Ways Your Retirement Can Get Off Track
Here are a few topics we will cover:
- 4 Common ways retirement can fall short
- Work-optional phase
- Side work or part-time work
- Long-term savings
- Starting early and being consistent
- Earnings increases taxes
- Having multiple tax buckets to draw from
- What's good now but what's best for the future
- Keeping your options open as much as you can for as long as you can
Our Podcast – Your Investment Partners
Sit down with Paul and Garrett of Ascend Investment Partners for a bi-weekly conversation about all things financial. Focusing on helping you plan, keep, and grow for a bright future.
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https://ascendinvestment.com/
(801) 476 - 1200
Transcript:
00;00;06;29 - 00;00;23;27
Garrett & Paul
Hello and welcome to your investment partners with Paul and Garrett, where we talk about all things financial, focusing on helping you plan, keep and grow for a successful future. If you're new to the podcast, welcome. And if you're tuning in again, welcome back and thank you for listening. Hello and welcome to your investment partners with Paul and Garrett.
00;00;24;06 - 00;00;42;11
Garrett & Paul
Today we are talking about ways that your retirement plan can get off track. We discuss common mistakes that we've seen and ways you may be able to avoid them. Also, we talk about questions you should be asking yourself through various financial stages. If you have questions about anything that's discussed today, please reach out. My name is Garrett Smith and we look forward to having you with us today.
00;00;42;19 - 00;01;05;02
Garrett & Paul
All right. Welcome, welcome. Well, we're back for another one, Mike, Right. This is great. Our little less than exciting topic today, but I think one that's sometimes it's good to look at what can go wrong. It's not something you want to plan for, but it happens. Well, I think if you know some of the things that can go wrong, hopefully you can avoid some of those things.
00;01;05;02 - 00;01;24;17
Garrett & Paul
So yeah. So today we're going to kind of cover four of our more common ways that it seems like retirement can fall short and I'm sure it'll trigger five, six, seven and eight as we kind of tell some stories along the way. But, you know, retirement is not easy, especially when you're living, you know, 40 years after you retire.
00;01;24;18 - 00;01;49;27
Garrett & Paul
It's unbelievable how long retirement can be now, you know, longer than some working careers, which is it's crazy that that happens. Yeah, I think that's one of the big the big problems. Well, even with the Social Security system, when when that first came out, you know, people retired at 65 and life expectancy was, you know, 70. And, you know, it's just but now people retire.
00;01;49;27 - 00;02;13;07
Garrett & Paul
And I mean, we have tons of clients. Well into their eighties and a few in their nineties. And and a lot of those clients in their eighties are looking like they're going to easily make it to their nineties. Yes yes it's you know there's. Which is which is fun you know it's fun to see you work with people for year after year after year and kind of go through all stages of life with them.
00;02;13;07 - 00;02;31;14
Garrett & Paul
And I guess that's one thing I've been surprised is how much your life does change through retirement. You know, you're not necessarily changing your house or having kids. You're kind of having those big life events. But, you know, you've got travel, you got grandkids, you got other projects to take on, you got hobbies, you know, that you want to start up and do.
00;02;31;14 - 00;02;53;03
Garrett & Paul
And when you think about somebody that retired, you know, 30 years ago and 30 years ago, the Internet was just barely starting, you know. So, yeah, things things definitely change. People live a lot longer. And and it's great to have a long life, especially if you've got some extra savings and you're not just trying to scrimp by on Social Security.
00;02;53;03 - 00;03;14;09
Garrett & Paul
So. Right. And, you know, that's you know, obviously health is you know, we don't necessarily cover that here, but health is kind of a big determining factor. Sure, it is the dice roll that we all have. And, you know, that is one area that you can't come. Sure. It's not one that we brought up here just because there's not much we can do about it.
00;03;14;13 - 00;03;38;03
Garrett & Paul
Right. Yeah, that's kind of out of our wheelhouse. So but the first topic I wanted to cover was just the, you know, just always trying to hit a home run, kind of the what's the latest and greatest and let's guess the next big winner and it is a lot of fun when you get it right you know is but it's it is a losing proposition over time.
00;03;38;10 - 00;04;05;22
Garrett & Paul
Well, I think this topic's especially important for our younger clients. You know, when we're younger, we're all impatient. You know, we hear about, you know, this stock quadrupled last year and and this mutual fund did 60% last year. And we you know, we have a tendency to want in on that type of action. We just think, you know, if I could double my money every year, like in ten years, I could retire.
00;04;06;08 - 00;04;32;11
Garrett & Paul
And and it just it I've made a ton of financial mistakes by chasing returns early on, you know, in my in my twenties and thirties just, you know, just trying to maximize the return and and it it just rarely works out. So there's there's just a better way to do it for sure. Well, that's you know, on our website we have these words and I use them all the time plan keep and grow.
00;04;32;16 - 00;04;49;23
Garrett & Paul
You know, kind of the first step is just not going backwards. Right. You know, when you when you finally get a little savings or get a little something, there is a desire to just, hey, if I double this for the next five years, you know, I bet I'm a millionaire. And it's awesome. And and sure, on paper, that's a lot of fun.
00;04;49;23 - 00;05;10;02
Garrett & Paul
But, you know, along with that, there's plenty of things that have gone to zero. Gone down 90% can hang into the volatility there. And so one of the first steps that we always think of is, you know, how do you just make sure you're not taking yourself backwards and chasing returns is one way to show them that generally over time it does kind of start to work against you.
00;05;10;21 - 00;05;31;24
Garrett & Paul
Well, there's been studies done on mutual fund companies and they, you know, they track the best performer for last year and how did it do the next year? And it's just extremely rare for them to be at the top of the heap again. It just doesn't just doesn't work that way because there's so many mutual funds and they're you know, they're so narrow nowadays.
00;05;31;24 - 00;05;58;00
Garrett & Paul
You can buy a you know, a mutual fund or an ETF that invests in, you know, specific software technology. And and if it's on, it's, you know, it's 100% return. And if it's off, it's a you know, it's a 50% loss. And so, you know, we have to be really careful not to you know, not to put a lot of stock in what happ what did the best last year.
00;05;58;08 - 00;06;22;11
Garrett & Paul
Yeah. I think there's, you know, kind of come from the mind that concentration does build wealth. You know, if you take a concentrated bet on a particular company sector, you know, you can, you know, that's obviously how business owners do do really well. Well, because their bulk of their net worth is tied into one company. They're making a concentrated bet in concentration and does build wealth, but it's diversification that seems to hang on to it year after year.
00;06;22;11 - 00;06;50;00
Garrett & Paul
Right. And so, you know, I'm a fan of starting with the diversification and then adding the concentration later versus the other way around. Right. Because that that planning seems to have a few less pot holes through the years. Makes it easier to stay in there when you have down years. And then and then when you have the concentration built after you've kind of filled the family bucket to take care of the family bucket and then you start adding the the concentrated that's to to grow some wealth.
00;06;50;13 - 00;07;08;27
Garrett & Paul
When it does go down, go to zero, you know, down 90%. You're not putting, you know, a retirement goal at risk or paying off the house at risk or, you know, whatever those financial goals are. You know, the last thing you want to do as you get into retirement, you take a concentrated bet and you end up, you know, being a greeter at Walmart or having to go back to work.
00;07;08;27 - 00;07;37;20
Garrett & Paul
You know, that's the you know, that applies whether you're starting out or any out. You know, diversification, in our opinion, is what keeps wealth versus, you know, concentration does build that. It does it does work if you get it right. Yeah. Yeah. The diversification is just it's it's just super important. I mean, you just don't want to you know, Grandma always said don't put all your eggs in one basket and there's a reason that's been around forever and ever and it's because it's, it's good advice.
00;07;37;20 - 00;07;59;05
Garrett & Paul
You know, we're not here to discourage business owners. If you if you have a business and you know your wealth is concentrated in that business, that's a whole different situation because you have control and invisibility and view of what's going on there. These publicly traded companies, it you know, it's really kind of hard to know exactly what they're going to do next year, in the next year.
00;07;59;16 - 00;08;23;03
Garrett & Paul
So a little difference there. You know, if you're in business, that's great. Concentrate your wealth there and go, but save on the side at the same time. Yeah, that's the you can use the, you know, public equity public investing side to kind of offset some of the risks that you're taking in a business. But that's yeah, I think that's a good point that, you know, we're obviously a big fan of owning and running a business.
00;08;23;18 - 00;08;50;04
Garrett & Paul
Yeah Yeah for sure. And it is a great way to build wealth. But the other the other topic is a lot of people get antsy to retire early and obviously that's got its pluses and minuses. It's motivating to, you know, encourage you to save, but it's really easy to retire too early because you just, you know, retirement. You can just wake up one day and say, I'm retired.
00;08;50;05 - 00;09;16;28
Garrett & Paul
You know, there's no yeah, there's nothing stopping you. You know, anybody can retire any day. Well, the financial burden of retiring at age 50 versus age 65 say is just it's massive. Yeah. I mean, you know, you got 15 years of no Social Security, no Social Security increases. You're tapping into your portfolio. And so, I mean, if you can do it, that's good.
00;09;16;28 - 00;09;49;27
Garrett & Paul
Just we just have to make, you know, double and triple check the mathematics on it to make sure that that we're prepared for a 45 year retirement. So so, you know, I've always felt like the the way to do that is to is to set your retirement plan up and just, you know, the goal being, you know, age 65 or 67, whatever the you know, the Social Security situation is for your personal situation.
00;09;49;27 - 00;10;15;00
Garrett & Paul
And then, you know, once you get to the point where, okay, I'm good, I could retire, I'm you know, now I'm 55 years old and and it looks like I'm on track to retire at 67. Say, And at that point, just work on moving the date up, you know, move it to 65. And then once you get that well, I want to try to do it at age 62 and you just keep moving the date up.
00;10;15;00 - 00;10;39;01
Garrett & Paul
And then and then once you get to the point where the math works and you could retire and you're and you're sure the math works and the cost of living is all built into it and and inflation and everything else, then work becomes optional at that point. And we do have clients that are in the optional work stage and they're still working because, you know, they enjoy working and but that's a great position to be in.
00;10;39;19 - 00;10;57;27
Garrett & Paul
Yeah. And I think it opens up, you know, if you can get to the work optional phase, it opens up setting future goals of, you know, I do really want to leave something for the kids or I want to, you know, have more charitable intent and start a foundation. You know, if you if you can balance that, well, I don't have to retire and it opens up some other goals.
00;10;58;06 - 00;11;22;14
Garrett & Paul
It you know, it allows you to kind of build more than just I want to get out of here and stop working. And I'm also surprised how many how far, you know, say, an extra thousand dollars a month in side work, you know, help somebody retirement plan. Oh, yeah. You know, if you've you know part time work is not is not a bad option instead of just going from, you know, 40 or 60 hours a week to zero.
00;11;23;00 - 00;11;40;16
Garrett & Paul
Yeah, I'm just taking some part time work to supplement some income and maybe draw on the portfolio, maybe not, depending on the situation in that, you know, that extra 500 extra thousand dollars a month makes can make a big difference for somebody to kind of bridge those years. When they say I don't necessarily love my job, but I'm not quite ready to retire yet.
00;11;40;16 - 00;12;06;09
Garrett & Paul
Yeah. So that that's that is another option is just some part time work and you know sometimes just I've noticed that it's difficult for some people to go from working full time to just, you know, just pulling the plug and, you know, all of a sudden you're not working anymore at all. And, you know, my dad, when he he got ready to retire, we didn't let him retire till he was 75.
00;12;06;09 - 00;12;33;11
Garrett & Paul
He he I own a business with him and and age 75. We decided it was probably about time. But before that, we just kind of, you know, first we started working four days a week and then three days a week and. And then two days a week. And once it got down to the point where he was working two days a week and most of the day was just reading a Louis Lamar book, we knew it was probably okay for the business and for him to to retire because he'd kind of eased into it.
00;12;33;11 - 00;12;49;13
Garrett & Paul
And if you if you can pull off something like that, that's a great situation. If you have a job and they need you for 40 hours a week, that's that's a challenge. But that is another option is just look around for something that you would really enjoy doing that would would pay you for 20 hours a week or something.
00;12;49;13 - 00;13;04;04
Garrett & Paul
Yeah. And I was surprised how how often we've had clients go back and talk to a boss or manager and say, Look, I don't want to work 40 hours a week anymore. I can do 50 and I can do 20. Can we make that work? And they're more than happy to accommodate. Yeah, you know, Yeah. Especially for really good employees.
00;13;04;04 - 00;13;21;25
Garrett & Paul
Yes, you've got some. I've just been surprised how for most people that's been a fairly positive way to, to kind of come about it. And we've had some people do some consulting work and so, you know, they just are on call to consult with different you know, there are a lot of times it's their old boss, their old employer.
00;13;22;12 - 00;13;46;10
Garrett & Paul
And so that's a good way to do it, too. Yeah. So needless to say, you know, don't don't, don't jump too early. Yeah. It's it's it's hard to get back to a high paying job. Yeah. You know, usually those last few years, your highest earning years and, and so being really careful and you know there's an old saying or one that I've heard for a lot of years that you never want to retire during a bull market.
00;13;46;10 - 00;14;01;17
Garrett & Paul
You only want to retire during a bear market because then, you know, kind of where the bottom of the portfolio is. Right. And and then you've got some real numbers, you know, when you when you retire in the middle of the market, just going straight up for a few years, it's easy to kind of over plan on some dollars.
00;14;02;00 - 00;14;20;26
Garrett & Paul
And so, you know, there's not much you can necessarily control about that. But, you know, I think it's it's the more you can serve it, you can be on your assumptions on your withdrawal rates, on your returns, on your diversification of your portfolio. You know, all in all, each one of those builds in, you know, a level of of being more conservative or more aggressive.
00;14;21;10 - 00;14;43;16
Garrett & Paul
Yeah. There's a national radio host that says, you know, you build your portfolio up and once you can live on 10% of that money, you're good to go. In his example, as you build $1,000,000, you pull $100,000 out of a year and and that's what you should expect. And trust me, that math does not work. It just does it just does not work.
00;14;43;16 - 00;15;04;23
Garrett & Paul
So that it's it's much more complicated than that. So, you know, you really do need significantly more than just ten times your annual expected income. Yeah, it'll work for a while, I guess. You know, if you only want to have a ten year retirement, it for sure works well. The odds of it working long term move almost zero.
00;15;04;23 - 00;15;27;02
Garrett & Paul
Yeah. Then that's that's exactly right. That's you can take more aggressive and more conservative approaches to how you want to calculate the kind of the retirement tradeoffs. Yeah. The other one is kind of along your if you're coming up on retirement, it's doesn't necessarily apply but it's for you know our younger clients is just not being a consistent savior.
00;15;27;02 - 00;15;44;09
Garrett & Paul
It's really easy to kind of flip the savings on and off through your life as things come up or even making withdrawals from the portfolio. You know, you work so hard to kind of build this this nest egg and then, you know, the tires go out on the car, you need a new roof. And so you tap back into your savings and, you know, just set you back.
00;15;44;09 - 00;16;08;14
Garrett & Paul
You're just interrupting that compound interest. And the sooner you can save and the sooner you can just get out of the way of some compounding interest, generally, you're, you know, far better off and you have a lot more optionality down the road. Oh, yeah. Start early and be consistent. That's the that's the key. I mean, anybody that has a job that has an employer with a41k plan, you've just got to get that match.
00;16;09;22 - 00;16;30;27
Garrett & Paul
You know, if they're going to match 3%, at least get 3% in and just, you know, start just start early. I mean, your first job you have you should just get in the habit of saving like, you know, 10% of your income should just go somewhere that's long term savings. And I've always been an advocate of saving 10% of all you all you make.
00;16;30;27 - 00;16;56;26
Garrett & Paul
And and if you do that consistently over time, that just you just can't fail in retirement. It just it just will always work out regardless of that is the most important thing you can do is just start early and be consistent in the returns, will take care of themselves. All that stuff will just work itself out. If you just put money in and be consistent, just start off with $25 or whatever, whatever it takes just to get started.
00;16;56;26 - 00;17;19;28
Garrett & Paul
And then every time you get a raise, every time you change jobs and get a a bump in pay, add to it, add to it, add to it, and just force feed that it's much more important what you put in than what your returns are. Yeah. And, you know, generally speaking, a more conservative investment portfolio over time has a higher rate of success than a more aggressive chore over time.
00;17;20;03 - 00;17;49;04
Garrett & Paul
And your savings rate can really determine that. That's why we're fans of a high saving rate early on. It just opens up the option for a more conservative portfolio, which once again has, you know, historically has shown better odds of success to retirement. It's it's the savings rate is your savings rate. And when you start is you know, is more important than, you know, the taxes or what you choose to invest in, really, because you need to get that pile of money started.
00;17;49;04 - 00;18;09;22
Garrett & Paul
You need to get something to be able to start growing right. And then and then sticking with it. And then I think the last one is it's really easy to forget in your younger years and then becomes obviously painful usually is your earnings increase is taxes. It's obviously a ongoing discussion that we have with clients even in and through retirement.
00;18;10;25 - 00;18;30;28
Garrett & Paul
So we're fans of having multiple tax buckets to draw from, you know, such as a Roth IRA and a traditional IRA, you know, gives you some flexibility versus having it all in one and things like that that, you know, it's taxes are really easy to set aside and say they don't matter. But ultimately it's the return that matters is your after tax and after inflation return.
00;18;31;12 - 00;18;53;10
Garrett & Paul
That's that's the number that matters. And so, you know, you can't forget about taxes. It's part of every conversation and getting those strategies right early and all the way through retirement are great for you, especially if your goals extend on to, you know, helping your kids out down the road or leaving something in a foundation or or a trust for for later generations.
00;18;54;02 - 00;19;21;02
Garrett & Paul
Yeah. And the problem with taxes is that it's always changing. The rules always change. You know, we're going to do this and then then, you know, they change and that doesn't work as well. And so, yeah, just having different buckets to pull from and, and that way when things change, we can adjust and but that is definitely an ongoing lifelong challenge is just to kind of factor in taxes to all the other math that goes on behind the scenes for sure.
00;19;21;02 - 00;19;37;17
Garrett & Paul
And I think that's really important to have that conversation with your tax professional and us at the same time. You know those that's how you can kind of look forward and backwards at the same time and balance those two because, you know, it's you can defer all your taxes and pain, you know, work really hard to try to pay as little or no taxes today.
00;19;37;23 - 00;20;00;29
Garrett & Paul
And the down the road, you know, having a big tax bill is not a good thing. Is that a bad thing? You know, it's like everything in finances, it's about the trade offs. But forgetting about taxes or that you deferred all your money and so all the taxes are coming due in retirement can be counterproductive. And you might not have as many assets as you think you have once you account for taxes.
00;20;00;29 - 00;20;23;14
Garrett & Paul
Yeah, sometimes we make all the all our decisions on what's best for me right now. And we need to we need to look at and say, well, what's good now? But what's really the best for the future? That's the that's the best decision. So I think one thing we always lean towards is optionality. You know, we don't we don't want to maximize for no one, no taxes today or no taxes in the future.
00;20;23;14 - 00;20;40;21
Garrett & Paul
But what gives us the most flexibility? It gives us the most options down the road, because the rules are always changing. So let's how can we work in a way that's not closing doors off to us right now, but keeping them open for as long as we can, because who knows what's going to happen? You know, everything from tax rules to health rules to family situations.
00;20;40;21 - 00;20;58;11
Garrett & Paul
You know, life just changes over time. And if you've, you know, kind of made a closed all your doors and put all your eggs in one, you know, tax pocket or whatever it may be, you kind of lose some of that optionality. So, yeah, I think we're big fans of, you know, trying to keep your options open as much as you can for as long as you can.
00;20;58;12 - 00;21;17;25
Garrett & Paul
Yeah, I agree. Well, I think that's just a few things on ways you can fall short and this kind of spurred anything for you. Be sure to reach out. We're always happy to talk to you as well as you know. Please share this with others who who are in your circles that could benefit from this conversation. See you next time.
00;21;17;25 - 00;21;34;18
Garrett & Paul
Thank you for tuning in and listening to your investment partners with Paul and Garrett. If you like what you heard, be sure to subscribe to our podcast on iTunes, Spotify, or wherever you get your podcasts. Also, visit us as an investment dot com where you can subscribe to our newsletter to keep you up to date. See you in the next episode.
00;21;34;28 - 00;22;11;25
Garrett & Paul
Kessler Norman and Ride LLC, DBA Ascend Investment Partners is a registered investment advisor. Advisory services are only offered to clients or prospective clients where our firm and its representatives are properly licensed or exempt from licensure. No advice may be rendered by US and investment partners unless the client service agreement is in place. The opinions expressed in this podcast are for general information purposes only and are not intended to provide specific advice, performance data or recommendations that any particular security portfolio of securities, transaction or investment strategy is suitable for any specific person.
00;22;12;05 - 00;22;37;09
Garrett & Paul
This program is only intended to provide education about the financial industry. All opinions contained in this podcast are subject to change at any time without notice to determine which, if any, investments may be appropriate for you, please consult with your financial advisor prior to investing any past performance discussed during this podcast is not guaranteed of future results. As always, please remember that all investing involves risk and possible loss.
The commentary on this website reflects the personal opinions, viewpoints and analyses of the Ascend Investment Partners employees providing such comments, and should not be regarded as a description of advisory services provided by Kesler, Norman & Wride, LLC dba Ascend Investment Partners or performance returns of any Ascend Investment Partners Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Ascend Investment Partners manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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