Would you go to a restaurant that has a C rating or even a B rating? How about your retirement plan? Do you know how your financial plan rates, or are just satisfied that you have one? Having a plan is a big step in the right direction, but is it actually going to meet your goals? Joe Anderson, CFP®, and Big Al Clopine, CPA are here today to rate retirement plans and show you ways to make the grade!
- 0:00 – Intro
- 2:32 – Retirement Plan Ratings
- 3:23 – How do you Rate?
- 6:30 – Download: Retirement Readiness Guide
- 7:31 – True/False: Most people don’t save enough for retirement because they don’t know what to do.
- 8:03 – Savings Gap Reasons
- 10:10 – Generational Savings
- 10:50 – Savings Target
- 12:15 – Improve your Rating
- 13:09 – Download: Retirement Readiness Guide
- 13:55 – True/False: Real Estate is the asset that more than half of surveyed Americans say they are relying on to fund their retirement
- 15:12 – Portfolio Construction
- 18:14 – Sustainable Withdrawal Rate
- 19:10 – Ask the Experts: When the market takes a dive should I look to adjust my asset allocation?
- 20:38 – Ask the Experts: When return rates for I-bonds are at historical highs and many stock prices are dipping, which is the better investment choice if I only have $10,000 to invest for this year?
- 21:35 – Pure Takeaway
- 22:00 – Download: Retirement Readiness Guide
Joe: If you were to give your retirement a grade, what would you give it? An “A,” a “B,” a “C,” “D”? Or are you failing? Let’s not fail at your retirement, folks. That’s what we’re going to get into today. Welcome to the show. The show is called Your Money, Your Wealth®. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, president of Pure Financial Advisors. And I’m with my partner, that’s Alan Clopine. He’s a CPA extraordinaire. We’re going to break things down for you. But if you take a look at people’s readiness for retirement, you’re going to be astonished. Look at this. 80% are not prepared or they feel unprepared about their overall retirement. What’s that grade? Boom. “F.” Failure. A complete, epic failure. Let’s break this down a little bit more. Here’s that 20%, or actually it’s only 19%, feel financially secure. Right? 34% are on the borderline. Uh, maybe I have enough assets. With my Social Security, maybe squeak out a couple of extra bucks to have a somewhat enjoyable retirement. 30% at risk. They’re at risk. And then 20% need more help. 20% of you are doing OK. Everything else, let’s get to work. That’s today’s Financial Focus. All right, what do we need some help with? Let’s go to school, folks. All right, what do we want help with? Well, a lot of you, how much should I save? Am I saving too much? Am I not saving enough? What age can I retire? Can I retire tomorrow or is it going to take me another 10 or 15 years to accumulate? Or maybe I’ll never retire, right? Expenses in retirement. A lot of you really have no idea what you spend on a month-by-month basis. This is something that you have to get a little bit dialed in because if your expenses are off or if your assumptions are off, your retirement plan could go sideways quickly. And then, of course, taxes in retirement. How much is the IRS going to take from your hard-earned savings, that nest egg? Is it all yours? No, it’s not, because Uncle Sam wants his piece. Let’s bring in the big man, think–speaking of taxes, to break things down.
Al: So today we’re going to talk about rating your retirement, or as Joe likes to say, grading your retirement. Either one. Let’s see how you’re doing. So, first of all, let’s kind of break that down. Where do you stand? How do you rate? What’s your grade, right? So that’s number one. And then for many of you, it’s not–maybe not what you want it to be. So let’s talk about savings targets, how to think about that. Constructing your portfolio, that’s another important thing if you want to make it to your retirement. Target asset allocation. What kind of assets you put in what type of accounts. And finally, sustainable withdrawal rate. How much can you withdraw from your portfolio, taxed efficiently, and sustain it? In other words, not run out of money. And, Joe, this is perfect topic for today because a lot of people are wondering, am I on track? How am I doing? What’s my grade?
Joe: Yeah, right. I mean, you take a look at the stock market, it’s pretty volatile. We’ll give the stock market an “F” this year. Right? Inflation, sky high, you know. So we have these kind of one-off years and it throws people’s retirement plan right out the window. So let’s break things down first. How do you rate? First things first, Al, let’s talk about a little bit of budget and cash flow.
Al: Yeah, that’s usually kind of a starting point, right? It’s like, well, how much are you spending? And many of you know, you know, you keep good records. Probably the majority have no idea. At least the people that we talk to. So, if that is you, at least start with your net pay, right? And maybe that’s about what you’re spending. Now, if you’re saving some of your net pay, great. If you’re–if you’re spending about all of your net pay or there’s no extra savings at year end, that’s probably what you’re spending. But you got to know what you’re spending. That’s kind of number one on this equation, right? And then of course, the second part is what does retirement look like? Do you want to spend more in retirement? A lot of people do. But can you? So start, Joe, with expenses.
Joe: Yeah, I think there’s a lot of really good tools online that you can go to, just put in budget. No one likes a budget. But if you look at the tools that are available today, you know, you don’t have to go through pen and paper and look through your checkbook and your bank statements and everything else, you can kind of connect everything, you know, to an easy app that will line item everything out for you. So I’d highly encourage you to start taking a look there. So “A,” the number one, is to achieve your overall financial goals. But you have to kind of get these bottom things in check first, such as your debt, right. Should you be paying off debt? Should you keep the debt? Looking at mortgages today, right? Mortgage rates went high this year, so if you have a little bit lower rate and you’re putting extra on it, maybe it might make sense to use those dollars to create some added liquidity or maybe put it into your retirement account. And then a good thing to do is knowing your net worth.
Al: Know your net worth. And that’s, you know, accountants like net worth, right? So what is it? That’s what you got, right? So there’s a couple categories with what I think of as net worth. One is liquid assets, or what you can use for your investments for retirement. And then one is like your personal assets, like a home, like a car. So we generally think of your net worth for purposes of retirement is your liquid assets–your savings account, your money market account, your brokerage account. Maybe you got a company retirement account, maybe you have an old company retirement account, you got a couple. Maybe you have an IRA, Roth. These are your liquid assets. Add these up together, and that’s kind of your starting point on what you have to work with in retirement. Now, I will make one comment, Joe, about homes. Your home–you know, a lot of people have a lot of equity in their home. If they’re planning on selling and moving to a smaller or cheaper location or downsizing, you actually can use some of that equity in this calculation.
Joe: Yeah, I mean, that’s a personal use asset.
Al: That’s right.
Joe: A lot of times, you know, people put some other types of assets on the old net worth, maybe to boost it up a little bit. Maybe if that helps your ego, go for it, but it’s probably not going to help you long-term, right? So this is basically your financial report card since we’re talking about grades. What grade do you give yourself when you put that net worth statement together? And then finally, we’ll talk a little bit later about retirement plans. What plans do you have? And making sure that you’re utilizing the right one so Uncle Sam doesn’t take a lot from you. If you need more help with this, you know where to go, go to yourmoneyyourwealth.com, click on that special offer. It’s our Retirement Readiness Guide. It’s our most popular guide. If you’re getting ready for retirement, click on Your Money, Your Wealth, or go to yourmoneyyourwealth, then click on that special offer. It’s our Retirement Readiness Guide. Get ready for retirement, folks, with our guide. It’s free of charge, it’s our gift to you. We got to take a short break. We’ll be back in just a second.
Joe: All right, welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, with Big Al Clopine. He’s a CPA. We’re talking about grading your overall retirement. How do you rate? Do you give yourself an “A,” or are you failing? Hopefully you’re not failing. If you are, go to yourmoneyyourwealth.com, click on that special offer. This week it’s our Retirement Readiness Guide. Get ready for retirement with our Retirement Readiness Guide. Yourmoneyyourwealth.com. Click on that special offer. It’s free of charge. It’s our gift to you. Let’s see how you did on the true-false question.
Al: “Most people don’t save enough for retirement because they don’t know what to do.” True or false? Huh. We went deep in the barrel for that one. Here’s my guess, Joe. My guess is that–
Joe: We don’t know what to do.
Al: Most people, they just–they use the money for other things, right?
Al: Or they can’t afford to.
Joe: I would say most people probably can’t afford to save any more money, all right? But I mean, I would have guessed that you could probably save maybe a little bit more because you’re doing it wrong. You gotta pay yourself first. Everyone pays themself last. So right, put your money into the 401(k), give yourself a little bit of a boost as you’re adding to those dollars, right. Out of sight, out of mind. And then budget everything else. Most people will pay their bills and then say how much is left over, and then they’ll put money, you know, into a Roth IRA or into a brokerage account and things like that. I would pay yourself first, but 53, they just can’t afford it. Intend to keep working later. How many times we get this one?
Joe: It’s like, you know what, I’m just gonna keep working.
Al: I got to work till I drop, and then that’s my retirement plan.
Joe: It’s gonna be a great retirement. I’m going to die at my desk.
Al: Oh, here’s that don’t know what to do, 19%.
Joe: Yeah, 19%. I would–come on. You know what to do a little bit.
Al: You need to save more. It’s easy.
Joe: Yeah, but I can’t afford it, and I’m just going to pretend I’m gonna work longer. Or, you know, we got competing financial priorities.
Al: Yeah. Well, Joe, do you know that about half the people out there say that they need to save more money? In fact, I think you got another slide. Let’s see.
Joe: Here we go. Savings gap, 50%. Right? Hey, I want to save more for retirement. Do you think it’s 48%, Al?
Al: No, it’s about 97%.
Joe: [Laughs] Right, there’s only a few of you are saying, “Yeah, man, I’m saving way too much.”
Al: Yeah. This is out of control.
Joe: This is way too much. My net worth is out of control. It is so big.
Al: I feel guilty I’m so rich.
Joe: I’ve heard that, ah, never. OK, but let’s just go with this, right? Some of you want to save a little bit more money. Probably all of us want to save a couple of extra bucks, be good stewards of our money or whatever. If we’re not saving it, maybe you want to gift it and things like that. But a big “D” for this stat, Big Al.
Al: Yeah, and look at that. I guess as you get older, you don’t need to save as much.
Joe: Well, yeah, because you’re going to continue to work and just drop dead. [Laughter]
Al: Got it. Well, actually, here’s some information maybe you can use. It’s like, well, how much have people saved? And on average, if you look at the general population, what, it’s about 168,000. But if you break it down by generation, the Boomers, which is the oldest generation of the 4 represented here, have saved the most, little over 400,000, and so on. Gen X, Millennials, Gen Z. Interestingly enough, the–you know, Millennials, lot of discussion about them, they’re actually, Joe, they’re doing pretty well given their age at–in terms of savings.
Joe: Right. I mean, 25 to 40 years old. They got about $100,000 saved. This is a really interesting chart. Gen X, that’s my generation, 200. And, Big Al, you’re the Boomer, you’ve got twice as much as me.
Al: Yeah, right.
Joe: But then you got Gen Z, 6 years old to 24.
Al: I don’t know how they saved 35,000. They’re really good at it.
Joe: A 6-year-old. He’s thinking, “Man, I’m saving too much.” So, how much money should you have saved, right? So we’ve seen this before, if you watch this show, but this is from Fidelity. How much should you have given what your annual income is? And you can kind of take this chart. So if you’re 50, right, you want 6 times your annual income. So if you’re making a $100,000, 6 times that is 600,000. All right, well, you’re in line. All: Or, Joe, if you make $97,089 and you multiply that by 6, then you need 582,534. That’s exact.
Joe: This is very precise. This is exact. I like to round. But our producer really likes to get into the numbers here. This makes us smarter.
Al: It does.
Joe: Gen Z, 32,500. So, that’s that 6-year-old, right. So. That 6-year-old’s killing it. Well, at 6 to 25, all right, so they’re the only ones that are actually on track, given what this stat says. The Millennials you need two times. So, that’s 143,000. The Millennials have about 90,000. So they’re a little bit behind. If I’m looking at Gen Z, 50, that’s the oldest gen, or Gen X, Gen X, here’s 50. So that’s 6 times, right. And so that’s where we’re getting these numbers here, 184, so on and so forth. So we’re doing pretty good as a younger generation, and those monies are going to continue to compound. But we’ve had this savings gap here. And so now it’s time to catch up to make sure that you’re doing things appropriately.
Al: Yeah. So let’s talk about how to improve your rating. So number one, make sure you set a target savings goal. So you have to do a little work here to figure out when you want to retire. What we talked about already, what are your goals? How much do you have already? What are you spending? What do you need to save? Get that down on paper so you’re actually doing it. Pay yourself first, as Joe said. That’s super important. Automate that savings, use employer match to kind of, in some cases, double up the amount going into your contributions. And then bank your bonus. Like, some of you get bonuses. Try to save it or save half of it or save a chunk of it to improve your overall situation.
Joe: Yeah. Instead of buying that new car or a boat, you know, it might make sense to kind of stock that money away for a rainy day. We’ve all heard it, we just need to start doing it. If you need a little help, if you want a guide to get you to retirement maybe a little bit more effectively, maybe a little bit more efficiently, go to yourmoneyyourwealth.com, click on that special offer. It’s our Retirement Readiness Guide. We’ll get you ready for retirement. Just go to yourmoneyyourwealth.com, click on that special offer this week, and have fun getting ready for retirement. We’ve got to take a break. We’ll be back in just a second.
Joe: Hey, welcome back to the program. The show is called Your Money, Your Wealth®. Joe Anderson, Big Al helping you grade your overall retirement. How do you rate? Go to yourmoneyyourwealth.com, click on that special offer. This week it’s our Retirement Readiness Guide. It will help you get ready for retirement. Yourmoneyyourwealth.com. Click on that special offer. Hey, let’s see how everyone did on that true-false question.
Al: “Real estate is the asset that more than half surveyed Americans say they’re relying on to fund their retirement.” True or false. Joe, that sounds like a good question for you.
Joe: You know, if you think about it, real estate is probably one of the largest assets that most people have, so off the cuff, it sounds like it’s probably true.
Al: Yeah. The problem, though, is you have to live somewhere. Unless you’re planning on selling your home, it’s kind of–it’s kind of hard to use it for your retirement.
Joe: Yeah. It’s actually only, what, 36%. 22 crypto. This survey was probably–When was this, 2022? Are you–are you waiting on that crypto to save for your overall retirement?
Al: No, not waiting on the crypto. But maybe this is a younger audience.
Joe: It had to have been. So savings is 71%. What are you depending on? Employer plans, so that’s your 401(k). You know, so these surveys, sometimes they give really good content. Not like this one.
Al: But we can use it.
Joe: It has really nice colors. But 36% are relying on that real estate. Let’s talk about portfolio construction, Big Al.
Al: All right, that sounds good. So, you know, when you think about portfolio construction, you always kind of think of a pie, right? How do you split up that pie? So there’s a few broad categories like U.S. stocks, foreign stocks, bonds, short-term investments, which might be like cash or cash equivalents, right? So when you think about investing, right, in general, the younger you are, the more aggressive that you’re going to be in your portfolio. By aggressive, I mean, more stocks, more U.S. stocks, more foreign stocks, because they tend to earn more over the long term. They’re more volatile. They go down, they go up, but as they go down, you have time to kind of recover those losses and make more than you would have been with a conservative portfolio. But, Joe, as you get older, you might want to get more conservative as you’re taking money from the portfolio.
Joe: Yeah, I mean, there’s risk tolerance, right? So it’s like, can you sleep at night depending on what your portfolio looks like. But then there’s also, looking at your overall financial planning strategy is what’s the appropriate rate of return for you to accomplish your goals? So some of you might be a little bit more aggressive than you need to be and some of you might be a little bit more conservative, where you have to be a little bit more aggressive to accomplish your goals. So I think before you even get into portfolio construction, you got to go back to the beginning of the show, right? What are your goals? What are your financial dreams? What is your overall budget? How much money do you want to spend in retirement? What does your savings look like today? And is that going to help you, you know, get to where you need to be? But then finally is the portfolio construction, right? So if you want to be conservative, yeah, you want to have a little bit more bonds. So this is a good general rule of thumb of where you should be looking at depending on what you want to do, right. If you want to be super aggressive, well, you can kind of change these pies around, too. We got 60% here in U.S. stocks, 25% in foreign, 15 in bonds. Well, you could go 50/50 U.S., foreign. You could have zero bonds, you can have 5% bonds, you can make this any way that you look, but this is at least a good general rule of thumb just to make sure that depending on what you want to do. Because we see this is that, “Hey, I’m a conservative investor,” and their portfolio looks like this. Or they say, “Yeah, I feel like I’m really aggressive because my account is moving all over the place,” but they’re actually a fairly conservative investor. So they might even want to be more conservative.
Al: Well, that’s a good point. A lot of people don’t really know what they have. I mean, they think they’re a certain way, but their portfolio may not reflect it. And, Joe, you bring up a good point on the right kind of portfolio for you is based upon your goals. If your goal is to retire in 30 years, you can probably stand to be more aggressive, as I mentioned. As you get closer to retirement, what rate of return do you need to be able to fund your retirement successfully? And then pick the safest portfolio to be able to do that.
Joe: So kind of feeding off those overall portfolios, now let’s talk about a sustainable withdrawal rate, right? So how much money should you be pulling from the overall portfolio? So if you have a conservative portfolio, OK, if you pull around 4% out of the portfolio, you know, you have probably a pretty good chance that that portfolio is going to continue to be, right, intact over your lifetime, right? But if you have an aggressive portfolio, OK, if you have a growth portfolio, if you want more money, you want to take out more than 4%, you want to take out 7%, OK, you could do that, put a little bit of juice in the portfolio, but just understand that you got a 50/50 shot of accomplishing your goals. So the more conservative you are, the likelihood of you accomplishing your goals if you take a lot less out of the portfolio. So I’m not sure if that’s in line with your goals or not.
Al: Well, yeah, that’s right. And you hear us and others talk about the 4% rule, which is only a rule of thumb, it’s not perfect, but at least it gives you an idea. If your portfolio is a million bucks, 4% of that’s $40,000. That’s what you can take out of the portfolio. You can take more, it just means you have a higher likelihood that something is going to happen with the market and you may run out of money.
Joe: All right, let’s switch gears, folks. Let’s go to Ask the Experts.
Al: This is from Cindy. “When the market takes a dive, should I adjust my asset allocation?” Great question, Cindy. So, I might–a couple thoughts here. First of all, your asset allocation doesn’t really change, or shouldn’t really change, with the market. 60% stocks, 40% bonds. If the market goes down, you probably still want that allocation, if that in fact was the right allocation for you based upon your goals. But you do want to rebalance. Maybe now stocks have gone down. Now you’re like 50% of each. So you want to rebalance, you want to sell some of those bonds to buy stocks while they’re lower so you get back to 60/40. That’s what rebalancing is. When an asset class doesn’t perform as well as another one, you buy more of it, which forces you to buy low, which is actually a good thing.
Joe: Yeah, great point is the rebalancing is key. You don’t necessarily want to change strategy. A lot of people do, though, right? You see that market start going down or we see a bad bear market, and it’s like, oh, recession’s looming and things like that. What do a lot of people do? They totally abandon their strategy. And they either go very conservative and go straight to cash and they wait for the storm to clear, and then they go back in. But that’s a very difficult decision to go back in. It’s like, when do you know how to do it, or what is the timing mechanism of it, right? If it was easy, everyone would do it, but it’s almost impossible. I think the right answer is to stay with your strategy, rebalance, and that will help preserve the risk.
Al: OK. Second one, Joe, is from Scott. “When return rates for I-bonds are at historical highs and many stock prices are dipping, which is a better investment choice if I only have $10,000 to invest for this year?” Great question. I-bonds are paying over 9% right now, so it’s actually kind of attractive. It’s a fixed income. Just be aware, Scott, though, that’s not a fixed rate for the term of the bond. It is variable depending upon what happens with interest rates. But if you could–at this exact moment, it seems like a pretty good investment, but it’s hard to know what it might be longer term.
Joe: Yeah, I don’t know. What’s the time frame? What’s the goals? How old are you? How much money do you got, 10 grand, is it for when, right? So you need to, you know, start thinking about things, you know, longer term. You can’t look at your investment strategy or philosophy in a silo. Hey, I-bonds are paying great, should I just do this? But if it’s a 30-year time horizon, I don’t know, I’d probably go in the stock market. All right, what did we learn? It’s the checklist, folks. Are you hitting your savings targets? You know, you got to start somewhere. You know, start looking at are you hitting it? Is your portfolio constructed to what you’re trying to accomplish? Your asset allocation. And then we’re also looking at a sustainable withdrawal rate. All right, if you want more help, you know where to go. Go to yourmoneyyourwealth.com, click on that special offer. It’s our Retirement Readiness Guide. Get ready for retirement. It’s on us. Big Al wrote it himself. Our Retirement Readiness Guide. That’s it for us. Go to our website, download the guide. Have a great day. We’ll see you next time.
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CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.