transcript
Speech-to-text transcription can look a little quirky. Please excuse any grammar or spelling errors.
Episode #470 - Retirement Plan Live: Their Financial Resources
Roger: Take a breath and look around.
Hey there.
Welcome to the retirement answer man show. My name is Roger Whitney. I am your host. This is the show dedicated to helping you not just survive retirement, but to do the work to have the confidence to lean in and rock retirement. Part of doing the work is taking a breath, checking yourself and then observing where things are at.
That fits well with our journey with Rosie, this episode where we're going to look at what resources she has to marshal to achieve her ideal retirement that she defined over the last two weeks. What to work with here? What kind of social capital, Guaranteed payments like social security and pensions, etc. What kind of human capital? Any part time work, etc. And what kind of financial capital does she have to fund these liabilities that are her goal? So that's what we're going to focus on today. It's a great time of year to do that, by the way, because it is January which is when we want to be observing where we are financially.
So, we can reset to marshal those resources to achieve what it is you want to achieve this year. So that's what we're going to do today in addition to answering your questions. So why don't we get started?
RETIREMENT PLAN LIVE
I invite you to join me live on February 2nd at 7 p. m. central for two things.
The first one is we're going to walk through Rosie's financial situation, her goals, her resources, and to determine whether it's still feasible given the bear market and how that's impacted them, and to brainstorm risks and opportunities they should focus on to make sure they can get to a feasible plan.
You'll have a chance to ask questions and Rosie will be live. It's going to be a blast. You can go to livewithroger.com to register.
In addition to that, I'm going to invite you to consider joining the Rock Retirement Club to join a thousand plus people, a lot like you, where you can learn how to create a plan to retire with confidence, use best in class retirement planning tools to create that plan and get the support from me and coaches and all the other thousand plus community of the Rock Retirement Club.
We're coming up on our fifth year this year. And over the last four years, I've seen members go from being unsure of how retirement works and what is possible to having confidence to manage their plan and lean into rock retirement. And I love to see you do that too. You can register at livewithroger.com.
Now we're back with Rosie, Rosie. How are you doing?
Rosie: Good afternoon.
Roger: Good afternoon. All right. We had our heads in the clouds last week and dreamed up what the ideal situation would be, not knowing if it's possible or not. Now we have got to figure out how the heck you might pay for this, right?
Rosie: Yes. That's the million-dollar question.
Roger: Tell you the answer right now. We won't know for sure, but we need to have a framework to at least have some indication. It's not going to be binary yes or no. It's going to be, well, or maybe if this, that or that. So that's just part of the process. We're going to talk about the resources you have to pay for all of this spending to fund your goals, which are representations of you and Duane expressing your values.
You see the thread that goes all the way back? We want to keep that.
Rosie: I do see that now.
Roger: Okay. So, we're going to talk first about social capital, and social capital is essentially guaranteed payments that are provided by some other entity. Like social security would be the most obvious one. So why don't we start there?
Are you or Duane receiving social security now?
Rosie: I am now.
Roger: Okay. Remind me of your age?
Rosie: I am sixty-four, basically.
Roger: Sixty-four. Okay, and then, so you took before full retirement age, and how much are you receiving?
Rosie: Like, twenty-two hundred.
Roger: Twenty-two hundred a month. Okay. And what about Duane?
Rosie: He is not receiving it yet but will be soon. Just turning sixty-two.
Roger: What is his estimated payment?
Rosie: I think it's around 1, 800.
Roger: Around 1, 800 a month. You already have, and he is planning on taking it early.
Rosie: Yes.
Roger: Okay, and so that 1, 800 represents that discount for taking it before full retirement age.
Rosie: Right.
Roger: Okay. I am curious what led to the decision to take it prior to full retirement age.
Rosie: Most of our resources are going to be what we have in our investment account. So, we're just trying to minimize how much we're taking from those accounts up front.
Roger: Okay. And did you have a process, whether it was with your current advisor or previous advisor, that helped think through that?
Rosie: Yeah, I'd say we had some conversations. We don't have any other social capital so, it's 100% out of savings or investments or not.
Roger: Okay. And what type of process did they go through to help you think through that, if any?
Rosie: We did go through, like, a whole cash flow process at one time. I mean, we always express that we intended to take it early and didn't really, I guess, encourage thinking of taking it later. Not that we couldn't have run those numbers, and maybe we did. I just don't recall.
Roger: But it was always your intent, so it could have been just assumed and it wasn't questioned. Okay, and so that is your social capital. You mentioned you don't have any pensions, annuity payments or anything that's just guaranteed.
Rosie: Well, not true. We do have one annuity, but it doesn't really start the amortization that would be of most benefit until about six more years because we just bought it three or four years ago.
Roger: Okay, so currently it's we'll call it financial capital because it's probably investment based of some sort I’m guessing. Okay, so we'll deal with that in a moment. So, no other social capital.
Now, the second category is human capital, which is going to be generally, it could be if you own properties, it could be rental income, or part time work, or something along that line.
Do you have any human capital?
Rosie: The human capital we have is Dwayne doing part time work at a pretty minimal level. Between, I'd say between, depends on how much he works, but between probably 15 and 25,000 a year.
Roger: Okay. That's not bad. And how long do you think he will do that for?
Rosie: I think in the plan, we built that out probably at least another six years.
Roger: So, 15 to 25,000, and he has some control over that because of the nature of it. Okay. So that is the human capital. Anything else in the human capital catagory?
Rosie: This human has no capital to contribute.
Roger: You have plenty to contribute, just not in this form. Not that it couldn't happen, but that was not the plan. Okay, that's all right. Let's go to the money, the financial capital. And let's start with after tax assets. So those are assets that are not in retirement accounts or tax advantage schemes. So that'd be like savings accounts, CDs, after tax investments, and so forth.
If you were to total that category, what would you put there?
Rosie: That is minimal. So, I would say 30, 000.
Roger: Okay. 30, 000 in after tax assets, and that probably serves as a contingent or emergency fund of some sort.
Rosie: Yeah.
Roger: Now let's go to pretax assets. So, this is going to be your traditional IRAs, your traditional 403Bs, or 401Ks.
What would be that total?
Rosie: Oh, should that last category have included Roth? No. Or no? No. No, we'll get to that. Okay. Yeah. So now you just want to like traditionals? Yes. Okay. That's hard math to say. So, this looks like 680, maybe?
Roger: 680, 000, so that's traditional IRA, traditional 401k accounts.
Rosie: Yeah, somewhere in there.
Roger: Okay, and then Roth, so that would be tax free category. Money is that you'll never pay tax.
Rosie: Fifty-five.
Roger: Fifty-five. Okay. So, let's do some live math here, which we hate to do, but we're going to do it anyway, and so about seven hundred and sixty five thousand in financial capital.
Rosie: Is that including the cash or whatever?
Roger: It is, and we're going to talk about how this money is invested in our next conversation. So, we don't need to go there right now, we're just going to talk about what you got.
All right now, let's go to sort of other assets I'm assuming the annuity was included in that total that you gave me.
Rosie: Yes.
Roger: So, we'll get to that in the next conversation.
You have a home.
Rosie: Yes.
Roger: Roughly. What is your home valued?
Rosie: Roughly 375.
Roger: Okay. We have a home. Any other assets? I mean, maybe cars and stuff, but any other?
Rosie: A little bit of money in an HSA and we have a little summer cottage thing, actually there's no equity. We just bought that. I guess it is an asset. It's just like a little mobile home thing that we just bought. We financed it.
Roger: Okay. Tell me without the debt part of it, explain a little bit more about what this is.
Rosie: Okay. So, it's a property with a kind of park model type home on it. That was 60, 000. That's the value of it.
Roger: Okay. And then how much did you finance?
Rosie: Probably 55. Most of it.
Roger: So, you have 5, 000 in equity.
Rosie: Probably. Yeah.
Roger: Okay, then you have an HSA. How much is in the HSA?
Rosie: About 10.
Roger: 10, 000? See, these things add up. These things add up.
Rosie: Yeah.
Roger: Okay, and then on the property, what should I call that? That's a mobile property or what do you call that?
Rosie: Trailer cottage.
Roger: Is there annual upkeep on that annual cost?
Rosie: It's very minimal, but maybe a hundred a month. A hundred a year, not much.
Roger: Okay, and is your, that amount and your payment amount included in your base great life number that you'd give me last week?
Rosie: Yes.
Roger: Okay. How long was that financed for?
Rosie: Well, hopefully not long because that's kind of in the plan to not have that finance for very long. So really, it's just on home equity at the moment, just kind of waiting till we see what happens with this market and decide whether or not we want to do something.
Roger: Okay. Right now, you don't have payments. It's probably just accruing interest only.
Rosie: Yeah. I mean, you know, there's some nominal payment.
Roger: All right. But if you're planning on paying that off at some point, you're going to have an outflow of 55, 000.
Rosie: Right. Yes.
Roger: In your mind, when do you think you're going to do that?
Rosie: When the market becomes fun again. Don't know. I mean, within five years, I would hope, but I don't know. That's part of the whole game plan that has to kind of get figured out.
Roger: What happens if the market doesn't get quote unquote fun?
Rosie: Well, here's another thing we have to think about too, is we just bought it, and if we don't like it, we're not using it that much. We'll just sell.
Roger: It may be even or at a loss or whatever.
Rosie: Yeah. Either way, it wouldn't be a big gain or a big loss. I'm not saying that's going to happen. I don't know.
Roger: Okay. But the key here is there is no pathway currently for how this loan will be satisfied.
Rosie: Correct. Unless we sold our home and everything, let's say we were going to go move to Florida. Okay. Then at that time we would.
Roger: Okay. So, this is an open loop. I'm glad that we talked about that. Any other debt?
Rosie: So, we got a little bit of a car on there. That's it.
Roger: Okay, and the cars, the payments are included in, right?
Rosie: I mean, there is some mortgage left on the house.
Roger: How much is left on the house? Can I ask?
Rosie: 130.
Roger: 130 and tell me about the loan. 30-year fixed?
Rosie: Oh, it's probably a 15 fixed. I think it was. We bought the home and then remodeled it.
Roger: Okay, and then how long ago did you take that loan? Do you know roughly?
Rosie: Roughly four years maybe?
Roger: Do you recall the interest rate?
Rosie: Low three something?
Roger: I'll just do three percent. For what we're doing here in this exercise that's totally fine. So, you have a hundred and thirty thousand dollar balance on it Do you recall what the initial balance was?
Rosie: At some point I think it was more like 150.
Roger: That's all right. I'll back it into a payment and that payment is included in your base great life number, right?
Rosie: Yes, and that was kind of a similar thing to the cottage thing in that it was a home equity situation that we were waiting to see how we wanted to handle it.
Roger: Okay, and we essentially just built a net worth statement, right.
Outside of the net worth statement, are there any extraordinary events that would add to it. The most likely thing is going to be gifts from someone else or an inheritance from someone else, your lottery ticket, paying off, things like that.
Rosie: No, I expected nothing there.
Roger: Okay. On the flip side is there anything that you are going to expect that you may be obligated to, to someone else?
Rosie: You mean like, for us, that we would want to?
Roger: Well, as an example, if you have parents that are alive that you may have to support financially in some way.
Rosie: Gotcha. No, we have one parent that is still with us, but I don't think that's going to be, if it were, it wouldn't be anything that we'd have to budget anything special for.
Roger: Okay, and then in terms of insurance, do you have any life insurance of any sort?
Rosie: No.
Roger: Do you have any long-term care insurance?
Rosie: No.
Roger: I think that we've captured the resources you have to build a feasible plan to do the feasibility analysis. What we're going to do next week is talk about risk and your experience in the portfolio because I know it's been hit with this bear market.
We're going to talk about your experience of working with a financial advisor. It sounds like you've had bad and good, and talk about risks related to, this goes to resilience of what happens if one of you that passes first, what happens long term care, what pathways, it sounds like they may not be totally planned out, which is not unusual and just what you're thinking is about those so we can work those in to resiliency when we have that conversation live on February 2nd. Okay?
So next week we'll talk about advisors and risk and your investment strategy, roughly bonds versus stocks and the annuity we'll talk about a little bit. We'll flesh this out a little bit. Sound good?
Rosie: Sounds great.
Roger: All right. I will talk to you here in a week.
Rosie: Okay. Thanks. See you later.
LISTENER QUESTIONS
Roger: Now it's time to answer some of your questions. One of the things we love to do. If you have a question for the show, go to rogerwhitney.com/askroger, and you can type in a question or you can leave an audio question even better, and we'll try to answer it on the show.
A SOCIAL SECURITY ERROR- WHO TO CALL?
Our first question comes from Todd.
Todd says,
"Love the show. Been listening for about a year now."
Glad you're here, Todd.
"I'm 50 years old and have a little way off before retirement, but I have a question you might not be able to answer, but I hope your expertise in the industry might enable you to lead me in the right direction. My brother-in-law is on partial disability and receives social security checks every month. He is allowed to work part time but can only work a certain amount before his social security checks might be rescinded.
My parents, who are retired, they're 80 plus years old now, have been helping them with the paperwork. Well, apparently there was an error that goes back 10 years. Even though his hours were always correct, things like holiday bonuses, vacation were supposed to be included.
Regardless, the result is that the Social Security Administration says my brother-in-law owes 60, 000. To pay for this, The Social Security Administration is deducting 100% of the paycheck until the error is corrected. That will take five years. Now there is no money to pay for the bills, leaving my parents to pick up the difference on fixed income.
Do you have any guidance for a case like this? Who do we call? Are there any groups that might be able to help navigate how to perhaps negotiate with the Social Security Administration?"
Oh, geez, Todd, that's a rough one. A lot of errors were made over a period of time. I'm sure that your brother-in-law is not happy about this. I can imagine that your parents feel a little bad about it too. So, the key here is to acknowledge that it happened and there's going to be some grief and anger and all that going on, but then to look forward to finding pathways. That sounds like what you're doing and you're a good man to help them out and do this. So, thank you for that.
This is definitely not something I have any experience in. So, let's. try to think through some pathways that you and he might be able to approach.
One is there is an appeals process for any decision that could cause undue hardship, such as the one that your brother-in-law is in. So, I would work through the Social Security Administration website and find out what those processes are in order to make an appeal to get some relief, either all or some for this error because it sounds like it was totally a mistake. It was just something that happened, and we all have done that.
Spend some time on their overpayment page at ssa.gov and we'll put a couple links in 6-Shot Saturday to these links because they're too long to share on the show. Two forms you want to be aware of are SSA-632 and SSA-634 related to this issue. Generally, they'll have some instructions available to them, but spend some time on the forms and figuring out what the process is for an appeal, because there is a process.
The second pathway that I would suggest that you look at is to look at your brother-in-law’s state where he lives, and there may be some advocacy resources or services within the State Department of Human Services. You can search that state website, perhaps reach out to them directly. They may have someone that can help you or direct you to a third party, such as an attorney or former state employee that might do this as advocacy work to see if there's any way of getting some release, even if you can mitigate it, that would be great.
But I think work these two pathways concurrently, and I'm going to put it out to anybody that's listening to the show that has experienced this, or perhaps has some knowledge about it, to email me directly at roger@rogerwhitney.com or reply to our 6-Shot Saturday email. Todd, if I get any of those resources, I believe we should have your email. We will try to share it on the show or email you directly.
Thank you so much for helping not just your brother-in-law, but your parents, because I'm sure that they feel a little bit bad about this. So good job. Thank you.
WHAT CAN BETH DO TO GET CLOSER TO RETIREMENT UNDER LESS-THAN-IDEAL CIRCUMSTANCES?
Our next question comes from Beth, and this is one that we're going to have to explore further in a month theme regarding less-than-ideal retirement, meaning less than ideal in terms of the resources available to fund retirement.
And so, Beth, I want to address your question today, but I also want to make sure you know that we're going to try to think through this type of situation in a more organized way. I'm so glad that you're listening to a show like this because that means you're actively working on the issues that you're trying to figure out.
That is huge. That is where agency lives is, okay, how do I find some pathways? What can I do to have some control over this?
So, Beth's comment is,
"I absolutely love the show and appreciate your wisdom and advice. As a 60-year-old burnt out and overworked healthcare worker with dwindling stamina and the start of some health issues making work a challenge, as in, I doubt I can sustain this career much longer, as well as a post-divorce five years ago which resulted in a significant reduction in assets, I am concerned.
I am single. I live in a rural area, which means work options are healthcare, school, and Walmart, and I rent. What can my pathway moving forward into retirement look like? I'm five years away from Medicare, ten years away from Social Security. I have some savings in a brokerage account, but not enough to bridge this timeline, and some retirement savings, but also not enough. I am hoping that you will consider doing some shows that incorporate these less-than-ideal circumstances."
Beth, yes, we will. We will do a theme on this, likely in the second quarter.
Your situation is normal for a lot of people. The potential pathways are less, it becomes less of a how do I save enough to make it okay, because the timeline is so short, and more of how do I build a sustainable life, where even if I have to work, I'm not doing it at the same pace that I am doing it at.
So, Beth, I just wanted to share this with you that I heard and read it. For anybody else that is in this situation, we're going to try to think through this in an organized way to help give you some pathways to navigate this.
You're 60 years old. Things I think off the top of my head as well. You don't have to work at exactly the same pace. Maybe you can pivot within the healthcare industry. Work is limited where you say you are, there's nothing wrong with working at Walmart or working at the school. If it gives you less stress and can give you an easier ride to not exacerbate the healthcare issues that are arising, maybe it's the type of work that you're doing, whether it's physical or physical and stressful. I know it can be stressful. Anything in the healthcare industry, just talking to my son and the things that he's experiencing.
Doing the work but also seeing people go through sickness has a toll, psychologically but physically. So, all of those pathways you mentioned are reasonable.
Social Security. Does that make sense for you?
I don't know. For some it does make sense. But that's a pathway. Another pathway could be, is there anything you could do that is not reliant on going to work someplace that's online in some way? Whether that's an eBay store or an Amazon store or I don't know. But I think these are some of the things.
The financial end of it is not that difficult to figure out. If it doesn't work, it doesn't work, and if you're 60 and burnt out, it's likely that you're not going to be able to save enough to make up for the divorce and just things that have happened.
So, there are pathways. How do you design a life?
I think reframing what we're talking about here is how do you design a life that you can bring joy too, even if it requires working, but working at a pace and doing something that you can sustain and still have some time freedom for recuperation. The way you describe it, it sounds like you're maybe drowning a little bit. With overworking and dwindling stamina, there may be some mitigation or some things that can be done to help improve stamina, blah, blah, blah, but there has to be some pathway.
So, we're going to try to think through this in an organized way. So, I just wanted to let you know that Beth, we're going to do that in 2023.
HOW TO KNOW IF BENEFITS WILL CONTINUE TO INCREASE?
Next question comes from Rod related to social security. Rod is 67. His wife is 66. And here are the facts. Rod just gave the facts. Thanks, Rod.
"My full retirement benefit was 3, 300 when I turned 66.
It will be 4, 300 when I turn 70. My benefit today is 3, 500.
If I start benefits now and keep working making north of 200, 000 per year the next four years, will my benefit go up to 4, 300 a year at age 70? Will my benefits keep going up 8% a year if I start Social Security today?"
So, let's take that question first because you have a couple of different parts here.
Rod, if you start your benefits today, your benefit will be what you said, 3, 500 a month. It will not go up by 8% per year because you're not delaying your Social Security benefit any longer. It will go up by the annual COLA adjustment, the cost-of-living adjustment. So, if you start your benefits, you're locked in at that payment, and then any increases that you get will be based off of the annual COLA adjustment, which has averaged around 2. 7% over the last 35 plus years or so. I think we're going to have a big one this year in January of about 8%, but that's unrelated.
Now, Rod, if you don't claim your social security benefits and keep working, then you're social Security projected benefit will go up by roughly the 8% a year for delaying plus any COLA adjustments.
Then you say that your wife's benefit at full retirement age is 1, 000 per month, which is going to be less than 50% of yours. So should she start today as well.
Well, once she reaches full retirement, she can file for her own social security benefit, and then ultimately when you file for your benefit, she will receive half of the benefit you would have received at full retirement age. So she's not going to get the benefit of the increases by you delaying, but she will have a spousal benefit that will be more than her benefit on her own.
In addition, assuming that you pass away prior to her, and this is the key, I think, in a social security strategy, is that she will move into your position, her benefit as a spousal benefit will go away, and she'll be receiving whatever benefit you're receiving at your death.
So, it's a great way to structure a longevity annuity that is inflation adjusted of having these guaranteed payments. One last thing is, if you go back to episodes 228 to 231, we went through this entire social security topic in detail. So, you can check out those episodes.
That was about four plus years ago so maybe we're due for social security themed a month again. You can tell I'm planning for the year as I'm thinking, oh, should we do a theme on that or not? Maybe we should on social security as well.
With that, let's go set a smart sprint.
TODAY'S SMART SPRINT SEGMENT
On your marks, get set,
and we're off to take a little baby step you can take in the next seven days to not just rock retirement, but really to rock life. Over the next seven days. I challenge you to update your net worth statement that will fall in line with what we talked about with Rosie today.
We will have a worksheet in our 6-Shot Saturday email, which is our weekly email that we send out to listeners where we summarize the answers to all the questions, and we can share resources that we mentioned.
So, if you're not signed up for 6-Shot Saturday, you can go to, well, 6ShotSaturday.com or rogerwhitney.com And that way you can get that weekly email and we'll have a resource for you to create a network statement or to update your own that you have.
That way you can have a good grounding of a year-end network statement where you can observe, so you can start making proactive decisions about what you're going to do this year.
CONCLUSION
We're in the middle of production of the Rock Life segment. Also, I want to call it the heroic retirement section. It's going to be about non-financial things. And I was hoping to have it launched this month in January, but it looks like it's going to be February. It's going to be really good.
We're going to cover mindset. We're going to cover energy, relationships, passion, and work, and try to help you take little baby steps outside this money stuff. Because money is just the vehicle to you becoming fully who you are already.
So, I'm excited about that. And I'm excited to see you on the 2nd, you can register for that at livewithroger.com. I will see you next week.
The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance references are historical and do not guarantee future results. All indices are unmanaged and could not be invested in directly. Make sure you consult your legal tax or financial advisor before making any decisions.