Transcript

Intro:

Welcome to the Life Unlimited podcast with Larry Heller. You deserve complete financial advice, so you can confidently live your life, your way for life. Now let’s get into this week’s podcast episode. 

Matt: Hello and welcome to another Life Unlimited podcast with Larry Heller. Uh, my name is Matt Halloran and today we’re going to be talking about how much money can I spend a retirement? This is episode 136.

So Larry, I know that there’s a lot of different stuff that people want to talk about when they’re talking about spending and retirement, but there’s a big differentiator here that I want to make sure that we get right out of the gate, which is this is a different question than how much money do I have to retire, take it away.

Larry: Absolutely. So we did a podcast, I think it was podcast 73, where we kind of talk about how this differs from do I have enough money to how [00:01:00] much money can I spend, I mean, there are rules of thumb the, some of the experts say 4% and, but believe it or not. A lot of people, when we actually do a retirement plan, a financial plan and look at this, they don’t spend enough money during retirement.

And they’re basically afraid. They’re afraid of spending too much and not having enough at the end. So they don’t, some of them don’t like to spend the principal, but not knowing how much we, when we run the numbers. Most of the time we’re telling people to spend more money 

Matt: Now spend more money. It’s interesting So you just talked about the four percent rule now Larry you and I have been around this industry for quite a while It wasn’t a 4% rule a while ago, it was actually much higher. Is that one of the reasons why people are so concerned about spending? Because they’re concerned that that rule is going to fluctuate. 

Larry: Well, you know, there’s a lot of different [00:02:00] studies on that rule, and a lot of it will depend upon actually when you retire, because if you retire right before a bull market is a lot different than if you retire right before a bear market. So that’s just one of the rules. Thumbs. So you don’t run out of money. But there’s different rules on how much you can spend an increase or decrease, but those are just rules of thumb. So having a rule of thumb is really not going to work for everybody because there’s so many different variables for each person, how old they are when they need to start drawing money out.

How old they’re going to live, how old is their spouse? What’s their health? Do you have long term care insurance in case you have a big expense down the road? How accurate are your income and expense numbers? I mean, so many people get to the point where they’re about to retire and they have no idea what they spend on a monthly basis.

So if you don’t know how much you can spend, then how can you even plan for it?[00:03:00] And then there’s how you invest the money. What are the returns? Um, where the money is, is it in a qualified account in an IRA where you’re going to have to pay taxes versus it’s after tax money where you don’t have to pay taxes?

What’s it, what’s, what’s the interest rate, what’s inflation? So there’s so many different things on how to, that how many, how it impacts. And usually one of the biggest things that also impacts is their, is their home. Are they going to sell their home? Or stay in their home because a lot of people have this huge equity in their home.

And if they going to eventually tap that by downsizing or selling, they can spend a lot differently knowing that they have that reserve there. We have one couple and they don’t have kids and they want to spend as much. They want to spend as much as they can. And their fallback figure is if they end up running out of money, they’ll sell their house and they’ll downsize.

So they can spend more money by [00:04:00] planning like that than not. So everybody is, everybody is so different, Matt. 

Matt: Well, I want to have you kind of pull apart a lot of what you just said there, because you know, the idea of, of longevity risk, uh, all of the different variables that you were, you were really talking about. But I have to rewind and this might seem strange because you said something earlier that I really think is important for us to get fleshed out a little bit more on the top of the show, which is that you have conversations with people on a regular basis that they should and can spend more money in retirement.

Can you give us a, a story of maybe somebody that your firm convinced to potentially, you know, spend what they can and how that might’ve impacted living a life unlimited?

Larry: Okay, so I got a lot of stories, but one that just pops into my head because we just had this convert conversation. We have a client that’s going to be retiring and they’re building their dream home in [00:05:00] Florida and they gave us a call and they were really nervous. Because the costs are increasing more than they had anticipated and they weren’t sleeping at night. So we quickly got on a zoom call, ran through all their numbers and they were so comfortable and so happy that to see that they’re still going to be able to maintain their lifestyle and still be able to create this home that they wanted, want to do.

So that literally just happened last, last week. So those are the type of things that we can do by going through all the numbers and, and seeing that now, of course, they had to do some of their homework. They really needed to figure out what their expenses are going to be when they purchased this new home and how much did they think the max they were going to, were going to spend.

But by doing that, they now able to sleep at night. And that’s really our job. Our job, Life Unlimited, create financial resilience, create peace of mind. [00:06:00] So them telling me that they’re able to sleep at night, I know I’m doing my job. 

Matt: Let’s break apart some of these variables a little bit more on how to determine how much you spend in retirement. You kind of went through this list rather quickly. Let’s start right at the top, which I’m actually going to group two of them together, which is age and health. When you’re doing a financial plan and really helping people figure this out, how do you take those two things into account? 

Larry: Okay. Let’s start with, with age and everybody is different. So what we create a financial plan, we really start with living to age 95. But then we have that conversation with them and some, some say, ah, I’m not going to really live to 95. I really want to see how it works at age 90. So we’ll show them another sample at 90 and then we’ll have another client.

They’ll say, well, you know what, my parents are still both alive and they’re already in the nineties. We got a plan for age a hundred. So looking at the ages and having that conversation with them. And unfortunately, some people that [00:07:00] we talked to are ill and they’re thinking, you know what, I want to spend more money now because I don’t think I’m going to be here later in life.

So you factor some of those, those in, and this is all interactive. The great thing today, especially with all the computers, we can go back and forth really quickly. When it first started out a long time ago, when you wanted to make a change, it could take you a couple days before you got. The answer is back, Matt.

So now we can do that and we can, and we can plan for that, but you have to ask the questions that have the conversations with somebody to get an idea, what are their goals? What are their objectives? Cause that’s what you’re doing. You’re creating a plan for them to make them comfortable. 

Matt: Now health is a huge component. Now. Do you ever have like that longevity conversation? You just said, you know, Hey, my parents are still alive. How often does that come up in your conversations with clients? 

Larry: So, you know, when we first start working with somebody, we’re asking all, we’re asking all those questions and we’re putting all the, putting all [00:08:00] those into that, into them.

And then, you know, each year we’re revising the plan and having any conversations on, on things, that things that change. And one of the things that could really impact, especially if a married couple is if one of the spouses has a long term illness and needs significant dollars, it could actually impact their, The well being the financial plan of the other spouse.

So knowing if they have long term care may you may be able to spend more. We have people that self insure their long term care insurance in case they need something like that. So again, you want to plan as much as you can for this. And so they can get comfortable. Okay, I can spend now, you know, knowing that.

And some people are like, I don’t really care about that. Some people are like, I need to make sure that I have enough money in case I have a long term illness. 

Matt: One of the other categories and the variables are income streams. Now this, [00:09:00] I want you to elaborate on this Larry, because I don’t think people really truly understand. I think a lot of people think that the only income stream they’re going to have in retirement is social security and their investments. But there are other income streams that a lot of people, especially people who are retiring here in the next few years are going to have. So can you break that down a little bit?

Larry: Well, I’m going to really break it down is how do you create an income stream? So one of the, one of the things that we found over the years is when you stop working, that spigot comes off, you have no more money coming, coming in. But if we recreate that spigot on a monthly basis, so they have an income stream to match their expenses, even if that’s income coming from dividends and interest or even some principal, but as long as they’re getting that money in each month, they basically.

Can maintain their lifestyle. They don’t feel like they’re spending more money. It’s part of it is psychological and it just works a lot better. So [00:10:00] we want to create that. We have our own reservoir strategy where we’re creating an income stream between the social security, if they do have a pension and then creating an income stream from their investments, those income streams provide them with enough income to live, it makes it a lot easier.

Matt: You just brought up dividends. So let’s talk about the kinds of investments and also how you guys manage fluctuations in the market. 

Larry: Yeah. So going back to what I just said is the, the reservoirs, um, strategy is we put together three different. Rip three different rivers, you want to say. So a short term river intermediate river and a long term river.

So the short term river is basically their cash. They’re having enough expenses somewhere between two and three years. There’s a ton of studies. There’s a separate podcast. We talk about that. But knowing that they have their expenses paid for the next two to three years to ride out Any downsides in the [00:11:00] market gives them peace of mind, again, more comfort.

And then we have medium term investments, investments in things like tax free bonds, which have a regular income stream that they can rely on. We’ll have some flexibility based upon interest rates, but it gives you a provided income stream and, you know, if you’re retiring in 65, People are living into their nineties They got a 30 year time horizon to stay ahead of inflation so that we still want a long term river and a long term reservoir of that’s with equities. And when you look at this, we flow all of those different pieces from the long term, the medium term into the short term, which then goes to the client to live on.

Matt: Now we’re going to switch gears here, uh, cause that was a wonderful explanation, but it’s really just teases up into this last or not this last piece, but this next piece, which is dying broke versus passing on to children. And these are two camps. Now this is a continuum and you and I know that, but I [00:12:00] love highlighting those as kind of these polar opposites. Let’s talk a little bit about that. 

Larry: Yeah. So everyone’s a little bit different. You say you, you, you’ve got, you’ve got the camp that comes in and they’re adamant. They don’t, they never want to touch principal. They just want to live on their interest. They don’t want to see the numbers go down. When the principal goes down, they get really concerned about that.

They want to be able to have that principle for a cushion for them and to pass it on, to pass it on to the heirs. And then you have the other camp that comes in and says, you know, it’s my life. I want to enjoy. I want to live. Larry, how can we put something together? So I die with 1 in my pocket.

So of course, those are two different extremes and you’re not going to kind of do that, but it gives you an idea of what their comfort is and what we look at. And when we look at their retirement plan and we see the principal going down, For those clients that are comfortable with that, then they’re okay, [00:13:00] spending a little bit more and enjoying, you know, the worst thing we tell people is you worked your whole lives, you have this pot of money, you have enough here. And if you don’t enjoy it now, and then if you fortunately, you know, get sick or die what good is it? So that’s what the money is there for. So the two different camps, you have to know kind of which camp that they’re in and what they’re comfortable in, you know, spending and that helps create the retirement plan and the income stream to them.

Matt: And let’s talk about the retirement game plan itself. Right? So, you know, the best time to start planning for retirement was probably everybody a couple years ago. Right? So let’s, let’s tear that apart a little bit. 

Larry: So, you know, the earlier that you can, the better, but at least having a retirement plan a few years before you retire to start putting your ducks in a in, in a row. There was a study, the Schroders did a study that, that retirees that have a formal financial plan had monthly income twice as much than people [00:14:00] without a, without an advisor. 

Matt: Holy Moses. 

Larry: So, Yeah. So using an advisor, because going through all these numbers will be able to give you more income, according to this, this study. And they also said that almost half 49% said they don’t have any retirement income strategies. They just take money when they need it. And from a financial planning item that just blows my mind that one out of every two people do not have a plan in retirement. So those are the ones, they’re gonna get scared when the market goes down, uh, because they don’t have a plan.

They don’t know how much they can, they could spend or worse, yet they don’t spend enough because they don’t know how much they can take, they can take after. So those two sta statistics that I recently read were kind of mind opening. 

Matt: Well, let’s let’s talk a little bit about that plan versus no plan. Why do you think that half of the population don’t have a financial plan? [00:15:00] 

Larry: well, I mean, they’re not an expert in that particular area. They’re may or may not think they can afford somebody to help them guide them. So they’ve never had one before. So, I mean, those are some of the reasons. Maybe they think they could do it on their, do it on their own. But that just leads me to believe that there’s a lot of room for improvement. To getting people a plan so they can improve how much they can earn and how much they can spend in retirement. 

Matt: You know, the thousands of advisors that I’ve worked with over the last 20 years, that’s one of the most eye opening things that I’m so glad that we just highlighted that in this show and need to make sure that this is one of those nuggets in this podcast that if you’re listening to this and you have friends who think they can do it yourself, I want you to equate it to I don’t know. Let’s say you need your appendix out, right? You’re not going to go ahead and watch a YouTube video and remove your own appendix. No, you go to a [00:16:00] professional. This is your financial wellbeing and your life. You have to utilize somebody who has education and skills, designations, all sorts of licenses to be able to do that. And I want to actually, let’s digress there for just a minute because there are. Things that only you, I shouldn’t say only you, but you as a financial services licensed professional can offer, not just from a financial planning perspective, from an investment perspective that you can’t get off the streets. Is that true? 

Larry: Well, I mean, that, that’s true, but you make an interesting point. So there are a lot of financial advisors out there. One, they’re not. Have gone through and become a certified financial planner like myself and, and my staff and a lot of them, believe it or not, some big brokerage firms are not fiduciary.

So they don’t have to do what’s in your best interest, but they’re just looking at managing their money and not creating a plan for you. You want to work with a financial advisor. Then there are tons of [00:17:00] very good ones out there. You want to work with ones that are really going to create a plan and look at your holistic life and, you know, not just the investments in the cashflow and retirement.

There’s a lot of other things that go under the financial planning umbrella. So that can get, you know, that can get you, you peace of mind. So you can enjoy life. And not have to worry about that, but that’s, that’s an expert. I mean, I love the correlation to the doctors is like, if you needed an operation, you’re going to go try to find somebody that you know is the most qualified, that has the most experience there to be able to get you the best results.

And that’s the same thing with, with financial planning. But a lot of people don’t even know. That, that they exist. They just think a financial advisor just manages their money. They don’t understand that when we go through and we show them this cashflow analysis and can do that. It’s really, you know, eyeopening to them.

Like they never really saw that in [00:18:00] black and white, and we can show them. That the numbers are working. That’s really starts to get them more comfortable and what they can do. And you really can’t get that unless you’re working with an expert in that area. There are a lot, some of these calculators online.

And I’ve seen them before and they’ll, they’ll either show you how you’ll have 10 billion in retirement, or you’ll run out of money in four years. So, because they’re not factoring everything else and playing with everything else. So, so you should see an expert just to be able to say, I’m going to spend enough money or not too much money and enjoy my life in retirement.

Matt: Well, let’s talk about that cashflow analysis and realistic projections, because at the top of the show, we talked about that 4% and I’m air quoting here rule, right? That is something that is a kind of the baseline that we try to focus on. But let’s talk about that. How does one. Like you, how do you communicate Cause this is some complex math, dude. This is not, you know, something that you can do on the [00:19:00] back of a napkin necessarily. Let’s talk a little bit about how you can show these realistic projections and make them understandable to your audience. 

Larry: So remember all those variables that we talked at, at the beginning of the podcast each one of those variables. Gets inputted into the retirement plan, into the software along with specifics, how much, how much are they spending on a monthly basis? Factoring in travel. So factoring one time expenses, factoring the correct inflation. If you use the wrong inflation or too low or too high, or too low or too high investment factor over a long periods of time.

We’ll give you some unrealistic answers. So knowing the right variables to put in and going through and talking to the client about some of those variables, that’s the key thing. It’s the old rule, garbage in garbage out. You need to spend the time and the going and have the conversations. So you get all the variables, right?

Then you can run all the [00:20:00] variables in there and show on them. And then you can run some, what if scenario, what if this happens? What if rates of returns are lower? What if rates of returns are higher? What if, if I spend more money and you start playing with that? So it, it’s not an exact science and it’s going to change year by year. So then you have to look at it and monitor it each year. So the more that you can do that, The more that you’re going to get accurate numbers. So the more that we’ll be able to tell somebody, yes, you should spend more money in retirement. And I’m comfortable that you will based upon these numbers that you will be fine doing that.

Matt: One of the favorite things that I’ve heard from certified financial planners is this is a living plan, right? It is something that is constantly needs to be. adjusted and looked at variables and scenarios need to be run to make sure that that plan is actually reflective of where you are today, not where you were a few years ago. What do you think about that? 

Larry: Oh, absolutely. So we revise this plan every year. Once a year, [00:21:00] one of the meetings that we have is to revise the plan because Things change so you, so I, I think it’s critical. You can’t just run at one time, forget about it, and then look at it 10 years later, because there are so many things that are going to fact factor in along those lines.

So yeah, it, it is critical to look at it each year and see that you’re still on track. See that anything hasn’t changed. So you’re. Plan needs to be updated. So yeah, and working with somebody like us. That’s the one of the reasons Oh a big reason why a lot of people work with us so they can they can have that comfort each year 

Matt: And that comfort peace of mind all the things that you talked about earlier in the show is truly what makes You help people live a life unlimited. Now, just to kind of, wrap up the show here. The idea here is asking your question, how much money can I spend in retirement? What are the sorts of things that I need to take in consideration? Why do I need to work with a professional? But my favorite part about today’s show is we’re going to kind of get [00:22:00] philosophical here to wrap this puppy up because you show up to work every day, right? With these kinds of four things as your big picture goals for all of your clients. Would you like to talk about those? 

Larry: Yeah. So, so our thing is, you know, you worry about your family. If you’re working, you worry about work. And then in retirement, we want you to enjoy retirement. We’ll worry about everything else financially.

We don’t want you to stress about the everyday, you know, the stock market. We want you to plan for your dreams, plan for your, your financial ambitions. And then we’ll work with you to make sure that you can accomplish that. And by having a plan in place and continually do that, we’ll make sure that you’ll get there.

Matt: Making sure that you’re working with a professional, especially a certified financial planner, is going to help you retire, live a retirement that you’ve always wanted and enjoy it with less worry. It’s not going to be entirely worry free, but with less worry, you don’t have to worry about and watch CNBC [00:23:00] every day and figure out what’s going on with the play by play in the market because Larry and his team have that taken care of, plan, really sit down with your financial planner and talk about what do you want your life to be like, and they’re going to sit down and help you realistically realize if you can achieve those or not.

And last but not least, everything starts with a plan. The greatest things are measured. And if what measured gets done, all right, Larry, uh, if anybody wants to find out a little bit more about who you are and what you do, what should they do? 

Larry: Sure. They can go to our website hellerwealthmanagement. Com. And actually now we’re on the website. There’s a place that they can click and they can get a free financial resilience assessment if, uh, if they want, or they can schedule a 20 minute call with myself or one of the, uh, the planners or they can reach out to us by phone 6 3 

Matt: We will make sure that we have all of that in the show notes and you can click on some easy links to take advantage of what Larry and his team offers.

Now listen, if anything in this podcast [00:24:00] resonated with you and you were thinking, goodness gracious, I was just talking to Nancy about this at dinner three nights ago, it’s very easy to share the show. All you have to do is click that on your favorite player and share it with Nancy because Nancy needs this information as much as you do. So for Larry and everybody at Heller Wealth Management, this is Matt Halloran and we’ll see you on the other side of the mic very soon.