Speaker 1 0:01
For coming up today on Retire Smart Maryland Radio, it’s critical to focus on your financial fitness, but what about your physical fitness? Come train with us as we connect money to muscle and talk about major exercises that can whip your physique and your portfolio into shape.
Speaker 2 0:22
Welcome in. in to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome in to Retire Smart Maryland Radio. Your host, Prashant Sabapathi. He’s joined by John DeFeo. You can find them both at Elite Income Advisors. Prashant is an independent fiduciary. He’s also a published author, a couple of books to his credit already: Physical Health, Retirement, Wealth, and Retire Abundantly. They’re headquartered in Ellicott City, and they have a satellite office for your convenience in Annapolis. I’m Morgan Patrick. And again, each and every week, we go back and forth on retirement, and again, topics that are relevant, you know, they’re very relevant to you and what you’re going through, make sure you have a plan. Make sure you are prepared. So many of you have saved incredibly well, but you haven’t thought about the planning process. We’ll get you thinking about that today. Well, gentlemen, before we jump in on, you know, focusing in on financial fitness, how was both of your weeks?
Speaker 1 1:21
Weeks been good, Morgan. I’ve been trying to work on my fitness as we’re going through here into the new year, and so this will be a fun show today. But we’ve been busy around the office, a lot of people coming in off the television program, the radio program, a lot of people have been visiting our website, it’s Elite Income advisors.com learning more about the things that we do. So, office has been busy, and that’s why we like
Speaker 2 1:46
it. Absolutely. All right. And John, what about you?
Speaker 3 1:50
Yeah, busy, busy. Obviously, this time of year, you know, it’s popping off with the new year. It’s tax season coming up, so always pretty busy. I’ve also got an 18 month old son at home that just hit the tantrum phase, so my wife and I have been pretty busy with that as well. That’s taken up a lot of time and a lot of fun too, but
Speaker 2 2:09
well, yeah, I mean, the little ones, you know, you’re gonna, you’ll probably be exhausted, I don’t know, for 18 years, and then you’ll, you’ll look back on it, you’ll enjoy it all, but that’s what kids are all about, and again, have fun with that, and it’s going to keep you in pretty good shape, chasing an 18 month all around. So, let me ask you guys this. So, we wanted to get into this discussion, you know, we need to be good to ourselves as we move into this new year. A lot of people make New Year’s resolutions when it comes to their health, not as much, so when it comes to their retirement, so we’re going to combine the two. I’m going to do that right now. I’m going to talk about exercises that are out there for you, and you can kind of take notes on two different levels, right? You can take notes on what you might want to do physically as you start the new campaign, but also take some retirement notes on things that you might want to catch up on, or do a better job of. So, the first exercise that is out there, we’re talking about our retirement monies, and I want to do a parallel between, and Prashant, we’ll start with you. Brisk walking, which, by the way, is one of my favorite exercises, now that I’m a little bit longer in the tooth, but brisk walking, and how does that parallel with our retirement planning?
Speaker 1 3:23
Brisk walking kind of reminds me of making slow and steady retirement contributions over the course of your career, right? And we know consistent walking improves cardiovascular health over time, and similarly, I think making regular scheduled moderate contributions to your retirement accounts, whether it’s a 401 k, an IRA, thrift savings plan, if you’re with the federal government, those are the types of things that steadily build wealth over time. So, John, what light can you share here, maybe with a financial tip on
Speaker 3 4:00
contributions as you’re progressing through your career. Well, I mean, this, this actually goes back to a concept that we talked about last week, and that is to pay yourself first, right? So, before you do anything else with your paycheck, you know, before you pay any bills, take a piece of your, your income and put that directly into a some sort of an investment or savings account, so automate those contributions from every paycheck, and then you know, as you continue to earn more income and your budget changes, see what works for you. You slowly increase that amount to, you know, an amount that you’re comfortable with, and you know, eventually you’ll be able to have a pretty significant savings over a period of time.
Speaker 2 4:38
So, important to be on top of all of your retirement planning, and again, understanding, you know, kind of where you are, and also where you want to be. We are kind of having a little fun with the, you know, start of the new year. A lot of people are into their health, and they’re, they’ve got these new year’s resolutions when it comes to working out and exercising, but How do you combine that with retirement planning and. How do you kind of make those parallels with your retirement cash? So, again, brisk walking, slow and steady retirement contributions. There’s the parallel. Now, this next one: swimming, jumping in the pool. One of my favorites. I’ve been banned from wearing my Speedo. It kind of, kind of like the, you know, that Brillo pad and the colored rubber band, that’s what it kind of looks like. But I love getting in the pool, so Prashant swimming, and how does that correlate with retirement planning? So, two things come to mind for me. Number one,
Speaker 1 5:30
swimming is low impact exercise, right? I think about, you know, in just in the past couple years, I’ve had what is it now, three injections in my neck to deal with the impact of higher impact sports that I played earlier in life, and so I love swimming, because it provides that full body workout with minimal stress on the joints, and to me you can kind of draw the parallel to a diversified portfolio that lessens the impact of market volatility on your retirement nest egg, and so diversification to us really means spreading out your money, not having all your money just in one basket or one bucket, so to speak. You want to spread across stocks, bonds, alternative investments like gold, treasury bills, maybe even annuities are things that can dampen market volatility on your nest egg, and so John, what’s our financial tip on this one?
Speaker 3 6:27
Well, and I think you said it, I mean diversification is key, you know, looking at some of those growth-oriented assets like equities, mixing them with your more safe, secure assets like fixed income, as you mentioned, bank products, annuities, things like that, and ultimately, you know, making sure that you have exposure to all of those different sectors to take advantage of it.
Speaker 2 6:46
Okay, for our radio listeners that are out there, the focus on these two I mentioned myself in a Speedo, and they don’t even miss a beat, they just roll, they roll right through
Speaker 1 6:57
it. We’re choosing not to visualize,
Speaker 2 7:01
that’s probably very, very smart choice, very smart choice. Again, we’re having a little fun talking about, you know, exercises that we’re going to probably be doing as we enter into this new year, and what that might mean in parallel with your retirement cash. So, brisk walking, slow and steady retirement contributions, the swimming diversified low impact portfolio, but very good exercise for you. And then here’s the next one. A lot of people are into this one. They’ve got a maybe they’ve got a Peloton bike at the house, maybe they’re doing spin classes at the gym, but cycling. What’s the connection with retirement planning here? John, go ahead.
Speaker 3 7:37
Yeah, so when I think of cycling, you know, I think of momentum, right? I mean, you know, you’re going down a hill, you’ve got a lot of momentum, you’re not having to work as hard there, but typically when you hop on a bike, you’re going a pretty long distance, so you know, gradually building that strength, that momentum, you know, to be able to endure that type of a distance reminds me of a well-planned investment strategy that gains momentum over time, you know, Prashant, you have any, any tips for that?
Speaker 1 8:03
For me, it’s just the focus on long-term growth, right? You watch things like the Tour de France, right? You see those guys cycling like what, hundreds of miles at a time. It’s a long process, just as investing is a long-term endeavor. You want to focus on long-term growth, have a steady cadence of contributions and rebalancing over time. Folks, I think there’s a great opportunity to open up our phone lines. The phone number is going to be 800-653-8404 It’s 800-653-8404 You dial that number, you’ll be able to schedule a free complimentary visit with our team of fiduciaries, including John DeFeo and myself at Elite Income Advisors. When you come in to visit with us, we’re going to help you put together your retirement plan. We’re going to help determine whether or not my team is even the right fit for you. It starts with that phone call for that free appointment. Come on into Ellicott City to visit with us. That phone number again: 800-653-8404
Speaker 2 9:00
We’ve got more Retire Smart Maryland Radio right after the break. We are back on Retire Smart Maryland Radio. Your host, Prashant Sabapathi, along with John DeFeo. You can find both of them at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis, for your convenience. Independent fiduciary, yes, Prashant is. It’s all about helping their clients, getting their clients to and through retirement, and again, having a plan and being ready for it. I’m Morgan Patrick. My privilege each and every week to get on here and talk retirement with the fellas. And guys, look, we talk it, but we also walk it. We give our listeners an opportunity to get on the calendar with Elite Income Advisors. And Prashant, I know you really want to kind of dive in on what that appointment. Looks like if they can grab one when they come into the office, what’s it going to be like?
Speaker 1 10:04
Yes, I can’t stress this enough. Is that when you’re coming in to visit with us, you are not in any way agreeing to work with our team. In fact, we’re not agreeing to take anyone as a client until we both do our due diligence, right? So when you come in to visit with us that first visit is an opportunity for you to get to know us, so you’re welcome to ask as many questions as you would like, and then it’s an opportunity for our team to get to know you a little bit, and through that conversation, we’ll actually share with you some of the tools that we’ve used to help so many people retire over the years and get prepared for retirement. One thing we say is that when you come in to visit at any point in the process, if you feel like our team is not the right fit for you, you’ll have the opportunity to go our separate ways with no hard feelings, no obligations whatsoever. Now, when we go through the planning process, we’re going to help you figure out a couple things. Number one, we’re going to run in a social security optimization report for you. It’s going to help kind of untangle the social security mystery and figure out when the best time to collect for your specific situation is. That’s number one. Number two, we’re going to help you map out your income each and every year for the rest of your life, understand what that income is going to look like after taxes and after accounting for inflation. Number three, a risk analysis. Let’s make sure that you understand how much risk is in your portfolio and whether or not it’s the appropriate amount of risk given your proximity to retirement. Lastly, we have to talk about taxes. Okay, if you save money for retirement in any kind of significant way, half a million dollars or more, there’s probably a heck of a lot of embedded tax liability built into your retirement savings. You need to understand what that looks like over the next several decades of your life. Our team is going to be able to put together a report to help you have that conversation. So, pick up the phone, give us a call – it’s 800-653-8404 free appointment to come and visit with the guys here at Elite Income.
Speaker 2 12:00
Yeah, and just remember we’re on here because we want to help. It’s about getting you ready for what is going to be your retirement, and there are some pitfalls out there, and you want to be able to avoid them. You want to be able to, you know, thrive as you plan for retirement, and also thrive once you’re in retirement. So, now you know, market downturns, they’re inevitable, but how you respond to the market downturns, how you respond to those is going to determine what your financial future is going to be. And so today we’re going to uncover some key components of the plan, from bucketing your assets to cutting expenses to basically seeking that advice we talk about so often here on the program, so I’ve got questions. I’ll throw them at the guys, and we’ll see what they come up with. So, John, the first one, why is planning not panicking the first step in market recovery?
Speaker 3 12:54
I mean, the number one mistake that we see investors make when the market drops is selling out of their investments due to that panic, right? And this is certainly something that we want to try and avoid, in my opinion. If a client has a sound financial plan in place, and this is supported by a well-diversified portfolio that aligns with their goals, there shouldn’t be a reason for that panic when the market goes red, right? So, if that plan is put together with the applicable risk management strategies, there shouldn’t be any action needed, so this is really the type of planning that we strive for at Lead Income Advisors. In fact, when we saw the market meltdown during Covid, we had very few clients calling in a panic. They were already informed of the risks of a market downturn, and they felt very comfortable with the strategies that we put in place.
Speaker 2 13:38
Tell you, it’s so important to lean in, we get it, you’re working, you’re doing what you do, and you’re really good at that retirement plan. And guess what, we’ve got Prashant, we’ve got John, we got their entire team at Elite, and that’s what they do every single day. So, working with a professional, you know, leaning in, asking questions, you know, talking about your retirement goals, and then how you’re going to achieve those retirement goals, and as we just talked about, you know, if you have that plan, there’s far less percentages of panic when it comes to your plan. So this next question also to you, John, what is risk versus reward strategy in market recovery? Obviously, we’re concerned about the market, but risk versus reward,
Speaker 3 14:23
and this again comes back to the proper planning. When you invest your money, you’re of course accepting that risk of loss of your assets while expecting some sort of return for that risk, right? So, you know, the mix of investments in your portfolio is actually what drives the level of risk and return. So, the more risk you take, the higher the potential for return, and vice versa, of course. So, you know, working with someone who understands the trade-offs of each type of investment is really important when putting that plan together, right? You know, another big mistake that investors make when the market drops is moving all of their assets into risky investments in an attempt to. You know, aggressively grow that money and recruit the losses that they experienced, so this very rarely works out well for the investor, and although we do agree with the concept of buying stocks at a low point, you know the risk of that is putting all of your eggs into one basket and being wrong. So market timing is extremely difficult, even for professionals. So, as I mentioned, if the client’s plan is set up correctly. There shouldn’t be a need for a significant change in investment strategy when the market goes down, right? So, if you’re proactive, you don’t have to be reactive at the end of the day.
Speaker 1 15:29
So, just to add on to that, because that’s a really good point, but one thing I want to make a distinction on, John, you’re not saying that we shouldn’t be revisiting allocation on an ongoing basis, right. It’s still really important to do maintenance. It doesn’t necessarily mean that you’re making wholesale changes, right, but you’re still doing maintenance with clients along the way, isn’t that right?
Speaker 3 15:52
That’s exactly right. It’s a proactive, you know, reallocation that we’re doing now. We’re not waiting for something to happen in the markets, we’re revisiting this plan every time we meet with you, and if there’s a change in your lifestyle, your goals, whatever that might be, that might warrant a change in allocation, but we certainly don’t want to be doing that when the, you know, the market’s changing. Yeah,
Speaker 2 16:09
it’s not a set it and forget it. I mean, you are monitoring it, you know, your accounts, your portfolio, it’s like a patient, you know, you’re going to revisit that patient quite often. All right, so here’s the next one. This question to Prashant, and we talk about bucket strategies quite often on this program. So, how does the bucketing strategy help retirees weather a financial crisis?
Speaker 1 16:31
To me, investing is all about time, right? So, we talk about this idea that we know markets are going to go up and down at some point, you’re going to end up losing money through the investment process, with the hope that you will then recover and grow over time. The issue that people have, though, is the closer you get to retirement, time is the one thing that we don’t have quite as much of. So, on one hand, I need time to be successful to invest, but on the other hand, I don’t have much time. The closer I get to retirement, this is where bucketing becomes really powerful, instead of having all your eggs in just one basket, which is a market-based basket. The issue is when you get to retirement and all your eggs are just in your market-based basket. What are you going to do if the market goes down and you need to withdraw from that basket all at the same time? That’s how we run the risk of running out of money, is when we’re selling low as opposed to selling high, and so one of our core philosophies is this idea that instead of having all your eggs in just one bucket, so to speak, we put it in two buckets, instead of having all your money at risk, it actually makes sense for a lot of different people out there to protect part of your nest egg, so if you had a million dollars, and this is a plan that I just did with a client a couple weeks ago, they had about a million dollars saved for retirement, and their concern was, what if the market went down and that million becomes 750 but they still need $40,000 a year of income to support their lifestyle, so how we were able to help them is on that million dollars. We took $450,000 put it into a safe bucket. We actually used a fixed indexed annuity, which was totally safe and secure, can’t lose any money. And five years from now, that $450,000 bucket is going to provide them with exactly the $40,000 that we projected that they needed, and because they shored up the security surrounding their income, it actually empowers them to take risk with their second bucket of money, which is what we call the market-based bucket, or the red bucket of money. So that’s how using safe money actually helped this couple secure their retirement, and it all has to do with diversification and bucketing, like we talked about earlier.
Speaker 2 18:48
We are talking about the market, and guess what, the market’s the market. It’s going to take a hit, it’s going to go down at some point, it’s going to come back up at some point, but the one, the one thing you got to remember is it’s easy to panic, but if you have a plan, you’re less likely to panic, and what we’re just answering some questions along those lines. This next one, and it might be.. I’m taking a look, maybe we’ll have time for one more question after this, but let’s.. let’s just really dive in on this. How can.. and Prashant, you can jump on it. How can trimming, you know your spending, your spending plan accelerate financial recovery. Let’s just say a lot of people don’t understand how much money is going out week to week or month to month, but if you can really take a look at it and you can trim that up a little bit, it’s going to help.
Speaker 1 19:35
It’s all about having a spending plan, right? So I often tell my clients, like I’m a little bit of a nut about this stuff, like I can tell you every penny that I’ve spent in the last seven years, and people think I’m crazy for that, but to me it’s just that level of detail that empowers me in my own personal life to be able to understand what I can and can’t do to save for our future goals, so once a month my. Wife and I will sit down, we’ll look at what we spent in the last month, and we’ll talk about, for the next month, how we improve our spending. Now, Sean, is
Speaker 2 20:07
that a comfortable conversation?
Speaker 1 20:10
Believe it or not, my wife is actually really good about it. I’m the, I’m the biggest violator of the wasteful spending, but that’s okay, because we both are on the same page, and so cutting non-essential essential spending frees up some resources, allows you to pay off debt faster, allows you to, you know, rebuild your savings. I think all that works, but to me, what it comes back to is something that John mentioned earlier, which is this idea of having a plan. John, 30 seconds real quick here. When you talk about planning, can you explain for the listeners out there why working with a fiduciary advisor is incredibly important here as you’re putting that plan together.
Speaker 3 20:53
Certainly, well, most importantly, you know, as a fiduciary, we’re legally bound to act in your best interest, right? So you can trust the advice and know that you and the advisor are aligned and on the same team, that’s one of the most important things, and working with a professional who’s knowledgeable and well equipped could be the difference between a successful and an unsuccessful retirement, so we’re able to speak to the emotional component of investing to prevent those fear-based decisions and ultimately use the tools in our belt to build a customized plan for your situation, and Morgan and Prashant, you know, I’m not sure if you guys are aware of this, but I was a mechanic through college, and I use a lot of car analogies, so I always ask clients if their car needed a motor, if they would take that across country to do so, if they would do that themselves, or if they would take that to a shop, and the answer is always taking it to a shop, so the same concept goes for your financial plan. You want to rely on a professional, such as ourselves, to ensure the plan’s done right and ensure that you don’t break down when you’re on that road trip and retirement.
Speaker 1 21:49
That’s exactly right. And so let’s open up the phone lines again. It’s 800-653-8404 Folks, dial that phone number: 800-653-8404 Schedule that appointment with our team of fiduciaries, and we’re going to go through your unique situation, put together that series of reports, help you develop your retirement plan, so you can get on track for the retirement that you deserve.
Speaker 2 22:14
Coming up on Retire Smart Maryland Radio, it’s time for some tough love when it comes to your retirement, we’ve got some signs that you might go broke if you’re doing these things. Don’t go anywhere. Welcome back into Retire Smart Maryland Radio, your host Prashant Sabapathi and John DeFeo, both of Elite Income Advisors. Check us out online, it’s a wonderful resource website, Elite Income advisors.com It’s easy to remember, rolls off the tongue, Elite Income advisors.com Links to the TV show, radio shows in podcast form. Prashant is an independent fiduciary, he’s a published author, couple of books already to his credit, physical health, retirement, wealth, and retire abundantly. They are headquartered in Ellicott City, and again, a satellite office in Annapolis for your convenience. I’m Morgan Patrick. It’s always about retirement, the importance of being ready for it, having that plan, working with a fiduciary firm, and getting, getting it done before you get to retirement. Obviously, there are a lot of you out there that have saved really, really well, and you’re just going to show up at retirement’s door and start withdrawing from your accounts. That is not a plan. Do you have all the puzzle pieces? Have you thought about, you know, how you’re going to take social security? What about the tax part of this? Have you even broached? I mean, even approached a healthcare question, you know, for you and your spouse, if you are retiring as a couple. So, these are all things that will be part of your retirement plan. Make sure you’re dotting the i’s and crossing the t’s. Alright, guys, so this might be a problem. We’ve got some signs that you might be going broke. Number one fear out there is running out of money in retirement, so if you’re doing some of these things, you might actually run out of money. John, we’ll start with you. You still have unsecured debts, that’s a big no-no.
Speaker 3 24:13
Certainly, I mean, right now it’s a huge problem in the economy. I mean, credit card debts are at an all-time high, so what we’re telling clients is to prioritize paying down those debts as quickly as possible. I would, I’m more in favor of what’s called the avalanche method, where you start to pay the debts with the higher interest rates first, get them off your books, and then move down if you have multiple of them, and you can also utilize things like debt consolidation services, balance transfers to lower interest credit cards. There’s a lot of different tools out there that can help you with that, but certainly focusing on that debt paid out in this high interest rate environment is an absolutely great idea.
Speaker 2 24:48
Next one, and I think this is just perfect. It goes to Prashant. You can’t stick to your spending plan. Yeah,
Speaker 1 24:57
I think this is a big one. Okay, it’s easy, especially. Actually, in this day and age, listen, like we know the impact that inflation has had here in the last couple years. Certainly, with the inflation rate spiking, I think it’s easier than ever to overspend and lose track of where your money is actually going, and that ultimately just makes it harder to save for retirement, and it makes it more difficult to manage your expenses once you’re in retirement, so you want to create a realistic spending plan, tracks your income, tracks your expenses. You want to identify areas where you can cut back and stick to that plan. A lot of different tools out there, but I think it just starts with sometimes having a difficult conversation about where you stand and really taking the time and the effort to figure out whether or not there’s waste in your spending plan, and we all have waste in the spending plan. The key is, is that waste creating a big enough detriment to your retirement savings that it’s going to impact you down the road.
Speaker 2 25:56
We’re talking tough love, and you might be making some of these mistakes, and you need to clean it up as you move towards your retirement, and especially if you are already in retirement. These are signs that you might go broke when you are, you know, you’re no longer working, you’re in retirement, and if you’re doing these things again, you, you still have unsecured debt, that’s a big one. You can’t stick to a spending plan, that’s another one, and then John, we kind of let the cat out of the bag as we came into this segment. If you have not budgeted for health-related costs, because we’re also focused on the go-go and excited about being retired, eventually health care is going to come up and bite us,
Speaker 3 26:37
certainly. And what we typically see, I mean, it’s pretty understandable as you get older, health care costs go up, so we want to make sure that you’re factoring in all of those potential healthcare costs, including the insurance premiums, your long-term care, if you have a policy for that, or even just making sure that you can self-insure, looking at out of pocket expenses, maybe picking up a Medigap policy, if you’re on Medicare, so all of these things that are expenses that we want you to consider in that plan, and maybe even go a little bit higher than when you would have expected, because I’d rather be on the conservative side of things when you have an illness or something along those lines, to make sure that you’re not scrambling for money and ruining your plan, because you get sick.
Speaker 2 27:15
I tell you, having that plan, having a fiduciary and advisor that’s going to walk with you down this path can help you in some of these troubled areas, if you’re having a tough time, and again, this is tough love, and this next one’s huge, Prashant, and I’ll just throw it out there, you’re still, you’re still having dependents at home, I mean, it’s tough because they’re family, you don’t want to, you know, kick them to the curb, so to speak, but I tell you, they can really trash a retirement.
Speaker 1 27:43
One thing I say all the time is that you cannot help others if you’re not able to help yourself. Okay, like I get it, especially when you look at someone like my own father, right? And he took care of my mom during her dementia diagnosis for years, and you know, thank goodness he was able to be in a position to be able to do that, but my 99 year old grandmother, my father’s mom, also still lives with him, right, and I look at that from both sides of it, I look at aging parents who create a financial stressor for you as you head into retirement. I also look at grown adult children who maybe don’t have their stuff together the way that you would have hoped, and thus they’re creating stress on you. Now, look at the end of the day, if it’s your family, we all kind of have the mindset, most of our clients have the mindset that they will do what they have to do to make it work, but you want to just, at the very least, make sure that you have an open conversation about your situation with your dependents and understand what their needs and plans are for the future, and encourage them to become self-sufficient and set realistic limits on what you’re able to provide from a support standpoint. I think it’s a tough conversation to have, but it’s in my opinion an absolutely necessary conversation to have when talking about your financial health,
Speaker 2 29:09
and certainly if you’ve got dependents, either your kids or maybe your parents have moved back in with you, you know, if you have a plan that accounts for all that, takes everything into account, I mean, you can certainly move forward with that.
Speaker 1 29:22
Yeah, but it all comes back to income at the end of the day, doesn’t it? Like everything we’re talking about, whether it’s health related, whether it’s spending, whether it’s paying for dependents, it comes back to maximizing your income when you get to retirement. I say it all the time, the higher the income, the better the outcome when we get to retirement, so much of retirement planning is just figuring out how to get your income as high as possible as quickly as possible, but most importantly, as safely as possible, and I think that actually leads into this next point here, right, which is this idea that you want to have 25 times, just as a rule of thumb, you want to have. 25 times your spending saved for retirement, so John, can you talk a little bit about what we call the 25 times rule, and what that means, and why it’s important.
Speaker 3 30:12
So, the 25 times rule, it suggests that you need a pretty significant amount of savings in order to fund your retirement lifestyle, about 25 times your annual budget, and if you find yourself in a situation where you’re not quite there, there’s three different levels that you can pull for this, right? So, you can either work longer, save more, or spend less, and you can do, you know, one of those pretty egregiously, or you can do a combination of all three. So, if you find yourself in that situation where you maybe don’t have that, you know, a 25 times budget, then you know, maybe even give us a call, see if there’s something that we could potentially look at, because you know, I would also say that there’s circumstances where you don’t need 25 times your budget, you know, that’s a rule of thumb. So I think the right thing to do is talk to a financial planner, look at your actual situation, and see what they would suggest for you,
Speaker 1 30:59
and to contextualize that a little bit, let’s say that you need to spend $6,000 a month when you get to retirement, right. Let’s say 6000 is your monthly income target that makes your lifestyle go. 6000 a month is 72,000 a year. If you took $72,000 a year, multiplied it by 25 that means you need to have $1.8 million saved, folks, to follow this 25 times rule. So, if you’re thinking about it, 6000 I think, is a very kind of average standard of living today. $1.8 million is a heck of a lot of money. A lot of our clients have that saved, and a lot of them do not. Real quick, last thing before we get to the break, here is the last thing I want to key in on is taxes, right? If you have not accounted for the tax liability built into your retirement plan and your retirement savings, you might be missing the mark here. If you saved a million dollars for retirement, but it’s all on a 401 k, do you really have a million dollars? If you’ve under valued that, you might be on the path to running out of money sooner than you expected, folks. If you can relate to any of these concerns, you need to pick up the phone and give us a call. It’s 800-653-8404 If you’re concerned about your retirement tax bill, we set up a website for you. It’s called www dot test my tax bill.com That’s www.testmytaxbill.com Go check that out. It’s a free tax calculator. Help you project out your future retirement tax liability. Also, if you dial that phone number, 800-653-8404 you’ll be able to schedule that time to come in, visit with our team of licensed fiduciaries, like John, like Dan De Pazo, Connor Wilson, myself, Ozzie, Nick, the whole team. You come in, you visit with us, we’ll help you put that plan together. Make sure that you are on track for the retirement that you deserve after decades of hard work.
Speaker 2 32:50
So important again, jump on that phone number, 800-653-8404 that’s 800-653-8404 When we return on Retire Smart Maryland Radio, it’s time for scenarios. I’ll throw them at the fellas, see what they come up with. We are back on Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis. For your convenience, you can check them out online, great resource website, Elite Income advisors.com Elite Income advisors.com Prashant is an independent fiduciary, and again, it’s all about helping the clients get ready for their retirement. That’s exactly what Elite Income Advisors does. I’m Morgan Patrick. Each and every week, it’s always getting ready for retirement, having a plan. If you’ve got questions, we give you an opportunity to get on the calendar, and these are complimentary appointments with Elite Income Advisors. All you’ve got to do is call 800-653-8404 That’s 800-653-8404 All right, gentlemen, it is time for scenarios, and these happen all over the country. Want to remind our listeners that you might hear a scenario that’s similar to what you’re going through, not exactly what you’re going through. Make sure you have a customized plan that accounts for everything that is impacting you as you make your way to and through retirement. Scenario number one: Prashant, you take the lead on this. A 55 year old, 400,000 in their 401 k, wants to retire at 60, so we’ve got a five year window, but worries their savings won’t last. They’re wondering if they should boost contributions now or explore other savings vehicles. How much could additional contributions benefit them, say, over this five year stretch? There’s two things I would think about here in a scenario like this. Sounds like your number one concern here is running.
Speaker 1 35:00
Out right, and I always contextualize this by saying, so often people are so concerned about running out of money when they actually should be concerned with running out of income, right? So, let me ask you this. Let’s say that I told you that you needed $80,000 a year to live on, okay? And now you have a pension that’s going to guarantee you this 80,000 a year, but at some point in the simulation, before you pass away, you ran out of money, but the pension was guaranteed to you every single month, every single year. Is that better or worse than needing $80,000 a year, but having a million dollars, but when the million dollars runs out, we have nothing to tap into, right? So, which would you rather be? Having an $80,000 a year pension would say only $100,000 saved? Would you rather have no pension with a million dollars saved? I’m interested to hear both of your answers on this one. I think we’re going to land in the same place on this one, but go ahead.
Speaker 4 36:00
Go ahead, John. What do you got?
Speaker 3 36:02
Yeah, I mean, I personally, because I, you know, I do have a little bit of experience. I mean, I would personally go with the million dollars, because I would, you know, put it, put it to work in different ways. But pensions are fantastic as well, you know, they’re guaranteed. They sometimes, you know, offer an inflation adjustment, you know. But I guess, depending on the investment strategy, you’d have to go with, I mean, I personally would like the bucket of money, but a lot of other people wouldn’t feel that same way, because they might be more averse to risk. Yeah, I think I’d go with the big bag of cash, and I’d work with a fiduciary firm, and let them help me make sure that I’ve got that income for the rest of my life.
Speaker 1 36:39
So, here’s what we’ve found. What we’ve found is people that are well versed in handling their money would pick the million dollars, but most people, most of our radio audience who has money saved but they don’t have pensions, prefer the pensions, because why the pension gives you security, right, every single month you know exactly what is going to come into the bank account, and you know that’s going to be there with certainty, and so in this scenario, if we have $400,000 and we’re concerned about running out of income one day, maybe you look at alternative vehicles, things like annuities that could give you the opportunity to make that income last the rest of your lifetime. If you think about it, if you take an annuity account, an annuity is a guarantee that you’re going to have a paycheck every single month, every single year, for the rest of your lifetime. And so, if you’re concerned about running out of income one day, using something like an annuity, which is an alternative vehicle, could be the right thing for you to do.
Speaker 2 37:41
Well, you’re creating your own pension, right there. That’s
Speaker 1 37:43
exactly it.
Speaker 2 37:44
Gonna pay you the rest of the way. So, again, it’s about options. It’s about talking about those options. You’re gonna get that opportunity today. If you’ve got any questions about where you sit in your own retirement scenario, give Elite Income Advisors a call and grab one of their complimentary appointments, 806 5384 538404 All right. Next up, John, you take the lead on this 60 year old teacher, 400,000 in their 403 B, thinking about retiring in two years. They want to start withdrawing 30,000 per year, but they’re worried about market risk. Should they consider shifting to a more conservative investment right now,
Speaker 3 38:24
it comes down to a couple of things here. I mean, I guess I would want to see what her current investments look like, because she’s already in a very conservative allocation. I don’t know that I would make a lot of changes, but as a rule of thumb, I mean, the closer that you get to retirement, the closer that you get to drawing on your assets, you want to have them more conservative, or at least a portion of them. So, I would say at a high level, yes, it would make sense to shift to a more conservative allocation two years prior to retirement, but not to beat a dead horse here. If this six year old teacher had been working with a financial professional and was having this conversation, we probably would have even suggested moving more conservative prior to two years ahead, so again, that’s why it’s so important to work with a financial planner, work with an advisor, you know, a fiduciary that can guide you through, you know, where you’re at and where you should be.
Speaker 1 39:12
Good stuff. All right, another scenario, Prashant, we’ll start with you on this one. Someone in their late 50s interested in a deferred annuity to start payments at the age of 70, but wants to understand the potential benefits and risks of such a long deferral period. What consideration should guide this kind of decision? Look, I think that there’s a couple use cases for annuities that make them really good, and I think there’s drawbacks of annuities that make them not so good, and so the trick is finding the balance between the pros and the cons to figure out whether or not it’s the right thing for you. So the benefit of a deferred annuity is you put some money in today, and then at some point in the future, it might be a year from now, three years from now, 10 years from now, you start taking a paycheck every single month, every single year for. The rest of your lifetime, so I actually did this with a client recently. We put $600,000 into a deferred annuity, and she’s going to start taking payments in five years time. In five years’ time, that 600,000 believe it or not, is going to generate for her nearly $50,000 a year of guaranteed income every single year for the rest of their lifetime, and so that’s great for her, because she needed that 50,000 to live on when she gets a retirement, and with the stroke of a pen with $600,000 we were able to ensure that she’d have it. Now, what’s the drawback? I always say that there’s three big drawbacks with annuities that need to be considered. Number one is annuities are typically not high growth vehicles. If you get into a fixed indexed annuity and you expect it to average 910, 15, 20% a year, you’re more than likely going to be disappointed because they’re not designed for high levels of growth. Number two is annuities are long term contracts. If you put the money in and shortly thereafter, you decide to take all your money out. You’re probably going to get a penalty from the insurance company for getting that annuity all out, all at once. And then, lastly, annuities have fees that you need to be aware of, so you got to evaluate each and every one of these things. What a lot of people will find is an annuity could be the right fit for you. Some of our listeners will do that analysis and find that it’s absolutely not the right thing for you. That’s why it’s so important to have a plan that is customized for your situation. Some things will work and some things won’t, and that’s why working with a fiduciary can be a big help.
Speaker 2 41:34
Yeah, I mean, it just starts with a conversation and talk about your options, and, and the other thing to remember, we, we say this all the time. I mean, you’re going to be the decider, you know. Elite income advisors, whether you meet with John or the rest of the team or Prashant, you know, they’re going to be the advisor. But in the end, you make the decision. Remember that it’s not like you’re going to be just sold stuff. I mean, this is an opportunity to come in and talk about your retirement goals, and how to get there. It’s called planning. Again, you can grab an appointment at any time: 800-653-8404 That’s 800-653-8404 Final scenario, we’ll go to John on this one. You’ll start off with you, a 55 year old investor, half a million dollars in the portfolio, wants to generate 15,000 per year in bond income for retirement. They’re unsure if they should focus on high-yield bonds or a larger principal allocation to investment-grade bonds. How can they reach their income goal while managing the risk?
Speaker 3 42:36
This is a great question, and especially because most people are familiar with with bonds being safe, right? Well, that’s not always the case when you’re talking about high-yield bonds. A lot of times these can come from companies that aren’t necessarily established, maybe they’re more spectacle, and you know there’s there’s risk involved. You know, you do have a higher yield that’s paid out, but again, we go back to risk reward, where there’s a higher reward for more risk, so there’s a higher risk that these bonds end up defaulting based on the companies that they’re supporting. So, I think for, you know, that type of income, that’s about a 3% rate of return. If you’re trying to mitigate risk, I would certainly look more at the investment-grade bonds. You know, this is going to give you more security. You know, typically these are going to be, you know, triple A to double A rated bonds, or AAA plus, and you know these again are going to generate the kind of income that you would need. They’re more secure than the high yield bonds, and you know typically if you want to have something that’s a little bit riskier that has a higher return than you would put that in some sort of a stock or equity space. So, in my opinion, I think that the investment grade bonds are a better income producer if that’s strictly your goal, and you’re looking for bond income
Speaker 2 43:44
opportunity right now to talk about your own scenario. We’ve got appointments, Prashant, kind of walk us through how they’re going to go.
Speaker 1 43:52
Yeah, so last opportunity for today’s show, let’s open up the phone lines: 800-653-8404 You’re going to call in, have your calendar in front of you, folks. You’re going to have our team of operators standing by, ready to schedule your appointment. That first visit is about 60 minutes long. You’re going to come in, talk to us, ask us as many questions as you’d like, let us know what you’re concerned about, whether it’s taxes in retirement, whether it’s the stock market, whether it’s inflation, right? What happens if inflation sustains? In is your income in retirement going to keep up? Do you have a pension? Where’s your paycheck going to come from? These are all the different types of things that we help folks with each and every day. All you have to do is pick up the phone, give us a call. It’s 800-653-8404 Morgan, as an added bonus for today’s show, yeah, if you can visit Retire maryland.com Okay, that’s Retire maryland.com You’ll have the opportunity to sign up for a totally free complimentary copy of my book. It’s called Fiscal Health Retirement Wealth. It’s your prescription for income generation. On tax management and financial peace of mind. So, call the phone number: 800-653-8404 Visit Retire maryland.com Get your free copy of my book,
Speaker 2 45:11
another edition of Retire Smart Maryland Radio in the books for Prashant Sabapathi and John DeFeo. I’m Morgan Patrick. We will see on the radio next week.
Announcer 45:31
Annuity guarantees are subject to the claims paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess the surrender charge, withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. Products are subject to fees and additional expenses. Any comments regarding safe and secure investments and guaranteed income streams referrals and fixed insurance products, they do not refer in any way to securities or investment advisory products. Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. A professional advisor should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Elite Income Advisors Incorporated is registered as an investment advisor with the state of Maryland, and only transacts business in states where the firm is properly registered or is excluded or exempted from registration requirements. Registration as an investment advisor is not an endorsement of the firm by security regulators and does not mean that the advisor has attained a particular level of skill or ability. You should always consult an attorney or tax professional regarding your specific legal or tax situation,
Unknown Speaker 46:41
you.
