yeah hobbies is a big thing because a lot of people say i don't know what i'm going to do in retirement because i have no hobbies but they'll say i don't play i have no hobbies so you have to you've got five years to start to think about that a lot of people wait till it's too late and there's so much stress on them they have no hobbies they don't know where they want to live they're not talking to their spouse we want to prevent all of that today we're talking about transitioning into retirement and this is part two of our three-part series if you remember and if you watched it the first part is five to ten years out today we're going to focus on your planning and things you need to do one to five years out before you leave your business and enter this third phase you know this is going to be a hard transition in your life if you aren't prepared and if you don't plan when we entered this phase we looked for help we looked everywhere but the only thing we could find was financial planning help and that's not what we needed and that's why we started this company because we realized we were struggling a bit and had to figure out how to pivot to make this time of our life as good as it could be so here we are retirement transformed in part one which was five to ten years out we gave you four strategies to work on the first was planning the second was understanding risks and when we talk about risks in retirement it's things like your loss of identity and creating a new identity your loss of community and creating a new community and those 40 hours of free time that everyone gets back the other thing was building a vision for your retirement five to ten years out you want to start thinking what is it going to look like and you also the fourth thing is start thinking about habits and routines what are some good habits you want to bring forward what are some bad ones you need to stop we want to make sure you go back and watch that episode the link is pasted below in the notes so we're going to build on those strategies today as we look at the one to five years out you know and in this time frame by now one to five years from your retirement date you do need to have a financial planner in place and so you have the financial planner your vision should start being clear and assuming it's your choice to retire you have a time frame and a date you know you have to start getting comfortable with the idea and getting more overall clarity time is going to go by really quickly now you know we both retired a lot earlier than we thought and because of that we weren't prepared you know i was at the peak of my career and i decided to sell my company i was 55 years old and i planned on working another 10.
Everyone wants to work to 65 right but i only worked for five and you know simultaneously my company was sold to a competitor and i stayed during the integration for three full years but i found that it wasn't going to work for me anymore so together in december of 2018 we left together and our entry into retirement was rough you know we we spent a year traveling the globe we went to italy uh florence uh where else are we london london bora bora bora bora was great but we did that we entertained family and friends for a summer that felt like a year we realized we didn't really have a purpose and one day we looked in the mirror and neither of us liked what we saw no we didn't we didn't we didn't we didn't look good and we didn't feel good and the thing is we don't want that for you this transition is hard and the more prepared you are the better chance of success you'll have so here's some additional steps that you should be taking one to five years out before retirement now this comes from our experience our success and our failures but also from many of the clients that we work with you know the first thing we're going to ask you to do and you might roll your eyes is to buy a journal aligned or unlined journal a cheap journal just something to start writing in something you can start documenting your thoughts and we're going to give you a little structure on that but writing is better than electronically typing it start recording your thoughts your feelings your struggles and your successes you know the reason that writing is better than electronic is it forces you to actually slow down you can't get the words out fast enough so you have to actually think of the words and write them and you retain it better when it's electronic even if you're a good typist you can just bang them all out you're not really allowing your brain to slow down and focus so journaling and writing is really important it's funny when you said bang them all out because you're a one finger typer two fingers this one and that one anyway be a place for you to gather your thoughts but more importantly to break up your journal into buckets and i'll tell you one of the buckets can include our five pillars physical wellness mental wellness relationships that you want to deepen or let go of your spouse partner alignment or misalignment wherever it might be and the last bucket is wisdom sharing you want to start thinking about what is it you're going to do after your career ends to get fulfillment to make good use of all of your skills and your experiences to to to serve others in a way like what jody and i are doing with this business and you want to start listening to your voice and writing it down and we're actually going to go deeper on wisdom sharing today because that's for the next five years you really want to start thinking about how that's going to fit into your life so this journal is going to incorporate kind of where you are now and you're going to put some reaching statements in to figure out where you'd like to be and then you're going to be able to do some research and organize your thoughts right and some other areas to put in the journal to start thinking about is travel plans if you want to travel write it down and figure it out and start thinking about it we have the greatest travel agent by the way that helps us figure some things out but you also might want a vacation home right and you also might want to think where do you want to live in the next 30 years right and how's that going to impact or affect or include your children and family how does that where you live how does your location impact your hobbies yeah hobbies is a big thing because a lot of people say i don't know what i'm going to do in retirement because i have no hobbies or they'll say i don't play i have no hobbies so you have to you've got five years to start to think about that a lot of people wait till it's too late and there's so much stress on them they have no hobbies they don't know where they want to live they're not talking to their spouse we want to prevent all of that we also want to give you a place where you can put down some aspirational hobbies yeah maybe learning a language or going to an art studio or picking up a new sport start painting start painting yeah mark's laughing at me because i want to start painting i just haven't had the time four years ago i gave you the whole painting kit the easel and all of the things and they're still in the closet maybe i'll go now okay okay there you go all right second thing to do we're going to focus the rest so the first is the journal that was all the big journals get a journal and start writing right and you know write and then put it away take it back out again put some tabs in there on these different sections i think you'll really enjoy it but let's talk about wisdom sharon because this is really a core component of your retirement transformed and one of the things that we did ourselves and we do with our clients and we share with this in a very deep way in our online course is to figure out some things about yourself so we want you get a blank piece of paper and we want you to put five columns in there going left to right and the first column really is to list all of the jobs and the roles you've played over your entire career or your life in the last 30 or 40 years and sometimes it's easy to break it into buckets the last 10 the previous 10 whatever it might be sales role ceo and you want to go back as far as you're comfortable with i know for me i went back 20 years i know for mark he went back to his first job out of middle school which was cutting lawns paper boi oh paper boi paper boi when did you cut lawns after that because you went all the way back i wasn't allowed to use lawnmower it was too little so you pick the time frame that works for you but in that first column you want to list all those jobs that you had and then put the date because the date the second column the date just so you kind of have a reference but really where it gets interesting is the third column we want you to write down what did you love about that job what what excited you about it why did you like it so much what emotion comes to mind when you think about being a paper boy or cutting lawns or right i happen to be the world's greatest waitress which helps me helps me be a good mom of six kids carrying plates the fourth column is perhaps what did you dislike about that role because if you didn't like it you clearly do not want to take up that type of job right or that that service in your retirement if you don't like it and then the fifth column is what has this job or role taught you and then to sum it up you want to go through those sheets and do a whole bunch of them pick your top five it's critical it's all we want you to do is what were the top five jobs or roles that you played in the last 30 years so that's probably a pretty big and a pretty busy sheet for most people the second thing we want you to do is list your strengths and values as they speak to you go through and list them and get a top five for each strength or value and once you have that combine that with your top five jobs and see where you land and start writing about it you're gonna start getting a little clarity on what it is you think you might want to do the other thing to do as you're writing and thinking about it you've got you know one to five years left of work start paying attention to your to your days now so you went backwards now going forward if you have identified sales leadership as something you like really pay attention when you're doing it now you know if you're a finance person and you love working on spreadsheets is that really what you see yourself doing after so it's really important it makes makes me think of that what was that book that uh we read um wisdom at work by chip conley yeah we'll put those notes down below wisdom at work by chip conley the making of a modern elder an awesome read it's a really interesting book about his role in airbnb and the other thing to do during this phase if you're not already is start volunteering in any way shape or form you know it could be at the food bank it could be anything but you want to find a way to volunteer board service well i'll tell you it makes it easier to find your volunteering niche after you've gone back and you've looked at what inspires you in different roles and what your core values and competencies and where you get your juice from and then you figure out how much time you have now with the one to five years still working and then you figure out how to launch into a volunteering role and every community needs you now look these next five years are going to be a challenging time they're going to go fast we don't want you just to coast and all of a sudden end up thinking oh my god i'm leaving in 12 months the next video is about the last 12 months but we want you to do everything we talked about in the first video and this one to get you ready for that and that way you'll land in this phase fully prepared and listen if you enjoyed this please share with your friends and also please subscribe by clicking the subscribe button below and don't forget to join our free facebook community the link is in the notes as well it's a great place to start to build a community for your retirement phase thanks so much for listening and we look forward to being with you again soon youRead More
we all want to know do we have enough can we retire and how long will our money last well the key in retirement is to compound good decision after good decision and what that does is that helps to optimize your overall retirement assets and increase the probability that you do have enough and you can retire and most importantly you don't have to to live with anxiety throughout retirement worrying if you have enough or not in this video we're going to look at a 66 year old with 800 000 saved and really get into some of the nuances of different decisions that have to be made in the potential outcome of those various decisions [Music] hi i'm troy sharp ceo of oak harvest financial group certified financial planner professional host of the retirement income show and certified tax specialist the purpose of these videos is to help get you thinking along the lines of what decisions need to be made and how they are all interrelated from social security to health care to investments in asset allocation to managing risk to taxes to really get get you thinking about all the decisions that have to be made and how one decision impacts other decisions as we go through these what you'll start to see with retirement is that it's just as much an art as it is a science because everyone's situation is so unique everyone's circumstances are so different so we're going to look at some different variables here but we're going to start out with some very basic ones so first we have john and jane just a sample case male female both age 66 and just retire now we're in texas so we put texas as a state residence but obviously if you live in a state with an income tax a state income tax there would be a little bit different scenario but that's why the customization is so important okay so retirement period so we like to assume a long life expectancy and the reason is that the age 85 population segment in this country is the fastest growing population segment out there also according to pew research which i brought this article up here when we look at the projection of growth this is the estimated number of people over 100 years old over the next 30 years in 1990 there were 95 000 people over age 100.
In 2015 451 thousand by 2050 this is a pew research study by the way 3.6 million people estimated to be over the age of 100. this is advances in science and technology and medicine and treatment to help people overcome various diseases that they may they may find themselves with in retirement so underestimating life expectancy is a big mistake for a retirement planner because if we plan for 95 or 90 and you don't make it that far well you have that money you're secure but if we plan to 82 and you make it to 90 well guess what that's a big problem so when we talk about life expectancy this is one of the pieces of financial planning that is specialized to you and yourself you know your health you know your longevity you know what health problems you may or may not have of course we can customize this for your particular situation but most people from my experience underestimate the advances in medicine technology and science that will continue to extend our lives as time progresses we have treatment right now for various diseases and cancers that even five ten years ago we didn't have so underestimating our life expectancy is one of the big mistakes that people make now if you do have health conditions if you smoke if you drink you're probably not making it to 95 that would be customized for your particular situation but generally speaking i'd much rather plan for you to live to 95 and you don't make it there then plan for you to live to 85 and then you make it to 95 and then the plan obviously would be insufficient because there wouldn't be enough money to pay for health care to keep up with inflation taxes etc so that's why we put the life expectancies at 95.
okay this particular couple what we're trying to do is account for spending and retirement of sixty thousand dollars per year of course this is after tax so if most of your money is inside a 401k or an ira there is a tax problem there to get 60 000 out we have to pull more than that after taxes to be left with 60. healthcare this is the average medicare cost for a 66 year old couple in this country now it may be a little bit more a little bit less for you depending on your prescriptions and various out-of-pocket costs but this 9 400 this is the average including medicare premiums out of pocket costs for health care expenses for a 66 year old couple in this country okay so social security john has he will file his normal application at sixty six and a half and receive thirty six thousand dollars jane will then file spousal benefits in this scenario which is um a lot of times what we see working with clients where the husband files social security and then the y files for spousal benefits of course your situation may be different again this is where customization comes in but 36 000 and 18 000 are the social security benefits now here's something very important when we look at the breakdown in assets this is where retirement planning starts to get very very fun for us because it start it's putting that puzzle together but where it becomes very complicated for for most people because they don't understand the challenges that come with having too much money inside that 401k so we did a breakdown here six hundred thousand inside the 401k and 200 000 inside the brokerage account there are literally millions and millions of different ways that you could take retirement income from this breakdown of accounts you could take x amount from the 401k take x amount from the brokerage account brokerage of course when you say this this is a non-retirement account a non-ira optimization comes into play when we we are we identify what is the appropriate amount to take out of that 401k and what is the appropriate amount to take out of the non-ira in order to not just reduce taxes today but look at the impact over the course of your retirement which income distribution strategy makes the most sense for not only today but over the next 20 to 30 years so this is the breakdown here we're going to when we look at the tax analysis in a few minutes it's going to make a lot more sense we're going to look at the top 100 different income distribution possible strategies and the impact that they have over a long period of time okay so very simple we're not looking at real estate here so a net worth of eight hundred thousand dollars because yes when you have equity in your home it's a great thing to have you can pull that out for emergencies later we just want to isolate the financial assets that this couple has saved look at them spending sixty thousand dollars a year after tax with inflation uh inflation by the way we have it two and a quarter percent i'll touch on that in a little bit because we received some comments about inflation and health care costs now health care obviously is increasing a lot more than general inflation in the economy but we just want to isolate with these financial assets is that enough to answer the big questions can i retire stay retired and maintain my standard of living so when we look over here at a monte carlo analysis so this button what we're going to do is we're going to hit it it's going to run a thousand different simulations looking at a thousand different market returns over the course of time we just have them in a basic 60 40 portfolio again asset allocation is a big part of a successful retirement but we're just trying to to provide information based on what the majority of people out there are currently doing with retirement okay so this comes in at about 87 percent so 87 percent you may be saying well is that a good number is that a bad number the truth is it doesn't really matter too much it's just a snapshot in time what's most important with a financial plan and a retirement plan is that you stay connected to this over time when markets are up or down and you have various returns over time and you're spending money as well you run into what's called sequence of returns risk which is the combination of taking money out and market losses if you take out five percent you lose 20 you're down 25 percent in a single year now if that happens in consecutive years that's where the sequence of returns risk comes in when you're in the distribution phase of retirement so yes 87 percent i would feel comfortable myself retiring if this came in at 87 percent for me because that means 870 out of a thousand simulations i die with money now it's more nuanced than that of course but what's most important is that we're tracking this over time is it staying at 87 percent is it going up is it going down that's what's really important this is nothing more than a snapshot in time now when we start to look at before we get to the tax analysis i want to come over here to what's called the play zone in this particular software that we use and i like this because it shows what happens if we spend a little bit more money or less money how does that impact our probability of success so right now we have this couple spending sixty thousand dollars after taxes let's say they wanted to spend seventy thousand though seventy one look at the impact that this has it drops it from 87 to 41 that is a massive change in probability of success now what we would do in this situation if somebody wanted to spend 70 000 of course we can customize a plan where seventy thousand is spent maybe in the first five years seven years ten years with the intention of eventually tapering it back down to an inflation adjusted sixty thousand per year so inflation adjusted sixty thousand per year what does that mean well 60 000 today if you take that out of your portfolio it will buy more goods and services than if you take 60 000 out of your portfolio in the future this is a basic time value of money concept inflation erodes our purchasing power over time so to have the same purchasing power in the future of 60 000 today we probably need to pull out 68 69 70 71 000 something in that range we'll actually look at this in a second but the 70 000 this assumes we spend 70 000 today after taxes and it's just inflating at two and a quarter percent over time now i said i would talk a little bit about inflation and right now what's going on as i record this video is we are going through a period of a bit higher inflation in some areas other areas we absolutely don't have any serious inflation the truth of the matter is whatever you believe inflation to be when we customize a plan like this for you we can look at various amounts of inflation but if you start to put it out at four five six seven percent it's very likely you're not going to have enough money to keep up with that level of inflation unless the investment returns are that or greater now positive news there is typically in high periods of inflation stocks have performed well but when we look at inflation inputs and inflation estimates it's been 12 plus years where general inflation in the economy has been under 2 we are starting to see some inflation now most experts believe that it's transitory and by the time we get to next year inflation should normalize but we'll see most importantly again what we do is we stay connected if inflation does start to to sustain itself in a way that gets above two and a half three three and a half four percent well that's why we have a financial plan we start to adjust for those changes same thing with taxes same thing with markets same thing with everything in retirement our health our goals and in the circumstances we find ourselves in they change throughout retirement that's why when we look at something like this it's just a snapshot in time we need to be able to be flexible and pivot based on whatever circumstances come our way okay so taxes i want to look at taxes now we have this this is a different software that we use to look at taxes we'll overlay this software and the outputs from this one to the other software along with a few other ones that we use then of course the human element is the most important when combining all of this together but what we're looking at here is the top 100 distribution strategies for this same couple number one tax planning and income distribution scenarios the number one ranked strategy of course is up top it shows an estimated ending balance of 663 000 and taxes paid over the course of retirement of 42 sixty so ending balance of six sixty taxes paid of about forty two thousand if we come down here to the very lowest ranked strategy so i went to number eleven it's number 101 ranked cumulative taxes 156 000 with an ending balance of 170.
so that's over a 500 000 or so change in an estimated ending balance and a hundred thousand plus in additional taxes paid what's cool about this software is it isolates everything else except your distribution strategy how much are you taking from the ira how much are you taking from the non-ira are you doing any roth conversions so being able to isolate everything else and just looking at those variables shows us very clearly that the tax planning and income planning component for this couple in this scenario john and jane is extremely important it's the difference isolating everything else between finishing with about a hundred and seventy thousand estimated or six hundred and sixty thousand so as you can see income planning tax planning play a very critical part in the overall retirement plan this software that we looked at over here this one is assuming what we call a conventional wisdom distribution strategy now this software is that's the software's weakness this does not do a great job tax planning but when we overlay the tax planning software with the financial planning software here when we get the 87 percent and we get it all done this gets it up to 90 95 96 99 a lot of times the big takeaway here is that retirement is not just about your investments it's about having a plan that looks at your investments and manages risk but also generating income tax planning and health care planning along with estate planning estate planning is very important if it matters to you what happens to your assets when you're gone so we always keep a link in the description if you want to reach out to us set a consultation have a phone call and see if this type of planning is appropriate for you it may not be appropriate for you you may not be a good fit for what we do and that's okay hopefully we still can provide value and help you become a great have a greater understanding of retirement but if you do want to talk to us there's a link below you can schedule an appointment and of course share this video with a friend or family member hit that subscribe button and thumbs up if you liked it and if you don't like it hit the thumbs down that's fine too and if you leave a comment we're gonna make an attempt to address those comments in one big video of course we can't respond to every single comment or provide personalized financial advice but feel free to comment below that helps you to know that there's engagement with this video and they'll help share it with others so they can learn as wellRead More