Where Do You Stand? Part 3

Wrapping things up in our series on the three distinct mindsets of pre-retirees, let’s look at what you should be asking yourself if you’re thinking, “I know I have enough money to retire.”


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John Stillman: Welcome once again to Wright Money Tips, I'm John Stillman alongside Isaac Wright, president of Financial Dynamics and Associates. Also the author of Navigate Your Way to a Secure Retirement. Isaac, always a pleasure. How are you?

Isaac Wright: Well, I'm good, man. This is kind of a finish line point for us on this three-part segment of where do you stand relative to your retirement mindset, so hopefully it will be a good finish for everybody that's been listening to this, and I'm excited to get off the ground with you today.

John Stillman: Yeah, it's the season finale, not the series finale, there will be more episodes to come, but this is the season finale of this particular topic, which is where do you stand? We talked a couple of episodes ago about the people who say, "I have no idea if I can retire. I just don't know where I stand." And then there's the people who say, "Yeah, yeah. I think I have enough money to retire." But they don't really have that confidence.

Isaac Wright: Mm-hmm (affirmative).

John Stillman: Today, we're talking about people who say, "I know I have enough money to retire." So I guess the first part is, all right, well is that confidence justified, and then if it's not justified, how do we shift things around so that you can say with confidence, "I know that I can retire."? So let's start with some of the questions-

Isaac Wright: Sure.

John Stillman: You need to answer, Isaac.

Isaac Wright: Yeah.

John Stillman: So for somebody who says, "Yeah, I'm good. I know I can retire." All right, let's throw this question at you. How is your income plan going to change if tax rates go up in the future?

Isaac Wright: Yeah, let me say this before we go off to this first question. We do meet with people that have money, that come in, feel very confident about their retirement, feel good, and looking at some of the numbers that we see, people have accumulated six, seven figures, in a lot of respects, of money that's earmarked for their retirement, so they are living well below their means. Maybe they're not even spending the kind of money they could spend for their lifestyle, which ultimately is going to trigger a couple of these questions that we're going to cover today. What happens if you have a bunch of money left over? But looking at you walking into our office or just in general feeling a sense of confidence about retirement, congratulations because I'll tell you, it's a good feeling. It's a good feeling to feel like you've worked hard, you're in a place where you can do so, and whether or not you need, want, or in the future want to have somebody that, on a relationship chasse, can keep you abreast of some of the things that we're covering here today.

Isaac Wright: So number one is how will your income change if tax rates go up in the future? The only thing I want you to understand is this: Whatever income you have coming in, it's not the gross amount that matters, it's how much you keep. So if all of a sudden because we're in a very favorable tax situation now, here hopefully for the next several years, that if changes come to the tax front where all of a sudden your rates go up 10, 15, 20%, is that going to have a significant enough impact on your lifestyle where you may have to change this lifestyle to still feel like, "I know I have enough money to retire."? Just something that we do at our office at least on an annual chasse for the families we serve.

Isaac Wright: So it's a big thing. Right now, we're in a very favorable environment, it's a good time to start looking at some of that as well because taxes are likely going to go up in the future. I don't think they're going to stay down as low as they are, but that's just my opinion. I think people probably feel with the amount of debt that we're accumulating as a county, the chances are probably higher than not that taxes are going to go back up at some point.

John Stillman: So with that in mind, we have to be sure we can adjust. Don't assume that just because you're okay for now income wise that you will be. How are you going to adjust if those changes happen? Another thing we would ask if you say, "I know I have enough money to retire." Is, "Okay, well what's your plan to give yourself raises in retirement to keep up with inflation?"

Isaac Wright: Well, this almost parlays into number one. If you are going to have, let's call it an income cut, because taxes go up, you're going to have to probably wind up giving yourself a raise to maintain that same lifestyle. It's going to require you to pull more money from your retirement assets, and again, may trigger up additional taxes. Another thing, too, is you may simply want to have money coming in from a standpoint of cost of living adjustments, and I think most people understand this, that the cost of bread, milk, vacations, and just everything from discretionary to fixed expenses typically go up every year, specifically health insurance.

Isaac Wright: But just want all of you to know that you may look great coming out of the box for retirement, and you still may be great dealing with cost of living adjustments for a 20 to 30 plus year retirement, but I just want you to know if you are confident about that and you just feel like, "Yeah, maybe there's a one percent or two percent or maybe there's a greater chance of wanting to have somebody who's going to look over my shoulder on some of this." Because we find a lot of people today, even though they may be a do-it-yourself person, they have an advisor, we don't see some of this, but again, these are very important points. So again, how are you going to give yourself raises in the future?

John Stillman: All right. What about this, Isaac. Let's say we have those plans in place. We can adjust for tax increases in the future, we can give ourselves a raise for inflation. Does your income plan, though, allow you to really spend money with confidence and enjoy your life without worrying about whether or not you're going to run out of money? Maybe the math works, but you have to understand the math well enough to know that you can write those checks, you can swipe that credit card, and you don't have to worry about whether or not the paycheck is going to come in the next month.

Isaac Wright: The number one thing I will tell you regarding to, is your income going to allow you to truly spend with confidence, let me tell you where confidence comes from. Having the plan that you have in your mind in place with or without an advisor, having it checked on. Because I think once a year, it wouldn't hurt to have somebody go over your shoulder and say, "Does this make sense?" Again, sometimes, depending on the amount of transitions going on, you may need to have multiple times to meet with somebody to keep that level of confidence up.

Isaac Wright: Confidence is a funny thing. When you're saying, "I know I have enough money to retire." That's a pretty bold statement. Not to say that you can't justify it, but I think it's good if you look at it from a standpoint of not being told what to do, but working with somebody who is working alongside you as a teammate to say, "Hey, still looks decent, but there's a couple things that are causing you to have less than maybe you even thought." So on the flip side, if you have more and more each and every year too, I think it's just nice to have somebody that knows who you are. As you get older, it's going to lead into the last two things here.

John Stillman: Well, and the last two things are sort of more end of life kind of discussions. Let's say we've had the go-go years, we've done all the traveling, we're spending money with confidence, all those things are taken care of. Now we need nursing home care. Now what happens?

Isaac Wright: Yeah. Nursing home care can be a devastating impact to the mindset of, "I can retire with confidence". Absolutely. You may not necessarily need nursing home care either. You may need assisted living care, maybe home health care, maybe you're having respite care, adult daycare, but the chances of needing care at some point in your life are well in excess of 50% now because what we have as far as longevity now. With the procedures and medications that keep us around.

Isaac Wright: So if you do need long-term care, you may still be fine. But have you discussed it? Have you even thought about the cost of care currently that's pushing towards six figures a year for many people in the type of situation when it comes to both the care, the facility, and all of the above, and Medicare unfortunately doesn't cover but very small amounts of long-term, custodial based care. So this end of life stuff, you've got plenty of money, maybe you're in a great position with everything. This is, again, just looking at some of the things from a relationship perspective with a retirement professional that may be able to assist you just to keep moving in that confident direction.

John Stillman: The last thing we need to think about in this conversation is legacy. Is leaving a legacy important to you, and if so, do you have a true legacy and estate plan? Now, for some people, the answer is, "No, legacy isn't important to me. I'm fine if my last check bounces." Which, okay, fine. That's one piece of planning we don't have to do. But, for the people that it is important to, what are the things we need to think about?

Isaac Wright: Well, legacy, as we wrap up on here, just really what it comes down to is leaving the assets that you've accumulated and worked hard for to the people that you love or the organizations that you care for without Uncle Sam being the largest beneficiary. And I'm not going to sit here and ramble on five minutes more about that. This is really, for most of you today, whatever money you have left, making sure you have your legal foundation from a tax perspective that you're not going to get hit over the head. Now, when I say you, it's really not going to be you, it'll be people that you love. That may be your spouse, that may be your kids. These are things you have to have an ongoing discussion around. You can't do your legal documents ... this is my opinion again. You can't do your legal documents and your beneficiaries and not revisit it once every 10 years.

Isaac Wright: We have people come in here all the time that have legal documents that are 25 years old and when the kids were five years old or something. What happens is life gets in the way. We're here at Financial Dynamics, I want to say this, we're here to provide the format of having somebody check on you to keep clear about the goals and the hard work that you've already put in. So this three segment approach of what we've done here, John, really hope over the last, let's call it six weeks, have been helpful for people to have a clear understanding of all that we provide, number one. Number two is having a scenario of their own personal checklist items, moving them closer to feeling confident about, not their finances, but again, their lifestyle.

John Stillman: So that's our series on knowing where you stand. Whether you have no idea if you can retire, whether you think you can retire but you just don't have that confidence, or whether you know that you can retire, and you just need somebody to come in and try to poke holes in your plan and see if you're actually in good shape or not, the team at Financial Dynamics can help get you on the right track. If you'd like some help, reach out. Call or text, whichever you prefer, 804-777-9999 is the number. 804-777-9999. Isaac, great talking with you. We'll do it again soon 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.