MUSIC PLAYING sovereign. It is so much easier to accept than dictator. Yeah, I guess. And besides that, dictators generally, according to definition, have taken over an entire country.
You have, it looks to be about 952 square feet here. So I'm going to need another couple years on the entire country thing. There you go.
But give it time. Yes, we are. But you are a troublemaker in the financial world. I have listened to you do these podcasts. Occasionally, I'm invited in to participate.
But as I have heard, you have debunked many myths and you've also gone against the conventional financial grain. You listen on the golf course, right? I try to multitask, yes. That's good.
And, you know, if my game is suffering, why not pick up something I can use in real life? There you go. There we go. So like today, for instance, let's pick up a few pointers and tip from his sovereignness. John Stillman right now talking about the subject to like realistic expectations in retirement planning.
Yep. So I'll give you an illustration of somebody who did not have realistic expectations. A couple months ago, I was meeting with a couple and, you know, they'd come in and they kind of outlined what they wanted to do in retirement, where they wanted to travel, how much income they were going to need, all of that. And they said, here's our investments. They were actually really conservatively invested. So they weren't taking too much risk. In fact, we had to push them the other way, which is rare.
Most people are too aggressive. They were actually way too conservative, but they had plenty of money to have the income that they wanted to have. They'd said that, you know, we'd like to leave some money to the kids, but it's not a high priority for us. So it was really simple to put the plan together in their case. They had about $800,000 and, you know, with the income needs that they had, we were able to put a plan together where at the end of their life expectancy, they were still going to have a couple of lifetime income streams plus about $600,000 left.
So a net loss of only a couple hundred thousand dollars throughout their retirement because they had some money that was growing enough that they weren't really taking distributions from. So I laid the plan all out and she, the wife, looked at it and said, but wait a minute. If we do this, if we do it this way, we're going to have even less money when we die than we have now. And I'm shocked that I'm alive talking to you today because I can't believe that my head didn't explode and leave brain matter all over the back wall there.
I think my voice actually squeaked. I said, of course, of course you're going to have less money when you die than you have now. You're currently working and earning a paycheck and you're about to be retired for 25, 30 years and you're going to have to live off your savings. For some reason, that had never clicked in her head. And so her expectation was that her nest egg would continue to grow throughout her retirement while she's also taking income from it, which is obviously not a realistic approach.
So most people, I would say, have some element of unrealistic expectations when it comes to their retirement plan. I'm sure you always had realistic expectations in terms of dates and things like that, right? When you were a womanizing young radio DJ back in your glory days. Have you read my book? Thank you very much for that.
Honey, don't listen. You understood what was realistic for you in terms of women you were chasing at the time, right? Yeah. I think it was a learning experience. My understandings changed after those experiences and so did my future expectations.
That's well said. You learn from past experience and set your future expectations accordingly. Well, since it's the case that most people haven't planned a retirement before and most people haven't been retired before their own retirement, it makes sense that their expectations would be a little bit out of whack. Like for instance, when can we retire? The expectation people have of the age that they can retire is often out of whack. And honestly, it could go either way. It could be that they think they can retire a lot younger than they really can.
I know a lot of people who want to retire at 62, but the math just doesn't bear that out. It's not realistic in that case. Yeah. I know. My original goal was 55.
Yeah. Well, and you sort of halfway did that, right? Well, I was forced to at 59. So then your expectations and your circumstances are adjusted by it. I've been fortunate enough to, even though not being in control of the retirement situation, that my planning was good enough to sustain my adjustments, shall I say. So you're in a good situation where you've been able to earn some income over the last eight or 10 years without having to be a full-blown full-time employee somewhere.
No more 40-hour weeks for me. So that's a good middle ground. So a lot of people need to adjust their expectations on when they can actually retire. But in a lot of cases, it actually goes the other way. A lot of people are convinced they have to work until they're 68 or 70. And we look at the numbers, and they're actually in better shape than they think. In fact, I have a couple of clients who I'm begging to retire.
I'm saying, please, you're in great shape. Go ahead and retire. But mentally and emotionally, they're just not ready to walk away from that paycheck. Which, if you don't hate your job, fine. Yeah, there's a big difference, I was going to say, in wanting to work more and then feeling like you're having to, and then being stuck in some type of servitude that you don't consider to be fun.
As a matter of fact, you can serve it. It's almost slavery in order to earn a paycheck. Yep, exactly. So that's an expectation a lot of people need to adjust one way or the other. Another thing I see is, what kind of growth to expect on their portfolio.
So, for instance, had just this week, I was talking to a couple of different clients, sort of their annual review. And one client was in a fairly, actually, they were both in fairly moderate portfolios. Not super conservative, not super aggressive. They're in this sort of 10 years until retirement phase.
So, we're not full-blown, alright, let's protect everything mode. But we're also not in, alright, well, just throw caution to the wind, we've got 25 years to play with. We're kind of in the middle of that. And so, one client, well, they'd both gotten about an 8.5% return on their investments over the course of the last 12 months.
One of them was tickled pink, thought it was the greatest thing they'd ever seen, very happy with their report card. The other one was rather disappointed because they wanted 15% to 20% return. Which, okay, well, if we're in a portfolio where we do have that 25-year timeline, we can take that kind of risk. And then, you know, in a good year in the market, yeah, you can see returns like that. Thus, the title of this particular podcast, Realistic Expectations in Retirement Planning.
Yeah. And so, you have to have a realistic expectation of how much growth you can expect based on the way that you're invested. And the way that you're invested, in our philosophy, is dictated primarily by the timeline. How long is it until you need the money? Not, what do we think the market's going to do next year? Not even, what's your risk tolerance? What do you think, what do you emotionally feel when the market's up and down?
It's, how long until you need the money? That's the primary thing that dictates how aggressively or conservatively you should invest. Well, sure, you can't maximize your growth if you're taking withdrawals. So, that's why you need to have some kind of number in mind and shoot for a realistic goal.
So, that's realistic item number two. Another thing would be how much income you can expect to generate from your investments. So, a lot of people think they can take 5%, 6%, 7%, 8% out of their portfolio each year and assume that market growth is going to offset that and they'll be okay. Well, that's not realistic at all. Some people think, well, I better not take more than 1% or I might run out of money.
Well, no, you can take more than that. You have to have an intelligent income plan put together, but you can certainly take a lot more than 1%. So, again, got to be realistic on that front. Well, especially if you're taking it from IRAs or, you know, because you're going to have a stipulation that the government says you need to take X out of that. Maybe it's not part of the total percentage that you're talking about, but it is a factor, isn't it?
Yep. Definitely something we have to weave into the equation, for sure. And then the other thing is going to be how much income do you need? A lot of people don't have any idea how much income they need to sustain the lifestyle that they want to have that they want to have in retirement. So, what would be your guess? How do most people go about arriving at that number? Or maybe you've done it yourself.
You know, I'm not sure. But since you've asked the question, I'll be the consumer who is not well educated. But I would say that you would look at what your monthly expenses and costs are and you would think that those would, in some percentage, go down. But you'll have other things in retirement that will change. And so, how about a number of 85% of my income now I would like to sustain in retirement? And that's a rule of thumb that a lot of people, you know, kind of fall into accepting that as what they're going to need for their income. But is it a realistic expectation?
Well, not really. In most cases, at least. Most of the time, your income needs in retirement are going to be really no different than what they were while you were working. Most people are not saving any additional money by any substantial measure of their take-home pay. If they have $8,000 that hits the bank every month from their job, that's what they spend. All their savings takes place before that $8,000. That money going into their 401k is their primary saving. And so, there's usually not a lot of expenses that we can cut out as we head into retirement. Don't the grown-up children have left the nest and are on their own dime now?
Don't they fit into that equation somewhere? That does certainly help. And that is an expense we can take off the ledger if indeed that's the case. Although, a lot of people are just going to replace that with money they need for travel.
And so, those kind of cancel out or maybe more medical care, things like that. So, we have to really look closely at how much income you need. Most people, and you suggested this, go look at your monthly expenses. Well, to a lot of people, that means add up the bills, figure out how much they spend on gas, groceries, all that kind of stuff every month, and that's our expenses. Well, when you do that, you don't add up all the lifestyle things that you do, your quote-unquote disposable income. So, you say, well, yeah, we spent $8,000 last month, but only $6,000 of that was actually on living.
We went to this wedding for our nephew, and that cost us a few hundred. We never added in any of those Starbucks coffees we'd get once a day. Exactly. And all that stuff. And most people, once they retire, don't necessarily want to cut that out. We're not going to, as I've said before, sit in a dark corner eating tuna fish just so we can make the numbers work in retirement. So, again, got to have that realistic expectation. And it's a constant battle a lot of times to help people stay on the right track there, but that's what we like to do. So, now we have several examples of how we might unrealistically think about our retirement and our expectations and how they will need to change, fluctuate, be adjusted, and be thought out, which all equals having a plan.
Got to have a plan. All right. And as this podcast closes, we will thank you, Mr. Sovereign. John Stillman, another good and thought-provoking program. And I appreciate your having me, sir. Always a pleasure talking with you. My name is Steve Grahamsey. It was yesterday. We'll be tomorrow. And until next time, thank you for joining us on Mr. Stillman's Opus.
Whisper: medium.en / 2023-11-27 00:20:33 / 2023-11-27 00:26:07 / 6