Don’t Wait, Act – Overcoming Uncertainty
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Don’t Wait, Act – Overcoming Uncertainty Show Notes
Whether it’s the markets, interest rates, inflation, political and geopolitical environments, or the complicated and ever-changing tax code, uncertainty seems to be everywhere we look in 2022. While uncertainty can be overwhelming, there are many ways to mitigate it. The first step is to overcoming uncertainty is to start a comprehensive, forward-looking financial plan. Logan DeGraeve and I look forward to highlighting how the different components of a financial plan can help you overcome uncertainty on the latest episode of The Guided Retirement Show.
In this podcast interview, you’ll learn:
- How a financial plan can give you clarity, which leads to a sense of confidence and control leading up to and through retirement
- Having an up-to-date estate plan is critical to mitigating uncertainty in your financial life
- Different tax planning strategies and how they can help with overcoming uncertainty
- That your spending plan will change throughout the different stages of retirement
- “Getting to know our clients is so important. We need to know how they think and feel about money.” – Logan DeGraeve
- “A real financial plan is so much more than just the return. The investment part of a financial plan is the engine. It’s what allows you to do the things that you want to do. But you still need to take the time to determine all the things you want to do and put a price tag on those things. Then, look at all your resources.” – Dean Barber
- Episode 59: The Difference Between Good Debt & Bad Debt with Logan DeGraeve
- Episode 6: Understanding Medicare Pt. 1 with Tom Allen
- Episode 7: Understanding Medicare Pt. 2 with Tom Allen
- Episode 22: Medicare Supplement Plans with Tom Allen
- Episode 60: Property and Casualty Insurance with Sarah Askren
- Episode 62: Navigating Health Care Costs in Retirement with Taylor Garner
- Modern Wealth Management Educational Series
- America’s Wealth Management Show
- Our Financial Planning Tool
Interview Transcript – Don’t Wait, Act – Overcoming Uncertainty
One of the Biggest Challenges of 2022: Overcoming Uncertainty
[00:00:38] Dean Barber: Welcome to The Guided Retirement Show. I’m your host, Dean Barber, founder and CEO of Modern Wealth Management. Today on The Guided Retirement Show, Logan DeGraeve, CERTIFIED FINANCIAL PLANNER™ professional and I are going to be talking about things to do during times of uncertainty. There’s no doubt that 2022 has brought a lot of uncertainty, but uncertainty can come in many different forms. It can be political or geopolitical. It can be uncertainty about what’s going on in the stock market, the bond market, interest rates, inflation. No matter what the uncertainty is, there are things you can do about it.
[00:01:10] Dean Barber: Before we hop on today’s episode, I will remind our listeners and viewers that you can access the same financial planning tool we use for our clients all on your own time and all from the comfort of your own home. All you need to do is click the “Start Planning” button below. From there, you can start building your retirement plan. No cost, no obligation. Please enjoy my conversation with Logan DeGraeve, CERTIFIED FINANCIAL PLANNER™ professional.
Uncertainty Can Take Many Different Forms
[00:01:35] Dean Barber: Logan DeGraeve, CERTIFIED FINANCIAL PLANNER™ professional. I appreciate you joining me today.
[00:01:37] Logan DeGraeve: Thanks for having me, Dean.
[00:01:38] Dean Barber: We’re going to talk a little bit about what to do during times of uncertainty. For 35 years now, I’ve helped people get through times of uncertainty. I can’t think of maybe one or two years out of that 35 where we didn’t have some sort of major uncertainty happening.
Oftentimes, that uncertainty can either be economic uncertainty. It can be uncertainty about interest rates or the market, the geopolitical situation, the current political climate, or it could be a personal situation that has somebody in a time of uncertainty.
What tends to happen is that people will freeze in those times of uncertainty. They won’t do anything. They want to wait until whatever that uncertainty has passed. How do you overcome this uncertainty? I know Logan is seeing the same thing as a CERTIFIED FINANCIAL PLANNER™ professional. You see it happening all the time.
How Will You React to Overcome Uncertainty?
[00:02:35] Logan DeGraeve: There’s always going to be something going on. Like Dean said, there are things we can control and things we can’t control. But at the end of the day, if you don’t have a benchmark or something to go back to, how do you know how any of this stuff is impacting you?
[00:02:49] Dean Barber: It’s almost impossible. There’s an analogy of an uncertain time that I think just about everybody can relate to. In this scenario, you can be a passenger or a driver. You’re just cruising along and suddenly somebody runs a red light. The passenger feels totally out of control because they can’t do anything.
Imagine if that driver just froze and said, “This is really uncertain. What’s going to happen? I’m just not going to do anything.” You can’t do that. As the driver in that situation, you need to make a decision. You need to do something to prevent an accident to keep your passenger safe.
“This Too Shall Pass” Is Not the Mindset to Have with Uncertainty
The thing I see with most people that are looking at investing, tax situations, geopolitical, or political environment or whatever is they just sit back as that passenger and wait until it passes before making a decision.
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Overcoming Uncertainty Has Been the Theme of 2022
[00:04:00] Logan DeGraeve: That’s a great point because what’s happening right now? A lot of uncertainty. Are we in a recession?
[00:04:11] Dean Barber: 2022 has been full of uncertainty across the board.
The Clarity of a Financial Plan Is Critical, Especially Right Now
[00:04:15] Logan DeGraeve: This is when a good CERTIFIED FINANCIAL PLANNER™ professional is the most needed. I have a perfect example with a client of mine that retired in March. He came in recently and was freaking out. He said was looking at part-time jobs because there’s just no way that he can stay retired in this economy.
His plan was at a 99% probability of success. It’s still at a 99% probability of success. He left with a whole different perspective. But if he didn’t have a financial plan and we didn’t have a benchmark to start from, how would I have known that? I wouldn’t.
[00:04:52] Dean Barber: No.
[00:04:53] Logan DeGraeve: When we don’t have clear depiction of what’s going on in your life, that’s when we have anxiety.
The Three C’s: Clarity, Confidence, and Control
[00:05:02] Dean Barber: That uncertainty causes the anxiety. When we’re using our Guided Retirement System, it’s to create clarity, which can create confidence, and then ultimately put you in control.
I have similar scenario to Logan’s, but it’s still a little bit of different story. This woman has been retired for several years and lost her husband last year. One of the things that we talked about in her year-end meeting in 2021 was her desire to take all her kids and grandkids on a special vacation to the mountains of Colorado and rent a ski in-ski out right on the slopes and pay for lift tickets and everybody to go on the trip. She was paying for the whole 9 yards.
Don’t Let Fear Be the Main Factor in Your Financial Decisions
[00:05:45] Dean Barber: So, we budgeted that in late 2021. It was about a $35,000 trip for the family. Well, she called me in June and said, “Dean, I’ve got this thing booked. But am I still OK? Can I still do this, or should I cancel now when I’ve only paid a small deposit?” So, I ran through her plan with her again to make sure that everything would be OK. It didn’t affect anything, so I told her to take the trip.
She was so thankful. She said, “I wouldn’t have known what that was going to do to my ability to spend in the future. I would’ve likely just canceled that trip.” We see people that make those knee-jerk reactions because they don’t have any kind of a plan that says, “What if I do this or is there a trade-off that I’m going to have to make sometime in the future?”
Time Is Your Most Precious Commodity
[00:06:31] Logan DeGraeve: I have a similar story to that as well, but it’s also a little bit different. A very good client that I’ve worked with for about 10 years came in recently and they weren’t really worried about the markets or their plan. Their big concern is their 50th wedding anniversary trip to Hawaii that is coming up. They were concerned about COVID and those type of things. I said, “Look, it’s time to live now. We don’t want to rob you of everyone’s most precious commodity, which is time.” COVID probably isn’t going away, right?
[00:07:06] Dean Barber: It doesn’t look like it.
[00:07:07] Logan DeGraeve: That was a little bit of a different example of overcoming uncertainty. The uncertainty wasn’t necessarily in finances, but my job was still to let them know that they could take the trip. When you work with the financial planner for a long time, they understand your emotions. They understand how you think and feel about money and other aspects of life. There isn’t just uncertainty that can come about with your plan. It’s about overcoming uncertainty on a personal level, too.
[00:07:36] Dean Barber: It certainly is. It’s all about creating a well thought out plan with your CERTIFIED FINANCIAL PLANNER™ professional and CPA who understand what your longer-term objectives are. They understand what is important in your life. That can make all the difference in the world and create that clarity, confidence, and control.
Winging It Isn’t an Optimal Financial Planning Approach
But if you don’t have that, that’s where the anxiety comes in. That’s where people will make a mistake on one side or another. They’ll either make the mistake and say, “You know what? I’m just going to wing this. I think we’re going to be OK. We’re going to go ahead and take the trip.” Then, they don’t end up knowing if that’s going to have negative consequences in the future.
Or on the opposite side of that, they say, “Oh, we can’t afford this because of what’s happening in the markets and our investments are down X%. So, we’re just not going to take that trip.” Well, like I explained earlier, that might have no bearing on whether they could take the trip or not.
Getting to Know How People Think and Feel About Money and What’s Important to Them
[00:08:31] Logan DeGraeve: Getting to know our clients is so important. We need to know how they think and feel about money. We need to go through that prioritization exercise to figure out the important things in their life. Most of time, it’s not money. It’s spending time with the people you care about. In that example I just gave, I knew eight years ago that they wanted to take that trip. Is every financial planner asking that question or is it just, “Hey, your return is 8%.”
[00:08:54] Dean Barber: A real financial plan is so much more than just the return. The investment part of a financial plan is the engine. It’s what allows you to do the things that you want to do. But you still need to take the time to determine all the things you want to do and put a price tag on those things. Then, look at all your resources.
What’s Your Plan’s Probability of Success?
We do something called a Monte Carlo simulation. It randomly mixes up all the historical returns and gives you a thousand different trials. How many of the times could you live the life you want to live and never need to adjust your budget based on the budget that we set out? Logan mentioned earlier that somebody had a 99% probability of success, which means that 99% of the time, the spending that you laid out in that financial plan never needs to be altered.
[00:09:46] Logan DeGraeve: Let’s talk about another uncertain thing that is still in your control. When are you going to retire? You just went back to that 99%. If someone is overfunded, they don’t need to work. They can do something that they enjoy.
Dean and I did a radio show about this a few weeks ago. It’s simply waking up every day and knowing that your employer needs you a little bit more than you need them now. The day gets a little bit more enjoyable with that mindset. That’s another important aspect of overcoming uncertainty.
[00:10:17] Logan DeGraeve: Dean and I talked about this. It’s “Well, I’m going to retire at 65 because that’s when I get on Medicare.” Or, “I’m going to retire at 67 because that’s when Social Security tells me to.” That’s not true. We have people that come to us all the time that could have retired five years sooner. It doesn’t mean they have to, but it would sure help to know it.
Achieving Financial Independence
[00:10:34] Dean Barber: When you know that you can retire anytime you want to, that means you’re getting up and doing what you’re doing every day because it’s what’s important to you. It’s no longer about the paycheck. That’s what I call financial independence.
For more than 35 years, I’ve been passionate about helping people get to and through retirement. That passion has come from seeing so many people’s emotions getting in the way because they put off retirement for too long. They think that they need to have X amount of dollars even though I can show them on the plan that they have enough to do everything they want to do.
For some reason, people can have this benchmark in the back of their mind. They have a number that they want to be at as far as wealth accumulation. But then within less than five years of that couple finally retiring, one of the spouses becomes ill and passes away.
The Importance of Having an Up-to-Date Estate Plan
[00:11:27] Logan DeGraeve: And why does that benchmark really matter? Let’s say your benchmark is $4 million. You’re not at $4 million in 2022. So, it’s all relative there. I think one important piece that Dean just noted is a good financial plan looks at the investments, what you want to do, taxes, insurance, and estate planning. If you don’t have an estate plan, you are creating uncertainty for yourself. Let’s talk a little bit about that. Everyone needs an estate plan, it’s not just for the ultra-rich.
[00:11:58] Dean Barber: Your estate plan does two things. First, it dictates your wishes of what you want to have happen if you’ve become incapacitated. In other words, when you no longer have the ability to make decisions, your estate plan is designed to tell those that you love who you’re naming as your executor or as your successor trustee of your trust, what are your wishes, so that those things can be carried out during your lifetime.
The other thing that it’s designed to do is avoid probate. Keep Uncle Sam out of that estate as it passes from one generation to the next. And then from a tax perspective, it’s passing from one generation to the next in the most tax efficient manner possible.
[00:12:37] Logan DeGraeve: That’s something that is uncertain for some people that is easily fixable. Would you agree?
Overcoming Uncertainty Surrounding the Tax Code
[00:12:43] Dean Barber: I agree. The other part of uncertainty out there is the tax code. What is Congress going to do? Are they going to raise my taxes in the future? Well, we know that come 2026, the current tax code is going to sunset. We’re going to go back to the tax code that we had prior to the Tax Cuts and Jobs Act. That means that almost every American is going to experience an increase in taxes, starting January 1, 2026.
[00:13:08] Logan DeGraeve: If you’re not sitting down with your financial planner, investment advisor, CFP® professional—whoever it is— and your CPA every year, you’re missing something.
[00:13:19] Dean Barber: Ignorance is bliss though, right? If you don’t know what you’re missing, then you can just go on about your merry way and believe that everything is going to be OK. But it’s those things that get missed that can derail somebody’s life.
[00:13:29] Logan DeGraeve: But by having that meeting … What’s the theme of today? Uncertainty.
[00:13:33] Dean Barber: Right.
[00:13:33] Logan DeGraeve: That’s one thing we can control.
[00:13:35] Dean Barber: Right.
[00:13:35] Logan DeGraeve: So, we’ve talked about the estate planning, taxes, doing an annual review with your financial planner. Let’s talk about insurance.
Overcoming Uncertainty as It Relates to Insurance
[00:13:42] Dean Barber: That’s a big one. When you start talking about insurance, a lot of people go directly to Medicare supplements, Medicare, health insurance. They go to that because that is one of the largest budget items that people face as they head into retirement. How do you tackle that?
Well, you need to go into that with your eyes wide open. Before you get on Medicare, what are the premiums going to look like? You need to get quotes. Once you get onto Medicare, do you need the Medicare Advantage plans? Do you need a true Medicare supplement? What’s the cost of both? What’s the out-of-pocket maximum each year? What plan works best for you? When we say insurance, that’s where a lot of people’s minds go.
You Don’t Know What You Don’t Know
[00:14:25] Logan DeGraeve: Yeah. And it’s just not that person that’s close to retirement. It’s the 30-year old, 35-year old that is starting a family. Maybe they have this $500,000 term, some group life insurance. Have they done a needs analysis to look at it? That’s not something that you want to guess on.
[00:14:44] Dean Barber: Right, but people do that.
[00:14:47] Logan DeGraeve: Why? You don’t know what you don’t know.
[00:14:49] Dean Barber: Right. Most insurance is sold and not purchased. What I mean by that is the insurance industry, especially the life insurance industry, has trained some of the best salespeople in the history of the world. They’re trained to sell an insurance policy and there are so many different types of policies that it can get super confusing.
So, when a life insurance agent says, “Hey, you need to do this. You need to do that. You can take this policy and buy it and it’ll pay for your kids’ college and give you money for retirement.” Insurance is a risk management tool. In some cases, insurance can be used as a tax planning tool as well. But those are two totally different types of policies for two totally different types of situations.
Health Care Involves a Great Deal of Uncertainty
[00:15:40] Logan DeGraeve: Right. Absolutely. Dean and I see it all the time with long-term care. It’s one of the most oversold things we see. But you need to have a plan because it is uncertain if you don’t have a plan and you get to that point where someone needs the care. You should be stress testing that within a financial plan.
[00:15:59] Dean Barber: Let’s talk a little bit about that because I think that’s a critical one. There’s a high degree of uncertainty in people’s lives as to what their medical needs are going to be in the future? Are you going to go into a long-term care facility? Will your spouse need to go into a long-term care facility? Are you going to need in-home health care? How are you going to pay for that? That should all be part of your plan, right?
The Goldilocks Plan
So just as a scenario, the way that you should be planning that is by first creating the Goldilocks plan. That Goldilocks plan assumes that you and your spouse go into retirement, live happily ever after, have good returns in the portfolio, and don’t ever get sick.
[00:16:41] Logan DeGraeve: Both lived until 95.
[00:16:42] Dean Barber: Both live until 95 and pass away within a few days of each other after living long healthy lives. That’s the Goldilocks plan. Once we have the Goldilocks plan, then we need to stress test. What happens if the husband or the wife has a stroke at 75 and can no longer function on their own? And they’re in a way where the healthy spouse can’t care for them anymore, so now they need to go into a long-term care facility. Let’s say they’re confined in that for eight to 10 years. Well, what does that do to the integrity of the plan? What does that do to the livelihood of the person who is the healthy spouse?
Stress Testing for a Long-Term Care Stay
[00:17:20] Logan DeGraeve: Absolutely. You need to stress test those things. You need to have those conversations prior.
[00:17:29] Dean Barber: If you stress test the plan and the first spouse gets sick and goes into long term-care at 75, but the other spouse lives a long life to 95. We build out the budget of what that spouse needs to have and determine the cost of the long-term care. If the plan still holds its integrity and it still works, suddenly that couple is self-insured. They have enough to weather that storm.
If they don’t have enough to weather that storm, how much of that potential expense do they need insurance to cover? What type of insurance does it make sense to purchase to cover that part of the expense that they need to have covered?
What Does It Mean to Have a Life Insurance Policy with a Critical Care Rider?
[00:18:17] Dean Barber: My favorite is the life insurance policy that has a critical care rider on it. That basically means if you had a $500,000 dollar life insurance policy, you could use up to 90% of that $500,000 while you’re still alive for long-term care benefits. Whatever portion of it you don’t use for long-term care, it will come to the surviving spouse or the beneficiaries tax-free.
[00:18:40] Dean Barber: It’s the only type of policy that you can put money into and know that either you or your beneficiaries will get more out of it than what you ever put into it. That’s my favorite way of covering long-term care. Then, you put that premium for that life insurance policy into the plan. Did that work better than trying to self-insure it?
[00:18:59] Logan DeGraeve: Right. Absolutely. One thing that’s critical is that you can make anyone have fear about long-term care. So, if one spouse is in long-term care, maybe you’re spending $80,000 a year on that. It could be different depending on where you live. Then, the surviving spouse needs X to live. What is X to live make up because you’re probably not doing the big traveling anymore. Maybe you’re downsizing. You need to go back at that point and redefine what life looks like for the next X number of years. You can’t just assume that the same goals you had 10 or 15 years ago are going to be relevant then too. That’s something that I’d highly recommend. Stress test that.
[00:19:44] Dean Barber: That’s part of the what-if scenario. What if one spouse goes into long-term care? What’s the lifestyle of the survivor or the healthy spouse going to look like? And what’s that going to cost?
Opportunities Can Arise Amid Tragic Situations
[00:19:54] Dean Barber: The other piece of that I think needs to be addressed is that it’s not something that people think about in the moment. But it’s something that people need to be reminded of. That particular event, while tragic in and of itself, can create amazing tax planning opportunities.
A good portion of that long-term care expense can be tax deductible. It can change the scope of what assets you should be spending from. It can allow us to do conversions from traditional to Roth IRA up to a certain level with no additional taxes due in many cases at because you’re getting the write off of the long-term care expense.
[00:20:35] Dean Barber: So, you don’t just go into that long-term care scenario where you got a healthy spouse and one that’s sick and needing that care and just go into it focusing on the care. You need to take a step back. What tax planning opportunities is this creating? How can this help the healthy spouse through their longevity years?
[00:20:54] Logan DeGraeve: That’s a great point. What we’re both saying here is when you have a big life event or a big life change, you need to take a step back and redefine the financial plan and the goals and what you’re looking to do.
[00:21:05] Dean Barber: But if you don’t have a plan in the first place, that’s hard to do.
Overcoming Uncertainty About Investments
[00:21:07] Logan DeGraeve: If you don’t have a plan, you don’t have anything to benchmark off of.
As we transition to talking about investments, you might ask, “How do I get rid of uncertainty in investments?” You absolutely can limit and overcome some uncertainty when it comes to investing. What I mean by that is a good financial plan should be married with the investment plan. You only need to take as much risk as you need to accomplish what you want to do.
[00:21:31] Dean Barber: And if you’re taking on more risk than that, it should be because you’ve identified a certain portion of your assets that you’re never going to need and you want to invest that like you’re 30 years old again so that you could create a larger legacy for your children and grandchildren.
[00:21:48] Logan DeGraeve: It’s the same token now in 2022 now. The first half of the year was rough from a return standpoint. What you should have been doing the last couple years is realizing and harvesting some gain and living off that gain right now in the form of cash. So, the money you’re spending today and tomorrow is not subject to what the market is doing. That’s another way you can limit, cut out, and overcome some of the uncertainty there.
What Are You Doing with Your Most Precious Commodity?
[00:22:11] Dean Barber: Yeah. Again, when your portfolio value increases during good years, like 2020 and 2021. Even though 2020 was the COVID year, it still wound up being a good year for the market. And 2021 wound up being a great year for the market. Well, did you reassess your asset allocation, look at the plan, and say, “Can I take less risk because my value has increased? Or could I take the same amount of risk and spend more money in future years?”
Logan talked about the one commodity that we all have the same amount of and that’s time. What are you doing with that time and could you enjoy it more? Or could you just say, “You know what? I’d rather remove some uncertainty and some risk in the portfolio and take less risk.”
[00:22:59] Logan DeGraeve: But Dean, let’s go back to fourth quarter of 2021. The equities were crushing it. Rates were going up a little bit. Bonds were struggling a little bit, so people were asking, “Why do I have these bonds?”
[00:23:14] Dean Barber: Yeah.
Taking the Emotion Out of Investing
[00:23:15] Logan DeGraeve: We’re our own worst enemies sometimes when it comes to creating more uncertainty within the plan. I think that’s why you work with the financial planner to take the emotion out of investing.
[00:23:29] Dean Barber: Every person or couple has the Goldilocks portfolio. It’s the one that’s just right for them. Our industry wants to oversimplify. You’ve heard the old adage, “You should own your age in bonds,” or “You should only index.” There are all these rules of thumb.
[00:23:54] Logan DeGraeve: The 4% withdrawal rate.
[00:23:55] Dean Barber: Yep. None of those things should be applied to any individual. Everybody has their own set of future objectives, what they want their life to look like, and their own financial situation with the resources that they have. Your asset allocation, your portfolio should be customized to your personal situation. And once again, do it in such a way where you’re never taking more risk than what you need to accomplish your longer-term objectives.
[00:24:25] Dean Barber: For this couple that Logan and I met with not too long ago, we determined that their probability of success would be like 96% with 20% equity and 80% fixed income. We could go all the way up to 60% equity, 40% fixed income and their probability of success was still 96%. But any incremental addition to equity beyond that caused their probability of success to start to drop because it increased the potential volatility within the portfolio.
What Do You Want Your Life to Look Like in Retirement?
[00:24:54] Logan DeGraeve: And once again, you can’t have these conversations if you don’t know what your clients or prospects want to do with their life. That goes back to uncertainty. Dean and I did referenced that recently on America’s Wealth Management Show. Don’t retire and then figure out what you’re going to do in life.
[00:25:13] Dean Barber: You need to be thinking about that four or five years before you get to that point of not working anymore. What do you want the rest of your life to look like? Because so many of us identify with our profession. That’s who we are.
[00:25:31] Logan DeGraeve: You spend a lot of time with it, right?
[00:25:33] Dean Barber: Yeah, you do. You spend more time there than you do with your family in many cases, which I think is backward. But it is the way that it is. It’s the society and the world in which we live today. But you do need to identify what you want to be and what you want your life to be like.
[00:25:46] Logan DeGraeve: When you grow up.
[00:25:46] Dean Barber: What’s important to you after you’re no longer working?
Overcoming Uncertainty Surrounding Social Security
[00:25:50] Logan DeGraeve: As we’re wrapping up our discussion on overcoming uncertainty, one thing that we need to mention is Social Security. it’s a big thing out there, especially for someone that is maybe 40, 45 years old. Are you going to have Social Security?
[00:26:06] Dean Barber: Here’s the thing with Social Security. People tend to make mistakes on how they claim their Social Security based on the assumption that Social Security will be reduced in the future or that Social Security won’t be there in the future. You can’t make that assumption.
[00:26:23] Dean Barber: You need to look at all the different Social Security claiming strategies. The average 62-year-old couple is going to have somewhere north of 600 iterations on how they can claim it. Based on what we know about Social Security today, what strategy makes the most sense? You can claim soon or maximize it. Then, assume that Social Security has a 30% reduction in 2034.
Do you know what’s going to happen? The one that made the most sense for the plan without the reduction is still the one that’s going to make the most sense for the plan with the reduction.
[00:27:00] Logan DeGraeve: Absolutely. And then once you have the right decision, let’s stress test that in the plan. If Social Security is cut by 20%, are you still OK? Maybe you are, maybe you’re not. But once again, you’re overcoming uncertainty.
There Are Always Trade-Offs
[00:27:15] Dean Barber: I don’t want to make people think that it’s all sunshine and roses when you do a financial plan because in life, there are always trade-offs. Very rarely do we get to have everything that we want and the way we want it to be. There are going to be trade-offs at some point. So, if we did have a reduction in Social Security, what’s our trade-off? What are the things that are most important to us versus the things that are important, but not as important as something else? We may have to go without that.
The Different Stages of Your Retirement
[00:27:47] Logan DeGraeve: Retirement can be in stages, too. You’re first five or 10 years are the go-go years.
[00:25:57] Dean Barber: That’s when you’re healthy. That’s when you feel good, you want to travel, and do all the different things you want to do.
[00:28:01] Logan DeGraeve: Then, you have that next period of more of the slow-go years. Maybe one spouse isn’t quite as healthy, you’ve done some traveling, and you’re not moving as much.
[00:28:10] Dean Barber: And then you get into the health phase.
[00:28:11] Logan DeGraeve: Those are the no-go years.
[00:28:13] Dean Barber: Yeah.
[00:28:13] Logan DeGraeve: Dean and I have conversations all the time with people about front-loading their retirement.
You’re Spending Is Going to Change Throughout Retirement
[00:28:21] Dean Barber: Think about when your parents were early on in retirement. They were in their early-to mid 60s, then got into their late 70s, and then got into their mid-to-late 80s. Did they spend the same way? Did they do the same things?
People inevitably say no because they’re not healthy enough. Well then build your plan in stages. Build your plan that gives you additional spending in that first 10-15 years of retirement. That exact timeframe depends upon your health and the longevity in your family history.
Then, go into a phase of what you called your slow-go years. I like the way that Logan did that. What are you going to spend then? And then you go to your no-go years. What are you going to spend then?
You can model the plan out that way. It doesn’t mean that you set the plan up one time and that’s your plan for the next 30 years. It’s going to change. That’s the beautiful thing about having a real financial plan that’s living, breathing, and reviewed on a regular basis with the CERTIFIED FINANCIAL PLANNER™ professional and CPA. It allows that individual to customize and continue making adjustments to that plan as they move forward.
Where Is Your Money Coming From?
[00:29:30] Logan DeGraeve: But you can’t do what Dean just did without looking at where you’re spending the money. Why is that important? Let’s say that you front load retirement and you’re going to live off $150,000 a year net. For the first 10 years, you’re spending $40,000 on travel. You break that out separate. You break your health care out separate.
[00:29:50] Dean Barber: Correct.
[00:29:50] Logan DeGraeve: You can’t just say, “Well, we’re going to spend $150,000 and then we’re going to spend $110,000. You need to understand what you’re spending money on. I can’t stand when I see financial plans and it’s just one number.
[00:30:01] Dean Barber: A lot of times people get confused because they don’t really think about why it’s important to break those things down. A lot of online financial planning tools don’t even allow you to adjust that year by year, let alone break it out by individual budget items. That’s one of the great things about working with a CERTIFIED FINANCIAL PLANNER™ professional and using professional financial planning software that’s developed to help people provide that clarity, confidence, and control in their overall plan.
[00:30:34] Logan DeGraeve: You need to have it because if you don’t, you’re guessing. And you can’t spread sheet financial plan.
[00:30:40] Dean Barber: No, you certainly can’t.
And Then There’s Inflation to Factor in
[00:30:42] Logan DeGraeve: And to that point, what about inflation? We haven’t even talked about it. We haven’t talked about the most uncertain thing of 2022. It’s breaking out living expenses. The basket of goods at the grocery store for the next 30 years are going to inflate differently than health care or your grandchildren’s college education if you’re helping to pay for that.
[00:30:56] Dean Barber: Yep. Electronics or whatever, it’s all going to be different. You need to do as good a job as you possibly can at breaking down where you’re spending money. Then, you need to apply what we would call reasonable inflation rates to each one of those budget items.
[00:31:10] Dean Barber: I don’t know how many times we’ve seen it. I quit counting the number of times where people come in and say they’ve got a plan with a 2% inflation rate built in on flat dollar amount through their entire retirement. You can’t do that. That’s not accurate.
[00:31:31] Logan DeGraeve: With an average return, too.
[00:31:33] Dean Barber: Right.
[00:31:34] Logan DeGraeve: How many times you hit that average return? Once in 30 years?
[00:31:38] Dean Barber: Maybe.
[00:31:39] Logan DeGraeve: If you’re lucky.
The Recipe for Overcoming Uncertainty
[00:31:39] Dean Barber: It’s going to fall somewhere north or south of it. The point is that during times of uncertainty, the people who are overcoming uncertainty with a well thought out plan and a relationship with the CERTIFIED FINANCIAL PLANNER™ professional that’s working with a CPA.
Yeah, we’re in uncertain times. We’re uncertain about what inflation is going to do, the economy, the political environment, and especially the geopolitical environment. But you know what? The people that have the plan, they’re not uncertain because they know that their plan has been stress tested for all those different things. They get to live their life. They get to continue to do the things that are important to them for the reasons that are important to them.
[00:32:20] Logan DeGraeve: That’s the best compliment you can get is when you call clients and are just checking in to make sure everything is good since there’s a lot going on, and they say, “I don’t look at it. That’s what you’re there for.”
[00:32:27] Dean Barber: Exactly. Logan, thanks so much for spending time with me to talk about what people need to do to overcome uncertainty. I appreciate it.
[00:32:35] Logan DeGraeve: No problem. Thanks for having me, Dean.
[00:32:36] Dean Barber: Don’t forget. We’re offering you access to the same financial planning tool we use for our very own clients. Just click the “Start Planning” button and begin your retirement plan from the comfort of your own home.
[00:32:56] Dean Barber: As always, thank you for joining us on the podcast. If you have any questions about any of the uncertainty we’ve discussed today and how it impacts your financial situation, we encourage you to schedule a 20-minute “ask anything” session or complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. There’s no such thing as a stupid question with all the uncertainty we’re dealing with right now. We look forward to the opportunity to help you overcome all this uncertainty so you can continue living your one best financial life.
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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.
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.