The Universal Truths of Retirement (PART 2)

Retirement is a unique journey for each of us. The thought that there's a one-size-fits-all solution is a myth, but what if we told you there are certain universal truths that can guide every retiree?

Today we’re going to finish up our two-part conversation that will juxtapose the individuality of retirement plans with the foundational principles that remain constant regardless of who you are.

These 10 total truths need to be accounted for when you build a plan for retirement, and we’ll talk about how and why they could have an impact on your financial future.

Here are the retirement truths we discuss in this episode:

• Diversification is Essential for Risk Management.
• Emotions Can Be an Investor's Worst Enemy.
• Tax Implications Matter.
• Retirement Doesn't Mean Complete Disengagement from Work.
• Estate Planning Isn't Just for the Wealthy.

Full Transcript:

Ben: We got a good show today. We're going to finish up our conversation. We started last time on the Universal Retirement truths. We talk about it being a unique journey and a one size fits all is not the approach for retirement, but there are some things we can all apply to our retirement plan and have conversations about and planning for. And we're going to talk about five more today. But before we get into that to Ryan, I wanted to hit you with a little getting to know you question an interesting one. I think we all kind of approach the mornings differently. I think some people are morning people, some are not. So I'm curious, do you hit the snooze button in the morning or do you get up immediately?

Ryan: It's been years since I've hit the snooze button. I remember being a kid and I certainly did, I'll press that every few times and what happens, like every eight or nine minutes I remember would go again. But that was, especially in my younger days, playing water polo, early morning practices and things like that, and wow, that was tough to want to get up and get into that water. But over time, as I've gotten older, no, I am an early bird, so I wake up early and a chance to read, chance to get a little exercise, get ready for the day. So I'll wake up early. I'm never worried about having to press the snooze button or anything like that. I don't even need to set the alarm most of the time, Ben.

Ben: It's a nice feeling, right? When you don't have to set the alarm. For me, it's been having young kids haven't had a chance to hit the snooze button in a while. You're oftentimes having to get up immediately when something's happening, somebody's awake or you hear something moving around, you don't have that choice. But I do miss those days of not having to worry about an alarm at all in college and what not. I don't know if we'll ever get back to that, but those were fun when they lasted.

Ryan: Yeah, no, a hundred percent. Even if I weren't an early bird with I've got a five-year-old, there's no way I would be sleeping in. He's coming. He's jumping on me and I mean, geez, it's five o'clock in the morning already. It's time to go.

Ben: Yeah, it's wild to think about. Yeah, I used to think of eight o'clock is being super early and now it's super late. It's like if I slept till eight o'clock, oh my god, what went wrong?

Ryan: Yeah, check on him. Is he okay? Yeah,

Ben: Life changes, but we enjoy it and it's always a new experience, which makes it great. So thanks for sharing that with us, Ryan. Again, if you haven't joined us before we hop into our conversation, I'll remind you, you can find everything online at CravitzFinancial.com. Everything that Ryan does, you can get access to and learn more about there through the website. And if you want to sit down with him and schedule a time to meet with him and begin that planning process or just pick his brain about anything that's on your mind and learn more about what he does, you can always schedule a time to meet through the website or you can give 'em a call at 714-462-9155. Now, last time we talked about the first five, we have 10 total universal retirement truths. So go back to our last episode, make sure you check that out. Go through those first five. There's some really good information there like talking about inflation, longevity, stock market, long-term care, some really key planning topics. Today we've got five more. Now I want to begin with diversification. So as we talk about these universal truths, these are things that everybody can use as kind of guidance as they're kind of planning for retirement, thinking about retirement, we all might approach to these things differently and plan for them in different ways, but you should be thinking about these. So diversification's first, and this is essential for risk management, right?

Ryan: Yeah, it really is. I mean, diversifying your investments across a mix of asset classes helps spread your risk, and I think most people know that. But while diversification, it doesn't guarantee profits or protect against losses and declining markets, it plays a crucial role in achieving a long range financial goal while also minimizing risk. And one of the mistakes that I see oftentimes with people is that they know they should be diversified and they think they are diversified, and it turns out they're really not. I can think of one person in particular. Recently we were taking a look at their portfolio and they had about 20 different mutual funds and they thought, Hey, I'm diversified. I have 20 different funds here. And the reality was is that most all those funds invested in the same types of companies. I mean, it was all what we call large cap growth funds.

And so the reality is that even there's multiple different funds if they're investing in the same types of stocks. In that case, then are you really diversified? No, probably not. And so that's just kind of a matter of getting under the hood and understanding how all that works. But diversifying is key, whether it's owning different stocks, different types of stocks, different types of bonds, whether that's government bonds, corporate bonds, different lengths, maturities, things like that, whether it's real estate, commodities, anything, even annuities or anything else as a part of your overall portfolio is important. And as I always say, you have to make sure that you have a purpose behind the different investments that you have. So whether that's to meet income needs at a particular period of time that you have a game plan around that. And you got to make sure that you are again diversified to do that.

Ben: And you can even take that a step further on even different types of investments, but you could even go different types of accounts. I know you've talked about having money in tax deferred accounts, some that you pay your taxes on, have that tax-free growth. There's just, you can diversify it in many different ways.

Ryan: Absolutely. I mean, that's one of the mistakes that I will see is that people are not diversified from a tax standpoint. We think about diversification from the investment standpoint, but also it's important for many folks to consider being tax diversified, where some money that you withdraw from it is going to be taxable at ordinary income tax rates. Some money is going to be subject to capital gains, maybe long-term capital gains if you hold it for long enough or dividends. And then others, you may be able to withdraw that money completely tax free and then be able to create a plan where you can blend the different accounts and things that you have together in order to make sure that you can withdraw from them in a strategic way to help minimize the taxes on that. So diversification comes into play in a lot of different areas.

Ben: Alright, so a great one to start there. Number six on our overall list. First one today. But diversification is essential for risk management. That's the first truth we want to talk about. Alright, second one here. Emotions can be an investor's worst enemy. I know we have to take the emotion out of what we're doing from a decision-making standpoint, but Ryan, it can be so difficult, can't it?

Ryan: Absolutely can. And as I say, a lot of times part of what I need to do in that area is to help people to marry the objective with the subjective. So, in other words, I might feel very comfortable that we can invest a certain way in order to meet the objectives that we have, but then when we look at what the potential volatility is there, it may be more than somebody's willing to stomach more than they're willing to be comfortable with. And so if we can devise a plan to still meet the objectives, but maybe not take as much risk to do that, if we can do that, that's even better, quite frankly, because as I always say, there's no reason to take more risks than you have to. If you've won the game, you could stop playing. But that's all important. But it's also important to consider that if you own certain investments and maybe they are more volatile to understand that, okay, that's the money that maybe you don't need to spend right now today, but is money that you're going to spend maybe in five years, 10 years, 15 years from now.

And within your plan, you know that hey, this bucket of money that I have invested, this is going to be more volatile when I see that news on the TV and maybe the markets are down and maybe your account went down as well, you don't panic because you know that, hey, that bucket of money is designated for me to spend maybe in 10 to 15 years and there's going to be that volatility along the way. Keep in mind there's a bear market that happens about every three to six years on average, and that means that that's a bear market is a 20% pullback from the high point to the low point. So we know that that's going to happen, at least based on history. Obviously we can't predict the future, but based on history, that's the way that it's happened. And if you're in, let's say a stock-based portfolio, to not expect that that will happen over time, it is just not wise. You have to understand how this has worked in the past and what to expect in the future.

Ben: And that's the beauty of planning is you can take that emotion out of it, had a well thought out plan, and you have a process to follow, steps to take, and it can help ease that anxiety and some of those feelings you might have if you don't have a plan in place. So emotions taking that out of investing and can be a big, big benefit for you. Alright, number eight on our list here. Taxes. We love talking taxes, but the overall truth here is that tax implications matter. And we kind of touched on a little bit when we were talking about diversification with taxes. Ryan, we can get into a little bit more here about those implications you have to be planning for what it could do to your retirement.

Ryan: Yeah, I mean, no doubt. Understanding the tax consequences of your investments is essential. And we kind of touched on this a little bit earlier, but being mindful of how taxes impact your retirement savings can make a significant difference in the growth of your nest egg and also overall retirement income. It's really just a matter of being very thoughtful about how you're investing. If you're going to select certain investments as a part of your portfolio, what type of account should you hold them in based upon how they're taxed? A taxable brokerage account, you're going to get a 1099 in the mail every year and you have to pay taxes on capital gains and dividends. But an IRA account or a 4 01(k) or something like this is tax deferred. So you're not going to have to pay taxes on that money unless you withdraw money out of them.

So it's important to kind of think through that. So if you have money that's in a tax deferred account and maybe it does some more trading and such, and so it would typically trigger more capital gains. For instance, if it's in that tax deferred account, then you're not going to have to pay taxes on that. So that kind of thing is very, very important to think about. And of course, as we've talked about many of times, it's also the different accounts that you have, whether it's taxable tax, deferred tax-free, should you incorporate Roth conversions as a part of your strategy? For instance, what things can you do to help minimize the taxes on your social security? Because believe it or not, there's things that you can do based upon the way that you're investing or accounts that you choose to invest in that could potentially minimize those taxes or potentially minimize the cost for Medicare due to the Irma surcharges. So there's a lot of different things here that come into play. And as I always say, we talk about one thing, taxes or we talk about investments, but all of this just kind of bleeds into everything else. There's so much overlap here when planning for a successful retirement.

Ben: Yeah, that's an important thing to remember. There is just so much overlap and this touches so many different areas of your retirement. So having a plan for taxes and be thinking through that thoughtfully and also to strategically to minimize what you're going to owe and have a huge impact on your finances in retirement. Alright, we're talking about universal retirement truce. This is a part two discussion. Make sure you check out part one if you have questions, Ryan, again, go to CravitzFinancial.com. Let's go to number nine here, Ryan. Retirement doesn't mean you have to completely disengage from work, right? I mean, we've seen this much more now that retirement doesn't mean you're done altogether. There's so many opportunities out there now through technology work from home that if you want to keep working, it's easier to do.

Ryan: Yeah, it's much easier. I mean, the retirement picture for most folks has completely changed over the course of the last few decades. I mean, it used to be when many people retired, unfortunately, they just didn't live as long in retirement. Life expectancy was much shorter, people weren't as healthy for as long. But nowadays it's not unheard of by any means for people to spend 20 or 30 plus years in retirement. And for many people, even for those that have figured out that they're confident and that they can afford to retire, there's this fear, what am I going to do when I actually do retire on a day by day basis? That could be, again, 20 or 30 years. What are you going to do with the time there? And I run across so many people that are, for all intents and purposes, they kind of consider themselves retire, but they're now scaling back, maybe working maybe at the same company, maybe in the same industry or maybe an entirely different industry or maybe starting a business.

And some folks that I know just wanted to get a very easy part-time job at, I can think of one guy, he wanted to get a job at Home Depot, for instance. He's a handy guy and he would just kind of get him out and about and do things. And so all those things could be good because from a financial standpoint it's some extra money. And from an emotional standpoint, it gives purpose for many people that they can continue to do something that they want to do on a day-to-day basis, maybe without the same type of stress, maybe not in is high of a level of a position, but still working to some degree and feeling that you're contributing and doing things. And I find that's important for many folks.

Ben: Yeah, there's a lot of reasons, not just financials. You mentioned that you want to continue to stay active and be working at some capacity, obviously not having to rely on that paycheck, that's the point you want to get to. But having the opportunity to continue to stay busy if you want to, is certainly out there and a new way to approach retirement maybe from traditional perspectives. Alright, let's close out with one more Ryan Estate Planning. Let's close out with this. This is the perfect way to kind of finish the conversation, I think. But a lot of people kind of put off estate planning or think they don't need estate planning because well, I don't have a ton of assets, I don't have a ton of money, but estate planning isn't just for the wealthy, is it?

Ryan: No, definitely not. I mean, pretty much everybody has an estate. Estate planning is one of those things that I find that people love to procrastinate on. It's not something that most folks want to think about because I think when we think about estate planning, most folks are only thinking about what's going to happen when they pass away, which is a part of estate planning, but also included in estate planning are things that can affect you while you're alive. In other words, what would happen if you were to become incapacitated? Who would you want to be the person to make the decisions around financial decisions, healthcare decisions, all of those types of things. Also, another thing that I find many married folks don't think about is that we're putting together the retirement plan. And we look first that if both of them live a long life, that hey, we're looking good at, we've got to continue to monitor this over time, but we're looking like we're going to be on track.

What a lot of folks don't consider is, okay, well what if one spouse were to pass away early, what would the impact be there? And that's another form of estate planning, right? We need to then figure that out because that could be very detrimental to people because if you have social security, you're going to lose one social security check that surviving spouse has to file as a single person. So there's so many different things there that need to be considered. There's so much, I mean, if you have minor children, you may need to name a guardian, for instance. If you haven't done that already, if you have any kids perhaps that have special needs and they're going to inherit some money, you have to be very careful about how you're going to pass that money along because you may end up disqualifying them from government benefits.

So knowing how to put that type of thing together. But there's so much to this, Ben, but one of the things too that I will see is if somebody doesn't have a simple will and a living trust, but yet they own their home, just getting that in place, because probate, especially here in California, is very expensive, but by getting a living trust and making sure that the house is in that trust can help you to avoid probate, which can be expensive. It can be lengthy. So knowing what assets should be held in that in a living trust, and maybe which one shouldn't, because you have beneficiaries, like with IRA accounts, oftentimes it's advised that you won't need to name the living trust the beneficiary, because that does go straight to the beneficiary. So everyone's going to have a different situation or family dynamics there, but there's so much to consider.

Too often, I've seen people pass and didn't have these legal documents in place, didn't have that estate planning in place. It just causes such a mess. I've seen for the kids that need to then get in there and figure this out. And then even worse, I've seen kids that they got along all throughout their lives for the most part. But then this happens, the parents pass and there's tension and animosity, anger, anger sometimes. I mean, there's fighting and it can really ruin those relationships, unfortunately. So I don't mean to dwell on it too much, but you want to make sure that you get your estate plan in order.

Ben: Yeah, it's important for everyone, not just those with a lot of money. So again, one more retirement truth to close out with there to be thinking about and making sure you're having conversations about. And if you haven't covered each of these things that we go through and remember, you can go back to our first part of the discussion, get the first five, but you tack on these final five. And if these are things that you haven't planned for or thought through or had an approach that you've discussed with a financial advisor, now's the time to do that. And you can always get in touch with Ryan@CravitzFinancial.com. And especially if you're getting close to retirement over 50, that's who Ryan specializes in and happy to sit down with you begin talking about these things. So Ryan, for anybody that gets online and hits that big green start here button to begin that process to work with you, to help them guide you through retirement, what can they expect from that first meeting?

Ryan: Yeah, so I mean, first meeting is real casual. It's really an opportunity for us to get to know each other, make sure it's a good fit, make sure that my expertise matches your particular situation, and also that I feel that I can meet your expectations. So it's casual. I always say if you're dating, this is going to get coffee in the middle of the day and just having a casual conversation and then deciding whether it makes sense to go to the next meeting.

Ben: Gotcha. Okay. Well, again, you can go to CravitzFinancial.com to begin that process or give Ryan a call at 714-462-9155. Ryan, thanks for the time. I enjoyed going through all these 10 retirement truths with you, and we'll catch up again soon. Thanks.

Ryan: Sounds good.