The Time Value of Your Decisions in Retirement | The Retirement Income Show

[music]

Speaker 1: Glad you’re with us today for The Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. You can find out more about Troy and the team just by going to the website oakharvestfinancialgroup.com. You can certainly search for Troy Sharpe on YouTube to over 100 videos that Troy and the team have put together for you about retirement, about financial stuff, about taxes, all kinds of information on their YouTube channel. Just search for Troy Sharpe and Oak Harvest. There’s no cost whatsoever to watch those.

You can also subscribe, hit that bell thing that will tell you when all the new ones come up as well. Troy and the team are always putting new stuff on YouTube. Just search for Troy Sharpe and Oak Harvest. If you’re old like me, I sometimes like to just talk to people instead of going to the internet so I would call the team. If you would like to do that, you have any questions or concerns, it’s 800-822-6434, 800-822-6434.

We touched on social security, the taxes and all of that, and how taxes are different from pensions and social security, Troy, but when we started the show, you said you wanted to talk about some of the retirement decisions that are upcoming for the new calendar year of 2022. What are some of the decisions we need to be thinking about?

Troy Sharpe: Well, not so much decisions for the upcoming year, but what I want you to understand is the power and value of the decisions you make. When I talk about value and I talk about power, I’m always talking about it in the context of time. Money has a time value, so do your decisions in retirement. This is why we require relationships with our clients because the goal is to compound good decisions year after year after year after year, and in doing so, you not only create power, but you create tremendous value.

When I was thinking about this recently and how it came up I had a client, he said, “Hey, Troy, I love what you guys do. I love your services, but I’ve done this my entire life. I just can’t stomach the fee.” I said, “Well, tell me more.” He says, “Well, if we’re going to pay you 1% to manage our assets, that’s X amount per year based on what I have and I just don’t see it. I just don’t feel it. I think it’s way too much and I can do better myself.” I said, “Well, okay, that may be true, and maybe we’re not a good fit for one another, but how are you thinking about this 1%?”

He brings up the investment stuff and I’m tracking the market, I’m doing index funds and you guys can’t beat the market year after year after year. I said, “No, absolutely. That’s not the goal in retirement is to beat the market year after year after year.” We had gone through our process, so at this point, we’re three or four appointments in, and we had the foundation of the analysis in place and we went through the tax analysis. There was well over $1 million in savings that he could have.

On the investment side, what we had noticed was- I’m just gonna throw some rough numbers out here to make the math easy for myself, but he had roughly $1 million in stocks during the coronavirus pandemic. In April of that year, after the market crashed, he decided he wanted to reduce his allocation because emotionally, he had saw it drop significantly. When you’re retired or close to retirement, you start to understand that that light bulb moment hits. There’s no more money coming in. I’m no longer saving, I am distributing. I have to protect my assets.

He went from let’s call it a 60% allocation to a 30% allocation in stocks. Just to make the math simple and to drive home my point, if you have $1 million in stocks and then you cut that allocation in half, now you’re at about $500,000 in stocks. From a 60% to a 30% allocation, I just want to drive the point home here. I said, “Why’d you do that?” He says, “Well, I was scared. Emotionally, I didn’t know what to do.”

What I did is I pointed him to our YouTube channel on March 23rd and then a little bit later in March or April, and then in June where we were telling people that everything that we see, everything that we feel, the stock market is going to continue to climb much, much, much higher from this point. Try to be calm, try not to make rash decisions, and don’t allow your emotions to impact your decisions because decisions in retirement are powerful.

Well, this is how powerful they are, just to give you an example. If he would have kept $1 million in stocks versus $500,000, 40%, let’s say the stock market has gone up since then, that $1 million would be worth about $1.4 million. It’s a 40% increase. This is simple math. That $500,000 would be worth $700,000. The difference between if he had understood the value and the power of decisions, his $500,000, a 40% increase because he reduced his allocation, he was scared. He says I’m going from a million to 500. Uncertainties abound, I don’t know what’s going to happen. I’m doing this myself, I’m going to reduce my allocation to protect myself. That really is a move driven from fear, which I get it. We see it every single day. It’s like going into the doctor’s office and someone has a broken bone. You see it all the time.

What he’s actually done is he’s cost himself the difference between now he had $700,000, could have had $1.4 million if he just had somebody there working with them. That value is obvious. $700, 000 to $1.4 million, he literally cost himself $700,000. When we’re talking about our fee, that would’ve paid our fee if he was working with someone, had a relationship with someone he trusted many, many, many decades over, but here’s where the value and the power of decisions comes in.

When I look at money and look at retirement, I’m not looking at how much was paid or saved or made in any one year, I’m looking at the time value of that money. Assuming that money stayed invested, that $700,000 difference in what he would or would not have, I’m looking at it over the next 20 years. He really cost himself about $2.8 million over the next 20 years. How do I get to that number? Well, it’s 7%. Your money’s going to double about every 10 years. By relocating his portfolio out of fear, out of uncertainty, he didn’t just cost himself where it could have been, he cost himself the time value of that money.

When we start talking about, do you have enough, will you run out? How do you pay less tax? How are you going to pay for later in life care, healthcare, long-term care, assisted living, et cetera, et cetera. These are the types of decisions, when we make good decisions year after year after year, we have a relationship, we’re working together, you are connected to your plan so you know exactly how long your money, well, maybe not exactly how long it will last, but you have an idea of where you are.

It is much easier to make better decisions year after year after year when you’re working with someone who’s helped thousands of people retire and stay retired. There’s just a wealth of information available that is you can’t put a price on it based on the experience, based on the relationship, based on the trust, based on understanding how your portfolio decision not only affects you today but affects you over the next 10 to 20 years.

Now, you tie into that the tax plan that we were recommending then the income side of things. I’ll talk a little bit more about the income plan in a minute but my point and I want to make it very, very clear. If you cost yourself $100,000 in portfolio value because of a bad allocation decision, or you went out to stocks, you went to bonds, whatever your decision is, whatever you’ve cost yourself it’s not just that finite value. You have to apply a time value to that money to get the true cost of that decision.

When we’re talking about having a relationship with a financial advisor and paying a fee to have your assets managed, will you be better off in 20 years working with someone you trust who is operating in your best interest, who’s not just helping with the investments, but also the taxes, the income planning, the estate plan, et cetera. Now, with that said, there’s a lot of advisors out there, you will not be better off in 20, and that is just the truth. There are a lot of bad advisors in the industry. That puts you the consumer in a difficult position. Who do you trust? Who do you work with? How can you trust them? What is their experience? What have they done for other people?

For many of you that leads to paralysis by analysis, no decision is to be made because it’s better to make no decision, in a lot of people’s minds, than to make any decision or to make a bad decision. I don’t have answers for you. I can only encourage you to understand the consequences of decisions in retirement. When you choose a financial advisor, a retirement person to help you, you have to make sure you do your research, you have to do your diligence, and you have to trust your gut. You have to absolutely trust your gut because that oftentimes will not lead you awry or astray.

When you go for sometimes the most charismatic or someone who was recommended to you by a friend without doing your due diligence, a lot of times you can get into trouble. I understand the position many of you are in, do I do this myself? Do I go it alone? Do I hire this person? Do I hire that person? Which one do I like the most? You pray on it. You trust in your instincts, you do your research, you do the online reviews, you look online, you do all that stuff, but ultimately, if you can find a good advisor, a good planner, and have a relationship with them, they’re going to help you make good decisions year after year after year after year.

It’s not just about beating the market, okay? It’s having less risk for a greater return relative to your needs and your goals and your objectives. The Oak Harvest Retirement Process Process, that’s where it starts, your vision, your goals, your dreams, who are you? What do you want to happen and then how do we build a portfolio allocation designed to reduce risk, but also give you the returns that you need to live comfortably? Then we get to the income plan. Step two, where are we taking the income from? One of the analyses that we did, and we do for you as well when you come in, is we look at where are we going to take our income from in retirement.

Typically, we’re doing a blended distribution strategy where some of the money is coming out of your non-qualified accounts, which is your brokerage, your non IRAs, but we’re also doing money out of the IRA. Whether it’s Roth conversions or we’re just living on that IRA distribution, because for many of you if we don’t touch that retirement account, if we leave it invested and let it defer, once you get to 72,75,78,82, the forced distributions from that account can put you into very high tax brackets but guess what, there’s another domino effect there.

Once your adjusted or modified adjusted gross income crosses over certain thresholds, you’re not only paying income taxes, you’re paying possibly net investment income tax, but you’re also paying possibly IRMAA tax, which is a tax on your Medicare premiums. You have six different thresholds of IRMAA taxes, depending on what your income is.

Many of you’ve been told your entire life that you’re going to be in a lot lower tax bracket in retirement. The truth is if you saved money inside a retirement account when you extrapolate out, and you look at the compound growth of those accounts, and if you don’t touch them, many of you will have large distributions in that 150, 200, 250 range as you go through retirement. Now you add social security, you add dividends and interest, you add rental income, you could easily have 300, 350 of income, maybe more in retirement. Just understand the power of these decisions is not just how much you make today or save today, you have to then look at the time value of that money.

If you reduce your allocation, or if you have the wrong allocation because you don’t know how much growth you need to achieve your goals over a 30 year period where your needs, okay, that money that you’ve cost yourself, especially when we’re in a large bull market like we are now, it translates for many of you into hundreds of 1000s of dollars, if not millions of dollars.
1-800-822-6434, if you’d like to have a conversation, reach out, give us a call, you leave us a message, okay? If you’re listening to this on the weekend, we don’t have anyone working on the weekend. Frank, who’s been with me for over 10 years, he’s going to get that message, he’s going to call you back on Monday and simply see if you’re a good fit for Oak Harvest. Also, get to know who you are and what’s important to you. If you’re watching this on YouTube, you can give us a call if it’s business hours, someone will answer and we’ll go through that process of seeing if we’re a good fit for each other and schedule a consultation.

This is my promise to you, okay? No one here will ever pressure you to do anything, okay. We do not pressure anyone to do anything. We want to help you if you’re a good fit for who we are, and if we’re a good fit for who you are. It’s a very simple process. We created this firm based on the simple idea that if Oak Harvest existed when my grandparents retired, who are both gone now but went through a very bad experience, both through a health condition but also from a financial experience, they could have walked in, sat across from an advisor that they unequivocally trusted, that would always operate in their best interest and put together a full plan that looked at not just the investments, okay, but looked at how do we get income? How much income can we take?

I believe in a dynamic income plan, by the way, but how do we reduce taxes and how do we blend all that together? The phone number is 1-800-822-6434. Go to YouTube. If you’re listening to this on the radio at home, check out the videos, tons of financial planning videos out there. I want you to get a feel for who we are, the type of planning that we do to see if we’re a good fit for you, and if so, give us a call we’ll see if you’re a good fit for us, and from there we can have a conversation and see if we do work well with one another and go from there, but you have to pick up the phone you have to give us a call and that starts by dialing 1-800-822-6434.

Speaker 1: We’re headed to our final segment with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. Again, the website’s oakharvestfinancialgroup.com We got more to get to and one more segment to get it all done. Troy’s back in one minute. Stay with us.
[music]

Summary
The Time Value of Your Decisions in Retirement | The Retirement Income Show
Title
The Time Value of Your Decisions in Retirement | The Retirement Income Show
Description

Having a relationship with a Financial Advisor that is a Fiduciary, may have a big impact on the time value of your decisions leading up to retirement and through your retirement years. With Oak Harvest Financial Group, we pay attention to the power and the value of your decisions in the context to time. It's important to compound good decisions year after year after year.