What a Retirement Planner Does
First of all, in our opinion, it is wise to look for a retirement planner who is a fiduciary. By law, a fiduciary is bound to put your best interests ahead of everything else when creating your financial or retirement plan. Why would you want to work with someone who is basically a commissioned salesperson, like big bankers and brokers are, when you could work with a true fiduciary?
A fiduciary and retirement planner, like Decker Retirement Planning Inc., has special expertise and experience with retirement. We have developed a math-based, tried-and-tested approach. We have no use for the 4% Rule still used by bankers and brokers today. This “rule” has been discredited, and it caused great harm to retirees in 2008.
The first thing we do as a retirement planner in developing your retirement plan is determine how much money you will need to have accumulated in order to stop working. We add up all of your assets, plus Social Security, pension, and/or rental real estate income. We subtract taxes, and we put in a COLA (Cost of Living Adjustment) of 3% yearly. Everything is calculated mathematically up until age 100—it’s a methodical approach. We match this against your projected budget and expenses.
75% in Principal Guaranteed Accounts
Even though each of our retirement distribution plans is individualized based on your specific situation and objectives, in general at retirement, we believe that around 75% of your money should be taken out of risk and put into principal-guaranteed accounts. For the first 20 years of your retirement, this is where you could get your income.
The remaining 25% is put into the market using specific money managers we have identified, who specialize in certain segments and manage funds that have historically performed better than the rest. Because you won’t need this part of your money for another 20 years, we can achieve higher growth with it. Nevertheless, we always try to minimize and eliminate risk as much as possible, using our two-sided market approach. What do we mean by that?
We’ve gone through the market databases, examined return rates, and we have chosen to work with only six managers at this time. Three of these managers trade the stock market indexes, one trades gold and silver, one trades oil, and the other treasury bonds. Why? Because they are perfectly correlated to help you take advantage of gains in an up market and help protect you from losses in a down market. Guess which sectors historically go up when markets get creamed? That’s right—gold, silver, oil, and treasury bonds.
“Our clients are drawing income from principal-guaranteed accounts for at least the first 20 years of retirement, so that if the stock market crashes, it doesn’t affect them. It doesn’t change their travel plans, it doesn’t change their future. Instead of having a life-changing event every seven or eight years when the markets get creamed, we have a two-sided strategy in place to help ensure that our clients don’t have to go back to work like people did in 2008. Make sure your retirement planner does that for you.”
-Brian Decker
The Four Foundations of a Retirement Plan
Once we put a retirement plan together, we consider it an early version or draft. We then test it, prod it, kick it, and deliberately try to blow it up. As a retirement planner, we try to find any weaknesses in the plan by going through the following four areas with you to try to uncover anything overlooked, eliminate any problems before they might occur, and put all the pieces in place to cover the unexpected.
Making Sure you Have the Income you Need
Has your retirement planner addressed the amount of income you will need in retirement for the rest of your life, no matter how long you live?
The first thing that needs to be done is to make sure you know how much income you will actually need. A lot of people erroneously think they need less money once they retire. But, in reality, at Decker Retirement Planning Inc, we find that people typically need about 20% more. When you’re working to save money, you don’t have as much time—you’re busy. When you retire, you suddenly have more time, and you want to do the things that you didn’t have time for like travel, dining out, or redecorating. Doing these activities costs money.
We do everything possible to help make sure that you have the budget, and that you know mathematically and realistically, what you’re looking at in terms of income every month. Income planning is key.
Minimizing your Taxes
Has your retirement planner provided tips on how to minimize taxes? Glance through the following four items we typically cover when it comes to mitigating taxation:
Examining your Tax Returns
At Decker Retirement Planning Inc, we take the time to analyze your tax returns. Specifically, for one thing, we will look at lines eight and nine of your 1040 form, where interest and reinvested dividends on non-qualified accounts show up from dividend reinvestment. We try to make sure that you are zeroing that out, so you’re not paying tax on money you never touch. We typically fix this by repurchasing those funds in a retirement account, so you’re not taxed on it. Or, we turn that spigot on and have you take that income and spend it instead of continuing to pay taxes on it.
Considering IRA-to-Roth Conversions
In most cases, you may realize a huge tax savings by taking advantage of IRA-to-Roth conversions. It won’t involve all of your IRA money, it won’t involve your 75% guaranteed money you’ll use in your first 20 years of retirement, and it’s typically only beneficial with a quarter or so of your qualified holdings that are tax-efficient to convert.
These conversions are also not done all at once, they’re done over five to seven years based on your yearly income and tax bracket. We mathematically nail down the calculations exactly, to the dollar, on how much you should convert. It’s the biggest tax-saving strategy we provide for most of our clients. The beauty is that the money grows tax-free in a Roth, you can make withdrawals tax-free, and it transfers to your beneficiaries tax-free. Of course, we help you find the funds that make the most sense as well, even no-load funds. Remember, as a fiduciary, we’re looking out for your bottom line.
Transferring Assets to Beneficiaries
If there are ways to reduce your estate tax exposure while fulfilling your wishes for your legacy, we will try to find them. We’ve done this thousands of times. We work with your CPA and attorneys to implement plans to try to zero out the tax cost of wealth transfer to the next generation.
Creating a Foundation or Other Entity
For higher-asset estates—usually $3 million plus—we work with your CPA to consider setting up family limited partnerships, Nevada corporations, or creating a foundation. These are all ways we explore to structure assets and bring down the taxes on the income you are receiving each year.
Reducing a Myriad of Risks
As your retirement planner, Decker Retirement Planning Inc., will help you reduce your risks, including some of the following:
Stock Market Risk
First of all, remember, at Decker Retirement Planning Inc., the typical, average amount of any money subject to stock market risk in one of our client’s retirement portfolios is only around 25%. Furthermore, that money won’t be needed until around year 20 in retirement, if then.
When it comes to this area of money management in retirement, we watch and assess the stock market in terms of the 10-year forward-projected rates of return. Historically, when price-to-earnings ratios are this high—the S&P PE ratio is around 18-19, now—your returns, historically, are going to be very close to flat line—or negative. And, by any measure, the stock market has only been exceeded two times in the last 100 years. One was 1929, and the other was 1999. (Both of those didn’t work out so well.) Usually every seven or eight years the markets tank, and right now we’re about nine years since the last collapse.
As a result of our continual research, we only work with six money managers, as pointed out earlier, with the goal of providing up and down protection with a two-sided algorithm. Reducing stock market risk is key when choosing a retirement planner.
“We have two mission statements for ‘risk’ money invested in the stock market. Number one, track with the S&P when the markets go up. And, number two, protect principal when the markets go down. People in retirement are in a quandary right now because, number one, they can’t make it on CDs’ 2-3% rate of return and, two, they can’t take another stock market hit like 2008.
Bankers and brokers are still trotting out nonsensical advice like, “buy and hold, hang on, be a long-term investor.” Well, you can do that in your 20s to 40s, but when you’re 50+ years old, you can’t afford to take the 30-50% market drops that seem to roll around every seven or eight years.”
-Brian Decker
Long-Term Care Risk (Death of a Spouse)
No one likes to discuss what happens if one of you becomes incapacitated or dies, but these are very important risks to address when it comes to your retirement. If you lose a spouse, beyond the heartbreak, you lose a chunk of your Social Security income and possibly a pension. And, the other even bigger risk is potentially bankrupting your spouse in the event of major health care costs or incapacitation.
As a fiduciary and retirement planner, we’ve examined many options—with our calculators firmly in hand. We’ve looked at safe harbor trusts, asset-based long-term care policies, whole life policies with long-term care riders, and traditional long-term care policies. It’s a conundrum because if you can afford it, you don’t need it, and if you need it, you can’t afford it. So far, the only option we’ve found that makes sense is self-financing. We’ll show you exactly what we mean.
Liability Risk
Sadly, we live in a litigious society. You may bump into someone in your car in a parking lot and they may grab their neck hoping for that big blank check when they sue you for personal injury. For $400-$500 per year, you can buy an umbrella liability rider on your homeowner’s insurance policy, mitigating the risk of losing an expensive potential lawsuit if someone trips on your driveway or falls off your backyard trampoline. We’ll help you look at all the options.
Inflation Risk
Inflation can change your life when the cost of things you need goes up drastically but your income is fixed. Although many say we’ve had low inflation for the last decade, health care, education, food, and energy costs have gone up. As your retirement planner, we add in a 3% inflation factor every year until age 100 to help hedge your inflation risk realistically.
Help Ensuring Adequate Liquidity in your Portfolio
Has your retirement planner ensured that your plan contains the amount of liquidity you will need in retirement? We define liquidity as money that’s available in your savings or checking account, next day, with no penalty. If all your money is liquid, it’s not working for you, because it’s sitting in an account typically earning .02%.
But, if all your money is locked up, that’s equally ridiculous. We bring this up as a foundational component of a retirement plan because, sadly, a lot of retirement planners lock people up in annuities or non-traded REITs. So much so that if a retiree suddenly has an unexpected life event, they don’t have the money or liquidity to cover the emergency.
At Decker Retirement Planning Inc., we try to make sure there’s a good balance between your investments and liquidity. In general, we advise retirees to strive for a 30-40% liquidity score with their investments while earning the highest rate they can. You want to make sure that you’ve got the liquidity, so when life happens, you’ve got the money to handle the new roof, the new car, the replacement water heater—whatever life brings your way.
For more information on these important retirement topics, read the transcript: Protecting Yourself From the Problems of Retirement or listen to the original radio show here. If you are searching for a retirement planner, call us at 855-425-4566. We have offices in Seattle and Kirkland, Washington, as well as in Salt Lake City, Utah, and we also serve clients in many different states.
