#48 Step 2 Identify and Organize Your Financial Resources

Well, were you able to dream up your ideal retirement? It can be hard to think big, right? Hopefully, you've stretched yourself. No worries if you're not finished. Keep at it and if you have questions, I'm here to help.

Important Note: If you haven't listened to Step 1, it's best to start there. Here's the link.

This week, you'll focus on identifying and organizing your financial resources. In this step you'll create a clear snapshot of your current financial situation. This is a critical step. Don't get bogged down in getting every number right. You can fine tune things later on. Just focus on getting a read on your current financial picture.

For some, this can be hard to look at. If that's you, please relax. We've all walked a similar road (including me!). If you've made mistakes (maybe BIG mistakes), forgive yourself. The fact that you're here proves you're working to create the best life you can.

Here's Your Action Items for This Week:

  1. Make sure to listen to the episode. There are a number of subtle points made that will help you as you plan. For example, Carl made an important statement early in our talk. He said, "Retirement planning should be about running to something, rather than running away from something."
  2. Review Carl's cash flow summary and net worth statement. This will give you a snapshot of what the end result can look like.
  3. Watch the short video. In it, I give quick tips on how to think BIG about your retirement.
  4. Complete these worksheets. It might take a little homework to get the estimated value of your social security, pension, assets and liabilities. It's worth the effort. Your net worth statement will be the key document you use to track your financial life.
    • Estimate future retirement income sources
    • Build your net worth statement
    • Manage your current lifestyle and cash flow
  1. Finally, ask questions. If you're stuck or unclear about something, shoot me an e-mail. I'll do my best to answer your questions. Simply click here and ask your questions.

In week 3, we'll discuss some of the financial risks during retirement and ways to decide what to do about them.

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The Retirement Answer Man Episode #48

Well, welcome to the Retirement Answer Man Show. My name is Roger Whitney and this is the show dedicated to helping you dream, plan, and live your ideal retirement. Each week, we focus on helping you, equipping you, to be able to do those things, and this is Part 2 of our special January series of “Can Carl Retire?”

If you’ve joined us of the last week or so, you realize that we are creating an actual retirement plan for a fellow listener. We’re calling him Carl. Carl and I don’t know each other, other than working on this together. Last week, we had our step one on dreaming up Carl’s ideal retirement.

This week, we’re going to focus on identifying and organizing his financial resources – what he has to be able to achieve these retirement dreams that he created in last week’s episode. Now, we’re going to plan for Carl throughout the month, ending in a webinar on January 30th where we will present Carl’s plan to him, and you’ll be able to watch as we stress test that plan against common fears like inflation or bad markets or a long-term care event, and you’ll be able to hear along with Carl how his plan was put together and what the results are going to be. So, it’s not too late to plan alongside Carl if you’re jumping in at the middle of this or you didn’t sign up for that.

All you need to do is go to rogerwhitney.com and you can register in the upper right-hand side of the website and I will send you the Week One resources because, what we’re going is, each week, as we go through the steps of the process with Carl – like, last week was dream up your ideal retirement – if you sign up, I will send you a summary of Carl’s plan, a blank worksheet so you can dream up your own retirement and follow each step, and then a little video to help you with tips on how to complete that and think about that.

So, don’t think it’s too late if you’re joining us on this stage two. Go back and listen to Episode 47. If you sign up, you’ll get all the resources just like you were here from the beginning and you’ll also get registration for that exclusive webinar, live webinar where we present all of this to Carl, and I think that’s going to be really informative.

I want to thank everybody that has given me feedback. I’ve gotten lots of questions and comments and emails – some questions on how to complete this worksheet and working through that, and I love those. I’m here to help you plan alongside Carl. So, as you get these resources, feel free to shoot me an email or go to rogerwhitney.com and you can click on “You Ask, I ANSWER” and enter any of your questions there.

Let’s get started for today. But, again, before we do, we need that all-important disclosure, and that disclosure is only you know your entire financial situation so think of this podcast and my blog and, really, anything you read on the internet as helpful hints and education because none of us know anything about you. So, before you make any decisions, consult the people that do know you – like your tax advisor or your legal advisor or your financial advisor. That’s not just a great legal disclosure, that’s pretty darn good common sense and a fundamental principle of planning well in your life.

All right. Last week, we dreamed up – or Carl dreamed up and I’ve helped him along, in a way – his ideal retirement. Let me reintroduce you to Carl to give you some of the basics.

Now, Carl is 51 years old. He has been married for 27 years, has one child in college, and he’s worked a corporate job for 29 years. He’s a corporate man and he has a lot of goals for retirement and he wants to be able to retire sooner than later. If you listen to the first episode, you’ll realize Carl is a little bit of a planner himself so he’s a little bit more organized. If you don’t feel as organized as Carl, don’t worry about that because Carl’s a little bit more of the exception in that aspect than most. So, don’t worry if you don’t feel quite as organized as Carl. That’s okay. That’s one reason why we have these planning tools so you can plan alongside with him, so you can get a little bit organized, so you can be a little bit more intentional. Don’t worry about that.

Carl said what he wanted to get out of the plan was, for all of this to be a success: How early can he get out? What are his blind spots? And will I run out of money because I’m not planning well? Those are the typical questions I get all the time. That’s what we’re going to try to deliver for Carl through this month of January.

Last week, we had step one. In step one, Carl discussed his ideal retirement. I had a couple of questions from listeners wondering why, as an example, his cash flow that we talked about last week was a little higher than what he actually spends now. That’s a very good observation but a great question.

If you recall in the episode, I actually had to push Carl a little bit to think in ideal terms and not think in reasonable terms, and the reason for that is – and I encourage you to do that the same – because, a lot of times, we put governors on ourselves thinking we have to be reasonable, we have to be prudent, we have to be careful, and that is true, ultimately.

But, at the beginning stages of anything, you really want to go for the gusto and dream up exactly everything that you could have. And so, that’s what I push Carl to do and that’s one reason why his retirement number that he identified was a little higher than what he was actually spending now because he was going to work in some travel, he was going to have healthcare to pay for, and all those other things.

So, let’s review Carl’s ideal retirement. If you signed up, you would have gotten a summary of this. Well, Carl ideally would like to retire in a year. How awesome would that be? He wants to have $144,000 a year for retirement expenses. Now, that’s a lot of money! But, again, we’re shooting for ideal here to see what’s possible and, as we go through this next really important step, we’ll see what’s realistic.

In addition to his lifestyle – those were his “needs” – some of his wants were international travel at about $20,000 a year for fifteen years, and then he wanted to buy a $100,000 fifth wheel trailer – and you’d have to buy a big old pick-up to pull that, no doubt – and these were in his “wants” category.

And then, in his “wishes” category – these are the real dream categories – he wanted to buy a second home and then he would love to be able to leave an estate for his daughter, but that wasn’t something that was totally needed.

So, we started off with needs and we went to wants and we went to wishes, but each one of them were in that ideal scenario.

What are we going to do today? What are we going to do in step two? Well, this is a really critical step. What we’re going to do is identify and organize his financial resources. This is something that a lot of us don’t do and it’s really not that difficult to do. In fact, if you signed up, the worksheets that you’ll get to create your net worth statement and to create a budget, a really simple budget – this is the budget that I use in my life, I call it “the budget to use if you hate budgets” because it’s really simple.

A lot of us don’t take these very basic steps so we can identify the extra cash flow we could have to save or use for creating this ideal retirement. So, we’re going to do that. We’re going to talk about what income he’s going to receive during retirement, right? Because we’re going to have resources there like social security and pension and possible part-time work. Those are actual resources that we want to make sure we account for.

We’re going to go over his current assets and liabilities – what he owns and what he owes – and we’re going to put that into what’s called a net worth statement which basically has, on one page, a snapshot of your entire financial life and that’s something that is critical for anybody to have and track over time. So, we’ll talk about his, but you’ll also have some resources to build your own. And then, we’re going to talk a little bit about how much he is willing or able to save between now and retirement.

Now, a few comments on today’s show:

First off, Carl is really close to retirement – assuming he hits his ideal. He’s only a year away. So, our cash flow discussion is focused a lot more on what’s going to happen in those first years of retirement than a normal discussion might be. If you’re farther from retirement, you’ll want to focus on what you’re earning and spending right now so you can identify savings opportunities to position yourself to reach your ideal retirement.

In Carl’s case, it’s a little bit different because we’re so close. If you’re not so close, you want to make sure you focus on what kind of resources you have right now to be able to save towards your retirement. And then, you’ll notice when we talk – and I noticed this when I was editing our conversation – his actual net worth statement – which I’m sending to all of the listeners that have signed up – is going to be a little bit different than the assets and liabilities that we discussed in our conversation so they’re a little bit disconnective – what you’re going to hear him talk about and then his actual net worth statement when you put this together.

We did this conversation without documents. I had no documents in front of me. Carl didn’t have any documents in front of him. That shows by some of this disconnect as you listen to the summary of the assets and then what the actual net worth statement, and that’s okay. But I think it illustrates the point that the net worth statement really drills down into the details much more than just a discussion, and that’s one reason why it’s important to have a net worth statement. Our minds can play tricks on us or we can round things or we can forget about things. I’ve been in conversations where clients have forgotten about pretty substantial assets. It was just going through building that net worth statement for them then they’re like, “Oh, yeah! Well, what about that million dollars over there?” and I’m like, “What? You had a million dollars over there?” It’s amazing what you can sort of forget about because you hadn’t thought about it in a while. That’s why a net worth statement is so important.

So, what you’re about to hear is Carl and I going through our financial discussion in a very freeform way. After the conversation, I’ll come back and tell you what you’re going to receive in your email to help you plan alongside Carl and then we’ll set the stage for next week.

Here’s my conversation with Carl.

ROGER: Okay, Carl. The next step is I want to unwrap some of your spending patterns. This is where you get to bare your soul on how you spend your money which relates to values and morals and everything, right?

CARL: Absolutely.

ROGER: Are you ready? Are you on the couch to confess?

CARL: Uhh… Do I have a choice?

ROGER: It’s all voluntary!

CARL: Obviously, you can’t go through this without really understanding your spending and I look forward to your advice on, you know, ways I can do things better. That’s why we’re talking. I’m looking forward to it.

ROGER: Great attitude! I like that. I like that. Well, I find it’s different for everybody and what I really want to focus on – since we’re so close to you checking out – is what that lifestyle budget’s going to be in retirement. Do you have a good clue of what you’re spending from a lifestyle budget currently?

CARL: Yeah. What I’ve done, Roger, kind of on my own but I can certainly send it to you and we can talk through and, you know, I don’t have a problem if you want to share it with your listeners or what-not but I’ve been tracking since January my actual spending. Obviously, I’ve got a daughter in college, we’ve got my mother-in-law that I mentioned, so there’s a lot. I’ve still got the primary home which we’re going to sell.

So, as I’ve gone through each day and I’ve kind of just logged all this stuff in a spreadsheet, I’ve kind of tried to categorize it between things that are going to continue post-retirement and things that I think will be discontinued post-retirement, and I’ve been doing that for ten months now. I think it’s a pretty good baseline. So, I’ve got that by category and that’s averaging, like, $7,500 a month which I think is a number I mentioned to you in our first session together. Obviously, in addition to that, I’ll have to buy insurance and things like that. So, I don’t know if it’s comprehensive for post-retirement planning, but it’s at least a baseline of actual lifestyle expense.

ROGER: Well, you’ve gone a long way already then. You’ve done a lot of this homework even before talking so that’s awesome.

CARL: Okay. Good.

ROGER: I love it when my job gets easier. It helps me think more creatively to serve you. Now, does that $7,500 include what you’re saving?

CARL: Basically, what I did, when I did this – it does not, to answer your question. I have two categories that I kind of came up with on my own – “post-retirement continuation,” items that will continue; and then “ending with the retirement” – and I put things like the primary residence in “ending with the retirement.” The savings are all in “ending with the retirement,” obviously, because, once you’re no longer in the accumulation phase, that will be adding to the savings.

ROGER: Okay. So, you’ve done a lot of that work of thinking through this, obviously. Like we talked about in that first conversation, you’re a spreadsheet guy.

CARL: I guess so, yeah.

ROGER: I think that’s a great example of being very intentional before you’re actually getting ready to retire – to start to dial some of these things in.

CARL: For people that are in my shoes, I mean, I’ve kind of just had an interest in this stuff and I like it and I’m a little bit of a spreadsheet guy – I’m not totally a nerd about it – but, you know, to me, I don’t know how you can do this without having some kind of baseline because I didn’t really know what we were spending on. I knew we were saving every month and things like that. But, when you really get into “How much do you need to retire? What’s the cash flow got to be out of your investments and your pension and what-not?” How can you answer that without knowing realistically how much do I need to spend? So, I just felt like I had to do it.

ROGER: Now, did you add anything in anticipation of what you’re going to be spending on when your lifestyle changes?

CARL: Yeah. What I did, I took the year-to-date average, the $7,500, and then what I did is I set up a separate column which I’m calling my retirement budget and it’s very preliminary, right? So, I’ve kind of said, “Okay. This is what I’m spending now but how is that going to change post-retirement?” So, things like vacation and travel. You know, we have this plan of getting the fifth wheel and traveling around. So, I increased that budget. I actually got so far as how many miles do I think I’ll drive, how many miles per gallon, how much gas would that be? You know, that type of thing. So, I tried to get a little bit logical about some of the adjustments, and that took it up to, like, $9,500. This is probably, as we talked in the first session, you’ve got kind of your baseline and then your ideal, this is kind of now moving up from the baseline. These are some of the things I’d like to do and you get up to $9,500. That would let us travel. Wouldn’t have the second home as an example, you know. So, I’ve tried to build up what I anticipate it could be in post-retirement in a comfortable lifestyle.

ROGER: And then, again, we’re going to have to add any type of health insurance on top of this.

CARL: Yeah, that’s right.

ROGER: We’re going to get into that in our next discussion when we talk about the risks in your life and insurance and estate planning.

CARL: Actually, I’m looking at the spreadsheet now. I did put some medical in there, just made an assumption. So, I increased vacation and travel, I increased medical, and then I reduced a couple of things that will probably go down a bit, I guess. We don’t have to get into the details but the $9,500 did include medical assumed in my kind of rough guess of what I’ll spend.

ROGER: Okay. Now, here’s a question for you. Let’s assume it’s the $9,500 number. How long do you think that you will be spending that kind of monthly lifestyle?

CARL: Yeah, that’s the question. I really like the concept of variable withdrawals based on how your portfolio’s doing. I’ve done a lot of the 4 percent rule and a lot of those guys are out there that argue and, obviously, early retirement, I think I’ve got to be a little bit conservative. So, my feeling is I’ll do it as long as I can do it but, if there’s a down mark, it would back off. You know, obviously, inevitably, no matter what the market is doing, you’re going to get to a point health-wise where you’re not going to do it. So, kind of ideally, you kind of have the ability to do that until, say, age 70. And then, probably at age 70, some of that stuff starts coming off and, you know, the expenses start going down, then obviously your health stuff probably starts going up. So, I haven’t really laid it all out. That’s something I’d like to do with you.

ROGER: It’s interesting. Even if you’re healthy when you’re in your 70s, that’s still a different season of your life where you may not be driving all over the country anymore. It may be some other type of passion that costs a little bit more, costs a little bit less.

CARL: Yeah. Yeah, so I haven’t really laid that stuff out. I’d like to kind of do it and I’m sure you’d got models and I look forward to where this is going to go, by the way. But, as we get into, I guess, session four and kind of the conclusion of all this, kind of seeing how those downstream adjustments can impact the longevity and the ability to get to the end of this thing. Really, I’m interested in seeing how that looks.

ROGER: Okay. So, as we model this target $9,500 to start with, my assumption will be – so, just put you on notice – any time I talk about that, it’s always going to be after tax inflation adjusted dollars.

CARL: Perfect. That’s the same way I’ve done it.

ROGER: Yeah, we all live in a “What do I actually have?” world so we’ll try to bake that into any of the analysis that we do.

CARL: Perfect.

ROGER: Now, here’s a question. Since you understand, as you age – because of health and lifestyle and everything else – that your spending is going to change, are you open to adjusting your spending and having it tiered down over time in order to maximize your current healthy lifestyle?

CARL: Yeah, I think the one thing I haven’t really done is try to break up my spending into kind of (00:19:05 unclear), needed to live, and what’s more variable. But I think, yeah, there’s recognition that the trade-off of wanting to get out early, you can’t have it all, and I think I’ve got some recognition that, if I need to tier things down to make things work, then that’s something that we have to accept as part of the trade-off of getting out early.

ROGER: Okay. Now, this cabin that you’re going to be moving to, you and your wife, is the plan to live there? Is that your permanent residence?

CARL: Yeah. At this point, what we’re thinking is probably live there for six months out of the year, have a base because we can’t be nomads full-time. There are full-time RVers but we just can’t see ourselves doing that so that would become the primary residence six months out of the year. We travel six months out of the year. And, you know, we’ll do that for, you know, five, ten years, whatever. And then, depending on where our daughter settles and how things go, maybe at some point I can buy another place somewhere else, but around the same expense that we’re talking about with the cabin is what we’d be looking at.

ROGER: Okay. So, in your mind, it’s apples to apples. Whatever you extract from the sale of that cabin, ultimately, you will put into whatever new home that you’re looking at.

CARL: Correct, yeah.

ROGER: Okay. Now, what other extraordinary expenses? Now, we talked a little bit about the RV and some of the upgrades to the cabin so we don’t need to talk about those. But do you foresee any other extraordinary expenses that you might have to cover once you’re retired?

CARL: Not really. I mean, I’d be interested in what you’ve seen other people go through. At this point, I can’t really think of anything that is significant enough that it would trigger, “Oh, we better make sure we capture that.” Let me know if there’s a blind spot there, but I’m not really aware of anything.

ROGER: I was thinking in terms of do you parents or in-laws that you might have to take care of? Is your daughter going to be one that you have to support after college?

CARL: We’ve pretty much told her, you know, “Hey, we’re paying for college and we think that’s the parents’ responsibility but, pretty much when you get out, you’re on your own.” You know, a lot of boomerang kids out there. I won’t say it’s not going to happen to us but we’ve pretty much told her that our expectation is, when she’s done, you know, she needs to be independent. So, from a planning standpoint, I’m not building that in.

ROGER: And then, one last question on cash flow. On your spreadsheet that you’re going to get me, do you factor in any gifting that you do or anticipated gifting that you’re going to be doing later on?

CARL: Yeah. I mean, we tithe to our church so we’ve got the charity stuff that we’re doing. That’s one of my categories – gifts and things like that, you know, birthdays and things like that. I guess that’s one thought, as our daughter moves away from home, is there a potential that you’ve got to support a little bit financially as a gift? I didn’t really build any of that in, but I do have a gift line item so I’ve tracked the actuals and I’ve assumed some of that going forward, but not a significant increase in what it is today.

ROGER: Well, I think one of the good things and benefits of this process is, at the end of it, we should have a really good framework. So, if you feel called to give a gift, we can plug that into the entire framework and say, “Okay. How does this affect the long-term viability of your plan?” and I think that’s a lot of what we’re trying to answer when we come to that, right?

CARL: Perfect. Yeah, that’d be great.

ROGER: So, I think we’re okay there. Now, let’s do the flip side. Talk to me about the cash flows that you’re going to have once you do retire. We’re going to bake in social security with the assumption that it starts at traditional, when you’re fully eligible, but we’ll also model taking it early, taking it late, and play how to maximize it. So, we’ll bake that in. Are there any other income sources outside of social security that we’re going to be able to factor in here?

CARL: Yeah. You know, one thing, obviously, my net worth, the equity that I’ve built, the investments – and I’m sure we’ll go through that – but one of the things I’m trying to get my head around a little bit is, because I’m retiring early, hopefully, you know, the 401K isn’t accessible until 59.5 and I know I can do there with level withdrawals. I haven’t really studied that yet but my assumption is I don’t touch the 401K until 59.5 so, you know, I’ll have a pension but that won’t be sufficient, obviously, to cover everything so this thing of withdrawals is going to be a little bit unique with the early retirement because I’ll have to pull pretty heavily on the after tax stuff that I’ve got – you know, joint trust with the rights of survivorship type accounts.

ROGER: Okay. We’ll figure all of that out. Just tell me what you have outside of your investment accounts that will be income. You mentioned a pension. Tell me about your pension.

CARL: Okay. Basically, there’s a pension which, depending on how long I work, it’s variable as I’m sure most people are familiar with that. I’m very fortunate and blessed to still have the traditional defined benefit pension. So, the longer I work, the more that that’s worth. Basically, if we look at two points, if I retire at 54 and do the 50 percent survivor model, it’s about $6,400 a month. If I go to 55, it goes up to about $7,000 a month. It’s pretty linear so it’s kind of plus or minus $600 a month for every year additional I work or every year earlier I leave.

ROGER: Okay. And then, if you retire at, say, 55 and you delay taking it, does it increase from there or is it locked in at that $7,000?

CARL: It’s locked in, not inflation adjusted.

ROGER: Okay. Yeah, I’m assuming there’s no inflation adjustment. But, even without the inflation adjustment, does it change if you delay taking it, say, to 60?

CARL: No. Once you start taking it, it’s locked in at that level for life.

ROGER: But if you delay taking it?

CARL: If you delay taking it, I think it does go up a bit. I haven’t really modeled that. I’ve got a pension consultant person we can have model different things. All I’ve done is kind of said, “Okay. If I leave at 55 and start taking it, what does it look like?” I’ve not asked about leaving at 55 and not taking it until 60. I’m sure it’s higher.

ROGER: Okay. So, for our purposes, we’ll stick with that number and not make it too complicated for what we’re doing here. Do you have any other sources of income outside of your pension that you might be getting? Whether it’s rental income or gifts later on in life, inheritance?

CARL: Let’s talk gift first. I’ve got some rental income now. We’re renting the cabin. It’s about $1,000 a month but, obviously, once we live there, we’re not going to be renting it anymore so I’m not assuming any rental income.

ROGER: Okay.

CARL: There may be some small part-time work. You know, we get out to a national park somewhere and we work in the concessions for a summer or something. I’m not probably going to plan on any of that. That’s just going to be bonus money if we do it.

ROGER: Right.

CARL: I’d like to not have to be able to do it. So, from plan, true financial independence, you don’t have to work – that’s the goal.

ROGER: Okay.

CARL: And then, if we work, it’s kind of extra stuff. Inheritance, potentially a bit – not a lot of wealth in the family but, on my side, my dad’s mid-80s, early 80s, doing well, healthy-wise – but, you know, there’s a bit there. I don’t really know how much but I would guess maybe let’s say $300,000 at some point could come in as an inheritance there.

ROGER: Okay.

CARL: And then, obviously, social security. I’ve got some numbers if you want the numbers. I’ve got them off the social security estimator thing that they send you. I’ve got a couple of different ranges like those where we can talk through that later. It’s up to you.

ROGER: Okay. Well, why don’t you give me the benefit that is projected at full retirement?

CARL: Okay. Actually, I’ve got three. Age 62 is $1,900 a month – actually, $1,890. Age 67 is $2,700 a month. Age 70 is $3,365.

ROGER: Okay. Do you have it for your wife or no?

CARL: No, I don’t. She worked a bit early when we were married but not a lot of income so I don’t have those numbers and they’re probably not material.

ROGER: Okay. Well, that will still be something that we factor in.

CARL: Okay. I’ll check that.

ROGER: Yeah, she may not be fully insured but she does have spousal benefits that we can discuss.

CARL: Yeah, that’s true. I’m actually very interested in that. I’ve heard some podcasts on that and, you know, how do I suspend and all those things where can take it earlier and all those types of withdrawals strategies on social security or timing strategies. I’m really interested in that and I don’t know very much about it.

ROGER: Okay. So, we’ll talk through some of those as we get deeper into the plan. Okay?

CARL: I guess the only other income is kind of just equity, dividends and things like that. I don’t really know how much income it’s generating right now. I’ve got my net worth statement which I can send to you as well and we can make some assumptions on returns. But it’s going to be combination of obviously dividends, capital gains, and withdrawals would be obviously the primary bridge to the month.

ROGER: Okay. Yeah, we’ll factor those in at a later point so that’ll be fine. Now, let’s turn to your net worth statement which is really a key document for any type of financial planning.

CARL: Yeah.

ROGER: So, I want to keep this really high level. You said you were going to get me your balance sheet. We’ll do that offline and that will be baked in when we have the webinar to present the plan. For this conversation, I want to keep it high level. We don’t need to go line item by line item.

CARL: Perfect.

ROGER: So, if you have this, I’m going to divide it into a couple of different categories. The first category I want to divide it in is taxable productive assets, okay? So, all I need is a total, and what I mean by taxable, that means obviously it’s in a taxable account and, by productive assets, that’s going to be your investment accounts, stock options – things that aren’t what I call use assets like your house and other things that you really don’t have any value, they’re going to produce anything for you, they’re there just for your use. So, what is the total of your taxable productive assets?

CARL: I have kept a net worth since 1991, actually, ironically. It’s kind of really been interesting to watch it change over the years. I know you’re a big fan of the net worth. I can’t speak to it highly enough. Unfortunately, I don’t necessarily categorize that way. But let me give you the categories I have and we can probably identify which one of your categories you want to call it.

ROGER: Perfect.

CARL: So, this is kind of mid-year 2014. I update this twice a year. I’ve got what I call liquid assets which would all be after tax – things like checking accounts, my HSA, my money market funds, things like that. So, liquid stuff is about, let’s call it $110,000.

ROGER: Okay.

CARL: I’ve got a variety of 401K and I do have the breakdown on that. My 401K balance primarily in equity, some in fixed, but regardless, the before tax is about $530,000. The Roth is about $320,000 and the after tax is about $350,000. So, it’s about $1.2 in total, that’s the breakdown on the 401K.

ROGER: Okay. So, you have a mix of pre-tax Roth and after tax contributions?

CARL: Right.

ROGER: Yeah, okay. That creates some wrinkles that we’ll make sure we work through in terms of how you touch these. So, you have lots of different tax buckets.

CARL: Yeah, so I will be very interested in your view on that. I don’t know if tax rates are going up. I don’t know if tax rates are going down. You know, obviously. So, my whole goal, diversify, diversify – not only between types of funds but also types of tax structures. So, that’s why I’ve kind of built that but I don’t really know what to do with it at this point so I would be very interested in your thoughts about that.

ROGER: Okay.

CARL: And then, beyond that, I’ve got primarily a joint trust with the rights of survivorship – this is after tax mutual funds - $177,000 and then I’ve got some ETFs and things like that which are $75,000.

ROGER: Okay.

CARL: And then, I’ve got a bit remaining in the college fund that we set up in my daughter’s name so that’s about $20,000 but, obviously, we still have to pay for college so we’ve got $20,000 there which will cover, say, another (00:31:29 unclear) and then we’ve got call it $10,000 just in individual equities. So, total is about $1.6M.

ROGER: Okay. So, let me review this. We have about $110,000 in cash in various buckets. In taxable investments, you have $10,000, $75,000, and $177,000. I don’t have a calculator here but those are your taxable accounts of various sorts. And then, in your retirement accounts, you have a pre-tax IRA of $350,000 and then a Roth 401K of $320,000 then an after tax 401K of $350,000.

CARL: Correct.

ROGER: Okay. Do you have any stock options? I thought I heard you mention that once so I want to make sure.

CARL: I do have some stock options. I’m not sure what happens when you retire with those, if I have to exercise those before or if they carry over. I need to check on that but there are, you know, we call it the kind of the long-term pieces of the bonuses. There’s a short-term bonus that’s just an annual payout and then there’s some options stuff that I’m not exactly sure how that pays out post-retirement. I probably need to check on that and let you know. Right now, let’s see, the annual payout on it probably varies $20,000 to $30,000, in a good year, $40,000 a year. But, you know, that wouldn’t last very long after retirement if it continues at all.

ROGER: Okay. So, is your general strategy to execute and sell immediately each year as they vest?

CARL: Pretty much. I mean, I kind of watch what’s going on with the valuations and I’ll try to time it a bit and take several tranches through the year and liquidate when it’s kind of on peaks. But I tend to not want to carry a bunch of in the money options. Yeah, I tend to liquidate them as I go, plus we’re paying for college right now.

ROGER: Yeah, that helps. It helps motivate you. Okay. And then, typically, with stock options – and each plan is different but – typically, when you separate service, you have 60 to 90 days to exercise whatever is vested.

CARL: That sounds about right, yeah. I know it’s short-term but, yeah, there’s some value. I probably need to get my open option balance and build that in. I’ve not (00:33:39 unclear) with that from this plan at this point.

ROGER: Yeah, I want to include that into some of the stuff we talk about. So, when you get that schedule, you can just send it to me.

CARL: I’ll do it.

ROGER: Okay. Are there any other things like that? RSUs?

CARL: No, I think that’s pretty exhaustive, yeah. I guess the one thing we should mention, obviously, is we’ll be looking at selling the house. So, the mortgage (00:34:03 unclear) that we should touch on – you know, what I think I’ll sell it for, what the mortgage balance is. I don’t know where that fits into this discussion but there will be some liquidity generated when we do that.

ROGER: That is right where I was going next. Good.

CARL: There we go! Amazing minds.

ROGER: All right. So, what do you project as the net equity that you’ll extract once that happens?

CARL: Yeah. What we’ve got right now is $170,000 mortgage remaining and I’m paying off about $750 a month in equity so it depends how long I work again. This is kind of like the pension gets bigger, the mortgage will get smaller. But, I think, what we’re looking at is probably selling the house in, like, June of 2016. So, at that point, (00:34:44 unclear) paid off and then I’ll probably throw a little bit of money at equity here. What I’ve been doing as the mortgage has been so escalated, I’ve been liquidating some equities and putting it into the mortgage because I know I’m going to get that money when we sell it and it’s for return kind of about paying off the mortgage risk-free. So, let’s say the mortgage balance would be about $150,000 when we sell it and I’m hoping to sell it somewhere between $375,000 and $400,000. And then, you’ve got obviously some commissions and things like that – $100,000 to $225,000 would be the proceeds from the home sale.

ROGER: Okay. And then, let’s talk about the debt side of the equation. You said you had a mortgage on the home.

CARL: Yeah, we’ve got the mortgage on that home which will obviously be paid off and we’ll get the $200,000 free and clear. We have the mortgage on the cabin which, right now, I’ve got that on my net worth statement. The cabin loan is about $140,000.

ROGER: Okay. Any other debts that you carry?


ROGER: Good for you, Carl! Good for you.

CARL: Yeah, that’s what we focused on first before we started building a portfolio.

ROGER: Okay.

CARL: Big Dave Ramsey fan. I don’t like his retirement advice but I love his debt pay down advice.

ROGER: Well, one size does not fit all, you know, but he has some great stuff.

CARL: Helped millions of people. He’s a good man.

ROGER: All right. So, last week, we went through the goals discussion – establishing what it is that Carl and his wife cares about. And, this week, we’ve gotten a much clearer picture of your cash flow situation and what we’re projecting for retirement. Again, it’s pretty rough, still. What your financial situation is from a balance sheet standpoint.

Next week, Carl, what we’ll do is we’ll start to talk about – these are horrible topics to talk about, it’s hard – health care, long-term care, and some of the risks that we identify that you have to deal with and then also start to wrap it up with an estate planning discussion to make sure you have some of those things set. Sound good?

CARL: Sounds great!

ROGER: Well, okay. Now, we’ve heard Carl’s financial discussion. Now, it’s time for you to start to identify and organize your financial resources. So, what you’re going to receive – and you should receive this here hopefully by the time you’re listening to this podcast if you’ve signed up – is an email and you’re going to have a summary of Carl’s financial assets, his net worth statement. Again, I’m going to warn you, some things have been changed, obviously – his name and things like that have been changed – but some things have been changed to protect his identity because, well, he’s a listener like you and he wants to have some anonymity – whatever the word – he wants to be anonymous. There we go.

You’re going to get a summary of his net worth statement so you can see what one looks like. You’re going to get a worksheet to explain how to create your own net worth statement which is something that’s critical. Even if you don’t want to retire, it’s something you really want to track year after year. And then, you’re going to get the addition of that lifestyle worksheet where you can start to identify things like pension and social security. And then, I’ll have a short video for you to give you some pointers – hopefully to help you make that process easier.

Now, if you have any questions, remember, you can always email me at roger@wwkllc.com and I will work to answer any of your questions to help you plan alongside Carl.

If you haven’t signed up yet, you can go to rogerwhitney.com and sign up in the top-right corner and you’ll get all the resources for this week along with the resources for last week.

Next week is a really fun discussion about something everybody loves to talk about and that is the risks in our life. We’re not going to have a lot of solutions here but we’re going to identify and discuss some of the major risks in Carl’s life which are really risks that are in everybody’s life when it comes to retirement and that’s health care, long-term care, investment risk, inflation and things like that. So, that’s what we’ve got on deck for next week.

I hope you enjoyed today’s episode and thank you so much for listening to the Retirement Answer Man!


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