Marc Killian  00:22

Hey everybody welcome Into the podcast. Thanks for hanging out with Jude Wilson and myself on a two parter. Jude, we’re going to talk about ways that you know I don’t know. Good intentions, wishful thinking, whatever you want call it, can kind of get ourselves in a little trouble when we kind of well, when we make assumptions about retirement, right? So how you doing?

 

Speaker 1  00:40

My friend, doing excellent. Man, feeling great. Ready for the weekend? Yeah,

 

Marc Killian  00:45

we’re taping this on an odd day for us, but that’s all right. We’re going to get it here and knock it out and have a good show and talk about some things, and hopefully helps people out. Because, again, like, I kind of said earlier, like, you know, there’s nothing wrong with being hopeful. Like, we all are want to be hopeful. That’s a great thing about being human, right, looking for some hopefulness and a good day or an outcome for your sports team. You know, whatever right hope is a good thing, but when you’re thinking about your money and how you go about doing it, I’ve got and these are things. Jude, I got a list of stuff here. These are things that we hear people say all the time, and they typically get them into a little bit of a pickle. So Melissa, break them down for me all the time. So let’s break them down. Let’s start with the first one. You were just telling me when, when I when you saw this on the list. You’re like, Oh yeah, I’m always talking about this. The the hopeful idea that, well, I’ll just live off the interest and never touch the principal. Is that even viable anymore?

 

Jude Wilson  01:42

I don’t think it’s viable. So this derives from a theory called the safe distribution method. And when your parents grandparents were alive and retired, the strategy probably worked out really well. The basic theme is that you save a bucket of money, and you pinch a little bit off of that bucket of money to live off of for the rest of your life, to replace your income, and usually that’s associated with an interest rate that you’re getting either off of some bonds, some dividends from stock. That’s how it used to work and when, when your grandparents, my grandparents, were alive, interest rates were so much higher that principle, pretty much, pretty pretty worked, pretty well, but now interest rates have fluctuated. Interest rates have been at a 30 year low. They’ve come back up recently. And not only that, if people believe that they can take a distribution off of their investment portfolio, well, we know there’s fluctuation there also. So the idea I like to give people to kind of wrap their mind around this. If you ever read about the safe distribution rate, some people will say it’s 4% if it’s 3% so if you have a million dollars, and you need $40,000 a year, if you’re taking 4% you’re getting that $40,000 and if you’re making at least 44% on that million dollar, then life is good, right, right. Think about this, if you were getting ready to retire in 2008 but this is 2007 you’re going to retire a year a year later, right? Remember what happened in 2008 right? Complete financial crash of the markets. The stock market down about 40% and if you’re using that same safe distribution method now using 4% on assets that have gone down 40% you’re thinking your bucket of money is 600,000 and now you’ve got income of about 24,000 so no, that that principle does not

 

Marc Killian  03:54

work anymore. Yeah, and you know, the course, you know, sequence of return risk when you’re trying, if you’re retiring in a down market in the first couple of years is way more damaging than in latter years, you know. So there’s all those little kind of pieces that go into it. And you’re talking about the Fed rate, or you’re talking about, you know, just interest rates in general, the Feds talked on just about a week before we taped the show about whether they were going to make any changes. They chose to hit pause. They’re not going to do anything. At least it’s for now anyway, and it’s at about 4.3 I think 4.3 which is about the same as it was the prior month. So, well, not terrible, right? You know, you know, it’s this, it’s this constant back and forth shell game of what they’re going to do. Yeah, the rates. So, all right, so that’s the first one, second one, wishful thinking. Again, that might get us into trouble. I’ll be in a lower tax bracket when I retire, this one’s older than I am and I’m old. Yeah, right. So this one’s been around a while, and you know, you know, do we talk all the time? I talk to hundreds of advisors across the country on a regular basis about financial stuff, and it’s always the same conversation. Yes, if you put a plan together, and if you work. At it, you could potentially be in a lower tax bracket when you retire. However, most people end up in the same tax bracket. Is that accurate

 

Jude Wilson  05:10

Exactly? And what’s surprising to me is that I’m still seeing financial gurus and articles saying the same thing, that you will potentially be in a lower tax bracket, because in your working years, you’re making the most amount of money, and when you retire, maybe your expenses will be less, so you’ll be needing less income, therefore 80% or whatever. Yeah, exactly. Let me tell you, from 25 years of doing this, very rarely do I see people very rarely do I see people who are taking less income, substantially less income in retirement than they are when in their pre working years. And there’s a couple of other leverage to pull here, one that we can’t account for. Ever heard of that thing called Congress? They’re changing the tax regulations all the times and the brackets. In fact, the tax cut and Jobs Act is set to expire at the end of this year, and if that expires, the brackets will change so you could be making the same amount of income, but actually be in a higher bracket if the brackets change. So to your point, there’s a lot of planning that needs to go around this. And

 

Marc Killian  06:29

that’s the thing, right? It’s like, you know, it’s, it’d be, it’d be great as as part of that whole senior retirement golden watch kind of thing that we used to get, you know, if they said, Okay, great. Now you’re 65 when you get Medicare, you also automatically get put in this tax bracket for life, but that doesn’t happen. So if you want to be in a lower tax bracket, you’ve got to work with a tax minded financial person who can help you strategize to possibly get in a lower tax bracket. They don’t just gift it to us for retirement. Unfortunately, that’d be nice, right, but Right? But they don’t do that. So, and if you need some help with some of that stuff, folks, don’t forget again. You can go to the tax bomb.com to do the tax calculator. Go check out some stuff on the website there. It’s very helpful at the tax bomb.com and that’s in the show descriptions, the links there in the show descriptions of the weeks, this week show, and every week show, all right, another one. Jude, we don’t need to worry about, you know, long term care, assisted living, expenses, whatever. Because, you know, we’re just going to take care of each other, right, husband and wife, we’re going to just kind of, you know, care for one another. It’s, we’ve talked about it before. It’s sweet, it’s lovely, it’s noble. I can’t see Sam wanting to pick you up when you fall down when you’re 75 my wife’s already looked at me and said, I can’t pick you pick you up now. Pick you up. You know, 25 years from now, it’s a sweet sentiment, but just saying we’re going to take care of each other is not realistic.

 

Jude Wilson  07:52

No, no. You know, it goes back to the old principle, if we if we don’t have a plan, and we plan to fail. And this is one of the biggest ones that I see, because most of the clients that that we work with actually had an advisor prior to working with us. And when I look at the financial plan or I ask them, Is there a plan or thought process of what will happen when you are not as independent as you are now, right? And 90% of people say, Well, yeah, it’s the fallback plan. I’m going to take care of my wife, my husband’s going to take care of me, or my kids are going to be there. And I’m telling you that really works out, because what we do know is that care for seniors are rising at twice the cost of inflation right now. Yeah. So if we if, if your financial advisor has put together an income plan for you based on your current level of expenses, and have not figured out a plan B, if we do need long term care, if we do need assistance, if we’re going to move to an assisted living facility, if we want someone to come in and take care for us here at the home, then that’s a big piece that’s missing from the financial plan.

 

Marc Killian  09:14

Yeah, I mean, and it gets costly, man quick. I mean, my mom’s 83 and you know, every time we kind of got to do a little change here or there. I mean, she’s still pretty independent, but we know that’s coming, if you know potentially, right? I mean, you just don’t know when something like that’s going to strike when we get to a certain age. So, and the prices, to your point, are crazy. So you definitely, at least, to have to start having the conversation with your advisor or somebody, because, I mean, again, just putting your head in the sand is almost like begging for it to happen to you. Right? Absolutely, you mentioned something earlier, when we were talking about, you know, the tax rates. And it’s actually kind of same kind of thing that you mentioned. It’s on this list as well. So we’ll do that one as well. The whole i. Spend less in retirement, right? So we kind of talked about, I’ll be in a lower tax bracket in retirement. Well, again, another false hope kind of thing is, well, we can retire on less, because we’re going to spend less, right? And I’ve said this a million times, but it’s a great line. It stuck with me my whole life. I was my dad passed away when I was 23 he was 63 he hadn’t been retired, but maybe a half a year or a year or something like that. But he was like, you know, man, this retirement is kind of fun, but every day is a Saturday. And I was like, What’s wrong with that? Saturdays are awesome, yeah, except that I spend more money on a Saturday than I do during the week, and it stuck with me, right? And it’s like, oh, well, if every day is the weekend in retirement. It could get costly,

 

Jude Wilson  10:43

for sure. And you know, again, some of the articles that I read kind of paint this picture of what retirement expenses are going to look like, because the basic philosophy in some of these articles is that, you know, the kids are out of the house and the mortgage is paid off, so you don’t need that same level of income. That’s true. Thanks, exactly, exactly. But what, here’s what the real world tells me, is that wherever there’s a gap, something will fill in that gap.

 

Marc Killian  11:17

Yeah, exactly, yeah, you’re gonna go to low. How many more times are you going to Lowe’s to buy flowers and something to, you know, do some gardening or stuff around the house, right? Yeah, my brother and I started doing a little projects around my house. And I’m like, Man, this bill is racking up quick, you know, so, same kind of idea, the honey do list gets expensive,

 

Jude Wilson  11:36

yep. And, and, you know, having that what I call the second parenting phase, where you become the grandparents, and now you get to dole on this grandchild and give them back when you’re tired of them. Well, I’ve seen grandparents spend more money on their grandkids than they did on their on their on their children when they were bringing up. It’s a one thing, yeah? But the end of it, at the end of the day, something’s gonna fill in that gap for most people. That’s

 

Marc Killian  12:07

great point. Yeah, I could, I, you know, I can see it now, just, just, you know, you want granddad to get you a motorbike. You want granddad to get you to go exactly, whatever the case is, right? Yeah, that’s a good point. And then, of course, you know, medical expenses, which we just talked about, is that kind of good second ago, right? You gotta, you gotta think so again, probably false hope that you’re just going to spend less in retirement. I kind of like the tax situation. People tend to stay exactly where they were. They typically don’t want to go back in their lifestyle backwards. All right, last one for this episode, and we’ll and then we’ll wrap it up, and we’ll come back and and do a part two on the same topic. Alright, so gotten a nice return on my investments for the last couple of years. Jude right, which the markets done well. And as a matter of fact, it’s time we’re talking it’s almost built itself back up to close to the all time highs. Again, I think we’re like 200 points off on the S and P from from from the all time high after April, after a choppy month in April, right? But anyway, the philosophy being the, you know, my investments have done well. So as long as they keep doing that 10% annually, my plan will work. So my question to you is, as an advisor, are we just planning? Is are we hoping? I guess it’s not, it’s not a good plan, right? Jude, if, if it has to go perfectly for you to succeed,

 

Jude Wilson  13:26

yes, exactly. And it leads to something that you, you, you said in the beginning of this episode, but I don’t think most people heard that. You mentioned the sequence of return risk. And maybe they’ve heard, heard of it, or this is a totally new concept, but it’s not just a straight return. People look at a mutual fund and they say, Oh, the lifetime return of this fund is 6% or 7% or 8% Well, it’s not a consistent 8% there were times where that mutual fund was down double digits, and when your your investment portfolio is down and you’re taking a distribution you basically have add to that negative return that you’re getting, and it’s very hard to bounce back. Let’s say you have a 10% negative return that year, and you’re taking out 4% to live off of. It’s really hard to bounce back from basically a 14% negative return. So yes, you may have looked at your portfolio and say, oh my gosh, over the last 10 years, then amazing, but we tend to forget some of the pain periods, and those pain periods are elevated when you’re in retirement and you’re taking distributions

 

Marc Killian  14:40

well, and to the point I just made about the market right this minute, right at the time we’re taping this right that hit it mostly rebound from our April losses. I think earlier this week, I think I saw the report come out that said it had wiped out all the losses from this year, and it got back into positive territory. Year to date, I. Uh, for the, you know, in the month of May, and that’s the same point. So you’re saying, Well, you know, 10% if the S and P has done really well the last couple of years, and I’ve been trying to capitalize on the most of that, well, what’s your risk tolerance? How are you risk allocated? You know, if it was up 22% and you were making 10 or 12, you know, is that risk tolerance still going to make you happy? Because you’re now five years older or 10 years older, or whatever that case is, right,

 

Jude Wilson  15:24

right? Exactly, exactly. So when we talk about wishful thinking, this is one that is definitely wishful thinking, because in the real world, things don’t go straight up. There’s gonna be some ups and downs. And when you’re in retirement, the downs can really hurt you.

 

Marc Killian  15:42

Yeah, and he’s a seminals fan, folks, he knows, oh,

 

15:48

true. All right, painful, but true. All right.

 

Marc Killian  15:52

Well, that’s gonna wrap it up for this week, but we’ll be back in with the next episode about more ways wishful thinking can get us into trouble. And how do you avoid some of that? Well, you get yourself some time with a qualified professional that does this day in and day out. As Jude said, he’s been doing this for 25 years earlier, so he’s been doing this a while. So if you need some help, reach out to Jude and his team. Get on his calendar for a consultation and a conversation. Got the links in the show descriptions below. There’s no cost or obligation to chat about your situation, so why wouldn’t you, right? So reach out to them. Get started again. Click on the links below. Don’t forget to check out the tax bomb.com for that calculator to see if that can help you out a little bit as well. And subscribe to us on Apple, Spotify and YouTube, and we’ll see you next time here on the Roth guide. Thanks, buddy.

 

Jude Wilson  16:33

Looking forward to part two.

 

Walter Storholt  16:40

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