20 Planning Matters Radio - RichOnPlanning - 2950 - NEWS

If you fail to plan, plan to fail.

How do you want your future to look? We want you to plan for success. Welcome to Planning Matters Radio. Welcome into the program, ladies and gentlemen. Planning Matters Radio presented by Rashawn Planning.

I am Peter Rashawn along with my lovely wife, Amber Rashawn. We are here to entertain and inform this morning, discussing some of the greatest challenges to planning for a more stable, secure financial future, challenging the status quo and the talking heads from Wall Street on what it takes to do just that. If you've got questions or concerns about your plan, about your investments, about your retirement, we encourage you to stay tuned for the course of the program, learn a little bit more, have a little fun with us, and we also invite you to give us a call if you'd like an individual review of your investment portfolio or retirement plan. We make our time available to you on a complimentary free, no cost, no obligation basis to sit down with you and do a retirement review and strategy session. 800-338-5944.

800-338-5944. Amber, what's on the plate for today? Well, breaking down your retirement to-do list can make retirement planning easier no matter what stage of retirement you're in, right, Peter? We all like lists, right?

It's easy to go down the list and check things off that you've accomplished and see what you have left to do. I've got several lists in front of me right now, and one of those is the retirement planning checklist or the pre-retirement checklist we'll call it. Tips for how to prepare for retirement.

Absolutely, and really, this whole process should begin as soon as you start earning money. Save something for the future. We want to get to a point where we can stop doing what we have to do and start doing more of what we want to do, and in order to accomplish that, we've got to set aside some of what we make. A lot of people work a very long time, work very hard in order to reach the point in their lives where they can stop doing what they have to do and start doing more of what they want to do, but along the way, after you start the job, after you're paying your bills, after you're doing a little bit of saving and investing, you should do some regular checkups. Let's start with 10 years from retirement.

What should that look like? What should I be doing and what steps should I be taking? Probably about 10 years out from retirement, we should start talking about and setting our tentative retirement date. When we're 20 years old, we could have an ideal notion of I'd like to retire at 55, but at maybe 45, we need to evaluate whether that's still realistic, whether it's still something we want to have happen. We may have landed into a career that we really enjoy.

We may have had a few setbacks and feel a little underprepared. About 10 years out from your ideal retirement date, you should really set that tentative date and begin to put the pieces into place and the plans in motion, including you want to review what your current accounts are. Your current 401ks, your annuities and other types of retirement income sources. Yeah, and really look at how they will turn into income sources because during our working career, it's all about the growth and accumulation of the dollars that we've managed to save and invest.

Those dollars, they're number one and really their only job is to try to grow for us. But in retirement, they're going to have to replace that paycheck. So about 10 years out, really start looking at examining how those dollars are going to work to replace that paycheck. And you want to make sure you have the right tools.

Absolutely. And there are a number of tools available, retirement planning tools to gather information help you prepare for retirement, such as the retirement toolkit prepared by the US Department of Labor, Social Security Administration and the Centers for Medicare and Medicaid Services. Now, if we're 10 years out from retirement, we're probably not reliant on any of those foundational pieces, but we want to understand what they could potentially mean for us ahead of time. So 10 years out from retirement, really just kind of getting the ideas together and beginning to formulate the plan. Also check up on that investment portfolio, make sure that's on track and doing what it's supposed to maybe consider beginning to move some money off the table and being a little bit more conservative so that you've got the ability to count on the progress that you've made so far being there for you when you do retire. So what if we're a little bit closer to retirement, let's say five years from retirement? What does that look like for me?

Well, another great time to do a checkup. We've kind of outlined our 10 year time horizon and being 10 years out, we can be flexible, right? If it if it ends up taking us 12 years, we can account for that. If we could find out at that 10 year mark that we could probably do it in eight, fantastic.

But you want to review it again. You know, it's not set in stone. So about five years out from that retirement date now, we really want to start estimating our future expenses for retirement. Are we going to carry a mortgage over into retirement? What is the power bill generally look like? What are some of the big ticket items that we envision lifestyle to be about? What's the insurance? What's the property taxes? Consider the type, the size of the house that you want to live in.

If you are planning on relocating, here's the 800 pound gorilla in the room. What about your plan for health care? How are you going to pay for insurance, especially if you do plan on retiring before 65? You know, how are you going to cover the health insurance premiums and the health care and update your estate plan? By this time, you know, minor kids are now grown.

They're probably out of the house. You can leave them as beneficiaries. You can set up that plan to make sure that spouses and family members are taken care of in the proper way, that you've got your orders for who would be power of attorney, both financial and medical, if you're no longer able to make those decisions. So update those beneficiaries, get pay on death designations on your accounts and policies. Make sure that you've got the estate plan complementing the financial plan and picture that you have put together. That's good to do five years from retirement, but that's also good to do the second that you have kids, correct?

Yeah. I mean, I think that as Dave Ramsey talks about, really any functioning adult, anyone over the age of 18 probably should at least have a simple will in place. Absolutely important once you have children or once you have a spouse, once you're married and you have somebody sort of dependent for their financial security on what happens to you, have those in place, probably starting out day one in your financial plan. But again, they're not set in stone.

Your life changes and evolves. Your documents and your wishes need to evolve with your changing life circumstances. And is that something that we do here at Rashawn Planning? Well, we don't do the legal documents, right? I'm not a lawyer, so I don't draft the will, but I certainly see where they're needed and it's part of the review process. When we're doing comprehensive planning, I'm asking people about their tax situation, about their legal situation and integrating that with the financial picture. And in fact, you could probably have the absolute best legal mind on your side, on your payroll, the absolute best tax professional on your payroll, the absolute best financial professional on your payroll. If they're not communicating and coordinating their efforts, you're not getting the most out of your planning team. So from a tax planning perspective, from a legal planning perspective, from a financial planning perspective, all of these things really need to be all brought into and integrated into a conversation.

And then that conversation needs to be updated and rehashed on an ongoing basis. Ten years out, five years out, one year out from retirement. So that definitely brings us to one year out. Let's say that I'm crossing the finish line, I'm getting there, I can see my retirement number. Insight, I'm one year away.

What's the plan? Well, let's decide how we want to spend our time, right? By this point in time, if you're one year out from retirement, the financial part of painting that picture, you know, that section of the paint by numbers picture really should be kind of completed, kind of filled in, maybe a couple spaces left to fill in the detail. But by and large, one year out from retirement, financially, you're kind of where you're going to be. You're not miraculously going to quadruple your money in one year before retirement.

And hopefully you've positioned so you don't lose half of it one year before retirement. But now we really need to decide how we want to spend our free time. What is life going to look like? What are you going to do with your time? And begin to think about not showing up to work, not having your same peer group, not having those activities that kept you busy. I've talked with a number of financial advisors throughout the years that tell me, you know, they have clients that all of a sudden they realize they've got way too much free time to spend with their spouse and they're driving each other crazy once they retire. I've heard that a metal detector or some kind of hobby is a common birthday present one year after retirement, you know, kind of find something to get you out of my way. What is your time going to be spent looking like?

That's really the big thing there. Evaluate your additional sources of income during retirement. Really nail down on your strategies for Social Security, pensions, partnerships, rental income, and how can your 401k or your retirement assets turn into the rest of what you need. Consider whether you intend to continue working.

Now this is a pretty funny statement, right? We're one year out from retirement. We want to consider whether we want to continue working. That's not retirement.

Well, yeah, it is actually. You know, retirees are not what they once were and retirement is not what it once was. We've got kind of a new definition of retirement.

The baby boom generation by and large is very capable, able-bodied, motivated, and many of them are finding second or third careers, maybe doing volunteer work or a little consulting on the side or something to continue just being active. So consider if that's what you want and create a plan for your physical and your mental health needs and your long-term care. Not to fear monger or to scare anybody, but this is absolutely a part of your financial plan. You know, if Amber, between you and I flash forward 30 years here, we're entering into retirement and our joint living expenses are $75,000 a year and then I have some kind of health care need. That doesn't mean that the $75,000 that we are used to living off of suddenly gets redirected to me. Those health care needs, that expense is in addition to the $75,000 that you would need to maintain to continue living your life. At a time where your income is decreasing, your expenses are increasing. So having a plan is absolutely part of the financial picture of retirement. And that should definitely start way before one year before your retirement age. Really, absolutely.

Yes. And if you've got questions about how to handle and address that, there are all sorts of options and there are options that are not use it or lose it. There are ways to cover that where you know you will receive at least some benefit from dollars you're paying. There's ways to get that included in other financial tools. So lots of different ways to address that issue.

Again, kind of the elephant in the room that a lot of people choose to ignore, but the ostrich with his head in the sand still has his backside exposed. So don't just ignore that problem. Absolutely address that one year out from retirement. And then once you do retire, checking up on this every year. Again, continuing to update that plan. Just because you set that income plan and that financial plan up doesn't mean that it's forever done and you never need to address it again. Times will change. Your life circumstances will change.

The economic environment will change and your plan needs to continue to adapt with all of those changes. So if you'd like to get that plan put together, double check on that plan. Give us a call. 800-338-5944.

800-338-5944. Be happy to talk with you about that. Amber, interesting release that I just read came across another list here. This is the list of 2019's property taxes by state. A state by state listing of property taxes. One thing is for sure that taxes are going to be a factor.

They get you coming, they get you going, they get you just staying put. When you earn income, you have to pay income taxes. When you spend your money, you have to pay sales taxes. And even if you live in a paid off house and you're just staying there not earning or spending, you've got property taxes. But this list put together by WalletHub ranks every state and the District of Columbia in order of their property taxes.

It found that on average American households spend about $2,200 per year in taxes on their homes according to the U.S. Census Bureau. Some of these surprise me though. Number one, lowest state in the country for property taxes. Take a guess. Hawaii. Hawaii, number one. And I think it's because they bring in so much money off of tourism they don't need to tax the residents that live there. But Hawaiians actually pay more in property tax than many of the next states on this list. As a percentage of property value, they're the lowest, but the average median home sale price, the state median home value in Hawaii, $563,000.

Interesting. So, yeah, it's a low percentage, but when you talk about half of the homes are worth more than half a million dollars, Hawaiians are spending on average about $1,500 a year in property taxes. Alabama, very low, number two on the list. The average Alabamian, Alabamian.

We're going to let that one go. The average person living in Alabama pays $558 a year in property taxes. If you're from Alabama, give us a call.

Let us know. Yeah, how do you pronounce that one? Alabamian. Alabamian, I would think. But the average home in Alabama, the median home value, $132,000. So, significantly lower. Even though the percentage that they pay in property tax is higher than Hawaii, they're paying significantly less because the home values are less. So, District of Columbia, actually number five on the list, they're kind of like Hawaii.

Average home price, $537,000 in DC. North Carolina, we're sort of right smack dab in the middle, tied for number 21 with a 0.86% property tax rate. Good place to live. We're not too high, not too low on this list. Florida, Texas, Tennessee, a lot of places that people relocate to in retirement, they go to because they have no state income tax. But guess what?

They get you one way or another. So, the property taxes may be a little higher. Yeah, the income tax is low, but the state still needs money. No surprise here, the top of the list, I would consider carefully relocating in retirement to New Hampshire, to Illinois, and New Jersey. They top our list for the highest, most expensive states to live in when looking at a perspective from property taxes. So, anyway, just thought that that list was pretty interesting, especially for those in retirement who, when going through that pre-retirement planning checklist, are considering moving or relocating to a different state. Definitely be aware of that cost of living.

So Amber, we've got another list here. It is the seven financial myths, some common planning mistakes, misconceptions, some assumptions that a lot of plans are based on that you really want to reconsider. Number one on the list, the market always goes up. Right, and we've been taught this, right, that we've heard traditionally, when we talk about challenging the status quo. The status quo is that the market always goes up. That's what the talking heads from Wall Street and on the financial news networks will tell you. Well, if this were true, would we also commonly hear the other saying when the market does go down, don't worry, the market always comes back, right? If the market always went up, why would it need to ever come back from anywhere? We know through experience, the market doesn't always go up. However, a lot of people's plans for retirement are based on hypothetical projections that the market will always go up. I see a lot of people come in and their plan for financial lifestyle security is based on the market consistently going up 7% each year or 10% each year. And they'll say, it's an average, you know, as long as the market averages.

But the plan, the structure of how that plan works is based on that being a consistent number. And unfortunately, that just does not happen consistently. And, you know, there are plenty of periods of time where the market has gone up. But oftentimes, they're followed by prolonged periods of time where the market kind of moves sideways.

And this can be for a very long time as well. Most recent example, 2000 through 2013. You know, if we had invested $100,000 in the market in the year 2000, we lost money, gained it back, lost it again and gained it back. And we really didn't have our $100,000 back until about 2012, 2013.

12 to 13 years there, they refer to it as the lost decade. Well, if we had been retired and taking money out during that time, we would have run out of money. And so the market, basing your plan on the premise that the market always goes up is a very dangerous thing. It's an assumption that I see many people's plans based on. And I would strongly encourage you to examine that assumption and determine whether you really feel comfortable basing your lifestyle security on the fact that the market's always going to go up consistently.

And here at Rashawn Planning, we have lots of different options for your retirement, whether you want to take a more aggressive approach in the market or a more safe approach where you could share in the gains with none of the loss. Pick up the phone and give us a call. 800-338-5944.

Again, that's 800-338-5944. Number two on this list here of the seven financial myths. Not only do people assume that the market is always going to go up, but they assume that it's going to go way up. The average 10% mythical market return.

Over the course of history, the market has always averaged 10%. Well, many market proponents quote that. However, studies of investor returns say something quite differently. And in fact, Dow Bar is an institute that studies investor returns as compared to the market. They study investor behavior and how it affects investor returns.

They've been studying this for more than 25 years, so a quarter of a century. They have looked at investor returns compared to the market and said, hey, investors don't get nearly what the market returns. And most of the time, it's because we're making the wrong moves at the wrong time. We're making mistakes. So their 2018 report just came out.

It's the 25th year they've done this. In 2018, the S&P lost 4.38%, but the average American investor lost more than twice that. They lost 9.42%. So even if, and this is a big even if, even if the market has historically averaged a 10% rate of return, the average investor has not. And in fact, these studies show that the average investor over that same period has gotten a return of about 3.42%.

So a big difference there. And so when our plan for financial security, for our financial lifestyle confidence moving into a period of decades where we're no longer planning on working or earning a paycheck is based on an average rate of return of 10%, we really need to examine that. And again, this is stuff that we sort through, that we sift through the details, and we help people identify where assumptions that their plans are based on may or may not be realistic. So that average 10% market rate of return, absolutely a financial myth that I encourage you to reexamine. Let's do some quick math.

And I know numbers don't translate well over the radio, so I'm going to try to keep this simple. But if we've got three years where we average a 10% rate of return on $100,000, how much would we expect to have? About $130,000, a little bit more than $130,000. Three years we've averaged 10% rate of return on $100,000. It's 10% per year. Let's just do simple interest, $100,000.

Now let's look at a real scenario. Average 10% rate of return. The first year we gained 60%, the second year we lost 50%, the third year we gained 20%.

60 minus 50 plus 20, that's 30, divided by 3, that's 10. So over that three year scenario, we had an average 10% rate of return. We start with $100,000. 60% return, we've got 160. Lose 50%, we're down to 80. Gain 20%, we're up to 96. So with that average 10% rate of return, we're expecting our money to be at $130,000. Our money is at $96,000.

We have less than we started with and have an average rate of return of 10%. So again, just examine this. If your plan is based off of some hypothetical, historical, and past performance can never guarantee future results, but people's plans are based on them. And if that's your plan, examine that very carefully. Are you comfortable with that assumption? What happens if that doesn't occur?

What does your lifestyle look like? Forget the financial plan. What does your life look like if the assumptions that your plan is based on don't work out in your favor or do the opposite? This brings us to number three, a 4% retirement cash flow. I think this is the result of people thinking that the market is going to average 10%. Well, I should be able to take out 4%. Studies have shown that that is not a safe withdrawal rate. This has been the rule of thumb.

The 4% rule has been what most Wall Street retirement plans are based off of saying how much income you should be able to pull from your portfolio once you retire. There are several problems with this theory and application. First, it includes the words should be and hopefully, and those are not concrete. You may not feel comfortable basing your plan for retirement on hope. Hope is good, but hope is not a plan. We hope for the best. We plan for the worst, right?

That's the difference. Second, under many market conditions, especially with down years early on in retirement, and we never know if we're retiring into a down market. You can tell that after the fact, oh, I shouldn't have retired in 2007 because the next couple of years, but you couldn't tell that in 2006. But if you have down years early on in retirement, a 4% cash flow becomes unsustainable and increases the probability of running out of money. Third problem, that 4% rule was designed for a 30 year retirement and even in that time period, it had a probability of failure.

Well, today we're living longer and most retirees need a plan that will last as long as retirement does for themselves and their spouse. Finally, it does leave a tremendous amount of doubt and worry. If the weatherman says that there is a 10% chance of rain, Amber, do you feel comfortable leaving your house without your umbrella? I'm taking my umbrella. 10% chance of rain? It's slim to none, right? 10% chance of rain.

I'm a planner. Okay, so even if it does rain, you're not going to ruin your day and you're taking precautions. You're taking extra steps to protect yourself from that slim chance.

Well, this 4% rule has always left a 10% probability of failure. I'm much more worried that my plan leaves a 1 in 10 chance of me running out of money than I am of that 10% chance of rain. I guess it really all boils down to are you comfortable basing your lifestyle on a plan with the probability of failure?

Yeah, and I would not be. I'm worried about being the 1 in 10, but even if I'm not, I'm trying to figure out and make sure that I'm not that 1 in 10. So, real problem is that most people don't realize that their retirement plan relies on them falling on the right side of statistical outcomes and having good fortune. When again, we hope for the best, but we plan for the worst. The plan should show you what happens if you're on the wrong side of statistical outcomes and still provide for your financial security and stability.

These are just a few. We've got a longer list here of seven financial common, very common, they're probably in your plan, financial myths, misconceptions, and assumptions that you may want to examine. We're not going to have time for the full list today, but I encourage you to make sure that your plan, your lifestyle once you retire is not dependent upon any of these and a lot of people's are. All right, Peter, I think we do have time for one more and that's number four, taxes will be lower in retirement. Right. Show me where that's written in stone or in the tax code that retirees automatically pay lower taxes in retirement.

Spoiler alert here, it's not. So, if you plan to live on approximately the same amount of net income, if you would like to be able to spend the same amount of money in retirement as you did during your working career, then your expenses will stay about the same and there's a good chance you will not change tax brackets dramatically. And in retirement, some of your biggest deductions are gone. The house might be paid off, the kids are gone, even your social security can potentially be taxable, right?

Absolutely. So here's the problem. Most savers are saving and restructuring their plan under the assumption, under the pretense that they will be paying lower taxes in retirement. So, what if they're wrong? What if they just stay the same?

Yeah. What if taxes stay the same? Well, that means that you have less money to live off of than you thought, than you anticipated. And it could mean that we have to use up more of our money and increase that probability of running out sooner than we would like. Now, what if taxes go up?

That's the assumption that I base my plans on. I mean, personally, looking at $22 trillion in debt, looking at the demographic shift as baby boomers continue to retire by the millions, I think that taxes could go up. I mean, up in Washington right now, they're talking about 70% income tax rates. They're talking about 90% income tax rates. And by the way, taxes have been there before in our history.

They are dramatically lower today, but I think they could go back up into the future. If they do, and that is the assumption that my plan is based off of, I'll be fine. But if I'm assuming I'm going to be paying lower taxes in retirement, and then suddenly things change and we're paying higher taxes, that is going to be one of our largest known expenses in retirement and could jeopardize your financial security.

Taxes are a risk, depending on what your assumptions are about them in the way that you're planning. Finally, I'm going to just wrap one up here, number seven, the assumption that it's too late to plan or I don't have enough. Ladies and gentlemen, it's never too late. Better late than never. There's no time like the present. It'd be great if you got started sooner, but if not now, when? I would say it's never too early to get a plan put together. I see grandparents planning for their children, for their grandchildren, parents making IRA accounts, a priority, Roth IRA accounts, a priority for their kids.

Fantastic. Never too early. But if you're 50, if you're 55, if you're 60 and you have questions or concerns about what is retirement going to eventually look like, and I see it coming at me a little faster than before and I don't know if I'm prepared, probably started too late, get a review. Get that plan put together. Figure out where you are and then make some decisions. Some decisions may be easier than others. You may face some tough choices, but knowing your options and the likely outcomes can provide a lot of comfort and confidence.

So these are some of the financial myths. Again, didn't have time to get to all of them, but be happy to provide you with this list or with the time to sit down, ask a few questions of myself or my wife or our team and even come in for that complimentary review. By the way, we also for your convenience offer a virtual review. If you want to do it over the phone, over the computer, we can get started very conveniently and again, never at any cost or obligation for radio show listeners. Give us a call at 800-338-5944. That's 800-338-5944. Visit us online, richonplanning.com.

That's richonplanning.com. Or give us a call now, 800-338-5944. Looking forward to hearing from you soon. We're talking with you again next week here on Planning Matters Radio.

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