Happy New Year Decker Talk Radio listeners! As the new year is upon us, today we wanted to discuss your 2017 financial plan and the top eight areas you should be keeping a close eye on. Financial planning for the year is one of the most important steps you can take to start your year off right and we want to help you make sure that its done right!
MIKE: Good morning, and thank you for listening to Decker Talk Radio’s Protect Your Retirement, a radio program brought to you by Decker Retirement Planning. This week, we will be discussing eight points on how to assess your 2017 financial plan for your retirement. The comments on Decker Talk Radio are of the opinion of Brian Decker and Mike Decker.
MIKE: Good morning, everyone, and Happy New Year. Hope you’re all having a great time and had a wonderful night last night. This is Mike Decker and Brian Decker from Decker talk radio’s Protect Your Retirement. Brian Decker from Decker Retirement Planning. He’s a fiduciary, a retirement planner out of Kirkland, Washington. We’re glad to have him. Today, we’re excited to go over eight points here. I’m gonna go over them real quick, but eight points to look at your financial planning going forward. With New Year’s, there’s new starts, a good chance to look at new things. And so we’re gonna go over today, number one, what is your strategy to protect capital.
MIKE: And real quick, can I say this? Two-sided model should happen for two-sided markets. If you don’t have it, well, we’ll go more into that later. Number two is, are you taking too much risk with your portfolio. Number three, do you know how much you can draw from your portfolio. Number four, fees. Don’t let the fee tail wag the dog, and we’ll explain what that means in a moment. Number five, if you are in an accumulation mode in your 20s and 30s, you should do it yourself. That’s a strange thing, coming from people that manage money, but we’re gonna be very transparent in explaining what that means.
MIKE: Number six, should you pay off your mortgage. Number seven should you take a lifetime payment or a lump sum when you get to that age of retirement. And number eight, bleeding hearts, and we’ll leave that one towards the end, so that will be a great close to our show. So Brian, let’s get started right now. What is your strategy to protect capital? What are you gonna ask our viewers?
BRIAN: All right. In 2017, the market’s been going up since March of 2009. It’s the second longest bull market without a 20 percent correction, second only to the one that went from 1990 through March of 2000.
BRIAN: 10 years is longest uninterrupted run of a stock market gain without a 20 percent or greater correction. So, what’s your strategy? The markets typically run in cycles of seven years. Every seven or eight years, the markets get creamed. So, in 2008, that was a big market hit. Seven years before that, Twin Towers went down. That was 2001, the middle of a three-year, 50 percent bear market. Seven years before that was 1994.
BRIAN: It wasn’t a full 20 percent hit, but it was a down market. Seven years before that was 1987. Black Monday, October 19th, markets were down 30 percent in a day. Seven years before that was 1980. ’80 to ’82 was a two-year, 40+ percent drop in the market. Seven years before that was ’73-’74, a 40-plus percent drop in the market. Seven years before that was ’66-’67, 44 percent drop in that two-year bear market, and it keeps going.
BRIAN: So every seven or eight years, the markets get creamed. Seven years plus, March of ’09, means that we’re due. We are trying to do community service at Decker Talk Radio, Decker Retirement Planning out of Kirkland, by hopefully warning you that you’ve got to have some downside protection strategies. There are several. One is to use a two-sided model. That’s what we do. We use managers and mutual funds that are computer program, trend-following programs, that when the markets trend higher, [you’re along?] the marketing, you make money as markets go up.
BRIAN: But when the markets change direction and they start to go lower, the models that we use at Decker Retirement Planning in Kirkland are designed to make money as the markets go down, as well. Two-sided models, risk models, in a two-sided market. The market goes up and it goes down. Huge difference. A 100,000 put in the S&P January 1, 2000, holding it to present-day through the end of 2016, 100,000 grows to about 200,000.
BRIAN: Average annual return is four and a half percent, even with dividends included, and net of fees. 100,000 in trend-following models that we’re using, the six models we’re using, 100,000 becomes over 900,000. Average annual return is 16 and a half percent, and there’s no home run returns. It’s just a matter of not taking those monster hits in 2000, ’01 and ’02 when the markets lost 50 percent, and not taking the other 50 percent drop from October of ’07 to March of ’09.
BRIAN: Once you are retired, you can’t take those hits anymore. You’ve accumulated a lot of capital, and taking a 30 percent hit on that is unnecessary. There’s technology available today that allows two-sided strategies, trend-following models, that your banker and broker probably won’t recommend to you, but we recommend because we’re fiduciaries. So that’s all I want to say, is that we want to make sure, Decker Talk Radio listeners, that you are aware that two-sided models are available.
BRIAN: That two-sided computer-driven strategies have been around for a long time. 30 years. These aren’t new. So we use them because the way we approach our risk strategies are to simply, as an independent company, use the highest returning bottom line net of fee growth vehicles out there. And that’s what these are. We hope that the banker, broker, financial advisor that you’re using will share these with you.
BRIAN: Typically, they won’t or can’t, because they’re not offered by the bank or the brokerage firm, or the brokers make more money by offering other things. There’s all kinds of obstacles, whatever. But that’s all I want to say, that you should have a downside protection strategy. Others will use, and I hope you use stop losses. You can have with TD Ameritrade, Scott Trade, with Schwab, with Vanguard, you can have a trailing stop of 10 percent that can protect you, and we hope that you use stops once every seven or eight years.
BRIAN: Not all the time, but once every seven or eight years. Some people use markets. When the markets are down 10 percent, they’ll lighten up a little bit. When markets are down 20 percent, they’ll lighten up a little more. There’s different ways that you can protect capital. Warren Buffett says- he has so many great quotes- “don’t confuse brilliance with an up market”. What he means by that, is the stock market’s been going up for seven years.
BRIAN: It’s not that your strategy is spectacular or fantastic. It’s that the trend of the market has been going up. The wind has been at your back. That typically will change in the next 18 months. We hope that your antenna is up to protect capital more. And there’s different strategies to do that. We’ve mentioned stop losses, or mental stops with the market.
MIKE: What’s Warren Buffett’s other quote? Where I guess the tide goes out? When the markets go down, the tide goes out.
BRIAN: Yeah, it’s when the tide goes out that you can see who’s swimming naked, meaning that the strategies that work in up market don’t work so well when the markets go down.
MIKE: And I just have a quick comment. To kind of bring it back to big picture here, it’s still football season. Can you imagine if the Seahawk defense only could defend against a running game? That’s a one-sided defense strategy, and they would be the laughingstock of the entire NFL.
BRIAN: Or, the analogy would actually be, Mike, if they only had an offense.
MIKE: An offense that could only run?
BRIAN: Right. There’s no defense. ‘Cause what we’re talking about is preservation of capital, defensive measures to make sure you preserve capital. Imagine a football team that just had an offense.
MIKE: I just love the Seahawk defense. I’m always talking about them. Richard Sherman, I just think he’s phenomenal.
BRIAN: Kam Chancellor.
MIKE: All those guys. But either way, no football team is gonna have one strategy. No baseball team is gonna have one strategy. No sport out there is gonna have one strategy. It just doesn’t work. So why would anyone have a one-sided strategy for one condition, not prepare for the others. It doesn’t make any sense.
BRIAN: We just want to make sure Decker Talk Radio listeners, that we’re getting long in the tooth in this bull market, and that you have some protection measures in place. It’s been seven great years. All right, next point. Are you taking too much risk? In your 20s, 30s and 40s, it’s totally fine and appropriate, we would agree, to have accumulation strategies at work. But once you’re over 50 years old, if you’ve got all your money at risk, I gotta ask you, what are you thinking?
BRIAN: Honestly, what are you thinking? You’ve got your bond money in bond funds that go up and down All that money is at risk. You’ve got your stock money, like a 60-40 or a 70-30 blend, where most all your money that you’ve accumulated all of these years is at risk. Typically, what we see, is that people over 60 years old have accumulated 800, a million, a million-five, two million, two and a half million. Now over 60 years old, you’re gonna take a 30 percent hit on that? That is a lifestyle changer.
BRIAN: Ever seven years, we hope that you assess where you are and see that you are not taking too much risk. At Decker Retirement Planning in Kirkland, most of our clients shift from having all their money at risk to having 70, 75 percent of their money at risk. I’m sorry, 70, 75 percent money, no risk, and only 25, 30 percent of their money at risk. And of that money that is at risk, we try to shrink that risk by using a two-sided strategy in a two-sided market.
BRIAN: So when the markets trend higher, these models are designed make money, and when the markets trend lower, they’re designed to make money, as well. So at Decker Talk Radio, we just want to have you take an assessment for 2017. Look at your portfolio. Look at your age. How close are you to retirement? Are you being coached by someone who is paid to keep your money at risk? You need to know that bankers and brokers get paid to keep you at risk.
BRIAN: Mutual funds that are at risk, in managed programs they’re at risk. They don’t get paid to keep you in CDs, treasury’s, corporates agencies, municipals, things that have no risk. So please assess your level of risk and make sure it’s appropriate. All right, number three.
MIKE: Before we get into this, number three is, do you know how much money you can draw out for your portfolio. I do want to extend an offer. We just talked about protecting your capital.
MIKE: We just talked about taking too much risk, and chances are you’re taking too much risk. Chances are you’re working with a banker or broker who’s incentivized to have your money at risk, and we want to be transparent. We want to be transparent with the models that we’re using, show you the historical data that we have.
MIKE: I mean, since 2000, it’s been all over the place. Wouldn’t you agree, Brian?
BRIAN: Two 50 percent hits and it includes also the worst decade. January 1, of 2000 to 12-31 2010 is the worst performing 10-year period in the history of our country. Worse than the Great Depression in the ’30s.
MIKE: So we look forward to calling you in. They’ll gather your information and then I’ll be personally calling you back on the New Year. So all right, we’re gonna go to number three, now.
MIKE: Do you know how much you can draw from your portfolio? This is a great question, because chances are you’re guessing with this one.
BRIAN: Yeah. Unless you do the math, people that are 60 years old or 50 years old, you’re wondering if you can retire or not. Let’s say that you are used to spending 8,000, 7,000, 5,000 a month, 10,000 a month, whatever you’re used to spending, you think that you’re gonna spend less money when you retire. Think of it. When you’re working, you are busy and engaged and not spending money.
BRIAN: When you’re not working and retired, you’re going to want to do things, and doing things costs money. Travel and restaurants and hobbies, those things cost money. So typically, we see a 20 percent increase in what you spend from what you’re used to spending during your working years. So don’t be fooled thinking that you’re gonna spend a lot less. Typically, we see an increase, number one. Number two, let’s say that you’re going to need around 8,000 dollars a month, net of tax.
BRIAN: If you know that and you look at your pie chart portfolio, how can you know how much that pie chart can produce? Especially with interest rates this low, you have a 60-40 portfolio, 40 percent of your portfolio’s earning almost nothing. That’s your bond portfolio. 60 percent of your stock portfolio has had a great seven years, but we’re due a big hit. Now how much do you calculate how much you can draw from that portfolio?
BRIAN: Oh, you could use the four percent rule. That would be great. The four percent rule in our opinion here at Decker Retirement Planning in Kirkland has destroyed more people’s retirement than any other of financial strategy out there. So let’s talk you through how the four percent rule hurt so many people just recently. So the four percent rule works like this. It says that in the last hundred years, stocks have averaged around eight and a half percent, and that’s true. Bonds have averaged around four and a half percent for the last 36 years.
BRIAN: So let’s be really safe and just draw four percent to be conservative from your assets for the rest of your life, and you should be fine. Well, that works beautifully as long as the stock market keeps going up forever. But it doesn’t. The stock market moves in cycles. It has 18 year cycles, and from 1946 to ’64, there was a beautiful bull market. ’64 to ’82, 18 years of flat. ’82 to 2000, the biggest bull market we’ve ever had. And since January 1 of 2000, we’ve been in a very flat market.
BRIAN: So a lot of people who have made money recently have just made money what they lost. They’ve made back what they lost in 2008. So what we have right now, let’s show you the math on how the four percent rule destroys your retirement. And by the way, bankers and brokers use this all the time. So if you’re nearing retirement, perk up, listen closely to what happened to millions of people in the country. Let’s say that you retired with a million dollars January one of 2000, the beginning of this latest flat market cycle.
BRIAN: That’s the good news. You retired January 1 of 2000. The bad news is, you take a hit with the stock market. The stock market lost 50 percent in 2000, ’01 and ’02. But you’ve drawn four percent a year, so you come into ’03 down 62 percent on the stock side of your portfolio. That’s the bad news. The good news is the markets double from ’03 to ’07, but you don’t get all that, because you’re drawing four percent every year. Four percent in ’03, ’04, ’05, ’06, ’07.
BRIAN: And then you take that 37 percent hit in ’08, plus a four percent drop, and now you cannot stay retired. Millions of people in this country were in that position. And in 2009, we saw gray-haired people by the thousands coming back to your local community, at work at the bank, fast food, retail, Walmart, whatever. They came back to work. They had to sell their home, move in with the kids. They had to go back to work. They had to go to Plan B, because the four percent rule destroyed their retirement.
BRIAN: The guy who invented the four percent rule came out and publicly retracted it, saying that it doesn’t work when interest rates are this low. And yet, the bankers and brokers still use it today. It’s publicly been a publicly retracted strategy, and yet the banks and brokers still use it today. We hope that you’re smart enough, Decker Talk Radio listeners, to come in and see us. Let us do the calculations for you. We run what’s called a distribution plan, where we line up all the different sources of your income.
BRIAN: Your income from your portfolio. The income from your rental real estate, from your pension, from your Social Security. We total it up minus taxes, and we show you mathematically how much annually and monthly you can draw with [a cola?]. Every year, you make a little more money to fight inflation to age 100. We do the math. We know that you’ve got to do the calculations and the math to make sure that you know how much you can draw for the rest of your life.
BRIAN: And the rest of your life, I hope you know, has got to be close to 100 years old. I know it’s probably unfathomable, but genetic engineering are allowing people to live a lot longer with higher quality of life, so that’s the good news. The bad news is, your money has got to last longer, because in your retirement, medical breakthroughs and biotechnology is gonna have a higher quality of life for people. So the point there is, please, in 2017, do the math.
BRIAN: Come in and see us. Let us help you. In distribution planning, we can show you how much money you can draw from your portfolio. We’ll show you on a spreadsheet. So we hope that you come in and take advantage of that.
MIKE: Now Brian, real quick, while we’re talking about distribution planning, I guess you’ve seen clients at Decker Retirement Planning come from all different walks. You’ve come [from?] some very sophisticated clients that really are high-level, and then you’ve had clients come in that are, I don’t want to say “simple” in a derogatory standpoint.
MIKE: I’m just saying they didn’t have a financial background. Are most people that are coming through the office able to comprehend this sheet, and if so, what’s their reaction when they first see it for the first time?
BRIAN: Most people love what they see, when they see how much they can draw, because it’s a win-win. Either they see that they can draw more money, which is always great conversations to have, or they see that they can’t draw as much money, and we catch it soon enough so they don’t find out at 75 years old that they now have to go back to work.
BRIAN: So it’s a win-win. We want to help you make sure that your retirement years are good years, and that you’ve got the funds and the cash flow to distribute your income for the rest of your life.
MIKE: Okay. Sounds good. All right, so we’re gonna move on. Just a quick recap. Number one, for the eight points to review with the New Years, the first one was, what is your strategy to protect capital, especially in a two-sided market. Number two, is are you taking too much risk? Number three, we just went over, is do you know how much you can draw from your portfolio. Number four, is fees. Don’t let the fee tail wag the dog.
BRIAN: Here’s what we mean by this. We’re fiduciaries. We are required by state law to put our client’s best interest for our company’s best interest. However, if we let the fee tail wag the dog, we will do something like this. By the way, if we did let the fee tail wag the dog, for our client risk money, we would put all of that into the S&P 500 through an ETF with a simple SPY, Sam, Papa, Yankee.
BRIAN: SPY would diversify you among 500 different stocks, 500 different companies, and the cost for SPY is about four basis points, point-zero-four percent. Very difficult to find something more fee-efficient, more diversified. By the way, 85 percent of money managers of mutual funds every year according to Vanguard underperform the S&P every year. And so you’re outperforming your diversified.
BRIAN: You have a buy-and-hold strategy, and your fees are almost nonexistent. If we were allowing the fee tail wag the dog, we would do that. However, from January one of 2000 to 12-31 2016, 100,000 in the S&P with dividends reinvested grows to about 200,000 today, average annual return is four and a half percent. 100,000 with the six managers that we’re using right now grows to over 900,000, net of fees, annual average return is 16 and a half percent.
BRIAN: So we don’t let the fee tail wag the dog, because many times when you give someone a dollar and they give you a dollar 10 back, and then you give someone else three dollars and they give you six dollars back, what is your preference? You’re preferring to get more money back. So you would prefer the person that you’ve given three dollars to, because you got 100 percent return versus a 10 percent return. Now, the person that you’ve given a dollar to would protest and say, hey, this guy’s three times more expensive, and you would say, hey, it’s all about net of fee performance.
BRIAN: Net of fee performance. So that’s what we do as fiduciaries. We don’t let the fee tail wag the dog. We look at the highest net of fee performing mutual funds and managers out there. And as an independent company who can work with anyone, that’s who we use for our risk models. We have four that are managed accounts and two that are mutual funds.
MIKE: So looking forward, I think Brian, we’re gonna move to point five here, and point five is, if you are in an accumulation model in your 20s to 50s, the 20, 30, 40s, or 50s, you should do it yourself. ETF’s and different investing here, Brian. I’m gonna let you take it over here. I guess this is a stupid question, but why in the world is we, fiduciaries, would recommend someone else to do it their self?
BRIAN: This is something we haven’t talked about on Decker Talk Radio yet.
BRIAN: This is new information. If you’re convinced that buy-and-hold is right for you, and the pie chart is right for you, then you should do it yourself through something called Robo investing. You can Google this. Robo investing is available through Schwab and Vanguard, Fidelity. They all have it. It’s no fee. It’s the use of ETF’s, diversified based on your risk analysis. So you’re given a risk questionnaire to decide what type of portfolio you should have.
BRIAN: ETF’s are used to minimize the fees. It’s a buy-and-hold strategy, and they do daily rebalancing. No one can compete with that, because most managers don’t beat the indexes, and you own all the different indexes, large-cap, mid-cap, small cap. You own the international indexes. You own of the bond indexes, and you receive the dividends, and you have incredible diversification, because each of your indexes has a few hundred different companies.
BRIAN: But this allows you to be diversified, and Decker Talk Radio listeners, if you’re in your 20s, 30s or 40s, that’s how you should be investing. We do not solicit anyone in their 20s, 30s and 40s. You should have a buy-and-hold strategy with a Robo investing strategy like we’re talking about to minimize fees and to just let ‘er rip. That is the best way for you to accumulate capital if you’re convinced that buy-and-hold works.
BRIAN: We’re not. But if that’s the strategy you want to do, you would be contradicting yourself by paying fees when Robo investing is available. Let me say this differently. It doesn’t make sense, in our minds, to have you hire someone on a buy-and-hold strategy when you can do it yourself so easily and cut your fees by probably two percent a year by doing it yourself.
BRIAN: All right. That’s all I want to say about that. And now we want to talk about should you pay off your mortgage.
MIKE: All right. so this is a big question for paying off your mortgage. I just want to set the tone here. Interest rates are still at all-time lows. Very, very low, which means mortgages are low. You may have refinanced your home. Maybe you’ve kept your home. Maybe you’re at 15 or 30 year fixed. There’s a lot of things that go into a mortgage, but the big question here- and I just want to say this for Brian and set it up- is should you pay it off or not, and what are you getting on your investments compared to what are you paying on your mortgage.
MIKE: There’s a bit of a comparison here of what makes the most sense for all that. So Brian, you want to take that over?
BRIAN: Yep. So should you pay off your mortgage? Let’s set up a scenario where you’ve got 850,000 dollars saved. You’re 65 years old. You’re going into retirement. You need around 4,500, 5,000 a month, net of tax. But you’ve got this 250,000 dollar mortgage on your home. We have seen this time and time again.
BRIAN: People think that once they retire, they should just pay off their mortgage. If they do that, they can no longer retire. because that 250,000 that goes in your home is no longer producing income for you, and your 850,000 now become 600,000. And 600,000 plus Social Security is not 4,500 a month, net of tax. So what we look at, there’s two approaches when it comes to your mortgage. The first approach, we call it the CPA approach.
BRIAN: The CPA would look at you and say, net of your mortgage, let’s say that you’ve got a three and a half percent mortgage. You’ve got an interest deduction on that mortgage, so net of the interest that you’re able to deduct on your taxes, let’s say the net cost of your mortgage is three percent. Why in the world would you take your portfolio money that’s been averaging five, six, seven percent and pay off three percent debt?
BRIAN: Why would you do that? Mathematically, it makes no sense when you’ve got the capital that’s earning more than three percent, the net cost of your debt, and it’s earning more than three percent, you’re capturing the arbitrage difference between what that money is making and what it’s costing you. It’s a positive, it’s a benefit to you to not pay off your mortgage. That’s what the math says. Now, the other side of the of the equation is not mathematical, it’s emotional.
BRIAN: This is where Dave Ramsey says, I don’t care about math. Just pay off your mortgage. Just owe nobody nothing, is what he likes to say. And we would say that if you do that, that’s fine, but you can no longer use those funds to generate income, and you can no longer retire using the example that I set up. So we run the math to see, at Decker Retirement Planning in Kirkland, we run the numbers to see if you should pay off your mortgage if you can pay off your mortgage, and how it will affect your bottom line.
MIKE: All right, so let’s move onto the next point here. Just a quick recap of all the points here. Number one, we talked about what is your strategy to protect capital. Number two, are you taking too much risk. Number three, do you know how much you can draw from your portfolio. Number four, fees. Number five, if you’re in an accumulation model in your 20s, 30s, 40s or 50s, you should do it yourself. Number six, we just went over, should you pay off your mortgage.
MIKE: Now real quick, for those that are tuning in right now, you can catch this show on our website, www.deckerretirementplanning.com, or all the other articles, all the other radio shows that we’ve done in the past. Subscribe also. You can subscribe to this and catch it at your own convenience. If you have podcast, iTunes or Google Play. And most of all, I mean, feel free to reach out to us. We’d love to hear from you. We love to hear what you want to hear from us. We want to know what you would like to hear on our radio show. So you can always reach out to us via our website, deckerretirementplanning.com.
MIKE: So moving forward, we’ve got two more points here left. The next one is should you take a lifetime of payments or a lump sum. Now this is a great question, because a lot of people are gonna think that the lifetime payments are better. But we’re gonna go through mathematically and show you the differences. And they’re pretty stark when you bring the calculator in this. Right, Brian?
BRIAN: Yep. Okay, so we’re a mathematical practice here at Decker Retirement Planning in Kirkland. And so time and time again, we see this typical scenario.
BRIAN: Someone at 65 years old has worked for 40 years for Company X. Company X at retirement gives them a choice of either taking 250,000 dollars for life, or 200,000 lump sum today, right now. Well, a lot of people are smart and they say, gosh, 250,000 is more than 200. I’ll take the 250. So we want to show you the math that goes in to how you are paid. 250,000 at 65 years old, the actuaries will say, well geez, I think that this guy’s gonna be around 20 years.
BRIAN: So 250 divided by 20, you get 12,500 each year for the rest of your life. And by the way, and this is really deceptive. We don’t like this at all. 12,500 divided by 250, by the way, that’s a five percent return. So we want to tell you at Decker Retirement Planning what just happened to this person. Now this person’s paying insurance company to get their own money back at the rate of five percent a year, 12,500, and it takes them about 16 years to break even with the 200,000 that they could have got today.
BRIAN: And the insurance company’s hoping that they die soon, so that they don’t have to pay them any more money beyond that. We don’t like this practice. We don’t use this practice. We warn people to stay away against lifetime annuities, lifetime payouts, because there are three major risks involved and we want to make sure you’re aware of them. Number one, the first risk of taking a lifetime payout has to do with simple mathematical annual returns.
BRIAN: If you take 200,000 and you can get three and a half percent, you can live to 120 years old, and the lines never cross between your payouts of 12,500 here, and the getting 200,000 today and earning three and a half percent. So the first is just bottom line return. Your returns are higher if you can take a lump sum over a lifetime payout. Second has to do with company risk.
BRIAN: Pan Am and United Airlines are the poster children of company risk. Pensions looked great in those days until the company, the parent company, went down. Now, the pension guaranty corps swoop in and they guarantee your pension. But in the case of UAL and Pan Am, you got around 30 cents on the dollar. It was less than what you banked on, what you budgeted, and it is a life changer for you and retirement.
BRIAN: So we want you to know that there’s company risk. There’s rate of return risk. And the third and final when it comes to calculating if you should take a lump sum or a lifetime payout has to do with estate risk. Estate risk is where let’s say, Mike, that you take a lifetime of payouts and I take the lump sum. Let’s say that you’re married your wife. I’m married to my wife, and the two of us, or the two couples go out and we’re on an airplane and airplane goes down in flames and we both die.
BRIAN: Tragic. What happens to the 200,000 that I took? It’s still in my estate, and it’s distributed to my children, to my beneficiaries. What happens to lifetime of payouts for you and your wife?
MIKE: They’re gone.
BRIAN: They’re gone. They went down in flames, and it ended when you and your spouse passed away. So you have estate risk, you have rate of return risk, and you have corporate risk when it comes to taking a lifetime of payments versus a lump sum.
BRIAN: The only people that we’ve seen that take a lifetime payout are the people that say, forget about math, logic. I just emotionally want to wake up every day, not have to deal with this, and just count on that money coming in every month. So emotion takes over of logic and math, not very often, actually.
MIKE: That’s fine. As a fiduciary, we want to do everything we can to give you the information that you need to make the best decision for you.
MIKE: But I want to add to this a little bit by bringing it back to what we talked about in point three, here. Do you know how much you can draw from your portfolio? One of the beautiful things we do when people have this pension option, is we run two versions of our distribution plan. The two versions of the distribution plan, one shows you taking the lump sum at retirement, and the other shows you with the lifetime payments ’til year 99. And you can see for yourself which one is better for you, and which one will give you more money, which one is more advantageous. And you can compare on a very logical standpoint that’s mathematically backed on what is best for you.
MIKE: And that’s a lot of work, but as fiduciaries, that’s what you need to be able to see to make an honest-to-goodness decision that’s best for you, with all the factors that Brian was talking about. With estate risk, interest rate risk, rate of return risk, I’m sorry, and going forward. That spreadsheet is just so important. So, all right. So going forward here, we’re gonna end on what’s called bleeding hearts.
MIKE: And just as a little stay tuned nugget here, after bleeding heart, we are gonna make one more final offer at no cost to you. So stay tuned for that, but let’s dive right into bleeding heart.
BRIAN: Okay, the bleeding heart is where the parents have raised children that feel entitled to their parents’ money. We’ve seen this and we’ve seen it decimate retirement plans. Now, we would have you know that we’re not coldhearted financial planners telling you not be parents that give and help your children. We’re not saying what. What we are saying is very similar to what a flight attendant tells you when you’re ready to take off in an airplane.
BRIAN: Before the flight leaves, they tell you that if cabin pressure changes, oxygen mask comes down, and you’re supposed to- and this is not natural for parents to think this way- you’re supposed to put on your own mask first, so that you can help your children and those around you. We have the same comments about your financial integrity. We would have you maintain your own integrity first, so that you’re better able to help your children and those around you.
BRIAN: So we again, are a mathematical firm. You can tell whether you have quote-unquote “extra”. And that extra can go out to your children in the form of annual gifts of 14,000 per spouse, per year, per child. 28,000 per year for a married couple. But that’s when you see that you have extra. We would also remind you that when you allow your children to go through the financial squeeze of top ramen and apartment living, those are the times in your 20s, in your early single periods, your new job, scrimping and saving and being frugal, those are the times when the fiery trials burn into you budgeting, frugality and financial responsibility.
BRIAN: And we would say that you’re robbing your children of those experiences if you swoop in as a helicopter parent and bail your children out of all life’s lessons that are so valuable. So a bleeding heart story, true story. This happened, gosh, a few years ago. Sadly, this couple was in a bad position before they met us. They came to us and they had two daughters. He and she, they lived on Lake Washington, they had a beautiful home.
BRIAN: They had over the years given to their children every time their children asked. So they had entitled children, two daughters, that when they crashed their BMWs, they called mom and dad and asked for help. When they lost their job, they called mom and dad and asked for help. They didn’t return and get their job very quickly, a new job, because things were so comfortable at mom and dads. This couple drained through their savings and their IRAs and retirement accounts.
BRIAN: When we saw them, they had nothing left except for their home, and they couldn’t even pay their gardener to mow the lawn and trim the hedges. And sadly, this couple needed help, because they were too old to do that themselves on their property. We told them the harsh reality was, they needed to sell their Lake Washington property, get a small condo and re-energize their financial situation. And they saw us as horrible people that would have them sell their beautiful dream home, and they didn’t continue with us.
BRIAN: We had to tell them the rough news, but we have seen too many times bleeding hearts, where you are compromising the integrity of your own retirement by helping your children. That’s not always the case. But again, we want to make sure that you see that you should help your children if you have extra. If you don’t have extra, we would maintain the stance of the flight attendants to make sure your oxygen masks are on first, so that if your children do need help, you’re able to help them by having them come in and spend time with you, but not to write checks.
MIKE: We hope that you come in and we hope we can give you good news that you can retire, or you can stay retired. But we also want to be there to make sure that if you’re making some tough choices, that we can, in a kind way, let you know that hey, there’s some changes that need to happen if you want to continue with your plans.
BRIAN: I’m gonna jump into two other things here at the end of the show that are important. Most of the time, Decker Talk Radio listeners, think of your life. You spend your 20s, 30s, 30s, 40s, early 50s accumulating assets, working hard, scrimping, saving, investing, being frugal, wise stewards of your funds.
BRIAN: And then you get to the point of retirement, and we talk about how much you can spend and you say, oh no. Oh no. We can’t spend that money. And it’s a different mentality. To go from accumulation mentality to distribution mentality is a transition. It is very hard for a lot of people. Very commonly we have to talk you through, that you’ve been saving for some day, and now it is some day. So we show you and it’s fun to watch you breathe a sigh of relief, that you see that here’s your Social Security money.
BRIAN: Here’s your Social Security income. Here’s your rental real estate income. Here’s your portfolio income. Here’s your pension income, and here’s where it came from. It’s coming every year. It’s repeatable. Here’s all your savings and investment money. Here’s how they generate income. Once you see it, and this is powerful. What we do at Decker Retirement Planning in Kirkland at Carillon Point, we show you where you’re getting the money, and then you breathe a sigh of relief and you relax and you say, okay.
BRIAN: Now I see it. Now I can do it. Now, yes, I do understand that I’ve got to switch from a mentality of saving and spending and shirking, and doing without, because this is some day. This is retirement. This is what I’m supposed to go off and travel and do the bucket list, and do the things that I’ve always wanted to do. It’s very rewarding for us at Decker Retirement Planning to help you see where your retirement paychecks are coming from, which is a combination of all your sources of income.
BRIAN: We help you after 40 years of getting your company paycheck, and we help show you in a distribution plan how we set up your retirement paycheck, and how much it is net of tax. Priceless peace of mind comes to our clients, because the number one fear since 2008 is running out of money before you die. That’s not just you. That’s across the country. 50 and older, the number one fear in this country is running out of money before you die, and our clients don’t have that fear, because they see how much they can draw and where it’s coming from.
BRIAN: So we help people in retirement transition from an accumulation mentality to a distribution mentality on spending. We also help you transition on the portfolio side. There are people who think that they still need to take a lot more risk than they do, and they want to bet on this stock or that stock or whatever, and we help them see that they need to transition from an accumulation mentality of having way too much of their money at risk, to where they can have 75 percent or so of their money, not at risk, principal guaranteed, and only 25 percent of their money at risk.
BRIAN: And have an incredible lifetime income for the rest of their life from their income from assets plus pension and Social Security and rental real estate. Okay, the last thing I want to talk about here, is Social Security strategies. This year, we lost the file and suspend strategy, which was spectacular. The file and suspend strategy, if you’re 66 years old as of April 30 of 2016, you get to receive the file and suspend strategy, which is spectacular.
BRIAN: It’s where you can file at full retirement age, bring your spouse on to receive spousal income, suspend your benefits, and have your benefit grow to age 70 to max it out, because you maximize your Social Security on an individual basis by waiting to age 70. You get 5 percent per year growth from 62 to 66. And then your Social Security benefits grow eight percent a year from 66 to age 70.
BRIAN: So you maximize your monthly Social Security benefit with the file and suspend strategy for you and your spouse, plus you have the icing on the cake of bringing your spousal benefits on top of that. Well, that was too good, so of the IRS and Social Security has disallowed file and suspend. Now we have what’s called file and restrict. File and restrict is where you can bring your spouse on with spousal benefits, which is about half of your full retirement age benefits, but you have to draw your Social Security in order for your spouse to get your full retirement age benefits.
BRIAN: So that makes it much more difficult, because now you can no longer wait to age 70 and max out your individual benefit. You have to be drawing your Social Security in order to offer spousal benefits. But a spouse who is receiving spousal benefits, Social Security-wise, can receive spousal benefits. And then at age 70, they can switch over to the greater of the two, which is to continue on spousal benefits or take their own individual benefit of age 70. So that is still available.
BRIAN: That still works. What we do at Decker Retirement Planning in Kirkland at Carillon Point, is we want to maximize and optimize your Social Security, so we run an optimization strategy for everyone that comes in.
MIKE: Absolutely. So, thank you so much for listening. We hope you have a Happy, Happy New Year, 2017, ushering it in. Hope you had a great night last night, ushering that in. For this podcast radio show and previous shows, go to www.deckerretirementplanning.com. Also, visit our website for all the number of different articles, the different posts that we have.
MIKE: And for those that have called in, or would like to call in for that complementary, at no cost to you visit, more information and opportunities will be on our website as well. Thank you so much for everything, and have a Happy 2017, everyone. We’ll talk to you next week. Stay tuned.
