0:00 spk_0
If you want to retire in America, you need a $50 million or more, uh, saved up, uh, financially though, because a lot of people are ready financially, they’re just not ready kind of confidence wise, and I found it’s more on what’s the confidence in the plan, uh, as opposed to am I changing my identity? Is it the right time for me to retire? So I think if you go through and plan your retirement, you’ll be a lot more ready to actually retire.
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Are you ready for retirement or just hoping for the best? For so many, the 5 years before retirement are the most crucial and the most confusing. You’re juggling questions about money, about life, what your next chapter looks like. That’s why pre-retirement planning matters. Pre-retirement helps build a strategy that gives you information and control over what comes next. Today I’m joined by Jeremy Kyle, author of Retired today to break down the uncertainty.Jeremy designed a five-step process to help you navigate retirement questions and decisions. Jeremy, welcome.Thanks for having me on. So, I want to get to the 5 steps, but first I want to sort of ask you 3 quick questions and uh get some rapid responses. So, how can someone tell if they are truly ready for retirement? I know that’s probably the number one question that financial planners like yourself get from clients and prospects all the time.
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Yeah, I don’t know if you can ever truly tell you’re ready for retirement, but what I will tell you is virtually everyone who is retired said, they say go ahead and do it.
1:29 spk_1
OK. All right, so that’s good advice for someone who’s been retired. Uh, what do you think is the, the biggest warning sign that someone might not be ready for retirement?
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The biggest warning sign about not ready for retirement if you’re talking financially is generally speaking, if you want to retire in America, you need a $50 million or more saved up financially though, because a lot of people are ready financially, they’re just not ready kind of confidence wise, and I found it’s more on what’s the confidence in the plan.Uh, as opposed to am I changing my identity? Is it the right time for me to retire? So I think if you go through and plan your retirement, you’ll be a lot more ready to actually retire.
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Yeah, well, you mentioned the money is one part of it. The emotional side is another, and a lot of people need to be prepared emotionally. What advice do you have for people to get emotionally prepared? We’ve, we’ve had Fritz Gilbert on, by the way, you know, who wrote the retirement manifesto, and he has a lot of advice around it. I’m curious for yours.
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Yeah, I think the best way to get ready for retirement emotionally is to try it out. You, you can cut down part time, you can take a month off. I tell people that and they say that’s never happened. That’s just not how we do things around here. So, well, the power of asking, and every time they ask their boss comes back to them and say,I, I need you around. Yes, I’ll cut your hours down to 30 hours instead of 45. I will give you this extra 1 month or 2 months, even unpaid to to just take a break. They want to keep you around. And so try it out. If you don’t like it, you’ve got a job to come back to, and if you do like it, who says you have to go back?
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Yeah. All right, Jimmy, I want to get to the book and what intrigued me about the book were the five steps that you’re online for to help people at least create their master retirement plan.And the first step is is around spending and a lot of times you mention in the book it’s not about like the budget, it’s about figuring out how long you need to spend that money, what’s your longevity. So what’s the step in terms of figuring that out, which I think is one of the hardest things about retirement planning from my perspective.
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Yeah, I go through the 5 steps, step one is spending, which is a combination of how much, but mainly it’s uh how long will you be in retirement. It’s a it’s a math problem and everyone focuses on how much they don’t focus on the how long. The problem with thinking of how long you’ll be in retirement.Is that a lot of people think of their life expectancy like it’s death certainty, like, oh, my life expectancy is 80, I’m not going to make it to the 81. Like I am, I’m going to die at age 80. If you run the numbers, uh, you will die at your life expectancy less than 4% of the time. So you’re pretty certain you will not die at your life expectancy. So go through and get the actual.I reference a place called Longevity Illustrator.org set up by the Society of Actuaries. It will tell you what your actual life expectancy is because most people are wrong with that number to begin with, and it’ll give you kind of the probability curve because life expectancy is just the halfway point. Half the time you’ll die before, half the time you’ll die after, and you need to consider the correct number.But also what happens when you don’t make it there or if you make it past there? That’s how you have a good plan, is to consider the possibilities.
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Yeah, I mean, generally most financial planners I talked to recommend planning to age 90 or 95 as a general rule of thumb in the absence of going to the longevity illustrator, would you just use those numbers as sort of a starting point?
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Well, I’ve got, uh, I’ve, I’ve got kind of a beef to pick for financial advisors about that, and David Blanchett, who I’m sure you know, has done some research here, where 90% of advisors put in either 90 or 95 as the number.And clearly 90% of people are not dying at one of those two specific ages. It takes 5 minutes to go to a place like Longevity Illustrator.org and get your own personalized longevity estimate. It’s wildly different whether you’re a smoker or not a smoker. If you’re in great health or not great health, if you’re male or female, what David Blanchett told me on my podcast was.At the minimum, you’ve got a male female couple, you ought to at least put in, you know, 90 and 88, just at least account for the difference of male female. And so what he was seeing is when you put in just 90 or 95, you’re not personalizing it, you’re just putting a generic number, and I think it’s worth the 5 minutes to ask a few.Questions, understand what your own personalized longevity estimate is. It’s your whole, uh, it’s your whole lifetime ahead of you. Take 5 minutes to get an accurate number.
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Yeah, that’s a small investment of time. So when I think about longevity and the uh and the ways in which you can manage and mitigate the long, the risk of longevity about living your assets, maximizing your lifetime income, i.e. Social Security, is really important, but yet only in your book, I think you mentioned only 4% of the people actually optimize their benefit. What should they be doing differently?
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Yeah, so that was a quoting a study that Dr. Larry Kotclough did where he said 4% of couples actually had optimized their benefit and the number is somewhere around $180,000 of lifetime benefits that you lost by not maximizing your Social Security.And I’m not going to tell you everyone should file at age 70, but what I want to give you is a rubric of how should you approach your Social Security decision. Social Security, the official name for the program, is Old Age Survivor Insurance. If you approach this as if how is this my decision? How’s my decision going to help me when I’m in my old age? How is this going to help my survivor, and how is this insurance?In case I live longer than I expect, or perhaps the market goes down or inflation goes up more than I expect, and if you quit with the break even calculators and trying to see what’s my market return if I happen to take Social Security and invest it instead, just focus on, here’s the decision I’m going to make with Social Security, how does it help me with my old age, my survivor, and how does it help as insurance as a backstop?
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Yeah, do you have a favorite calculator that you encourage people to use when they’re thinking about like what they should consider doing to in terms of optimizing their benefit?
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I can’t say they have a favorite Social Security calculator because if you look at just Social Security itself, you are ignoring some things with taxes, with survivorship every calculator will give you an answer based on the inputs that you go into it. I personally use a planning software called Income Lab, and I’m a big fan of.thing that they do, it’s kind of like a matrix of 62 to 70 for kind of both couples, right, so you get like an XY matrix, so that gives you 81 different combinations and it’ll tell you um based on when you file, uh how much income can you expect where maybe if you wait a few years to file, you’d expect a little bit more income overall.Yes, you waited to file, but the fact that you waited give you more income then, which gives you a more ability to take some income now. That’s a helpful chart and what’s interesting about that chart is you’ll very quickly realize one Social Security benefit is more important than the other, where, OK, if I wait.1 year for the higher older benefit, it makes a huge difference. But if I wait 4 years for the lower benefit younger spouse, it doesn’t make a difference at all, and that’s something kind of another rubric I encourage people to think of is just imagine you and your spouse are going to take it at exactly the same age.Just, just imagine the lower benefit spouse takes it 3 years earlier and the higher benefit spouse takes it 3 years later. You’ve averaged out exactly the same, but what you’ve done now is you’ve given yourself as a couple the same income, but you’ve given that surviving spouse 25, 24% more in income.To that surviving spouse doesn’t affect the both of you. It doesn’t affect you. It really helps that survivingspouse.
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Yeah, and it’s interesting. I know many people don’t do this, but I like to look at the NPV of those stream of benefits, and oftentimes it comes out to be $500,000 750,000 dollars, a million dollars, and even more in some cases for couples. Is that right?
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Well, that’s exactly it. And if you are trying to pick the next best stock and make a little bit more in your investment portfolio, you don’t know if that’s going to happen, but you can pretty well know the day I go file for Social Security, kind of the way that I file for it, is going to add or subtract to my NPV. And who, why would you turn that down?
10:07 spk_1
Yeah.So step number 3, you sort of hinted at already. You talked about taxes and I’m everyone’s fond of saying it’s not what you earn, it’s what you keep, uh, and that you, you recommend that, uh, readers ought to do Roth IRA conversions, but strategically. What, what does that mean?
10:24 spk_0
Yeah, the goal of paying taxes in retirement is to pay the lowest amount of taxes over your lifetime, which is different than paying the lowest amount of taxes today. And what a lot of people don’t realize when you’re working for 35 years, you get your W-2, you just give it to the tax person. Kind of what it is is what it is.But you hit retirement, you have way more control over your taxes. You can choose when to take money out, like December versus January, or before Social Security or after Social Security, and you get to choose which accounts to take money from, right? You get the uh bank accounts, brokerage accounts, traditional.Roth accounts, those are 4 different accounts, 4 different ways you can take the money out, and I’d encourage you to just be thoughtful of when am I going to take the money out, which accounts am I going to take money from? And quite commonly, if you’re trying to lower your lifetime taxes, you’ll be able to see there are certain years where I’m likely in a low tax bracket. Let’s pay the taxes on purpose at that low tax rate.To avoid the taxes later at a higher tax rate, and the best way to do that is with the Roth conversion to just intentionally pay the taxes at a rate that you choose because you planned it out so that you can avoid the taxes that are projected to be higher because you took the time to plan it out.
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Jeremy, we have to take a short break, but when we come back, we’ll talk about steps 4 and 5, so don’t go away.Welcome back to Decoding Retirement. I’m speaking with Jeremy Kyle, author of a new book called Retired today. We were going through Jeremy’s 5 steps to help you guarantee a more secure retirement, and, uh, Jeremy, we’re on step 4.Which has to do with investing during retirement. And oftentimes I know people when they think about investing during retirement, they think about a a uh declining equity glide path where they invest less and less in stocks and more and more in bonds, but you have a different take.
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Yeah, really, what you want to do when it comes to investing in retirement is determine when do you need the money in retirement and then just set up your investments to match that.Uh, you’ve been saving and working for years kind of thinking I’ve got growth market type investments, long term type investments. And a lot of times if that’s your focus, you assume I hit retirement, I totally only have short term and income type investments. We mentioned earlier longevity, you retire at 62, there just might be one of you around 30 years from now. Imagine your 32 year old self. What would you say to them? You would say, you got 30 years until retirement, invest for the long run.And so when you hit 60, 62, when you’re retiring, you still have some long run type of money. It’s just now you also have short run type of money, which is why I’m a big fan of the bucket strategy, where the money you know that you’ll be planning to take out the next 1235 years, whatever you’re comfortable with. Let’s take that planned cash flow, that plan amount you’re taking out of your accounts, and put it towards short term type investments, allowing the rest of it to still stay.Towards the long term and interesting enough, when you do combine likely waiting on Social Security, there’s a lot of benefits that often are seen there and setting up this short term bucket. Well, you’ve got more money than towards conservative the day you retire, uh, you hit Social Security.You don’t need as much in the conservative area, so quite often you do see the stocks can kind of keep on growing and rolling for you the longer you hit retirement.
13:51 spk_1
Yeah, I’m a big fan of the bucket approach for a lot of reasons. One from a behavioral perspective, it allowsJust sort of at least know that the money that you need to live on in the short term is there and is not subject to the whims of the market, the sequence of return risks, etc. I mean, do you find that your clients are just that much more comfortable knowing that there’s money set aside for their living expenses that’s not at risk?
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Yeah, that’s exactly it. I shared in the book a story, kind of a tale of two clients where I met two different couples in the fall of 2019. 1 of them said, I’m retiring in a few years, but I want to get ready now. And based on that, we set aside some short term money, kind of bucket type money, not because I was predicting the market up or down. It’s just this is what you’re planning for. Let’s set aside your cash and it’s ready to go.The other one said, I’m retiring this next spring, 6 months from now. The market’s doing well. I just want to let it ride for a little bit 6 months, and I encouraged him like 6 months is not a long time frame. Let’s make sure that you’ve got the money you want to take out in April 2020 is set aside, not in the stock market. Well, you remember what happened in March of 2020 with the stock market dropping 30%.Uh, total at one point. Well, I’ll tell you, both of those, uh, clients, the one that was shooting for just a little bit extra and was planning on retiring that next April, he called me up in March and said, I can’t retire April 1, my market money is down over 20%.The other one called me the same, the same week. I was looking at the, I was checking the records. It was the same week, the other one called me and said, uh, can I even retire 3 years from now? And I got to show him, well, yes, you can because you had already planned for this. You got your 1st 2 or 3 years’ worth of retirement money set aside out of the market, and that.gave him the ability to feel like I don’t need to actually sell at a low point. Turned out the person that wanted to retire the following April that spring, retired after the person who was going to retire 3 years down the road because the person planning ahead 3 years from now had set aside, kind of bucketed some money. The behavior kind of results like you said, were better.
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Yeah, I think I recall back in the year 2000, many people retired at the market top, and then, uh, because they were relying on that money, had to go back to work shortly thereafter the market crashed and and perhaps they would have been better off had they sort of sloughed off a little bit of money for their two or three years’ worth of living expenses prior to the.Market top in the year 2000. So, so, so step five involves creating legacy protection and in the book you mentioned that some of the big three risks that people need to prepare for are the possibility of living too long, dying too soon, or getting too sick. Talk to us about that.
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Yeah, it’s a bit of what we talked about earlier, and it’s amazing how everything kind of integrates together where you might have gone through the five steps, got to this part, and said, wait a second, did I account for maybe living too long with my decision around Social Security? Did I account for maybe not living long enough for my decision on whether I retire now or take that trip that I want to take now? So the big three risks to retirement are if you live too.Long, you might run out of money. That’s one thing people are worried about. But then there’s also the opposite. If you die too soon, a couple of things might happen. You might harm your spouse, right? If you’re married, you might harm your spouse and that I died too soon, and these decisions around perhaps pensions or my mortgage debts or Social Security really we’re not setting them up for a lifetime of not having me around.And you’ve got to just account for both sets of that. What if I live too long? What if I die too soon? And of course, if you do live longer, usually the longer you live, the worse your health gets and the higher healthcare costs become. And so you want to have a plan for how your health costs going to be affected way down the road. And part of how you.leave behind is kind of how you leave behind your family. Did you do the planning ahead of time, kind of set up the documents ahead of time to make sure that life is easy for them. It’s a, it’s a tough emotional situation. Could you at least make the financial and legal parts a little bit easier? It’s also protecting yourself. It’s things like the powers of attorney to say I might still be living and I need these protections to help me with my health care and financial decisions.
18:20 spk_1
Yeah, I think in the book you talk about 3 other questions where the care will take place, who will provide the care, and how the care will be paid for, which seems like important questions to ask and answer.
18:32 spk_0
Yeah, when it comes to long term care planning, a lot of people ask me, Should I buy long term care insurance? And my answer is I don’t know, but you need to have a long term care plan and that long term care plan is exactly what you said. It’s, it’s where do you want the care to take place? Do you want it to be in your home, going to some sort of a health care facility? Who do you want it to?Uh, provide that care. Are you relying on your kids because you took care of your parents or grandparents? I’d probably run it by them first, or if that is a plan, does your house or their house have that ability to kind of have a mother-in-law suite kind of going on? And then who do you, how’s it going to be paid for, right? Perhaps it’s paid for through some insurance. Perhaps you do what Christine Bins advocates in her book How to Retire, which is to have a long term care fund.It’s kind of like if you’ve got $1.2 million invested for retirement, just plan on your income based off a million dollars as an example, and the other $200,000 is kind of my long term care fund, or maybe you didn’t buy the insurance, but you’ve got a dedicated account or a dedicated kind of mental accounting even. This is where that money will comefrom.
19:39 spk_1
Yeah, I want to go back to longevity and how you might manage and mitigate that risk. Obviously Social Security is one way to do that. A pension might be another.Uh, oftentimes people suggest an income annuity or a QA or deferred income annuity. I’m curious, what’s your thought on people using those instruments to mitigate and manage the risk about living your assets?
20:01 spk_0
Yeah, if you’re worried about uh outliving your money, then having some sort of lifetime income is the way toYou know, protect against that. The stock market might do it, but it isn’t guaranteed to do it. So I like to kind of look at things in reverse in a matter of how much income do you need for your lifetime, and then where is it coming from? A lot of people say I’m worried about running out of money, but I’ve got this base of money. I just, if I have less than $4000 a month, then then I’m sure things will not go well. I will not pay my bills. Then we look at it and say, well, between yourSocial Security, the two of you and your pension, you’ve got 6000 a month coming in. What’s there to worry about? So the first question is, do you actually need something to provide that lifetime income that you aren’t getting from Social Security or pension, and then see how much money you want to protect. I just had a a lady who’s a recent widow and she had came to me because the advisor is basically telling you, you should put half your money.Into an annuity. Her sister is a tax preparer, and the sister said this doesn’t sound quite right. She set up a cash flow budget for this, this individual, and she only needed like $5000 a month. Well, this income annuity would have provided $6000 a month, and she’s already getting, say, $2000 a month from Social Security. There is no need there to put half the money in.But then when we talked it through, she was worried. This lady was worried about running out of money and being a recent widow, she had lost about $1500 a month in Social Security income. So my question then is, would you feel more comfortable if you had your own Social Security, but then something else coming in to provide that $1500 a month.That was going to your checking account and is no longer going into that checking account and her answer was yes, and we went through and talked about all the different, you know, risks and rewards, but that was the solution. What are you solving for? And she wanted, needed that safety amount of money, then you find the annuity that helps you provide the best forthat.
22:05 spk_1
Jeremy, I’m I’m afraid we’ve run out of time, but I want to thank you for sharing your knowledge and wisdom with us today. I want to wish you good luck with your new book, retire today and hopefully you’ll come back on. We can talk about other chapters in the book.
22:17 spk_0
I’d love to do that. Thanks,
22:18 spk_1
Bob. So that wraps up this episode of Decoding Retirement. We hope we provided you with some actionable advice to help you plan for or live in retirement. And don’t forget you can listen to and subscribe to Decoding Retirement wherever you listen to your favorite podcasts.
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This content was not intended to be financial advice and should not be used as a substitute for professional financial services.