Stuffing Your Retirement Stocking

Well, welcome to another edition of Mr. Stillman's Opus, the podcast that helps you learn all about some of the important ins and outs of financial and retirement planning. I'm Walter Storholt, your guest host today, alongside the one and only John Stillman.

Hey, John. I don't know if you're a guest host. I mean, if there's a host, it's going to be you unless you're just not here. If I'm interviewing somebody, I guess I'm the guest host.

I don't know how that works. What's the actual natural order of things? That's true, but he would be a guest host. What's the natural order of things? Me interviewing somebody or you interviewing me? I guess me interviewing you.

It's about 50-50 now. And so then if I'm interviewing somebody else, I'm a guest host and they're a guest guest. So you're saying I'm the main host? You're the main host. Then we need to renegotiate my contract. Well, we'll talk about that next year.

Because if I'm not a fill-in host or a guest host, then I think I command a higher market price. And when I say we'll talk about it next year, I don't mean the 2017 next year. The year after that, I'm already mentally in 2017. Well, that's unfortunately unfortunate that you're already mentally into 2017 because we were going to talk about Christmas today. Well, we can still do that. Well, all right. We'll let it pass. We'll allow it. We're going to be talking on the podcast today about what's in your retirement stocking or what you would like to have in your retirement stocking.

How are we doing this? You're going to play Santa Claus, Jon, and you're going to go around putting important things in people's retirement stockings? Yeah, I have my list of things that I would like for everybody to have in their stocking.

Put it that way. You'll play the role of Santa. I'll be the elf today, I suppose. I love stockings. Probably my favorite part of Christmas growing up is doing stockings. Did your parents put lesser quality things in there and then your bigger presents are wrapped or how was that structured? I just liked the fun of seeing the stocking and mostly it was to see how low it was hanging that year.

And it's pretty embarrassing to look at. I was an only child and my parents love doing stockings. It was always one of their favorite parts. Our tradition, my grandmother knits a stocking whenever a new family member comes along.

So mine too. When Connie, when Connie made, I mean, I'm sure it's a common thing. When Connie joined, she got a knitted one. Well, when I was born in 1987, I guess my grandmother really put some extra stretchiness into my stocking. And now over the years, being an only child, it has really gotten a nice workout. That thing is incredibly stretched out. And so I'm always making out like a bandit around around Christmas time because it looks really sad if you don't fill it up, if it's just this like stretchy thing with a little ball at the bottom. So you got to really pack that thing full. I wonder if that was some kind of law back in the like the 50s and 60s that everybody that was going to be a grandmother had to learn how to make a stocking like that, how to knit a stocking or I guess it's knitting.

Is that what it is? I guess in any event, because my grandmother, my mom's mom, made the stockings that me and mom and dad had when I was growing up. And then she died in the mid 80s. And so then I think mom's cousin maybe took over.

Okay. And she became the stocking maker. Well, then now Molly's aunt also does stockings like that. So now when Lily and Amos were born, they both got a stocking from Aunt Peggy.

So go figure. We have a cool little tradition in our family where when you're very young, some random things will be put in your stocking and then you always leave it in there for year after year after year. So when my dad was a kid, so we're going on like 50 years now, there were toy like little ants, little toy ants that someone sprinkled all in his stocking. So I mean, we're talking like, you know, many, many tiny little ants. So every year when he opens the stocking, he gets down to the bottom and he is able to grab, you know, there's still like probably 10 or 11 in there. And he pulls a couple of them out and, you know, laughs about it and sticks them back in. So there are these little ants.

Mine is a little sword. The significance of that would be, of course, because your dad's a bug man. Now he's in pest control. Yeah.

Which is kind of funny. Oh, so the ants came before he was in pest control? Yeah. Isn't that neat? So it inspired him to be a bug man.

Impressive. So this should mean I'm going to be a pirate when I'm, you know, all grown up. I have a little sword that was on a little figurine, you know, like, you know, like probably like an army man, but it was a little sword that must have broken off from the little guy in the stocking. And so this little sword is always in the bottom of my stocking. That's that's my little nugget that's in there.

That's weird. Y'all do some weird stuff with stockings. I love it. I love just everyone taking turns, pulling stuff out. And what'd you get?

What'd you get? You always have an orange in the toe. That was always my mom's thing. She always had an orange way down the bottom. And you call us weird for our swords and ants. You have an orange in your stocking.

Well, I mean, you can eat an orange. What are you going to do with a plastic sword at age 20, whatever you are? That fresh that fresh fruit in the stocking. Always a real a real winner for folks. That's cool.

All right. Well, those are some of the what's the coolest thing you ever got in a stocking? An air hockey table. It was stock. It wasn't actually in the stocking, but at the bottom of the orange, Mom had taped like the first clue in a treasure hunt, which eventually led me to the basement.

And there was my air hockey table. Nice treasure hunts is another thing that I think we we grew up on to find presents. Are you going to do that kind of stuff for Lily and Amos? Yeah, probably.

Yeah, they're fun. I mean, it's a nice sort of why it's correlated with Christmas. It's an easy way to wrap a big present that you just set the big present up wherever and then wrap the thing that leads them to it.

Yeah, that's a good point. Well, let's talk about the retirement stockings that all of the people listening to the podcast today. Picture your retirement stocking hanging on the mantle. John Stillman is going to tell you some things to put in your retirement stocking or that he wishes he could provide for you.

What are what are some of the things, John? Well, so the first thing that I would like for you to be able to reach down in there and pull out as it relates to your retirement is predictable income. And when we're talking about predictable income, we mean, well, it's exactly what it sounds like income that isn't subject to the whims of the stock market.

Right. So what are all the things that fit that category? Social security, obviously, at the very least, you're going to have that as some predictable income. Those are the candy canes of the retirement world. They're always kind of hanging on the top of the stocking, easy to get around a long time.

They're not the most exciting, but you know, they're there. So Social Security pension for a lot of people would fit this category. Annuity income, predictable and guaranteed. Rental income I would place in this category because while it's true that you can't guarantee that the house is going to be rented every month, you can assume a fairly predictable amount of income year to year coming from your rental properties if you have any. If you're working, maybe you're retired but you're still working in some form or fashion, like you retired from the RTP company and you're working at the golf shop or you're a starter on the golf course or you're working at Home Depot or the quilt shop, whatever it is, that's income that's predictable because it's not related to the market. We're not worried about dividends or interest or anything like that. So if you have that in place, if you have the predictable income in place, so many other aspects of the retirement plan take care of themselves.

Okay. So that makes sense too in this analogy of your retirement stocking because as long as some of those staples are there every year, you know, you're in good shape. You're going to have a good Christmas morning even if you're a kid and there's not much else to come after that. Like you can feel pretty satisfied with some of those important things you pulled out off the top of the stack.

Right. So, you know, for Christmas, sometimes you get stuff that you really need. Sometimes you get stuff that you want.

This would be in the stuff that you really need category. And like you were saying, you know, if you got nothing else but you have that in place, it's going to be all right. Pretty good Christmas. It's like the year I got bottled water and batteries in my stocking. Ew. Yeah.

It was a fun year. I mean, batteries are good, I guess. They're the things you need, right? Right. I mean it's fancy bottled water. It was Voss, you know. Water is still water though. The batteries I'll take.

I still have fun ribbing mom and dad all night every once in a while. Yeah. Next thing I want to reach in there and pull out would be tax efficiency. Okay. So very often when we're looking at somebody's retirement plan, they just haven't done any really proactive plan. And, you know, why would you expect them to? It's the first retirement you've ever planned.

Probably not something that's going to be in your wheelhouse. But you need to be thinking about the tax implications of all of your savings. So, as an example, let's say you have three different accounts. One of them is tax deferred. So like your IRA, your 401k, 457, 403b, whatever. You haven't paid taxes on any of that money. It's all going to be taxable when you take it out. You also have a taxable account where you're being taxed basically on capital gains.

Tax as you go if you will. So all of your after tax money in a brokerage account, that's your taxable account. And then the tax free account would be Roth IRA primarily.

Municipal bonds technically would fit this but not that many people have muni bonds. Or if you're borrowing from the cash value of a life insurance policy, that's your tax free bucket. So three different classifications in terms of the tax treatment of different types of accounts. And we just want to be sure that we're not taking all in one year from one and then all in another year from the other. We want to, in most cases, have some of each in each year to kind of spread out the tax advantages and disadvantages of each account over the course of many years. The one exception to that would be if you're very early in retirement and it's a situation where we can play some games with something called provisional income. Provisional income determines how your social security is going to be taxed.

We'll get into all the details but long story short, if we have enough tax free income that your social security is not taxable, well we can actually get you pretty darn close to a zero percent tax bracket. But it's going to be very few and far between in terms of the cases that that actually works for. Okay. So it's not the most exciting part of our stocking, I guess, that we're getting into there but maybe comes with a little bit of a pleasant surprise. Maybe that's the gag gift that makes up a great stocking.

There's always going to be the thing that makes you go, oh, I don't want to eat chocolate covered roaches. But you know, you then you feel glad that you got it. It still made it fun. Still nice to have, you know, a gift on hand.

Here's a better example. Okay. So let's say you opened a present that was pretty cool.

You liked it. It needs batteries, though. Oh, okay. Well, when you get to your stocking that had the bottle of water and the batteries in it, maybe the last thing in the stocking is the batteries. You've forgotten about the fact that you got a toy that needed batteries. And so you're excited about, oh, what did the last thing be in my stocking? That's why they gave me batteries.

It was terrible on this other thing. You pull it out and it's batteries and it's not that exciting. But, you know, you needed it. That's happened many times before where you'll get a little something in the stocking and then you'll be like, well, I don't know why I got this. And then you open a present later that it relates to. Right. Sometimes it's not batteries.

They didn't plan out the order in which they gave you the presents. Or it was to be a little clue. Interesting. That's cool. All right.

What else is in the stocking? Let's reach down in there now and pull out a real financial advisor. Ooh. And when I say real advisor, I mean somebody who is an advisor, not a salesperson. I have an enormous amount of frustration with people who come in and tell me what their advisor has told them or, in a lot of cases, what their advisor has not told them because they say they've had an advisor that they've worked with in the past. OK. Well, what has he said about this? What was his opinion on this? Oh, we haven't really talked about that. All right. Well, fair enough. What did he say about this particular area over here?

Well, we haven't really talked about that. Well, then it becomes very clear that this is not somebody they meet with on a regular basis. This is not somebody who's actually doing any advising or planning.

It's purely, you know, they sold them a mutual fund or a life insurance policy or an annuity three or four years ago. And, you know, if they have a question, they might call up and ask his opinion. But it's not like there's actually any advice happening there.

His only job is to hope that he can find something else to sell them. Yeah. I mean, people try to call themselves advisors who, you know, spent a weekend studying and then took their insurance exam. And now they are calling themselves a financial advisor. It happens many times. So it's a broad term. And I don't necessarily have a problem with people where that's what they do.

I just wish there was a better understanding by the average person out there in terms of what are you getting and what should you be getting from somebody that you're calling an advisor. If you say, look, this guy over here is going to be my life insurance guy. Any life insurance or annuity stuff that I do or long term care insurance, I'm going to him.

He's my insurance guy. Oh, great. Fine. As long as you recognize him as that. Or if you say, look, I've got a stockbroker and I love trading from time to time and, you know, I understand how the model works and I realize he's not going to be able to tell me what I should do in terms of how to handle my Social Security or the spousal benefit on my pension, but I want to use him as my stockbroker. Fine. The problem is people don't draw those lines and they assume that people with a very small niche that they actually handle can be depended on for broader advice and that's not the case. That's pretty cool.

Hard to fit a financial advisor into a stockbroker? Well, this is a situation where we would use the treasure hunt. Oh, okay. Gotcha. So you draw the first clue out and then three or four clues later, aha, there's my financial advisor. Yes. So the advice you seek is under Morocco would lead you to the old spinning globe down in the basement where there was the next clue. Interesting. That's what it would be.

I was going to go with the price of tea in China is very high. Very mysterious guy. Anything else in this stocking? Last thing would be at the holiday season, not peace on earth, though that would be nice. Joy to the world. Also nice, hard to achieve with a financial plan, but peace of mind.

Oh, peace of mind. And so a lot of this stems from two things. One, having enough of some of the stuff we talked about earlier, like predictable income and knowing where the paychecks are going to come from. And also just an understanding of what the many different pieces are in your financial puzzle and what they're supposed to be doing for you. So often we have people who, it's like they just have this big pile of money and it seems like enough. I've got $1.5 million and I'm retiring at 67 and I want to live on about $10,000 a month and I sure hope that's enough. Well, if you don't actually have a plan in place, if you haven't structured your income in such a way to see where the paychecks are going to come from and how your money needs to be invested in order to get that for you, you never have peace of mind. You can't ever spend with confidence because something in the back of your mind is saying, maybe you need to back off a little bit. You might run out of money down the road. What happens if you own the nursing home? If you haven't very specifically and intentionally planned for those things, you're never going to have peace of mind. Pretty cool.

Unless you're just oblivious and you're actually in a dangerous situation and you don't know or don't care, which that's not good either. These are the gift cards in the stocking that really increase that value of the stocking because I know every year my uncle's going to splurge. He shouldn't, but he's going to splurge and there's going to be $100 Land's End gift card in my stocking. A Land's End gift card. And I know I'm going to get new shirts for the rest of basketball season. An embroidered suitcase for yourself that has your initials in it?

Yeah, something like that. No, they have good shirts. I like Land's End shirts. Wow, I didn't really know Land's End was still a thing. My mom was all the time buying Land's End stuff when I was a kid. I love Land's End. Good sweaters and really good shirts.

I like them. So every basketball season, roll around January, I've got a new shirt I can wear the rest of the year. Note to self, Land's End gift card for a while through this year.

Always a winning ticket. That's cool. Well that's what's in the retirement stocking then.

That's pretty cool. That's a lot of stuff to fit into a stocking. We're going to need the big grandpa stocking.

Grandpa gets the real big one that you just shove a whole bunch of good stuff down. Well because he's had many years of his stocking getting stretched out. Exactly.

Or has a specially knitted one maybe for him. Could be that. Very cool. Anything else you want to add? Any final nuggets? Merry Christmas.

Any ants in the bottom? A pleasant Boxing Day to all and Happy Kwanzaa. Awesome. Well thanks for joining us on another edition of Mr. Stillman's Opus. Happy Holidays and all that good stuff to you and Happy New Year. More podcasts coming up in 2017? Yeah, we won't be back until 2017 but we'll talk to you then. Alright, thanks for joining us. Talk to you then sir.