The Importance of Income Planning

Full Transcript:

Ryan: ...because it's just hard to get used to. All this time we've been working on climbing up the mountain, but now we're going to come down the mountain. So income planning, it's so important.

Announcer: When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations: Retirement Talk with Ryan Cravitz of Cravitz Financial and Insurance Solutions.

Ben: Hello, welcome in to Candid Conversations: Retirement Talk with Ryan Cravitz out at Cravitz Financial there in Irvine, California. Glad to have you on the show today. This is, I guess, our second official episode, but first one we're really digging into that financial conversation. We had our first episode last time out, a little getting to know you on Ryan. So encourage you to go back and check that out to get to a little bit more about Ryan, the business, and what's to come on the podcast altogether. Ryan, good first episode. I'm glad you came back. I'm looking forward to diving into a little bit of financial talk with you today.

Ryan: Yeah, definitely. I'm glad to be back.

Ben: Everything good around the office? Anything happening?

Ryan: My dad is, or actually he already did turn 70 last week, but we're getting ready this weekend to get together as a family. So looking forward to that. And we're going to my sister's house. She's got a pool.

Ben: Nice.

Ryan: And I know my son will be wanting to swim in that pool. I don't think we'll be able to take him out.

Ben: Is the entire family all nearby?

Ryan: Well, with no traffic, they live about an hour and 10 minutes away and there won't be any traffic because we're going to leave early in the morning.

Ben: How's Cody in the car? Is he a good traveler?

Ryan: Yeah, he's pretty good. Unfortunately though he does get carsick. Actually, my wife gets carsick as well, but this is not that long of a drive and there won't be any stop and go traffic. So he should be fine. And so should my wife as well.

Ben: Yeah, I'm right there with you. We got that in common, right. My wife gets carsick a little bit too, and my daughter who's who just turned three, she's pretty good for a little while, but if we go on a four or five hour trip, there's usually a time in there where we got to get out, spend about 10 or 15 minutes outside of the car, walking around, moving around because she has gotten sick a couple of times and it's definitely not fun. It's always in the back of your head as a driver too. Is this something happening back there? Is everybody feeling okay? Are we good? I know the feeling.

Ryan: Absolutely. Yeah, keep the windows down and keep on going. Keep on trucking.

Ben: Well, today show is a good one. We're leading things off with income planning. This is I guess one piece of what you do. And we talked about that comprehensive approach that you take to planning on our first episode, Ryan, and income planning is a big part of that. A lot of people say that if you don't even have an income plan, you don't really have a retirement plan. Is that something you'd agree with?

Ryan: Oh, a hundred percent. Yeah. I mean, I always say it all comes down to income. And it's interesting when we're in our 20s, 30s, 40s, 50s, the name of the game is all about accumulation and it really should be the name of game. I mean, that's what we need to focus on, and we hear it from everywhere, including in our industry. It's just save, save, save, invest, invest, invest. And the issue though is that for a lot of us, we start to approach retirement and we've never thought about how we're going to turn what we have accumulated into income.

How are we going to best optimize our social security benefits? How are we going to take our pension if we actually have one, very few people do anymore? And then how are we going to integrate that with all of our retirement accounts that we may have, such as a 401k, 403b, 457, depending on where you worked and that sort of thing. So yeah, I mean the importance of having an income plan is paramount.

And here's the other thing too. If you go back a couple generations ago, retirement planning was so much easier. I mean, number one, people didn't live nearly as long, so you had that. Now today people are living so much longer, and combined that with back then a lot of people worked for the same company for their entire life and then they retired with that real nice company pension. And then quite frankly, if they lived long enough, then they also collected social security. So the need to have to plan and to make sure that people have the income and the money that they need for the rest of their life, isn't something that's been around for all that long. And the longer we live now and the less that people have pensions available to them, the more that's becoming more and more important.

Ben: Yeah, it's interesting because maybe people don't think about it as much now or maybe hadn't thought about it as much as they're kind of going through their career before working maybe with an advisor is because to your point, maybe their parents never had to really worry too much about income planning and their grandparents probably definitely didn't have to worry about it because a lot of that, as you mentioned with the pension and social security, a lot of your income's kind of already earmarked and you don't have to do a whole lot beyond that. But today it falls much more on the individual. So again, that's why income planning is such an important topic and one that we wanted to start off with.

So as you think about your current clients and you think about the times they kind of came in and slide for the first time, and you got to sit down with them and go through their situation and look over their portfolio and everything, what percentage, just generally speaking, of those clients, do you think had a true income plan already in place when they first came to see you?

Ryan: I couldn't even put a number on it. Very few have a real income plan. Very few know exactly how much that they're going to take from different accounts and when they're going to access different accounts. And I really think that's again, because the focus for so long has all been on accumulation, let's just accumulate money for the future. But there isn't that real thought as to, okay, how are we going to turn everything that we've accumulated into income? And I think the hard part too for a lot of people in making that transition into retirement is that it's almost a little bit scary. It's like we've been focused so much on accumulating money for the future, but now we're going to start withdrawing money. And that fear comes out, what if I'm withdrawing too much?

And I see that a lot of times with people is that we'll put together a full financial plan, the income plan, everything is put together, and I feel comfortable that they can withdraw a certain amount of money every month. And still emotionally, they feel uncomfortable taking that much because it's just hard to get used to. Now all this time we've been working on climbing up the mountain, but now we're going to come down the mountain. So income planning is just so important.

Ben: Yeah, it is. And again, that's why we wanted to kick things off with this topic. And I mean, do you think it's just because it's not talked about a whole lot or because our parents didn't do it, to why people are so under prepared? Or is it just because without the help of a professional, you just don't really know where to start?

Ryan: Well, I think it's without the help of a professional, a lot of people don't know where to start. And also that there are a lot of financial advisors, and there's a lot of very good financial advisors, that their focus just isn't on the income planning side. Their focus is on the accumulation side. And many of them do a great job of doing what they do there. But a lot of people really haven't been taught really the best ways to turn what they have into income and haven't really thought through the importance of creating a plan to do that.

Ben: So when you work with someone to put together an effective retirement income plan, what are some of the steps that you go through and you take them through?

Ryan: So for me, the foundation for most people is social security. So I start with that, because unfortunately it's one of the more overlooked retirement benefits for a lot of people. A lot of people think of it as just it's an afterthought, but if you're married, as an example, there's ways that you can coordinate benefits together as a couple to potentially get more money from the social security system then you might not have otherwise. And so I use that as a starting point.

There's also some nice tax advantages of social security compared to other income sources such as when you go to withdraw money from IRAs or 401ks, those are typically all going to be taxable if it was funded pre-tax, but social security in and of itself may not be taxable at all on the federal level, if you don't have any other income or at least if you don't have any other taxable income.

So there's definitely some things there that I focus on. Don't want to get in the weeds too much today on that, but that's a huge component. And then the next step is if you are fortunate enough to have a pension, then we take a look at that and determine the best way to take it, and then look at all the other retirement accounts, investment accounts, any other savings that you have available to you. And then after we do that, I mean that's all part of the income planning and figuring out how we're going to use those different sources. And a lot of this, we have to look at this from the tax perspective too, because we're wanting to see from those different accounts how they're taxed, so we can figure out how much money we're going to take from different accounts and when.

And then finally, after we've put all that together, we've got to look at the insurance part of this, because ... I'll give you an example. We could create a great income plan for a couple and we could assume that they both lived to be, pick an age, age 90, 95, even age 100. But what would happen if one of them were to pass away early? What would happen to that surviving spouse's income plan? I mean, I've seen situations that shock people where, I mean they knew that they were going to lose a social security check. And for those of you that don't know, when one spouse passes away, the survivor loses the smaller social security check and keeps the bigger one.

But also what happens though is that they now have to file as a single person. So they've lost the standard deduction, and now also the tax brackets for a single person aren't as favorable as they are for a married person or married couple.

Ben: Yeah.

Ryan: So I've seen situations where they had to pay more in taxes, but live on less income. So there's just a lot of planning that needs to be done there too.

Ben: So again, if you don't have an income plan, haven't started that, haven't thought through it at all, now is a good reminder that that needs to be a priority for you with your retirement. So if you haven't sat down with someone, if you want to sit down, talk with Ryan, you can always log on, CravitzFinancial.com. He's got over 20 years of experience doing this and is happy to sit down and work with you, and a great place to start is that Retirement Ready Checkup.

And for Ryan, for anyone that's considering clicking that button on the website and going through that, what does that Retirement Ready Checkup all entail?

Ryan: That will give you a clear snapshot of where you are right now. So that'll take a look at if you're on track for retirement, if you're not on track for retirement, it'll look at some of the what ifs, such as what if taxes were to increase, what if social security benefits were to decrease? What if inflation were to continue at its rapid pace for a lot longer? So it'll look at a lot of those different things and then help you get an idea. It really stress tests your retirement to see if you're on track.

Ben: Very good. Well, you can log on, CravitzFinancial.com is the website, and if you prefer to call, you can always do that. Its (714) 462-9155. So hopefully this will highlight the importance of income planning and if it isn't something you've done, hopefully you will take that next step as soon as possible to get that prepared for retirement.

Ryan, thanks for the insight today, as always, and I look forward to catching up again soon.

Ryan: Absolutely. See you next time.