CPAs, estate planning attorneys, CERTIFIED FINANCIAL PLANNER™ Professionals, and risk management experts who are all going to collaborate on behalf of that individual.
Logan DeGraeve: Your financial planner, whoever you’re working with, whether at Modern Wealth Management or whatever company, should be playing quarterback for you. It’s my job as CERTIFIED FINANCIAL PLANNER™ to get with our CPAs, estate planning attorneys, and insurance specialists. Then it’s my job to get with Jason, who runs our financial planning department. It’s my job to do that.
Dean Barber: And that’s why you’re here.
Logan DeGraeve: Exactly.
Start Making Your Plans for Retirement, or that Big Purchase
Dean Barber: Well, hopefully, everybody’s enjoyed our discussion here about making a big purchase during retirement. The theme again I want you to get here is that there’s no rule book for making a big purchase in retirement. And the honest truth is that your retirement should be what you want.
If you’re not already a client of Modern Wealth Management, you can schedule a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals, and we’ll start with the discussion about what it is that’s on your mind, what it is that you want your life to look like.
We’ll talk about how we do what we do, and we’ll see if there’s any need to move forward. But we’d love an opportunity to sit down with you and start that complimentary consultation so that you can live your one best financial life.
Schedule Complimentary Consultation
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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. 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.