I Wish Someone Would Have Told Me This About Retirement Planning 20 Years Ago

 

What I Wish I Knew 20 Years Ago

I only wish somebody had told me this 20 years ago as a young advisor when I entered the retirement planning business. So if you’re in retirement, approaching retirement, or maybe you’re a young advisor trying to get into the business or into the business, this is gonna help you understand not just some of the aspects of retirement planning, but some of the elements that’ll help you feel more comfortable as you enter into retirement and start to distribute income from your portfolio. I can’t tell you how many times over the course of my career I’ve sat down with a family.

And they said, Troy, the plan looks great, everything is going well, but there’s something in the pit of my stomach that I just can’t put my finger on. I’m not comfortable spending money. And it took me about 10 years to actually pinpoint what exactly this feeling is. I’m gonna show you what that is in just a couple of minutes here, but then we’re gonna look at the timing element of everything that happens in retirement and how that changes everything around. I’m gonna help you understand exactly what that is.

And then we’re gonna look at a couple different scenarios to see how things completely change based on the decisions that you’re making. Now, getting back to my story, before I show you exactly what this is, I wanna just take you a little bit back to different conversations that I’ve had over the years and why it took me so long to figure this out. Because when you build retirement income plans or tax plans for clients, as the planner, you see everything quite clearly. Now you’re dealing with imperfect information, you have a lot of different variables that you have to make certain assumptions for, so you’re conservative.

But I can see how all the different pieces fit together. It’s like a 3D model in my brain. And I can see it all. So it took me some time to realize that people can’t see it as clearly as I can, which is kind of apparent.

But after one year, after two years, after three years, it was typically around that year three mark where people say, Okay, Troy, now I see why we have this here, why we’ve been doing this, and why we’re planning on doing this in a couple of years. They started to get that. But also at that same three-year moment, typically, they would still have that feeling, and we just couldn’t pinpoint what that feeling was.

So even though they could see how these different pieces were working, I could explain how everything was working together in the big picture. No matter what we did for the first one, two, three years of retirement, oftentimes people would still have that feeling. Now, I can tell you why this feeling exists, but you need to understand it from a philosophical standpoint to really get it. And ultimately, it’s replacing the paycheck.

Replacing the Paycheck in Retirement

So when people go from the accumulation phase in the earning years into the distribution phase, the retired years, they have to replace the paycheck. And that’s common sense. But what took us so long to realize why replacing that paycheck was so difficult from an emotional standpoint was we had to pinpoint exactly what it was that the paycheck did that was missing when somebody retired. So the paycheck did four things. It was predictable, it was durable, it was growing, and it was liquid.

So predictable means it showed up every couple of weeks. It was consistent, you could depend on it. Durable meant if the stock market crashed 50%, your income didn’t cut in half. And if we went into a recession, your income didn’t go away, assuming you kept your job. It’s growing in the sense that you had career advancements, you had raises throughout that career, and it was liquid.

It showed up every couple of weeks, and you could spend your paycheck on whatever you wanted to. Now think about retirement. Not a single tool in retirement does all four of those things. So that was the magic bullet. Until I fully understood that, I couldn’t really help people feel better about their retirement because even though mathematically or on paper we can put a plan together and everything looks good and sounds good, it doesn’t necessarily always feel good until you can replicate that paycheck.

Now I’m going to show you a comparison of what the paycheck did while you were working and all the tasks that it automatically took care of and then what it needs to do when you’re retired and show you the contrasting difference. But before I do that, if you like this type of content, I wanna invite you to join the Oak Harvest community. And you do that by subscribing to the channel.

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So here is everything, and it’s not an exhaustive list, but it’s a pretty good list of everything that the paycheck did prior to retirement. So assuming you have a $12,000 monthly income before you retired, taxes were automatically taken out of your paycheck. You didn’t have to do that. Your 401k contribution, your retirement savings, automatically taken out. You didn’t have to do that.

Health insurance, automatically deducted from your paycheck. Your mortgage typically was auto paid. Anything that was left over from all of that that you didn’t spend for travel and lifestyle, typically you would hopefully put into savings.

What Your Paycheck Used to Do Automatically

You got raises over the course of your career. Maybe you had to negotiate for them, but you had increasing income. It was recession proof, assuming you didn’t lose your job. It was consistent, but you also had kids to take care of and then you would spend on travel and lifestyle.

So this is not an exhaustive list, but it’s clear that while you were working, the paycheck created an undercurrent. It created stability in your life where all of these things were taken care of. Now you’re in retirement and you have this. You retired with a bunch of money, but you don’t know where your income’s coming from, how much tax you’re gonna pay, when you’re gonna pay those taxes.

Do you do quarterly estimates? You don’t know about health insurance prior to Medicare. You have Medicare questions when you turn 65, you don’t know the laws, you don’t know the trust, estate planning that you need. All of this is just a whole bunch of big question marks. So it’s okay to feel anxious.

You know, it’s okay to feel like you don’t know and you have questions because literally you are retiring with this big pile of money and you don’t know what to do. You have all these questions. So I’ve always called this the light bulb moment. And it’s typically when people call us, whether it’s from the radio show or here on YouTube or many of the other activities that we do, people call here and they say, my god, Troy, I heard you on the radio, I saw you on YouTube, and my mind just kind of—all these questions just started coming into my brain, and I was like, my god, I’m not prepared.

Do I have enough? How long will my money last? What happens to me, or if something happens to me, will my spouse be okay? And it’s just the light bulb moment. It just all of a sudden the picture becomes clear, and that’s when typically people reach out for help.

So before I introduce to you one more element that just completely throws this entire thing on its head and creates even more variability, which creates more complexity, I want to tie it back to the story that I shared with you about all the clients I’ve sat with over the years and couldn’t quite pinpoint what was wrong. And this is where the paycheck comes in, or replacing the paycheck.

Predictable, durable, growing, and liquid, the four characteristics of a paycheck. If you have those elements inside your retirement plan through a combination of tools providing income that is predictable, that it’s reliable or durable, and it’s growing and it’s liquid, a lot of this uncertainty can be dealt with with far less emotional anxiety because you have that undercurrent that’s flowing in that did what the paycheck used to do.

The Timing Decisions That Change Retirement

So you may be wondering what can you take from this video or how can you apply this to your retirement? So as soon as we complete the second part of what makes this complex and the feelings that you may be feeling, we’re gonna get right into that.

So not only do we have all the internal questions, you know, how long will I live? Do I have enough? Will my spouse be okay? How do I pay less tax? Those are internal questions once the light bulb goes off.

But we have all these timing considerations and pressures from these external factors. So you have this combination of internal things going on, you have external pressures, and then you have this timing where you’re getting older as you have to make these decisions.

So Social Security, when do you take it? Do you take it early? Do you take it late? How does that impact everything else? Because it does.

I have an upcoming book called The Connected Retirement that goes through all of the invisible connections and shows you how these different parts of retirement planning connect. And Social Security is one of the foundational elements that triggers many dominoes.

RMDs. Required minimum distributions. This law has changed three times in just the past six or seven years. The law itself actually changes throughout retirement and you have to adjust.

Taxes, tax code, federal, estate taxes, income at the state and city level, they all change. And you have most of your money probably inside retirement accounts. So when taxes change, your retirement is impacted. And all of this may sound scary, but a lot of times it’s only scary because you don’t see the connections or you don’t see how it all ties together. But it doesn’t have to be scary.

You have changing needs and fears, I think more importantly, because fears typically drive our decision making more so than needs in retirement, fears and greed. Our greed typically goes down as we get older because our willingness to take risk does decrease typically, but our fears often can increase. Our priorities definitely shift.

So this risk progression—we do have a diminishing willingness to take risk as we get older, usually, and that can impact our expected growth rates, the risk of the portfolio, the ability to distribute, to fund healthcare. Healthcare, I don’t have that up here, but that’s a huge one. Medicare covers health expenses, part A, Part B, hospital doctor visits, long-term care, you’re on your own for the most part. I just did a video recently where Fidelity says, right now the average person age 65 and above is expected to spend $185,000 out of pocket in addition to Medicare in the course of their life. So double that if you’re married.

Healthcare Costs and Diminishing Capacity

But the big one here, you have diminishing capacity. So as time goes on, you have to make these tough decisions under moments of pressure when capacity is diminished. This is why planning is so important because we get certain things in place. So you don’t have to make these decisions down the road.

Now let’s talk about why this is valuable for you and how you can apply it to your decision making in retirement. So the big question is how do you go through retirement feeling more at ease? And this little chart right here is the answer. You may be wondering what this is.

So, what I’ve done is I’ve created a strong solid line here, which represents your income that’s generated from the portfolio or Social Security that is predictable, durable, growing, and liquid. This dotted line represents an imaginary hypothetical amount of spending that you’ll do throughout retirement.

This is why when you run models or someone runs a model for you and you have this even spending, you know, and an average rate of return, it’s really not a good way to go about it, but it’s common and I understand why people do it. So the key to helping anxiety go away or to feel better about retirement is to get the income that replaces what the paycheck used to do up closer to your expected level of spending. Now I want you to pay attention to how you feel when I make one simple change to this chart.

Remember, this is your hypothetical amount of spending. You see healthcare spiking later in life. And this is your dependable, reliable, growing and liquid income. So what we’re gonna do is we’re gonna remove this.

Building Income That Feels More Like a Paycheck

Okay, and we are now going to give you higher predictable, durable, growing, and liquid income. You have less uncertainty. How does that make you feel?

If you feel better knowing that, according to what you are expected to spend, your baseline level of income through a combination of tools is producing more income that replaces what the paycheck used to do from a characteristic standpoint, this is one of the things that you can take away and improve your retirement.

Now I’ve shared with you in this video what I’ve learned over 20 years of retirement planning that I wish somebody would have told me 20 years ago when I first got into this business, because I could have helped many people alleviate that feeling of discomfort many, many, many years ago.

So it’s not just about raising the level of income. This is a very important point to distinguish from what I’ve said so far. This video is designed for the person that does feel a little bit of discomfort when it comes to: I’ve retired with all this money. How do I take it out? How much money or how much can I spend?

Where do I take it from? How do I pay less tax? When you have those feelings of uncertainty and you can’t quite pinpoint them, what I’m telling you is I found it comes from creating not just more income, but creating income that shares the characteristics of what your paycheck used to do, which is that income needs to be more predictable, it needs to be more durable, it needs to be increasing, and it needs to be liquid.

And if you can do those things, typically, from my experience, it’s going to be a lot easier to spend your money in retirement to enjoy doing the things you want to do. And hopefully you won’t have those feelings of anxiety. Now, if you don’t know how to build this income, this is what we do here at Oak Harvest Financial Group.

We help you generate income that’s more predictable, durable, growing, and liquid so you can enjoy the retirement that you want to enjoy. Now we can’t possibly in one video show you all the different ways that we do this for clients because every person’s situation is customized. If you think of all those external pressures, all the internal questions, everything needs to be molded into what matters most to you. And by using a combination of imperfect tools to accomplish more income that’s steady, predictable, doing the things that we’ve talked about.

Putting the Pieces Together

So if you want help putting these plans together, I encourage you to reach out to us. If you’re somebody who does this themselves, I hope this video helped you understand how to combine your tools a little bit differently to help remove any feelings of uncertainty that you may have. And of course, I want to invite you again to join our channel to be a part of our community by subscribing to help you feel more connected to your retirement.

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