transcript
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Episode #487 - The 8 Pillars of Rocking Retirement: Resilience And Optimization
Let's do this.
"Redundancy is ambiguous because it seems like a waste if nothing unusual happens except that something unusual happens usually" -Nassim Nicholas Taleb.
Welcome to the Retirement Answer Man Show. My name is Roger Whitney. I am your host, and this is the show dedicated to helping you not just survive retirement, but to actually have the confidence because you're doing the work so you can lean in really rock retirement.
We're going to continue the theme this month of building out the eight pillars that you need to have solidified or be working on in order to have that confidence to rock retirement.
Right now we're talking about the four financial pillars. Last week we covered the first two, vision and having a feasible plan. Today we're going to talk about having a resilient plan and then about optimization. So that's a target for today.
Another target for today is we're going to answer some of your questions related to social security, real estate funds, private crowd funds versus REITs, assets not balanced, et cetera.
Then in the bring it on segment, we're going to have a discussion about how to take a little baby step on building up that social network of yours and relationships. Before we get started though, let's have a quick chat about the debt ceiling. I think we answered a question about the debt ceiling and its impact on retirement and your journey a few weeks ago, but we're getting more and more news about it because the "date" that we could not have the funds to actually pay our bills as a government is coming here in June, whether it's June 1st or early June, that's going to depend on what estimate that you're looking at.
So let's define what we're talking about briefly, and then we can talk about what potential impacts there could be and how much you need to really pay attention to this in terms of your actual retirement planning.
So what is the debt ceiling? The debt ceiling is an artificial ceiling set by Congress of what they are allowed to borrow in order to fund operations, and I read in the Wall Street Journal, we spend about $4 for every $3 of revenue that we take in, and this has been a consistent situation for many years, so we're constantly spending more money than we actually have in income.
Imagine that as a household going on for years and decades and decades. And so a little while ago, and I don't have the specifics right here in front of me, Congress said, we're going to control ourselves, so we're going to put a limit on what we're allowed to borrow. That's the debt ceiling in order to impose some fiscal constraint or budgetary constraint so we can manage and not do this anymore.
Since that was enacted, what has happened is as we reach the debt ceiling, and this seems to be a routine that happens every year or so. We get close to that artificial debt limit that has been imposed, and Congress and the President go through the theater that we're seeing right now, this has been played out before of negotiating how do we increase the debt limit or do we increase the debt limit? Because if we don't and we hit the debt limit, then we won't have the ability to borrow in order to pay the bills of that extra dollar in spending that we have relative to income. We had an instance some time ago where we actually had a downgrade in the US debt as part of this whole theater that goes on.
Generally what happens is at the last minute, everybody caves and they just raise the debt ceiling. So it's really a silly thing. It probably shouldn't even be there because it's not really a legitimate ceiling if we just keep raising it and raising it and raising it could be because we keep borrowing and spending more money.
What we're dealing with now is we're in this theater of one party doesn't want to raise it or they want all these cuts and another party says we have to, and there's a lot of negotiation and jockeying up until the last moment, which is typically what happens. But it's like a storm that is out there and it comes in and it has a very, very small potential of being a disaster if nobody actually comes to the table and negotiates with faith to figure this out.
There's a small, small percentage of a chance that they don't and then that's really the cascade of the really bad storm. The way that that would present itself is in the government basically issuing IOUs to in employees, to social security benefactors, to vendors saying, when we figure this out, we'll pay you the money that we actually owe you.
That is what could be the impact prior to not paying our debt service. That is something, I think is a line that they're not going to cross because that would impair the ability to borrow in the future.
So what's going to happen here? Well, the asked answer is, I have no idea. Most likely what's going to happen with a high degree of certainty is they're going to raise the debt ceiling.
Now, will it happen before the actual date that they have to? Most likely. Could they not and have to issue some IOUs? Maybe, but not likely. But the consequence of not raising the debt ceiling is so catastrophic that you couldn't imagine that they would be so, I'm trying to be nice with my words, shortsighted that they wouldn't. So they're likely going to raise it. It's a huge storm. It brings up a lot of things. It scares a lot of people, and then it dissolves.
Now the impact to you from a long-term planning perspective is going to be actually pretty minimal. If you are receiving Social security or some other government payments, potentially you could have an interruption, but I still think that's an extremely small chance.
From a how do I plan and what happens if the market goes down or gets really volatile as a result of all this going on? Really that should be a non-event becausethese kind of storms, whether it's the debt ceiling or some other storm, are going to come and go as you walk this retirement journey. So from a long-term perspective, I don't think this is really a huge deal, but it definitely is a storm that's going to make things much more volatile.
That goes to the reason why we need to have the third pillar in the financial realm of having a resilient plan. Why we have to have that really solidified so we can not worry so much about some of these short-term storms, and that's a wonderful segue to go talk about the pillars three and four in the financial realm.
RESILIENCE
So last week we covered the first two pillars in the financial realm, which is having a vision and doing some work there to reacquaint yourself with the values that you want to live out, forgive yourself, or well, all the mistakes that we've made so we can look at our life with fresh eyes. Then to create goals off of that vision and put some numbers to the goals that represent the dream of our great retirement that are in line with our values.
You can see the thread that we're building here. Then we talked about feasibility. Okay now that we have these goals that are actionable, that represent the dream and the values, we need to organize our sources of capital to see if we have enough resources to fund the big dream. If we don't, we need to negotiate to a feasible plan, doing a feasibility study to get us most of what we want, and what's most important to us actually would be a better way of saying it.
So that's the pillar one and two. At this point, there's a feasible plan of record that is focused on helping you achieve the things that are most important to you at this time, but that's not enough. Roger purchased a sailboat and stocked it with enough resources to get me across the ocean from say, Miami to England, it would be feasible that I could make that journey given the resources I have.
Feasible isn't enough. We have to make it resilient because there's so many things that could happen. Imagine Roger on this boat. Are you on this boat? One, does Roger have an extra generator If that goes out, what happens if a storm comes in? How will Roger navigate that storm? Will that storm take a feasible trip and just blow it up.
In retirement, these storms can be the momentary debt ceiling theater. It could be a bear market, it could be inflation, it could be a healthcare shock. So having a feasible plan on paper isn't enough. We have to build some redundancies or some margin in this plan to absorb the shock from things that might happen or that we don't even know about. And that is the third pillar that we want to get in place, which is having a resilient plan of record.
So what are the substeps of establishing this as the foundation of your retirement plan? Well, number one you want to take this feasible plan, and you want to do some assessment and address the big retirement risks that we all know about and can at least think have a decent probability of occurring. We want to take this feasible plan and stress, test it, stress test it against a bear market right when you retire, so of sequence return. What happens if the value of your financial assets go down by 25% or 30% depending on how you're allocated?
What does that do to the feasibility of the plan? You want to test your plan to, and you can do this with software and spreadsheets, lots of methodologies to go about it, but you want to stress test the plan to say, oh man, yeah, it looks feasible. Bear market. All of a sudden, this feasible plan ain't so feasible anymore.
We saw this with Rosie in retirement plan live. It wasn't a resilient plan. Unfortunately they're having different choices as a result of that plan not being resilient initially. So you want to stress test it against sequence of return risk. Stress test if you're married, what happens if one spouse dies prematurely, because that will change the dynamics.
You'll have one social security payment, not two, if there's a pension involved or an anuity contract involved where there's a life only benefit, that benefit could go away. Tax brackets would go from a joint tax bracket to a single tax bracket. All of these things could impact the resiliency of the plan. So you want to stress test the plan to get an idea of how resilient it is to this event, and that can help tease out, do you need life insurance or what other things could you do to shore it up?
Another thing you would stress test against is a healthcare shock. What happens if there is a major healthcare expense?
Typically what we're going to think about here are what happens at say, age 80. If one of us needs some assistance in say, a care facility for three or four years. We can do that kind of stress testing or you can with software and you can do it with spreadsheets if you're adept enough of, okay, what happens with the impact of, say, $80,000 a year expenditure for three or four years at age 80, factoring inflation? Is this enough to really make our plan go sideways?
This is where we're going to tease out risks that we are comfortable with. Oh, we can self-insure our self-fund, that it looks like we're already resilient enough for those things. Or you're going to identify, Ooh, I need to work on that one. I need to shore up the resilience to that thing.
Typically, the most common one here, by the way, is going to be your portfolio in that if you have been in accumulation mode for a very long period of time, you probably have a somewhat aggressive asset allocation, meaning equities and risk assets on the heavy side, because that has served you well in the accumulation stage. As you approach or are in retirement, the benefits of volatile assets diminish greatly. Doesn't mean you don't need them, but they diminish greatly because you're going to start drawing from assets in that sequence of return risk. Having bad markets occur when you're taking money out could cause a negative cascade in terms of the feasibility of the plan.
So, that's generally the risk that needs to be addressed, and it's a difficult one for some of us because let's be honest, yeah, we had '08, we had COVID, we had the .com bust, but the markets have been very good to us over this accumulation phase. So why would you change a good thing is the attitude. Now, some recent things sort of bring that into sharper focus, but we guard ourselves against that.
So in the resilient phase, we want to address these big retirement risks so we can tease out what we need to take a little bit more action on. Then we need to build a funding strategy of how we are going to pay for our paychecks when we aren't working anymore, and this is identifying how much you're going to need from your financial assets that's not going to be covered by human capital or social capital. How much do you need from your actual money to make up the gap between your income and your spending? Your income's going to go down by a lot, but your spending likely won't, it may go up, at least in the short term. So you want to map out your funding strategy.
Now, I'm not suggesting that you map out how you're going to do this over the next 30 years. I'm suggesting that you map it out over the next five years so you have clarity of how you're going to pay for your life over a five year period, and you could decide at what level you're going to pay for that life. Is it just going to be your base great life? Is it going to be your wants and your wishes as well? That is up for debate. That's why you need to go through this exercise.
Once you map out how you're going to pay for at least the first five years, then you're going to build your proverbial pie cake.
You're going to establish a contingency fund. You're going to establish, I would use, as a default, a five year income floor of thinking it through, moving your financial assets. So you have five years of liquidity of money set aside that is not at risk of going up and down, that is secure so when you have a need for it, it is there.
Then you can have upside or volatile or risky assets beyond five years. I think that's a good default to start with. That will allow you to create a paycheck. This is some redundancy. Redundancies, as we were told in the quote at the beginning of the show, sometimes feel very inefficient.
It feels a little bit better now because we're getting decent interest rates here in mid 2023. Definitely didn't feel very efficient a year or two ago when we were getting 0% or close to it on a lot of these assets. Having that liquidity that may not be mathematically optimized gives us things that you can't really measure on a spreadsheet.
It gives us clarity on the short term of exactly how we're going to pay for our life. It gives us, and this is probably even just as crucial, optionality. So when a bear market happens, we don't have to wonder how life is going to go. We may forget about that and have to remind ourselves, but if we have five years of our spending pre-funded, that's going to give us a lot more confidence when we're making decisions during storms.
We don't know if these storms are going to happen. We don't know what flavor they're going to be if they do happen, but we have this liquidity in order to navigate through it.
Another visual of this could be the airbag in a car. I forget the number, but it's like adds another $4,000 to the car. I don't know what the number is.
Well, how often do you actually need that? You really don't 99% of the time or whatever the percentage is. But boy, if you rear-end somebody or somebody hits you, that airbag saves your life or could save your life, even though it's not "efficient" from a cost perspective.
So this is a resilient stage. I know one last thing and one reason why I think this is really important, especially in earlier retirement or as you're approaching retirement, is that it gives you liquidity in order to change your mind. As you change your mind about what you want your life to look like, which happens a lot more than you would think, you think this is what your plan is for long term, and then, hey, you shed your skin. You're a new person. Now that you're not working, and you're like, oh, you know what? Actually I want to go do that.
It gives you money to move around. So as you change your mind about the direction of your life, You can much more easily redirect things to what's important to you. So that is the third pillar, having a resilient plan of record.
Now, these first three pillars, I would argue are non-negotiable.
You got to have these in place.
OPTIMIZE
The fourth pillar, which is optimized, how do we optimize? This foundation, this is the financial bling of planning, so investment implementation. How simple do we make it, or how complex and sophisticated do we make it? Tax management is going to come into optimization. Now that we have a vision and a feasible plan and a resilient plan, how do we layer on top of that, some tax strategies to guard against future tax increases or lower required minimum distributions, or maybe just bottom line save on taxes over the long term, which is money that stays in your pocket. Legacy planning, trust, planning, gifting, alternative sources of income. Do we go a more safety first approach in order to internally, psychologically have the confidence to rock retirement, even if financially it doesn't make sense for us? This is where the optimization stage comes in to really jazz it up a little bit to enhance a journey that's already feasible and already resilient.
So those are the four pillars of a sound retirement strategy, in that order.
Optimization becomes part of the ongoing project. So as you implement this and get it in place, your version one of this project. Your vision may change, feasible, resilient, you're going to tweak along the way, but optimization is going to be where a lot of the ongoing work is because as you implement this, you'll have a lot of decisions downstream that you have to make, and that's in this optimization stage.
For my income floor for those five years do I buy CDs? Do I buy individual bonds? Do I buy treasuries? For my long-term paycheck, do I buy deferred income annuities or variable annuities to give me some secure income? Do I gift now, or what kind of gifting do I do? In what form do I do that? Should I strategically do Roth conversions or take money out of IRAs in order to fill up tax bracket buckets? Do I do qualified charitable distributions at 70 and a half to lower my IRA assets or pre-tax assets?
These are all extremely important decisions, and what you're going to do is, once you have your foundation based in place, then you can start to explore these and decide which ones you want to add on to that firm foundation.
I put it last for a reason because generally these are the things that we go to first because they're cool. We understand them. They're sort of sexy, they're talked about all the time, but it's very difficult to do that if you don't have the first three pillars in place as a foundation.
Then as a whole, as we've talked about, uncertainty and if you've been listening to the show for a while in terms of agile, now we have a framework. This is what we care about. We know that it's feasible. Here's how we made it resilient. Here are the optimization strategies we're going to use right now. Now you have this beautiful framework of your decisions. This is what I decided when I was really intentional.
So next month, next quarter. Next year, as you're iterating on this plan and everything is changing in your life, in the markets, in the tax code, et cetera, as you're iterating on this plan, you can make little adjustments to your plan of record in an organized way and make little tweaks as life unfolds based on all of these things.
So it's not just willy-nilly, that's the four pillars of building a sound retirement strategy.
Now, with that, next week we're going to talk about the non-financial pillars, but for now, let's go answer some of your questions.
LISTENER QUESTIONS
Now it's time to answer your questions.
If you have a question for the show, you can go to rogerwhitney.com/askroger, and you can type in a question. You can leave an audio question. You can just type in or say something. Just say hi.
QUESTION ONE
So our first question comes from Mark.
Mark says,
"Hey, Roger, love your podcast.
Been listening for about a year now, and I'm caught up on past episodes. My question is regarding your guidance on estimating Social security and ssa.gov, which is the Social Security website. I believe I heard you mention a few times that it is best to use the detailed calculator and enter in your year by year salary estimates.
I do not see the detailed calculator on ssa.gov. I see a plan for retirement section and I can enter a future annual salary number.
Since I am about to turn 60 and retire, I just put zero in this box. That should provide an accurate prediction of my benefit, correct? If there is a detailed calculator beyond this social security.gov, can you point me to where it is?"
Hey, Mark, great question. They keep moving stuff and sometimes they're bad URLs, but we will put a link, the current link that we have to the detailed calculator at ssa.gov. If you go to ssa.gov and use their search function and type in calculator. The second result is for benefit calculators and there's going to be three of them there.
There's going to be the quick calculator, the online calculator, and the detailed calculator, and that's where you can download and install it on your computer if you meet all the parameters and then put in your earnings history.
The detailed calculator is going to be the only calculator for someone that is going to retire in the future, but before drawing their social security benefit, and this would be the only one of the tools that would work.
This is one reason Mark, as an example why we have 6-Shot Saturday and we actually have a secret project coming later this year. We have 6-Shot Saturday and the secret project, becauseit's always hard to share direct links to resources and then keep those links up to date as the world changes.
So, we'll put a link to this in 6-Shot Saturday and then we will keep you up to date on the secret project that's going to make all of this a lot easier.
QUESTION TWO
Our next question comes from Mary related to real estate.
Mary says,
"Hey, I've enjoyed listening to the podcast for several years. Thanks for providing the platform.
I've got my pie cake layers defined and looking to diversify my longer term layers. Most of my wealth is locked into stocks, bonds, and cash. My mother recently passed away and blessed me a substantial sum of cash from her estate. I'd like to diversify my portfolio to include earnings from real estate, though I do not want to manage direct properties.
Could you provide the pros and cons of investing in REIT, Real Estate Investment Trust funds versus private crowdfunding platforms like Fundrise or Crowd Street. I understand the liquidity is one aspect of it. Are there others that I should consider as well?
Thanks so much and keep rocking."
So let's talk through this. Mary. You want to have some exposure to real estate, which I think is reasonable, real estate long-term as a matter of fact, Jeremy Siegel I just saw him speak, author of Stocks for the long run at a conference, and he talked specifically about this.
If you look at real estate long-term, it matches the long-term returns of equities and it has about the same volatility, but there may be some difference in the correlation of how they move together. But put that aside.
If you want to have exposure to real estate, but you don't want to buy properties direct or have to manage or be too involved because it's not really your thing, what is the best thing to put money into?
I would say real estate investment trusts, public ones, which trade on New York Stock Exchange and other exchanges or exchange traded funds that purchase real estate are going to give you the most diversified, simple way to have exposure to real estate as an asset class, even though it trades like a stock. It's going to give you maximum liquidity and it's going to have all of the structure that is there for real estate investment trust. So, as an example, they are legally required to invest at least 75% of their assets into real estate or cash, so they can't have too much asset type drift in buying other things.
They have to receive at least 75% of their income from real estate. This is REITs or real estate investment trust. That might mean sales of real estate rents, interest, mortgages, and they must distribute at least 90% of their taxable income as dividends every year. So a real estate investment trust has this structure around it and generally, they're going to own more than one property. They're going to be diversified. Just like a stock fund would own a number of stocks, a real estate investment trust would likely own a number of properties. If you buy a portfolio of real estate investment trust, you're going to have a lot of diversification, and those dividends are going to be taxed as ordinary income so there's no such thing as long-term capital gains or low tax brackets for REITs. They're best held in pre-tax accounts like an IRA and so forth.
So that's a real estate investment trust. And in this case, Mary, from what you share, I would say this is the best place to focus, either real estate investment trusts that trade or exchange traded fund that has a portfolio of them.
There's a lot of decisions downstream in terms of commercial real estate or storage and all that.
Now let's turn and compare it to crowdfunded real estate, since you brought that up. This is a group of people buying into a particular real estate investment.
That means just like buying an individual stock. Your risk is much more concentrated in a crowdfunding process because you're just bringing a lot of people together within the crowdfunding rules to purchase that building or that storage, and that's going to be managed by generally a general partner. This is often done in startup ventures, such as a new building or they're purchasing a longer term building.
So, if it's a new building, then you may not have yield for a while, until they get everything in place, so that could be a delay. Your windows and timelines on which you sell your investment are very limited, and you mentioned that liquidity factor. Crowdfunded real estate is also taxed at ordinary income rates, but it's much harder to hold in pre-tax assets like an IRA.
The last aspect of this Mary, that I want to at least mention, because I had a conversation recently with a longtime client and friend about real estate. He's been in real estate, very successful for a long period of time, and real estate investment trusts are essentially securitized for the public.
The good of that is that they're regulated, they have diversification, they're liquid. Now some of the bads are, the fees might be a little higher internally, a lot of that you can't see, but there's some bads there too. But they have structure and diversification around them, and they're generally run by very large companies with processes and proven track records of some sort.
When you get into crowdfunding, just like if you get into a private investment, because there are plenty of people that are looking to raise money for their partnership in order to do these, even in non crowdsource funding ways. Who is running the project is critical, because when real estate goes sideways or has difficulties, that's when the people involved in running the project really make a difference.
The conversation I was having with my friend on our walking meeting the other day is because real estate's a little bit sketchy at the moment. Commercial real estate, especially office properties, there's some stress there becauseof interest rates rising and how debt is used in real estate are impacting not just new deals, but all the deals that are looking to refinance, et cetera.
When storms come in in real estate, who is managing the process is so critical and can make the difference of whether you actually get your money back, even at a minimum or not, because of how they can navigate through a storm, right?
You want to have a great captain during a storm and in crowdfunding it's a higher risk that you don't have a seasoned captain or you don't know who they are, and it's a lot less regulated relative to real estate investment trust.
So given the specifics that you mentioned, I would focus on real estate investment trusts, either in a exchange traded fund where you're getting exposure to a lot of them or a couple of the larger ones.
Probably an ETF even for you, I think would be better in this instance.
QUESTION THREE
Our next question comes from John, and he wants to know about retirement planners.
"Hey, Roger, longtime listener. Very long time.
Excellent choice on Rosie for this year's retirement Plan Live. Expect many people could have similar situations."
No doubt, John.
"In the podcast and in the RRC discussion with Kevin, you mentioned a CFP ® might not be the best choice, and a retirement planner may be better suited. I thought I had a sense of confidence with CFP®s due to being a fiduciary over an investment planner. If a retirement planner is a better choice, is there a three or four letter acronym that we should look for in training?"
I feel like I've had a few questions on these, and I may have answered this already, but I want to dive into this again. Certified financial planner I think is a table stake, that should be a definition or should be an expectation. The difficulty, and even if we go down to retirement specific designations, there are many certified financial planners that really just trade stocks or our investment people, they don't necessarily practice financial planning.
Just like there are certified mechanics that come in all flavors and all levels of capabilities, but it is table stakes. Just like getting a degree from a university doesn't prove that you are an expert in that subject, but it shows that you are diligent and you are able to complete the requirements.
My issue with certified financial planner by themselves as a designation is it's not retirement specific and the issues that face a retiree or potential retiree faces are very different than anyone else. You can have excellent certified financial planners that don't have any other designations that are amazing retirement planners because they actually have a process focused on this de-cumulation stage of life.
In fact, you can have people that don't even have the CFP® that are world class in retirement planning because they've done the work to build the processes, learn and educate themselves to create those processes. So, the designation isn't necessarily going to save you as a consumer, because there are definitely people that don't have designations that are just amazing.
My point, John, here is for you whether it's a CFP®, someone with no designation or someone with, and the two designations I would look at are the RICP, which is a retirement income certified professional, which is a robust designation, and the retirement management advisor designation, which is more holistic in analyzing household balance sheet and decision making processes, whereas the RICP is going to give you a lot more academic knowledge.
I think both of those are the standards in slightly different ways for retirement planning professionals that want to go deeper into developing the processes that they have. So I would say RICP, and the RMA would be the two that I think are worth considering. Doesn't mean it's a deal killer if they don't have them, but I think those are two that would give you some indication that they're taking their process planning a little bit more seriously.
Now, I'm a little preferential to the RMA because that's issued by the Investment Wealth Institute and I'm on the curriculum committee, and it's just gone through a whole redo of the entire curriculum, so I'm a little partial to that.
Wade Pfau, who is an expert in retirement planning, has been involved in the RICP curriculum, and he is involved in the RMA curriculum. I would say those are the two. But at the end of the day, you want somebody who works with people like you, just like you want, not just a neurologist, but someone who does surgery if you need surgery.
You want a specialist, and I would say the CFP® is the general practitioner, which is fine for most everything except when you need a specialist, and I think in retirement you need a specialist and you need somebody who actually has a process and isn't just simply doing faux retirement planning because they're more concerned about the revenue and the assets.
I've become much more convicted about this, and I'm going to be much more of an edgy kind of person about this as a result of seeing Rosie's journey and knowing that planner, that CFP®, probably a great guy, probably wants to do really well. He just doesn't know what he doesn't know, and he probably doesn't have a deep process that's thought out surrounding retirement, and that's a problem.
I'm working on fixing that problem, but I would say those are the two designations, John. Okay. Put soap box away.
QUESTION FOUR
Our next question comes from Tammy on rental property, and I'm going to start identifying these, by the way, by the pillars. Her question is related to the resilience pillar of building a retirement plan.
Tammy says,
"I am almost 62 and due to some health issues, would like to retire soon.
I own three homes. One is worth close to two and a half million dollars. I have about $500,000 in tax-deferred retirement accounts. I plan on renting two places for retirement income and living in the third, but I'm now wondering if selling the high dollar home would be a better option to have some money that isn't tied up in tax-deferred accounts.
I've learned so much from listening to your show. Thank you for helping me getting ready for this transition."
Oh, hey, Tammy. So this is a resilience question and a little bit of an optimization question, and you can see how these lines will bleed a little bit. So you're past 59 and a half, so we don't have any penalty if you had to take money out of your IRA, even though it would be ordinary income taxed.
Now, what do you do with these properties? The process, I think you want to go through Tammy, and you're not going to be surprised when you hear this probably is, well, how much do you need to live the life of Tammy if you were to retire?
How much is that going to be for your base great life and for some of the extras that you want? Just make an estimate because you're not going to know, and you want to have speed in this. You don't want to get too hung up, but you want to get an idea of what do I need for base great life and go through that exercise.
That's what you're going to need, and if you retire, how are you going to pay for it?
Let's start with not selling the house. Let's assume that you have social security that's going to come into play at some point, so factor that in there, that's going to offset the spending that you need. Then any other social capital sources like a pension or anything like that, and if that's not in the picture, that's fine. Then in your human capital, factor in what you expect to receive if you rent out the two houses.
My suggestion would be is to keep a separate spreadsheet and do an estimate of, okay, if I rent it out for this, and I'm going to have some operating expenses of taxes and insurance and maintenance and a reserve fund. What is the net amount after those things, net before taxes, that I'm going to receive from these two rental properties?
So let's assume for the two properties you get, I'm just making these numbers up, $10,000 a month. But after taxes and insurance and normal maintenance reserves, et cetera, you get $8,000 a month, then you would factor in, I'm going to get $8,000 a month over time that should be inflation adjusted, plus social security, whenever you turn that on, are going to help offset your base great life.
Now you have an understanding of, is that going to be more than enough? Or is there a deficit that I'm going to have to get in my income versus my spending? If there is a deficit, now, the only other asset that you mentioned here is that half a million dollars, is that enough to help cover that deficit? You can go through a feasibility study to see if this is an issue or if you have more than enough income now you can get to a feasible plan of record, and you'll either discover that that's not feasible if you keep the high value house and you rent out the other two, that you're still on a long-term basis, not in a perfect situation, and then you got to get to a feasible plan of record where you're going to negotiate with yourself.
Perhaps that means selling one of the homes, maybe the most valuable home. I don't know, either now or sometime in the future. You have to decide what levers you have, but I wouldn't start off with just simply selling one of the houses because half a million dollars within a tax-deferred account, like I said, you can get that money if you needed it. That's basically going to be your contingency and reserve. It doesn't sound like you have a dramatic tax issue in terms of required minimum distributions with a half million in a tax deferred account. So I don't think that is the way you approach the problem.
I think the way you approach the problem is if I do rent these two things, does that net income plus social security and other income sources cover what I need to have a great life, or should I release one of these assets so I can have a more resilient plan and perhaps do more things because of what the rents are.
You want to go through the same process that we've talked about Tammy, and like with most things, I can't just say, oh yeah, that makes total sense most of the time because a lot of this is going to be a judgment call. So that's why you want to think through it in this organized way.
Now let's move on to the Bring It On segment to talk about relationships.
BRING IT ON
Welcome to the Bring It On segment where you're going to focus on dialing in those non-financial pillars and today we're going to talk about relationships.
What roles do you play in your life? I'm guessing you are a friend, you're a father, you're a mother, you're a sister, you're a brother, you're an aunt, you're an uncle, you're a coworker, you're a fellow hobbyist.
We have these macro roles that we play and we have responsibilities in those roles. What I want to talk about today are some micro roles that I would like you to be more aware of, situational roles.
So last week, think to the day my father-in-law, who lives about two blocks away from, well, about a mile or two away from us, had a stroke. Pretty significant one. My wife came up, I was on a meeting, very frazzled, got off the meeting, cleared the schedule, and we got in the car to drive to the house. We were pulling into the neighborhood right as the ambulance was pulling out, and Shauna's mother-in-law was in the ambulance with her.
So, we just hightailed it around, turned around and followed the ambulance, not knowing what's going on. We're going to the ambulance, major stroke, ambulance lights are blazing, blowing through lights. It's pretty serious.
We get to the hospital, I drop Shauna off. I go park the car, come into the hospital.
I can't find Shauna. Where is she at? I just walk right into the ER, start walking the halls and see my mother-in-law sitting by herself outside of a room without my wife who had gotten there earlier.
I go console her, check on her and let her know I'm going to go get her daughter. So I go out of the emergency room and I'm looking for my wife. Where did she go?
She was in the emergency waiting room because that's where they directed her. Then so I go up and say, wait a second, I just got back there. Oh, you're not allowed to go back there. I'm like, well, my mother-in-law's back there by herself, she's 82. Her husband just had a stroke. Okay.
They were giving resistance, allowing my wife to go back there and get my mother-in-law, her mother to be with her and either bring her out or be with her. So I took on a role, and this was the role throughout the week, the past week, and this is internally, I am here to help clear pathways and take as much friction away from the family, my wife, my sister-in-law, my mother-in-law as I can, and just be there as support in the background and then take friction away when I need to and step in.
That's a micro role and that's critical in all aspects of life. It could just simply be you bump into somebody that's having a bad day. You can take on a little micro role of, not fixing their problems, but maybe you make something a little bit easier for them or you encourage them. You just simply be present with them.
These little micro roles that we have the opportunity to play in our lives are really important, and it allows us to elevate a little bit from simply being in the situation to actually being there and in support of others when we're not the main actor. In the situation that can happen in a grocery store, it can happen in this traumatic event with my family. It could happen at work.
What micro roles can you identify? Another micro role, just as an example, is when I walk Sherlock, I wave to every single person passing by in my neighborhood. I may not know them, but I see them all the time because they live in the neighborhood. That is a little bit of a role of being welcome, of welcoming people.
I don't do it in some weird, hey, how you doing way, I just give them a wave and acknowledge them and have a little smile on my face. I don't always do it. Sometimes I'm just ugh, but that's a role to create an atmosphere. Just like in the business, as we've brought Troy on as our new retirement planner, I have a role to play from a cultural perspective to this is how we do things. This is how we treat people, this is how we deal with things when things go wrong. This is the role that I have, but we have micro roles too.
I actually denied my son almost, he didn't let me, which is great, a micro role. He gave me a call. My son's an ICU nurse, he's 27 and he called me, he was going to be going into work and he was like, dad, should I come up there to the hospital?
We're all in the ICU, my mother-in-law, my wife, my sister-in-law, her husband, et cetera, and Spencer's like, should I come up there? I was like, no, there's nothing you really can do, son, no, you don't need to come up here. You can just go to work and I'll keep you up to date, et cetera. He said, let me talk to my mom. So he talks to Shauna and then he comes up.
There's nothing he could do because we're just waiting, that's what happens with a stroke. You just wait and see. He cancels work, he comes up and he's there for the entire day.
As I'm sitting in the background observing, he did have a role to play, even though technically he couldn't do anything logistically. He could comfort my wife his mother, his grandmother, his aunt, in ways that none of us could.
He is an ICU nurse. He understood, he could give perspective. He was a grandson. He had nutrients that only he could bring to the situation even though he couldn't do anything. He knew that, I didn't. I was thinking practically.
I say all this to say to you, I want you to think about not just the macro roles. I'm a husband, I'm a wife, I'm a friend, but moment to moment, what micro roles could you play in order to enrich your life, but also enrich the life of people around you.
TODAY’S SMART SPRINT SEGMENT
On your marks, get set
and we're off to take a little baby step that we can take in the next seven days to not just rock retirement, but to rock life. You want to have confidence in rocking retirement. I'm going to challenge you in the next seven days to assess the resilience of your plan. If you're retired, assess the resilience of your plan, if you're not retired and you're moving towards retirement in the next two to three years, assess the resilience of your plan, and I would particularly focus on the allocation because you're likely in an accumulation standpoint to get an understanding.
Now, you don't have to necessarily do this in detail in seven days, but you want to tease out are there targets that you should set so you can have more clarity on how resilient your plan is, or even more specific targets of, oh, that looks like it's an issue, my asset allocation or the fact that long-term care event could really impact me. Maybe more specific targets that you can set to work on. Doesn't mean you have to do it tomorrow, but now you have some intentionality of what things you need to work out in the near or midterm. So that's your sprint.
Let's get running.
ROCK RETIREMENT PLEDGE
Thanks so much for hanging out with me this week, and we just finished the open enrollment for the Rock Retirement Club and welcome. If you're a new member and if you're not, no worries at all. You can still do all of this stuff. You just got to put it all together, right? That's awesome.
This is when we always talk about the pledge of this show and really everything we're trying to do, whether it's in my advisory practice, we are accepting clients right now, by the way, or in the Rock Retirement Club or here on the show, and it comes down to we are committed to treating you like adults and not like, a consumer or a potential customer or client.
Regardless of where you fall, you're an adult that's just trying to create a great life.
You're trying to figure out this maze of retirement on the financial side and on the non-financial side, and we're going to focus on helping you on that journey regardless of where you're at in terms of us.
We always want you to have hope.
We're going to do this authentically.
We're going to respect you.
We're going to be humble, we're going to have no pretense, and we're going to treat everything with curious eyes.
So we can create, honestly, the most robust retirement platform, whether it's the free podcast or the club or whatever, in order to empower you.
We always want to be free of big finance products and gimmicks, and we're always going to focus on you taking action, whether that's incremental action like the smart sprints, or expanding your perspective.
You're an adult, you're trying to make a great life. You don't need tricks and gimmicks. You need real education in bite-sized pieces that you can actually take action on because that's where the rubber hits the road.
I'm all in on this. My team is all in on this. I know you're all in on creating a great life, so let's go do this.
The opinions voice in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. I. All performance reference is historical and does not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax or financial advisor before making any decisions.