Where Do You Stand? Part 2

Continuing our series on the three distinct mindsets of pre-retirees, let’s discuss what questions you should be asking if you think you have enough money to retire, but aren’t quite sure.


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John Stillman: You're listening to Wright Money Tips with Isaac Wright. President of Financial Dynamics and Associates, Chartered Financial Consultant, and the author of Navigate Your Way to a Secure Retirement. I'm John Stillman, alongside Isaac, what's happening man? How are you?

Isaac Wright: Well, you kind of berated me last week by saying I was a swell guy, so I'm just going to say I'm doing well today.

John Stillman: No, good to have you. Glad you learned your lesson about not conferring titles on yourself. It's generally frowned upon in our society. This is part two of a three part series.

Isaac Wright: Correct.

John Stillman: It's basically like a soap opera, we leave you hanging and then you have to come back for the next episode to get the rest of the story. It's brilliantly produced that way, this show is. We're talking about where do you stand when it comes to retirement planning. The last episode, if you didn't hear it, go back and listen. I have no idea if I can retire. What are the questions you need to answer if that's your mind set? Next time, the next episode we'll be talking about, I know I have enough money to retire.

John Stillman: Well, today, we're right in between those things. I think I have enough money to retire, but I don't really know. If that's our mindset Isaac, what questions do we need to ask to figure out if we have enough money to retire or not? To give us that confidence, we're moving from I think I have enough to I know I have enough money. Or, maybe I know that I need to keep working, but at least I know the answer.

Isaac Wright: This is probably before you go into the first question. This is a majority of the families that let's say we see. You may even say that some of the people that come in, that again have a lot of money. Sometimes depending upon even if they have an understanding of what their lifestyle is going to be, there's always those thoughts of, "Am I ready?"

Isaac Wright: This I think I have enough money to retire, should resonate with a lot of you today, and the first question that I would throw at you is this. Who or what makes you think you are ready? And what I mean by that is this, is this a feeling that you have about thinking you're ready to retire? Or is it based on a plan? Do you actually have a financial plan? And the number one reason I say it this way is because, if you have a plan in a lot of respects, you will take the see-saw of I think I can either retire, either one of two ways. Maybe you can't retire or maybe you can. But a plan is going to put you better on track to be able to move off of this what I call this middle of the road. You don't want to go down and straddle this road here, you want to be able to understand whether or not you can retire, and that's a legitimate question.

Isaac Wright: Number one, if you're thinking about, "Hey, I think I may have enough money to retire." Is do you have a plan or is this just a feeling? And if you don't have a plan, and again this is where we come in and help many families. But just know that you have to answer that for yourself,

John Stillman: Well, maybe we should clarify what a plan looks like. A lot of people might say they have a plan, but then there's not actually much meat to that plan.

Isaac Wright: Yeah, that's a good point.

John Stillman: In your mind, when you say, "Do you have a plan?" What are you envisioning?

Isaac Wright: That's a good point John. My definition of a plan is having a full understanding of all income streams in place. Estimates for expenses for lifestyle planning. Adjustments for either cost of living, or maybe you want to have a very healthy discretionary budget, especially in the early years of your retirement. Many people want to be able to travel do and go. You also have a understanding of do you still plan to work a little? And I said this in our last weeks show, you may still want to work part-time. Maybe you want to be out there working and helping a charity. I'm not talking about having to make a great amount of money. But just where do you when you kick off your retirement, are you already in place with knowing where those income streams are going to come in?

Isaac Wright: Do you have you tax and legal foundation in order? That's going to kind of kick into next week a little bit too. But this is why I say when you come in and you go through our complete planning review process. It's no joke, I mean, we've been doing this for many, many years. This is a long standing process that we have helped many families move off of this middle of the road scenario and creating the type of plan that I just laid out.

John Stillman: All right, so you figure out whether or not you have a plan. And you're not just basing this I think I can retire mindset off of a feeling. Now then, where is your first paycheck going to come from? A very clarifying question for a lot of people who maybe think they have a plan. And then when you say, "All right, where's that first pay check going to come from?" "Oh, we'll I'm going to start my social security. Then it'll start that first month." Okay, well that's part of your income need. What about the rest? The first paycheck from your investments is going to be from what?

Isaac Wright: You know, when you say it that way John, I think most of you if you're listening. Once you start pulling money away from your investments. Pulling money from your social security or any other income stream. And maybe some of these income streams, you never pulled anything from, but now that's a whole different ball game now. You want to start using some of this money. This is where I'm telling you, if you have a plan of what that's going to be, how that's going to work and what is the probability of making certain that that income is going to stay in place? For however many years you plan on living. That's going to help you move off of this I quote, "Think I can retire." Into hopefully the phase of, "I know I can retire."

Isaac Wright: This first paycheck what I'm saying is, sometimes it's tough to be able to grasp the fact that maybe you don't have a bi-weekly or whatever way you've been paid from your job for many years. And starting to pull your own money in terms of income. And we can help you with that as well, but that's a big one as far as where is that income going to come from? How is it going to be distribute? What is going to be the tax withholdings? And all of those small what I call again, hinges that swing larger doors to your retirement success.

John Stillman: I love that phrase, "Small hinges that swing large doors." It's a classic of yours that you say a lot and I've never heard anybody else say it. I'm a big fan of that phrase. How about this Issac, rate of return. A lot of people really focus on rate of return when it comes to their investment. How important is rate of return once you retire? And then how does that fit into the I think I can retire mindset? Are you projecting a certain rate of return and is that realistic as you are talking about your retirement?

Isaac Wright: It's probably more important for us to focus on the second part of this question, 'cause everybody knows that they want to generate a rate of return off of their investments. And depending on their background and let's call it how they feel about money, and how they've been anchored to how the money has performed up to this point. The real question is, are you expecting a reasonable rate of return? Or are you being unreasonable depending on how you want to invest the money? Sometimes those two things are completely mismatched. Some people say they want to be conservative, and their definition of conservative is making 8% a year. And for whatever purposes they feel like that that's what they should have, because they had it all sitting in stocks and a 401K in a 10 year bull market and that's what it made. But that's not conservative.

Isaac Wright: I want people to realize, if you're talking conservative. You may be talking about using some of this money for CD, stocks, bonds, annuities. If it's moderate, you maybe want to be talking about building a balanced portfolio. If you want to be aggressive, you may be talking about using more speculative investments. And those are going to have their own range or reality towards your returns. But if you're thinking that you have a number in mind and you need to have verification of that number. We help many families do exactly that.

Isaac Wright: Also to be able to help pin point roughly, with a pretty decent probability of where the range of reality lies. As far as how much money you would be willing to lose relative to that reasonable rate of return. Keep that in mind. Is the rate of return you're really going for a reasonable assumption. Or are you ... Let's call it not certain, but would not probably hurt to get a second understand of that from somebody that can look over your shoulder. Now, that's a big deal John. Because people today, again with the money that they've accumulated and many people today have more money than they've ever had before in their retirement accounts. Due to the positive market conditions we've had now for basically 10 years.

John Stillman: You have the income figured out. You know where the paychecks are going to come. Let's say you have $8000 a month coming in. All right, well that's a big piece of the puzzle here. But another thing we need to think about, to move you from I think I can retire to I know I can retire, is the emergency fund. Because what if you have to replace your roof and it's going to cost you $9000. Well you can't cash flow that through your monthly income. How are you going to pay for it?

Isaac Wright: You think about this, you have your monthly income, everything we've talked about to this point has been more about just understanding your month to month expenses, your lifestyle and so forth. But once that has been put into place, and believe me I want to say this, this is not as difficult ... Yes, I'm drilling down a little bit into this, because a lot of this mind set issues, where people have preconceived notions that sometimes they're going to be very off based with what you're really trying to accomplish.

Isaac Wright: But let's say you have all of your planning, your foundational monthly income down, your foundational expenses down. Looks great, you're thinking going from thinking to knowing you can retire. The last thing I want to say before we cover knowing you can retirement questions is this. If you don't have an emergency fund, or if you do. My question is, how are you going to replenish your emergency fund? I just want you to stop here and think about this for a second. Many people have a savings account, money market account, they're pulling income from their investments. They may be again working part time or not. But how are you going to replenish the money that you need for what I call things that you don't know that you don't know.

Isaac Wright: And if you can pull together a plan that gives you an additional distribution for a recovery inside of your money market, your savings, your quote "bank money." The money that you can go right down to the bank and grab. You're really moving close to knowing you can retire. But many people don't. They have a large emergency fund going into retirement, but they don't know how to replenish it. And all of a sudden five years into retirement, it's half or less than what it was because of things what I just said. This that you don't know that you don't know. Things that can pop up on you.

Isaac Wright: John, I think the three to four things that we've covered here today, the questions that we've covered. What makes you think you're ready, do you have a plan or is it just a feeling? Number two is, where is your paychecks basically going to come from once you retire? Are you ready to start collecting your own money back as a paycheck basically? What rate of return do you need on your investments, and is that reasonable? Do you have a way to replenish your emergency fund?

Isaac Wright: For all of you listening today, if you can get that tight, you are going to have a very high probability of understanding what I would call the next step. Which we'll cover in our next program is, I know I have enough money to retire.

John Stillman: That's what we'll talk about on the next episode. Again if you missed, I have no idea if I can retire, go listen to that. Today of course we talked about, I think I have enough money to retire. We're making progress, we'll put a nice bow on it next time with, I know I have enough money to retire. If you have any questions for Issac and the team at Financial Dynamics. Just reach out, 804-777-9999. You can call or text, whichever is easiest for you. 804-777-9999. We'll talk with you next time right here on Wright Money Tips, have a great day.

Announcer: Information is for illustrative purposes only, and does not constitute tax, investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action. Investment advisory services offered through Global Financial Private Capital LLC.