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Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 153 out of 715 RIA’s nationwide by total assets under management by [...]

Alan Clopine
ABOUT Alan

Alan Clopine is the CFO & Chairman of the Board of Pure Financial Advisors. He has been an executive leader of the Company for over a decade. As CFO he is responsible for the financial operations of the company as well as investor relations. Alan joined the firm in 2008, about one year after it [...]

Are you dreaming about the day you will be able to leave your job behind but aren’t sure if or even when you will be able to afford to quit your day job? There are some financial planning must-do’s you should do before you retire to make sure your finances are in order. Financial professionals Joe Anderson and Alan Clopine guide you on how to crunch the numbers, set a plan for getting out of debt, and how to develop a retirement budget.

Watch Financial Planning Must-Do’s Before You Retire Part 2

 

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Transcript

Joe: There’s a lot of things that you’ve got to consider in your perfect retirement. Where do you want to live, how much money that you’re going to spend, how long you’re going to live? There are things that you need to consider, but there’s things that you absolutely must do. That’s today’s show. The must do’s before you retire. Welcome, everyone. Show’s called Your Money, Your Wealth®. Joe Anderson here, President of Pure Financial Advisors. And of course, I’m with the big man, Big Al Clopine. He’s sitting right there today. Hello, Big Al.

Al: How are you doing, man?

Joe: I’ve been all right.

Al: Good.

Joe: I’m doing OK. We’re just cruising along here, talking about the must dos. Why is this important? Because a lot of you are not prepared. Most of you are not prepared because you don’t know where to start. Stick around. We’ll tell you where to start and what you have to do. That’s today’s financial focus. A recent study came out from the Retirement Risk Index, is that 55% of you are worried about reducing your standard of living in retirement. That’s not what retirement is all about. You work your entire life. You saved money. That next phase, that second phase, you should enjoy it, not stress that you’re going to run out of money. So let’s break this thing down. Let’s bring Big Al in.

Al: So what are the financial planning must do’s? So let’s start with develop a retirement vision. What does retirement mean to you? How do you want to spend your time? Where do you want to live? And that sort of thing. Then you got to crunch the numbers. Can I retire? What do I have to look at? When can I retire? What do I need to do in retirement? Do I have to work part time or can I completely retire? Develop a budget. The B word. No one likes to develop a budget, but that is important in retirement to not overspend. Getting out of debt is very important. And then finally, budget for the unexpected because sometimes things happen that we don’t necessarily anticipate. And Joe, this is a great place to start when you’re thinking about retirement because it’s like, what do I need to do and think about before I actually execute and retire? And that’s what we’re going to talk about today.

Joe: We focus on the dollars and cents a lot. How much money do I need? What is the nest egg? What are taxes going to look like? Inflation? Social Security? But what we forget, the first step of all of this is really developing a vision of what it’s going to look like. What do you want to do? Who are you going to hang out with? Because a lot of times people roll into retirement and find out, man am I bored. Why did I make this decision? I’d much rather be miserable in my office than just being completely bored and miserable at home. So let’s give you a quick checklist of some things that you’ve got to look at. Where are you spending your time right now? That’s huge. If there’s things that you absolutely want to do and you’re not doing them, write them down. How are you spending your time? What makes you happy? This kind of sounds like Tony Robbins here.

Al: It does. What makes you happy, Joe?

Joe: This makes me happy, Al. Just hanging out with you, bud. But I’m serious. It’s crazy, men have such a difficult time with retirement. Women are a lot better at this because they’re planners. Men, not so much. We’re like, yeah, we’re going to retire. The next thing you know, you’re a couch drunk. What makes you happy? Most men in retirement, like 60%, once they first get into retirement, they run into a depression.

Al: They do. So you think about it, what do I enjoy? And I enjoy playing golf. And so I can’t tell you how many folks we’ve talked to, how many guys in particular that said, “Oh yeah, I’m going to play golf a lot more. Now I play once or twice a month, I’m going to play 3 or 4 times a week.” And then we talk to you a couple of months later and it’s like, “Get me out of here. It’s not enough.” And so what I would say with regards to what makes you happy in your time, is think about things that you’re passionate about. In other words, reasons to get out of bed in the morning. Maybe it’s volunteer. Maybe it’s watching the grandchildren. Maybe for you it’s just reading the paper leisurely. Whatever it may be for you, but give that some thought.

Joe: If you’re not happy then what happens to your health? Your health declines. And then what happens to your expenses? Your expenses explode. So really, figuring out the vision of what this retirement looks like. Start writing it down. It’s so much more easy to implement things once you start writing it down. And make sure that you’re on the same page with your spouse for those of you that are married. It’s hilarious that you assume that you’re on the same page, and most times you’re not. So talk to your spouse.

Al: And where do you want to live? So that seems obvious to think about. Maybe you want to stay in your home, which is great, but it also depends upon where your kids are living or where your brother and sister or friends are living. So give that some thought. In some cases, people will want to move because they want to downsize and they live in an expensive area. In other cases, they want to move because they want to be close to the kids and grandkids, whatever it may be to you. But family, of course, is a very important part. So are friends, and that’s one of the things that’s going to get you through a successful retirement.

Joe: And then you focus on “this is what my retirement looks like. I’m on the same page. I’ve written some things down.” And now you can start putting some other things into play. What age do you want to retire? What do you think is feasible or what’s your dream date of retirement? If you say, “I want to retire at 55”, just know that that’s a pretty long retirement. So you’ve got to probably spend a little bit more time on your vision to find that purpose in retirement. Do you plan on working? Maybe you get rid of the job that you currently have, but you do something part time that you’re really passionate about. Maybe you don’t make nearly as much income, but at least you’re spending your time and you have that purpose.

Al: I think a lot of people actually work in retirement just for something to do, for something to get them out of bed in the morning. Many people work because they have to. They need that extra income. They don’t have enough income otherwise. But a lot of the baby boomers, the new idea of retirement is not sitting in a rocking chair, just idling the hours away. It’s actually doing something that’s going to give you some kind of purpose. So if work is what gives a purpose, great, maybe it’s volunteering, but this is a big part of retirement. It’s not just the numbers. It’s not can I retire, it’s what am I going to be doing in retirement?

Joe: And unfortunately, a lot of people will still have to work in retirement just to cover their needs. But that’s another really good strategy. If you want to get out of the grind of the 9 to 5 that you’re currently doing, but you don’t necessarily have the nest egg to cover 100% of your expenses, but you have enough to cover maybe half. Well, you go to work or find a job that’s paying you half of what you’re currently doing. Then your money can continue to grow. So it’s just, we say this quite a bit, but it’s pulling levers. There’s not one size fits all. You could do multiple things, but you have to develop the strategy or the plan to figure out what lever to pull.

Al: I think so, too, Joe. And in a lot of cases, people have this idea that once I retire, I’m done. I’m completely done. But now what we’re finding with the baby boomer generation in particular is a lot of us, a lot of you, are working through retirement and finding you really enjoy it. Maybe you’re not doing the same kind of job that you did before. Maybe it’s something you enjoy a little bit more. Maybe you don’t make near as much money, but it’s a change of pace. It’s giving you a new lease on life and to where retirement becomes more fun. Part of this, Joe is also Social Security. Social Security, we spend whole shows on that, but do you take it at 62? Do you take it at 66? Do you take it at 70? It’s very different for everybody.

Joe: Again, it’s when do you want to retire? Do you have longevity in your family? And then it’s, what are your spending needs? And then that’s going to determine basically what your Social Security strategy is going to be. So a lot of things to consider. Let me help you out. We’ve got a free gift for you. It’s our retirement readiness guide. Are you ready for retirement? Well, get ready with our must do’s, with our retirement readiness guide. You know where to go, folks. Go to yourmoneyyourwealth.com, click on that special offer. Download it for free. Don’t worry, no cost obligation. We’re just going to hound you. We’re going to call you 4,000 times until you pick up the phone. Kidding, no. Just go to the website, yourmoneyyourwealth.com, click on that special offer. We’ll take a break. We’ll be back in a second.

(commercial)

Joe: Hey, welcome back to the show. Show’s called Your Money, Your Wealth®. We’re talking about the must do’s of retirement. Go to yourmoneyyourwealth.com, click on that special offer this week. Are you ready for retirement? Well, this guide will get you ready. It’s a retirement readiness guide. Go to yourmoneyyourwealth.com, click on that special offer. Download it for free right there on your computer. Easy peasy! Let’s see. Is this a bright idea?

Al: “Eliminate all debt before you retire, including paying off your mortgage.”

Joe: Is it a possible idea? Yes. But is it probable? Probably not.

Al: Yeah, it depends. For some people, maybe what you do is you try to pay off your consumer debt, at least. Maybe your card debt. Your mortgage, maybe you could pay it off, but maybe not. Maybe refinance to a lower interest rate or a longer term, or maybe even get a reverse mortgage. But Joe, nowadays it can be difficult to get all that debt paid off before you retire.

Joe: Yes, I suppose it’s relative to where you live. I think the biggest debt that people have is their mortgages. Living here in Southern California, there’s pretty expensive homes. So trying to get rid of that debt is challenging, to say the least.

Al: But you also then look at your sources of income. So look at your expenses, look at your sources of income and compare those. We have an example. It shows you wanting to spend $90,000, $40,000 coming in as fixed income. So the shortfall in this case is $50,000. So now you compare that to your retirement nest egg. In this example, it’s $1 million. Then you look at that distribution rate, you divide $50,000 into $1 million, you get 5%. What you really would like to see that be, is generally 4% or lower. There are lots of exceptions. In some cases, maybe 3%.
If you retire into your 70s, maybe 5% is fine. But this gives you an idea whether you’re on track and can retire.

Joe: This is super simple stuff, but most people don’t do it. Then you can find out what your burn rate is or distribution rate, whatever you want to call it. In that example, it’s 5%, Big Al says it’s probably better closer to 4%. So if it’s 7%, at least you know 7% is probably a little bit too high. But if you have a short life expectancy or you’re expecting an inheritance down the road, then who cares? It’s just understanding where you fall in all of this.

Al: I think so. When it comes to spending, you really want to look at what you’re spending your money on. As you can see on the graph, we start with entertainment, it’s about 4% either case. Health care tends to go up a little bit in retirement, as well as food, transportation and housing actually goes up a fair amount. It’s not only what you’re spending today, but it’s what you’re going to be spending or want to spend in retirement to help you calculate this distribution.

Joe: You take a look, pre-retirees are 55 through 64. That’s the category that we kind of bunch those people in. And we hear as we approach retirement that when you retire, you’re going to spend less money. You will spend less money in retirement. Well, that graph shows, wait a minute, maybe not. Because you’ll spend less on some categories, but you’re going to spend way more on other categories. So the same amount of flow or the same amount of cash is going out the door, but you’re just filling up different buckets at different times. So you have to take these adages or rules of thumb and throw them out the window and really take a look at your specific situation. And then you can look at where the money’s going, and then you can control that a little bit better. But don’t be surprised that you’re not going to spend less money in retirement. Now, granted, a lot of you will. But then on the other side of that, a lot of you will spend more.

Al: And then medical. Health care. So that’s a big thing. And Fidelity does a study every year to figure out like a couple is age 65, how much are they going to spend on health care over the rest of their life? And the latest figure is $295,000, which is a pretty big number. I do think it’s important that you really break that down as to how they got it. That’s about $5,000 per person per year. So it’s not like you need a lump sum of $295,000, but you have to have the income or some kind of cash flow to be able to cover that on an ongoing basis.

Joe: That’s the scare tactic of the industry right now. Oh, you’re going to need $300,000, $400,000 and people are like, “I don’t even have $400,000 total saved. Everything is going to go to health care.” So anyway. A couple of other quick notes is that during your retirement, you’re going to spend money differently throughout. As you’re transitioning into retirement you might spend a heck of a lot more as you’re redoing your house, or you might spend a lot less because you’re selling the house and downsizing. So we have these phases in retirement that people can map out to really get this thing dialed in.

Al: We do, and you’re right. So early retirement might be completely different than later retirement. What we find, in general, for early retirement is that people get to do the things that they’ve been putting off that they want to do, like vacations. They go on more vacations, maybe more cruises, maybe whatever. It’s like, “Gosh, I always wanted a boat,” or whatever it may be. So they spend money on that sort of thing. Then as they get a little bit older, then they may not spend as much on that, but then health care tends to be a little bit more expensive because there’s more needs, more things go wrong, unfortunately.

Joe: Do you think you spend the most in your final days? Yeah, we’re going to plan for your final days.

Al: That final week. You’re going to spend a lot.

Joe: Quite a week. Make sure you budget for that. Let’s go to yourmoneyyourwealth.com, click on our retirement readiness guide, gets you ready for those final days, folks. Go to yourmoneyyourwealth.com, click on our retirement readiness guide. It’s our free gift to you. We’re going to take a quick break. We’ll be back in just a second.

(commercial)

Joe: Hey, welcome back to the show called Your Money, Your Wealth®. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, with Big Al Clopine. We’re talking about the must do’s before you retire. Get a little checklist going before we get into that, let’s see how you did on the true / false question.

Al: “You can’t grow your money with health savings accounts because the investments must remain in cash.” Joe, true or false?

Joe: I would say most people keep it in cash.

Al: But do you have to keep it in cash?

Joe: Probably wise to keep it in cash. But no, you can invest it any way that you’d like.

Al: Think about 91% of the people, according to Fidelity in 2018, kept their HSA accounts in cash. And the truth is, you don’t have to. You can invest that. So think about it this way, if you’re going to need that money for the next year or two, keep it in cash. But if this is something that you’re building for the future that you don’t necessarily need for 5 years or longer, you might want to consider investing some of those dollars because then you’ll get more growth and have more money available for health in the future.

Joe: Just real simply, is that a health savings account, HSA, is a tax deductible account that you can put dollars into that grows tax deferred and you can pull out tax free. So it’s a high deductible plan. A lot of you might have them. A lot of you probably never heard of them, but the cash that you put into the overall plans is needed for other medical needs because you have such a high deductible. So they mix two together. However, if you don’t go to the doctor often or don’t necessarily need those dollars, you can continue to grow them through mutual funds, stocks, bonds, whatever that you like. And then you can turn it basically into another retirement account once you retire. You don’t have to keep the money in cash, or you can use that cash to pay off debt. If you take a look at the debt levels for retirees, we’re seeing some different trends than we did in years past.

Al: So here’s what’s going on in terms of debt. If you look at this graph, of course, we have more debt or we tend to have more debt when we’re younger. 55 to 64, 65 to 74, 75+. But most importantly, in every single category since the Great Recession, the amount of debt is going up. In fact, it’s gone up about 39% since the Great Recession, and this makes retiring a lot more difficult.

Joe: You take a look at just monitoring what you have, what type of debt. So do you have credit card debt? You have car loans, student loan debt that you’re paying for your kids or your grandkids? There’s a couple of ways to do this. You look at your highest debt. Or you look at the one that has the highest interest rates. Either way, all you do is put it on a spreadsheet, look at the balance, look at what interest rate that you have, and then you can come up with the appropriate strategy for there too. Refinancing your mortgage is interesting, because it’s like, “Well, why do I want to do that? I should be debt free.” But a lot of times it might make a lot of sense for people to refinance that thing up to a 30 year fixed to keep their payments lower.

Al: That is the truth. And of course, we’re in Southern California, where mortgage debts tend to be pretty high. And everyone wants to pay off their mortgage, and I understand that. And if you can, you have the resources to do that, fantastic. But it’s not necessarily the only way to go, because if you’ve got a mortgage, and a lot of people are trying to pay that off as quickly as possible, maybe they got a 15 year loan and they really can’t retire because they’re still paying that off, but they want to retire. Maybe, actually, you should think about doing just the opposite. Maybe refinance to a 30 year so you have lower payments. And if you got enough fixed income and other resources to pay that debt down, that could allow you to be able to retire sooner than waiting another 5 or 6 or 8 years to pay off that mortgage. So, Joe, that’s something that people don’t really think about, but it can be a great strategy.

Joe: The problem is, I’m putting all this cash towards my debt and I’m not saving any money whatsoever. And then all of a sudden you’re like, “Hey, honey, we’re debt free. We don’t have any mortgage” and it’s like, “I want to retire, but I’m broke.” And what do you end up doing? You sell your house and move into the trailer. So you just need some balance here. And then, did you do the one car thing again?

Al: No

Joe: You’re kind of big on that.

Al: Well, yeah. I suppose you can. You can downsize to a single car. Do you want to do that, Joe?

Joe: No.

Al: Let’s talk about emergencies. This is something that is very important because things happen that we don’t necessarily expect. So let’s run through some of these. Parental medical care. It seems odd, but a lot of baby boomers retiring still have parents that are living and they need to care for them. And by the way, maybe they have kids that they’re still caring for, too. So it’s that sandwich generation. So make sure that you’ve got enough resources to cover that. A second one would be the emergency relief for adult children. In some cases, many of you, and I’m a little guilty of this, too, with paying cell phone costs for my kids. You’re paying too much for your kids, and I know that’s one of your pet peeves, Joe.

Joe: That’s right. I’m not going to go there, Alan. I’m not going to go there. But how about the big expenditure? You want to get that motorcycle? I can see you on a motorcycle. Leather chaps.

Yeah. I don’t think I want to do a car… well, car, sure. Boat, motorcycle, no. Second home, I have already. And vacation, I want to do lots of vacations. So that’s what makes me excited, is going on vacation.

Joe: So the point of this is just to make sure that you write things down in your budget. So there’s going to be things that are unexpected and there’s going to be things that you’ll probably want to purchase. So before you buy the motorcycle or the second home or the motor home, just make sure that you have a budget for that that you can continue to afford and do all the things that you want to do. So let’s switch gears here. Let’s go to Ask the Experts.

Al: This is from Cindy in La Mesa. “How do I know when to stop contributing to my retirement accounts and start withdrawing from them?” Generally, it’s when you need the money. Generally, it’s when you retire and start needing those assets to cover your expenses. Joe, do you have anything?

Joe: Well, I don’t know if she’s referring to the age. So if you are retiring from an employer, at 55, you can take money from your 401(k) plan. If you have money in an IRA, that’s 59.5. But if you’re looking at when do I stop saving and start spending? Yeah, when you need the money. When the lights shut off.

Al: When you turn the light switch and nothing happens. Go ahead and pull some money out to pay the electric bill.

Joe: So, we’re kidding, Cindy. Just being lighthearted here. Let’s see what the next question is, Al.

Al: This is Phil _Acadia_. “I want to give most of my money to charity that I worked for for the past couple of decades. Do I benefit more by giving money while I’m alive or leaving it after I’m gone?” Well, that’s a good question. Because a lot of people in their wills or their trust, they have money going to charities. And actually, if you think about it, if you give while you’re living, you actually create a tax deduction because charitable contributions are deductible as long as you have enough to itemize. And some people don’t have enough to itemize. There’s even strategies there to bunch deductions in a single year or do a donor advised fund that might take several years of donations and deduct them all in one year. But if you want to contribute, you might as well do it while you’re living as long as you feel like you can afford to.

Joe: That’s the million dollar question. Most people would rather give while their living, just because you get the satisfaction of seeing where your money goes. We’re giving our money away to the IRS right now, but the IRS will forgive a tax if you plan a gift. However, the problem is that it’s like, Oh, I don’t necessarily want to give this. I’m happy to give it to you when I’m dead because I don’t know what unexpected expense I’m going to have. If you’re married to Big Al, Big Al is going to come home with a big ol’ motorcycle. You’re like, “Hey, I was going to give that money to charity.” And then next thing you know… So, yes, giving while you’re alive, in our experience with our clients and just us personally, we feel better giving while you can afford it, but we still find most people don’t. Let’s see what are the must do’s. First things first, get that retirement vision. I get the vision board, figure out what is it going to look like? What do you want to do? Find your purpose. It’s all the softer side of retirement, but it’s probably a lot more important because if you have all the money in the world and you’re unhappy, what’s it all for? Crunch the numbers. Now, it’s time to get to work, roll up the sleeves, figure out what you’re spending, when you want to retire, what retirement income sources that you have, tax brackets, and so on. Retirement budget. Everyone hates the B-word, but it’s important at least to get in the same ballpark. Because if you think you’re spending $50,000 and all of a sudden you’re spending $100,000. Your math is gone. So all the crunching of the numbers made no sense. Get out of debt. Well, at least control your debt. Understanding where your debt lies and then just making sure that it’s managed. And then, of course, budget for the unexpected. Go to yourmoneyyourwealth.com, click on our retirement readiness guide. It’s got the do’s, it’s got the don’ts. It will get you ready for retirement. That’s our gift, again, this week. Go to yourmoneyyourwealth.com, click on that retirement readiness guide. You can download it for free right there, right in the luxury of your own home. That’s it for us. Big Al, great job today, buddy.

Al: It was fun.

Joe: Hey, thanks so much for watching another wonderful episode of Your Money, Your Wealth®. We will see you again here next week. Have a great weekend, everyone.