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October 28, 2021 4:57 pm
On this edition of the show, Peter Richon discusses planning for withdrawals, distributions, and creating retirement income in an efficient manner.
Want you to plan for success in planning matters radio and hello and welcome in planning matters radio.
I am Peter Rochon, president and founder of Rochon planning a local independent fiduciary financial investment and retirement planning firm covers a lot of information right there. But if you got questions about your money at any stage in life to do with it. How to handle it where you should be putting it to work for you. We serve as a resource for you and you're welcome to give us a call. Be in touch with any kind of questions or concerns that are on your mind. We are here to help. It was call 919-300-5886.
That's 919-300-5886. I am a series 65 investment advisor representative and a Ramsey trusted Smart investor Pro and that fiduciary responsibility means that I have a moral, legal and ethical requirements to put the best interest of my clients is the first and foremost priority when ever making any kind of financial recommendations as a responsibility that I take very seriously.
Also want to tell you that if you call if you got questions, I will be the person that you speak to directly. It will be me. I am the investment advisor representative in the firm.
I am the CEO and owner of the firm but also the one that meets with clients on a face-to-face basis, so the voice that you hear on the radio, me, Peter Rochon, that would be the hand that you shake the eyes that you look into the face that we are talking face-to-face together with you would be meeting with me and I would enjoy and appreciate the opportunity to help you in any area of your financial your money, your investment life and trying to make the most in the best decisions with your money, your dollars that you've worked so hard for money is important, it is a tool. I will let you know it is not the most important thing is only a tool what is a tool to support what is truly important to us and like any tool it can be put to good use. Or it can be misused. There's an old saying that when every job know when the only tool you have is a hammer, every job looks like a nail. Well that is not the way that money should be handled by any means money can do a number of things for us. It can be safe. It can be liquid it can grow it can provide an income.
But money is a pretty terrible multitasker and so with every dollar that you have when you choose to save it or invest it or deploy it. You need to choose which two of those are most important to you, growth, safety, liquidity and income money in the bank is about safety and liquidity.
You know it's there. You know you can get your hands on it pretty quickly. Money in the market doesn't have that element of safety and if it's in the market fluctuating and going up and down. It generally is not a great source to produce a reliable, consistent, durable income that you can depend on. Yes, it has the opportunity for growth and yes if you don't like what you're invested in you can cash out pretty quickly so it's liquid money in the bank is not fantastic for growth. Right now we have a less than 1% interest rate environment and most checking, savings and money market account are earning significantly less than that money in longer-term CDs, annuities, real estate traditionally bonds those are more about safety although none of them have guaranteed safety in all elements. There's always risk involved in any financial vehicle that you choose, but they generally also produce a growth or an income so safety and growth or safety and income you get to choose between those two. If you don't need an income you reinvest the income that constitute your growth again in annuities in real estate in bonds bonds produce yield real estate can produce appreciation or income. Same with annuities growth or income so you get to choose those and longer-term CDs much the same way you have given up an element of liquidity you have designated a period of time that you are dedicating that money for and in return you get a little higher rate of growth than what banks would offer you on short-term checking, savings, liquid accounts, so again this is an important tool is a tool that can perform one of four jobs for you and anyplace you put that tool to work you need to understand what the objective is what you're trying to achieve. Also, just like a tool it can be fantastic. But you gotta know what that use is like a blueprint and you don't put money to use without that plan. Without that blueprint. If a contractor a homebuilder came to you as you are looking to build a home and said I can build your home for you. I've got this hammer well that's a start is a fantastic tool. It will probably be a necessary tool, but at the same time that is not the only requirement that you would have about homebuilder or contractor, you would want to see a blueprint you would want to see all of the features all of the customizations all the structure of the home that you hope that home contractor can build for you. That is the plan the financial plan the retirement plan.
What we call the optimized retirement plan. That's the blueprint phase. That's where we are designing everything and in that designing process we are choosing the features we are looking at the structure were looking at the foundation the walls. The roof where the windows go, what kind of landscaping do you want to flush that analogy out a little bit more, but the important thing is that the tools that are there and that we have available. Those are only really decided upon what tool is appropriate. What tool is necessary after we understand what were trying to bill and everybody situation is a little different.
I remember a day very early on in my career where I had two appointments one was with an oncologist, a cancer doctor at a local hospital and the other was with a manager of the deli department at a local grocery store chain and I knew which one of those as the day began. I was a little bit more excited about meeting with that day because I figured the oncologist probably had more money. However, by the end of the day, the one that I felt would truly be a great client and had a very realistic chance and reasonable expectations of retirement success was actually the deli manager at the grocery store and it really changed my perspective on who I was looking for as an ideal client. I wanted someone that had realistic expectations. Now I would love for everyone to have as much money as the oncologist did, but that individual spent a lot of money as well and just I guess for an analogy, if I had $10 million in my checking, savings, retirement accounts, $10 million in investable assets to my name and my net worth, that's fantastic, but if I was spending $1 million a year in retirement. I couldn't expect it to last back wall and so it's not really about how much money you have, the more the better. But money does not solve all problems. However, it does tend to make some problems seem a lot easier. So the more that you have fantastic however you also need to have a realistic plan for keeping guide rails and guardrails on your spending those that have been lucky enough to be affluent to earn a higher income generally don't pinch every penny don't stretch every dollar they are lucky, they are blessed they are in a position where they have not had to do so, which is great for them but when you walk away from your job when you walk away from your paycheck.
The change in income for that individual is that much more substantial and dramatic for those that have been paying attention to their budget that understand that every dollar is important, and they are pinching those pennies there stretching those dollars and they're still doing what they can to get money saved for their future and retirement accounts. The goal would be about 15% regardless of where you fall, your income, 15% of your gross household income going toward those retirement accounts, but for those that have been paying attention to their budget. The transition to retirement actually seems to be that much easier because in retirement. We got a finite amount of money. The amount of money that we've worked so hard for your life savings is not your investment portfolio that makes it sound like something that maybe is expendable. It is your life savings. Don't minimize that. And I certainly don't.
This is what you've worked your whole life to build and accumulate and you've done so because throughout your life to get to that point you've traded your time for money that lump sum your life savings represents your ability to no longer have to make that trade-off to no longer have to set the alarm and show up for work that lump sum life savings is what you have to transition into a paycheck replacement for retirement and so again it's not necessarily what you have saved but those that have been more careful with maintaining their budget and expenses and balancing the two against the income that they had during their working career. The transition seems to be that much easier because they already have some guide rails and guardrails on their spending.
I remember when I used to take my son bowling for his birthday and when he was real young we used to put up the alley guards the guardrails and I still tried not to use them, but it sure made bowling easier. Maybe it was a confidence thing.
Maybe every once in a while I sort of nicked one of the guardrails. Maybe sometimes I bounced in between like a bouncy ball, and just how many pins would knock down the ball wouldn't go in the gutter was fantastic. Those guardrails kept my ball heading toward the pin toward the target kept me on track and that's what the spending plan specifically as part of the optimized retirement plan that's which are written retirement income plan will help you do. Those are the guardrails if you'd like that written retirement income plan part of the optimized retirement plan me a call 919-300-5886 919-300-5886 if you'd like to look over your spending your expenses, your budget, your income, your assets, what are your available sources of income for retirement.
How do you maximize Social Security and make a good decision with it. That is a valuable component of retirement and we are a little concerned with what the future for Social Security might old but I don't think that it's ever not going to be there because it's funded through current workers wages, salaries and taxes. I think the make some changes to the system. I think they'll do some things that they're going to eventually have to do in order to solidify it. I'll think will be very popular for doing it, but I do think that for those who are already claiming and collecting and receiving Social Security and for many of those who are with in range within earshot of making that decision and full retirement age at this time, though probably receive what they've been promised and what they are entitled. I don't have a problem with the term entitlement I feel I am entitled, I'm 41 but I have been paying into the system for nearly 25 years little longer, actually. So I do feel entitled to what I have paid into that should be there for me. I've set money aside just like you have set money aside and it should be there for you. That being said, you want to make the best decision possible with it because the difference between a good decision with Social Security and a poorly timed decision with Social Security can make the difference in several hundreds of thousands of dollars, particularly over a married couple's lifetimes in between a married couple. There's lots of different ways that you can claim and collect even if you just look at claiming on your own benefits in all year increments. We can claim anywhere from 62 to 70 so that's nine different choices for me 62 to 74.
My wife nine different choices for her 9×9 that would be 81 different potential combinations. If we were only collecting our own benefit and only claiming on four year increments and there are a lot of additional choices. The Social Security ministration doesn't provide a lot of education or guidance on when nor how to claim and collect their job is to help you file the paperwork and claim the benefit on the day that you show up not tell you if that's the best day to show up. They don't know your situation. The rest of your picture.
They don't take on that responsibility or liability of giving you that kind of proactive guidance, but it is something that we can sit down with you and help you run through the numbers through different options crunch those and come up with an optimal strategy. Now, no one can tell me the best strategy because I have yet to meet the person who's coming to my office and told me the exact time and day.
They are going to pass. I don't think we are meant to know and therefore will never come up with the absolute best solution for Social Security we can come as close as possible. We can optimize that decision in the way that we optimize it is we look at Social Security as part of the bigger picture is part of the puzzle. It is a important piece of the puzzle. Maybe it's the border. Whenever I did puzzles I used to always do the border. First, the outline, the hard edges that the straight lines around the border made that part.
The easiest chance the most important to gauge where all the other pieces in the colors would fit in as kind of Social Security. It is the guide rails. Therefore, a lot of other pieces of your retirement, the more you can make from Social Security, the less strain and stress in reliance you have on your personal assets now Social Security is only a piece, it can't be thought of in a vacuum for some Americans, unfortunately, a higher percentage than it probably should be.
Social Security is the only source of retirement income is one of two things.
Either those individuals have not done all they could or should have twos have saved personally or those individuals are doing very well in living a low expense frugal lifestyle and they've got the other assets they just don't need them to afford that lifestyle well most people have Social Security as just part of their retirement income. Most people it constitutes a portion of that income maybe 30, maybe 40, maybe 25% and then the rest of the income comes from other sources. Pensions are a fantastic source if you have one. Most people who have worked in the private sector don't the pensions.
By and large have been dwindling and not nearly as many companies offer them as once did. Even if you work for a company that one stated they may have frozen or suspended or terminated, the pension and since Orissa in 1974. It's been much more about putting the burden of funding retirement onto our own personal shoulders.
With the inception of the 401(k) and really this is when the average mainstream American actually started to become a Wall Street investor. Before that point in time before the inception of the 401(k). By and large investing was for the ultra-wealthy for companies and for institutions.
But when the 401(k) came about we all started to invest on a regular basis and who benefited well. The financial industry and mutual fund companies and we piled money away and have been doing so for about 40 years. For most of us when we get to the end of that period of time. We've got a certain amount of money is a finite amount that's always got we got an unknown amount of years that we need to make that money last. Now, if you've got a plan to maximize Social Security to minimize risks to address income, you probably have a good chance of making that money last if you set up a written retirement income plan, the chances are dramatically improved. We've got to address things like fees and taxes and healthcare and goals to leave a legacy behind.
Not everybody wants to leave a big legacy behind. Not everybody feels will be able to more and more these days I hear people saying well. The purpose of my money is really to support my own lifetime needs and that's completely understandable.
That's not a selfish sentiment, but if you've got a written retirement income plan that assures you gives you some confidence that you will have enough income to last the duration of your lifetime. The chances of you leaving something behind are dramatically improved and increased and so we should talk about legacy as well. What happens with the rest of the money when you're gone. Who do you have it earmarked for.
Are they ready to receive that kind of money. Whatever you happen to leave them. If you live a long, long time. If you don't live a long, long time. Again, these are factors we talk about the optimized retirement planning process. I am Peter Rochon I am looking forward to helping and assisting something I really enjoy about my job and my profession because not everybody has a fantastic handle on their money not talk to a lot of people who do move done a fantastic job in growing and investing in and managing their funds, but that part of it is really only half the story. And it's actually a lot easier to manage your money when you got a paycheck coming in when you are trading your time for money.
When that paycheck stops the planning becomes more important. And that's why we offer that optimize retirement planning process you like to take advantage give me a call 919-300-5886 919-300-5886 some interesting news this week. I guess former Pres. Donald Trump announced that he would be launching his own social media platforms and as such there was a a platform specifically, a company where he partnered with them. DW AC is the stock ticker and it shot way way way up.
I mean it was up like 350% I think on Thursday and on Friday was back down significantly. But a lot of people dumping a lot of money by the time that announcement was broadcast to the general public. This this price of the stock it already stored it was already way way up.
A lot of people were excited about that all the stock is really taken off. It's a rocket it's going to the moon is the mean stock said well, a lot of people got in as it was peeking toward its top and subsequently the next day Friday when they came down they lost a significant amount of money.
Now I don't know where the true value of this company is going to fall if that thing really catches on. If the platform functions well is user-friendly and a lot of people are attracted to it. Perhaps the value could go back up if it flounders if it does not come true, fruition, then perhaps the value could go down.
I don't know the future. There what I do know is that reacting on rumors reacting on hearsay sometimes can lead us to making irrational decisions and reacting to the direction of the market more often than not leads us to making financial mistakes.
If I get excited about something when it's going way, way, way up and I say all I got to get in on this my buy-in. I have bought in after it's gone way, way, way up. If I see that the market is going down and I get worried and I get scared and I say oh no I can't afford to lose any more money and I sell out. I've already lost that money and that's a big part of where the help and the guidance of a long-term plan and an accountability coach. Financial advisor investment advisor somebody who can give you proactive advice to hold you accountable to sticking to that plan can really pay off. But here's the bottom line is they should usually be taking risk with money that you can afford to lose with money that you feel comfortable seeing fluctuate.
I'll give you a few more statistics in the last hundred years we have seen 16 different bear markets. Now the definition of a bear market is a 20% loss in market value and you can pick your index, the Dow Jones, the S&P, the NASDAQ, the Russell those are the most commonly referred to those are the ones that are broadcast on the bottom of the TV screen, minute by minute on the stock channels on the financial news networks. The Dow is 30 stocks. The S&P is 500 stocks. The NASDAQ is comprised mostly of technology stocks. The Russell is a much broader base of of stocks across the country. Domestic stocks if those lose 20% in value.
It's considered a bear market.
Now we've seen 16 of those in the last hundred years as an average of about every five and 4:45 and 1/2 years at 20% downturn is the minimum on average those 16 downturns have lost almost 40% like us close to 40%. As you can about 39 1/2% is the average bear market from top to bottom as we enter into that bear market. The time it takes for the market to decline to its low point. On average takes about a year and 1/2, so we spent now a year and 1/2 just watching our money slowly bleed away and during that year and 1/2 a lot of people wake up one day and decide enough is enough. I can't. I can't stomach seeing any more losses I can afford to lose any more money and they sell out. Well, bear markets, turn the bow markets and do eventually recover. Although the average recovery.
Last another five years for each one of those bear markets. On average, so, on average, we got a nearly 40% loss happening 16 times in the last hundred years, on average, about every five and 4:45 and 1/2 years, and again, on average, a peak to recovery. To where we have not made money we've lost money about 6 1/2 years and if you are making a paycheck that may not actually impact your life if you still are securing your job and earning new money that may not affect your standard of living in day-to-day life and in fact if you are making contributions during that period of time.
You are dollar cost averaging, you are investing into your retirement accounts in your 401(k)'s. It's an inherent advantage because for that entire year and 1/2. The market was going down. We don't love to see that.
But we love to buy-in when that is happening and for the next five years we were continuing to buy-in as prices were climbing. That's what has made most people money over the last 21 years. They say the market always goes up, but from the year 2002 2013.
The market moved sideways now if I told you there was a. Of about 13 years where we will see two different 100% returns in market values you would expect that to be a pretty good decade except during that same period which actually happened from 2002, 2013.
We also experienced two different 50% losses and so the net result was 13 years where the market just moved sideways, if you invested money in the year 2000 minus fees minus dividends minus year old mind is taking out income just letting the money ride in one of the major market indices.
You really did not make profit until 13 years later, 13 years, where the market did not always go up and in fact it didn't go up. And that's not uncommon.
There have been other long periods of time where the market has gone down gone up gone down on up and essentially moved sideways before it had a major breakout above those levels. Now we hear this average rate of return that the market is posted produce for us seven or eight or nine or 10% average returns. If you look at where the S&P started in the year 2000 till the end of 2020 that is 21 years of time. The average return of the S&P during that period of time was 4.58%.
That's a lot of risk for 4.58% returns.
So again, the markets fantastic is a great vehicle for growth over time. You should experience a growth above the rate of inflation, but there's no guarantee that today or tomorrow or next year, the markets going to be higher and no guarantee of the rate of return that is going to produce. So when we are sitting down for the optimize retirement plan.
We look at how much risk is acceptable to you how much risk is necessary in order to try to achieve our goals.
We only believe in taking necessary risk and no more than is necessary. We try to identify opportunities for you to be more efficient and protect what's important and for most people who have reached the point where they're transitioning into retirement or already retired or getting close, they've accumulated a good amount of money, tax management and being efficient and keeping as much of what you have earned as possible becomes, in many cases more important, almost, almost universally, just as important as the investment management if we can earn a reasonable rate of return and keep more of our money that ultimately is a formula for long-term success now will look at all of that we look at the plan as a whole. We build a blueprint we look at your income, your investments, your taxes, healthcare legacy, there's a lot of subcategories in each one of those if you'd like to find out more.
Give me a call Peter Shawnee you and I we will talk personally will be talking to me I will be the one providing your direction or advice or answers to your questions, you can go on my website.
You can download a copy of my book. Understanding your investment options might be the cure for insomnia, but it's got a lot of great information and I hope that you enjoy it and get something out of it. But I also look forward to speaking with you to specifically answer any questions that you have structure plan for you or review your current plan to see what he could be more efficient where there are strategies that can help you do better me a call 919-300-5886 919-300-5886 I am Peter Rochon, with Rochon planning, you can visit us online and download a copy of that firstname.lastname@example.org that's what it looks like Rich on planning.com is my last name Rochon Peter Rochon Sean planning.com 919-300-5886 919-300-5886. I look forward to hearing from you helping assisting anyway I can wish all the best for your financial success. Thank you for tuning in this edition of planning that is ready to assist in planning matters radio the content of this radio show is provided for informational is not a solicitation or recommendation of any investment strategy you are encouraged to think investment tax or legal advice from an independent professional advisor in any investment and/or investment strategies mentioned involve risk and possible loss of principal luxury services offered through virtual capital management is a registered investment advisor. Fiduciary duty extends only to investment advisory advice does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fever as a management belligerent product pay a commission which may result in a conflict of interest regarding compensation system in planning matters radio content of this radio show is provided for and of any investment strategy you are encouraged to think investment tax or legal advice from an independent professional advisor in any investment and/or investment strategies mentioned involve risk and possible loss. Principal binary services offered through virtual capital management is a registered investment advisor. Fiduciary duty extends only to investment advisory advice does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fever as a management belligerent product pay a commission which may result in a conflict of interest regarding compensation