See it – believe it – achieve it!
Vision boards are popular these days and they can work to help you secure your financial future. The first step in reaching any goal is to have a vision of what you want your future to look like. What if your vision is to be a millionaire at retirement? Joe Anderson, CFP®, and Alan Clopine, CPA, will help you put your vision together and give you some tools and strategies to make it a reality.
Retirement Vision Board:
- Wants, Needs & Goals
- Find Your Finish Line
- How Risky Are You
- Vision into Action
- Be Tax-Efficient
Important Points:
(0:00) – Intro
(1:55) – Overview
(3:27) – Needs vs. Wants
(6:03) – Savings
(11:24) – Risk vs Reward
(13:38) – Asset Allocation
(14:53) – Action
(17:00) – Tax Impact
(18:40) – Types of Accounts
(21:29) – Ask the experts
(23:40) – Pure Takeaway
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Transcript:
Joe: What is the first step of a successful retirement? If you don’t know, stick around, folks, because we’re gonna fill you in. Welcome to the show, everyone. The show is called Your Money, Your Wealth®. Joe Anderson here, president of Pure Financial advisors. I’m with the big man Big Al Clopine. He’s sitting right over there. When it comes to your retirement strategy or plan or any other goal for that matter, the first step is you need to have a vision, a vision of what that’s going to look like, and then you want to write it down. A lot of times, we’re just going through the motions, but you have to have that vision to make sure you succeed. That’s today’s financial focus. Vision boards! Those are pretty popular, right? You might want to become debt-free. What does that vision look like to you? I want to create a plan, travel, budget wisely. Things like this, write them down. You’re more apt to accomplish them. Here’s a really popular one is that, hey, I want to have a million dollars when I retire. Well, ok, that’s a great vision, that’s a great goal, but how do you accomplish it? Well, you got to start by looking at, well, what age are you and then how much money that you should be saving on a monthly or annual basis. Once you start getting that vision, then you can work backwards to create the overall strategy and plan to help you succeed. Let’s break it down even further. Let’s bring in the big man.
Al: All right. Retirement vision board. So you got to see it first to be able to figure out what the plan is to be able to achieve it, so right off the bat, what do you need to think about? How about your wants, your needs, your goals? So that’s right off the bat. Then find your finish line, meaning when do you want to retire. How risky are you? How should your investments be? And the answer is it depends upon how much you want to spend, when you want to retire, a bunch of things like this, but you don’t want too risky of investments to get derailed in poor markets. Put your vision into action, and then finally be tax-efficient. So we’re gonna go over all of those today because you got to be able to see it first. Then you come up with a plan. Then you execute it, and, Joe, I think this is kind of a starting of financial planning, right, which is you got to see, you got to know what you’re looking for.
Joe: Well, I guess so. I mean, you know, I guess we’re playing little words here. Yes. But I think it’s important to kind of think about, ok, well, here. What does my retirement really look like? What does it feel like? Does it involve golf? Does it involve travel? Does it involve just sitting at home? Who knows, right? Each of us has their different goals, but I think having a vision of what that actually looks like gets us a little bit more excited to put a plan together, right, and help you accomplish it. You know, I think this is a really good starting point no matter what age that you are because we have needs, right? So needs–housing, groceries. We got to eat. You got to keep the lights on, and then you have wants. Well, this could be travel, this could be entertainment, and then savings. So this is on your net paycheck, and a good rule of thumb is 50/30/20. 50/30/20, and so what that means is 50% of your net paycheck should go to your needs, 20% should go to savings, and then 30% should go to wants. Do the things that you want to do. This is–i would say that a lot of times, you know, the savings is the one that gets a little bit nixed. And then the wants kind of creep up, but having this ratio in mind, Al, I think, is a really good starting point.
Al: I think it’s a great starting point, and I think you’re right. I would say most people save maybe closer to, like, 5%, 4%, 0%, so if you can save 20%, that really is the goal. The reason is because if you can save 20% over your career you’ll probably have enough money to do all the things that you want to do, continue your lifestyle, maybe even increase it, so another thing to think about is when should you retire, and when you’re 20 or 30, you probably have no idea, so let’s think about in your 60s because that’s kind of when most people retire, but if you think about the average retirement today is actually 62, but yet when– you know, when you talk to people that say, “I’m gonna retire 65, 70, 67,” a lot of people retire earlier, Joe, than they expect because of health or caregiving, or they get laid off or any of a number of things.
Joe: I would say most people want to retire a lot later than this. But, what–i forget the stat. What did you say, al? Maybe over half of people are forced into an early retirement, so then going back to this is even more important, right? Writing things down. Really, what are your needs? And then figuring out, ok, well, maybe my wants have to suffer a little bit so I can get my savings number up to where it should be appropriately so that you can retire when you want to or you can retire early or you’re not forced into this early kind of retirement. Maybe sometimes, people retire at 62 because then that’s when they can claim social security. I don’t really know what the statistics of what the true data is, but if I’m thinking I’m gonna retire at 70 but I’m forced in at 62, that’d put a real damper on the overall plan.
Al: Yeah. I think you’re right. I think 62 is a common age because that’s the first date you can take social security. Another common age people want to is 65 because that’s when Medicare can start, but I guess, Joe, to kind of take a kind of a measure of where you’re at, Fidelity has done a pretty good chart on how much you should have saved of your salary at various ages.
Joe: Yeah. If you look here– so let’s say 62 is the right number. All right. Well, that’s between 8 and 10 of your ending annual salary. So let’s say if you were making $100,000 a year. At 62, well, you should have just about a million dollars, $900,000 saved. So if you’re 30, you want one times, ok? If you’re 40, 3 times. If you’re 50, 6 times, ok? So this is liquid assets that you have. Again, this is high-level rule of thumb of what you want to be looking at, but at least this will see if you’re on track, right? If you are 60 and you have one times your salary, well, you know you have some work to do here, but it could be dependent on maybe you have a large pension, maybe your social security is gonna give you a lot of the income that you currently need. So this is, again, a rule of thumb depending on what you want to accomplish.
Al: Yeah, Joe. I think when you think about it, most people when they look at this they feel like they’re behind, so I think you’re in common or good company if you’re behind. I mean, it’s very common, but this should tell you you’ve got to get to work, and many times, people really don’t start saving for retirement till their 40s, even later. It means you got more work to do to get to your ideal retirement.
Joe: Hey. You know, if you need help with this, what we’re giving away this week is a full financial assessment, and what that really means is take a detailed look at what you’re currently doing to see if you’re on track, not on track, help you create the goals that you are shooting for. Sometimes, we just get in the mundane of the numbers without really taking a step back to figure out exactly what you should be doing, how you should be doing them to reach the goals that you really want to aspire to achieve. Click on our special offer. It’s our “retirement goal assessment.” Click on it. We’re here to help get you going. Got to take a quick break. We’ll be back in just a second. You’re watching Your Money, Your Wealth®
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Joe: Hey. Welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson here. I’m a CERTIFIED FINANCIAL PLANNER™ with Big Al Clopine. He’s a CPA. Appreciate you hanging out. Going through the vision of retirement. First things first is that you have to kind of see what you want to accomplish and put together a roadmap to help you get there as effectively and efficiently as possible. To help you with this, we have our “retirement assessment.” if you want to go to yourmoneyyourwealth.com, click on that special offer, and that’s free of charge this week. Let’s see, folks, how you did on the true-false question.
Al: Turns out that’s actually a true statement, and, Joe, you would think people in their 60s would have some retirement savings, but 15% have none, and a whole bunch of people in their 60s have very little.
Joe: Right. It’s kind of staggering here. If you look at ages 18-29, 50% of that age group has zero savings. You know, you can understand that, right? Hey. Maybe you just got your first job, and you don’t really understand, and maybe you have student debt and so on and so forth. 30-44, almost 30% of that age group has zero dollars saved. Then you go to 45-59, doesn’t get much better, right? It’s almost the same. 23%, 25% of that age group has nothing saved. Then 60+, 15%. Overall, it’s about 30%, so I guess if you look on the other side, it’s, like, hey, I got a couple of bucks saved, so I’m a lot better than 23% of the population, but, you know, I think sometimes–and these numbers are totally irrelevant.
Al: Well, they are.
Joe: they have zero relevance to anything.
Al: You can see which side you’re on.
Joe: Yeah. I guess.
Al: But to me, the bigger thing, Joe, is that it doesn’t say how much–you have a dollar, so you’re in the savings group, right? So I think a more important stat is what we hear is about 50% of the people– almost 50% of the people out there, social security is by far the majority amount of their income in retirement, and it’s not designed for that. Social security is really designed for about maybe 30% of your income, depending upon your salary. Joe, I think that’s probably the more important comment here.
Joe: Well, I mean, does it really matter? Who cares? I mean, let’s say someone doesn’t have any money saved but they have a pension.
Al: Well, that’s true, too.
Joe: and they have Social Security, and they’re the happiest people on earth. Then by all means. We’re not trying to say–this is almost like judgey mcjudge here, right, you know? “Well, you don’t have any money saved!”
al: You’re that one.
Joe: Yeah. The goal is really to have a strategy and plan in place to kind of say, all right, well, how much money, if any, do I need to have in my nest egg to provide the income that I need on top of my pension, social security? Maybe you have real estate income. Maybe, you know, you’re gonna continue to work. People will–“hey. I’m gonna work until I can’t work anymore, and then after that, hopefully, you know, I just go off into the sunset.” each of you has their own dreams and vision of what your retirement looks like. I think the point is really to identify, “a,” what type of strategy and planning that you want to put into place and just give you the tools and education to do it.
Al: Well, exactly, and, you know, so it starts with your vision, becomes plan. Then you got to figure out what investments are gonna make sense based up on your time horizon, based upon what rate of return that you need, and here’s just kind of a simple illustration, I think we all kind of know this, but the more bonds you have, bonds and short-term-type investments, the safer your portfolio is but the less rate of return, and so the more stocks you have, it’s gonna be a higher rate of return but much more volatile, so you can think about it this way. Safe kind of goes like that, up steadily. Aggressive goes like that. You tend to end up at a higher spot unless you hit a huge dip. You know, that’s what you got to be careful of, but, Joe, I think, you know, it’s important to figure out what rate of return you need for your goals and then stick with it.
Joe: Right. If we want to break this thing down is that this is rate of return, and this is risk, ok, and so if I look at the more risk that I go out, right, the higher the expected rate of return is going to be on the overall portfolio, so if I’m looking here, it’s like, ok. Well, the more risk, you should see these portfolio numbers or the rate of the return and the expected rate of return to go up, but sometimes, people are like, “well”–you know, we see people in retirement that are trying to create income that might have a very aggressive portfolio. Well, if the market cracks and I have, you know, 70%, 80% stocks, is that the correct portfolio for you, or we might see some younger folks that have a very conservative portfolio. Again, the point is that younger folk should have a conservative portfolio if their goals demand for it, or if someone in their late 60s or 70s or 80s or even 90s might have a very aggressive portfolio, that’s fine, too, if their goals really depend on it. Maybe they don’t need the money. It’s for their grandkids, whatever the case may be, but it’s just identifying, well, how much money should I have in stocks versus bonds? How much money should I have in international versus u.s.? How much should I have in short-term versus long-term? Then you can start really customizing the portfolio based on your goals.
Al: Yeah, Joe, another way to kind of think about this is what are the numbers in terms of different portfolios? You start with a moderate with income. That’s about 30% stocks. That’s close to 7% over the last almost 100 years to give you an idea. Balanced would be 50/50. That’s close to 8%. Growth about 70% stocks, and that’s approaching 9%. All stocks, 100% stocks is 10%, but don’t think you’re gonna earn 10% year in and year out. If you need 10% for your goals in retirement when you retire, you need that much rate of return to make this work, it’s probably not gonna work because 10% might be 20% one year and -14% the next, so when you need income in retirement, you need to kind of reduce that risk so that the money’s there when you actually need to pull on it.
Joe: Yeah. Without question. Looking at historical volatility on a moderate portfolio, it’s 6%, so really, what that means–if my rate of return is 6%, I could get 12%, or I could get 0%. Ok. That’s all right, but if I have volatility of, like, 20%, right, so now I’m up or down 20%, well, that might be a little bit too much volatility. We like it on the up side, but we hate it on the down side. I think the most important thing, though, right, is to start early. I know a lot of you that watch this show it’s like, “well, Joe, I’m in my 60s. I can’t really start early,” but you know someone that does. The story of jack and jill. Jill starts saving at 21 years of age. She saves $2,400 a year, and she’s gonna stop saving at age 30. $21,600 total investment. Jack–he doesn’t start until age 30. He’s gonna save the same $2,400 a year as jill did, but he’s gonna continue to save until his age 67. If I were just to tell you those numbers–jack saves from 30-67, jill saves from 21-30, at age 67, who do you think has more money? I would say 9 out of 10 people would say, “jack of course has more money because he’s been saving a lot more, and he’s saved a lot more,” but who has more money? It’s jill because she saved earlier, she started earlier. She had a 9-year run on jack. It’s the compounding effect that’s so important. The numbers are irrelevant here. It’s just looking at the sooner that you can start the better off you’re going to be, right, so procrastination. Oh, the market’s volatile, right, or I’m gonna wait until I get a raise, or I got to do this, or I got to do that. You got to put the excuses on ice and start your strategy now. If you need the help go to yourmoneyyourwealth.com, click on our special offer. It’s our “retirement goal assessment.” click on it. We’re here to help get you going. We got to take another break. We’ll be back in just a second.
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Joe: Hey, folks. Welcome back to the program. The show is called Your Money, Your Wealth®. Joe Anderson here. I’m a CERTIFIED FINANCIAL PLANNER™ with Big Al Clopine. He’s a CPA. We’re talking about creating that vision of your overall retirement or for whatever goal for that matter. It’s always kind of thinking about what you want to accomplish, write it down, put a plan in place, and then start executing. You know, what we’re looking at now is kind of the tax impact of everything. It’s not necessarily what you earn. It’s what you keep, and, Big Al, you know, this is kind of near and dear to your heart in regards to how do we create a strategy or how do people create a strategy to mitigate that tax?
Al: It’s great to have a great rate of return, but it’s how much you actually get in your pocket, so let’s start with stocks. So you can go about the last 70 years or so. Stocks earned about 10%, right, but when you pay taxes on stocks, it’s more like 8%, and bonds. Look at bonds. That’s about a little over 5%, but by paying taxes on that, it’s 3.5%. Why is there such a disparity between stocks and bonds? Well, because stocks–if you hold them for a long term, which is over a year, you get a capital gain treatment, which for most people is 15%. Some people pay 0% tax, some people pay 20% tax. Bonds, that’s generally ordinary income, which is taxed at much higher tax rates, so, Joe, just to be cognizant of different tax rates is a good starting point.
Joe: Right. I mean, how are you creating the income from the overall portfolio? Is it interest? Is it capital gains? Is it dividends? Is it short-term? Is it long-term, right? So understanding all of this is gonna be depending on the tax rate that you’re going to be paying on the income that you’re trying to generate from the overall portfolio. So, yeah, you look here. All right. Well, I’m losing 20%, but on that, it’s a little bit more. There’s a ton on this, and I’m gonna walk you through it. Is that we talk about different pools of money that you’re going to accumulate over your lifetime. There is a taxable pool of money. That’s kind of the first column here. That would be your capital assets. That’s mutual funds, that’s stocks, that’s bonds, that’s real estate, that’s your business, whatever. It’s anything basically held outside of a retirement account. You have tax-deferred assets, which is your retirement accounts, your IRAs, 401(k)s, 403(b), tsp, and the like, right? So your tax-deferred accounts is your retirement accounts. Tax-exempt would be the Roth, right, or tax-free we like to call it. So you got taxable, tax-deferred, and tax-free, so those are the 3 pools of money that you can save into, right, and then you have to look at, well, how should I invest, right? You want to have a different investment strategy from your taxable, tax-deferred, and tax-exempt, and, Alan, why do people want to have a different strategy here?
Al: Well, because tax rates are different. They’re from zero to ordinary income tax rates, which are a lot higher. So think of it this way. If you have a Roth IRA, good for you. So that means any growth in there, income, principal is 100% tax-free, so wouldn’t you want your highest-performing assets, your highest expected return assets in that account? Then you look at your retirement accounts. Everything that comes out of there is at ordinary income, so maybe you don’t necessarily want your highest flyers there. However, there is one bit of good news, and that is if you do have some growth stocks in your IRA, 401(k), you don’t have to pay any taxes currently. It gets spread into retirement. Then your taxable accounts, non-retirement, well, those are fully taxable now. Could be capital gain if it’s stock-related, right, or it could be ordinary income if it’s interest-related like bonds. Just by understanding what to put in what category, Joe, can make a pretty big difference in what you get to keep.
Joe: Yeah. Well said. I think, you know, if I’m looking at my taxable account, well, do I want to have investments that just kick out ordinary income, and then I’m reinvesting that income, right? So I’m just paying tax, and I have a huge tax strike here, or do I want to be more tax-efficient in that account, right, or do I want to have bonds in my Roth account? Well, not necessarily, right, because bonds aren’t necessarily paying a ton, and if you–if that account is really not to be used for 10 or 20 years or 15 years, whatever, you probably want to have something that has a little bit more growth to it. So this is called asset location, right? So you understand, “a,” the tax pools first, and then how do you invest in each of these pools is really gonna help your capital grow because you’re gonna get rid of that big tax strike.
Al: Yeah, and, Joe, when you look at this kind over the long term, you can actually end up maybe adding another half a percent or percent to your rate of return just by being tax-efficient. You can stretch your money a lot longer, and you can live more of a retirement life that you want to live, so very important, Joe.
Joe: Hey, Al. Let’s switch gears. Let’s go to ask the experts.
Al: All right. So this is from Mel… That’s a great question, and, Mel, I’m also someone in my 60s. When I was younger, I never had any interest. Why would anyone want an annuity, and now I kind of get it because an annuity really is just taking a lump sum and buying a retirement with it. That’s kind of a way to think about it, but, Joe, there are some annuities that are better than others.
Joe: Yeah. I mean, depending on what Mel’s goals are, all right? So it’s, like, hey, I don’t want to go into stocks, or I’m gonna sell stocks when they’re down and then lock my money up. I don’t know if that makes sense. Annuity is an insurance policy for income, right? So you’re insuring income is all you’re doing there. If that’s not your goal, if you’re looking for a safe investment, right, well, then go to CDs, all right, because then, A., you have a little bit more liquidity there, there’s a lot less fees and commission potentially, right, but if you want to transfer your cash or your investment for a guaranteed income stream that you can’t outlive, well, then, yeah, then maybe you want to take a look at an annuity, but in a lot of cases, I think people purchase these products, and they don’t really understand what they’re buying. They’re like, “oh. I want safety. I want a guarantee,” but they’re not utilizing the guarantees appropriately, and then they have a very high-cost product that is liquid, so make sure you truly understand the products that you’re going into before you make that decision.
Al: So we’ll do the second question. This is from Lauren… It partially goes back to your goals. You know, we generally believe that you should be invested in all types of asset classes at all times, but the amount you should have in each asset class depends upon your goals. We don’t really recommend changing because of market conditions, but, Joe, what do you think?
Joe: Well, that’s a really kind of loaded question. We have no idea. We need to take a look at what you’re currently holding to make sure that you’re doing things appropriately with the allocation that you have. Maybe it’s just fine, but, yeah, as you get closer to retirement, you probably want to relook at your overall allocation to make sure it’s, A., you’re taking enough risk or not too much risk, understanding the volatility of the overall portfolio, understanding the taxation of the income that that portfolio’s going to give, as well. So that’s basically what this show was all about is kind of giving that vision, right? Find out what your wants, needs, and goals are if we’re really taking a step back here, and then find your finish line. What is that number? Is it 62, is it 67? Know your tolerance for risk. Some of you have to take on a little bit more risk to accomplish your goals. Some of you probably need to tone that back, but you need to identify that way before the market goes bananas, right? So when the market goes down, it’s not a good time to assess your risk and say, “whoa! Maybe I was taking on too much risk,” and then sell out, right? That’s how you lose the most money, you know, and then putting your vision into action, making sure that you’re executing on everything that you’re putting down on paper, and then, right, try to keep Uncle Sam out of your pockets as much as you can. If you want our help, like I said, you can go to our web site yourmoneyyourwealth.com, click on that “retirement goal assessment,” and it’s that special offer. Click on our web site, and that’s gift to you! That’s it for us. Hopefully you enjoyed another episode of Your Money, Your Wealth®. We’ll see you again next time, folks.
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