Transcript

Voiceover [00:00:01]:

Welcome to Retirement Unlocked with Larry Heller. Your life, your way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode.

Matt Halloran [00:00:20]:

Hello and welcome to another Retirement Unlocked with your host, Larry Heller. Today we’re going over the six retirement mistakes to avoid because these are ones that I know Larry you see all the time. And the first one makes me really happy because, you know, we, we’ve covered this through hundreds of episodes of the show. It’s such an important foundational one. So let’s begin with not knowing how much you can spend in retirement.

Larry Heller [00:00:47]:

Yeah, it still surprises me that I get people don’t know how much they spend, but I guess when they’re working and they have income coming in and they have a salary, they don’t have to be as concerned. But now you really want to figure out kind of what you’re going to spend to try to match that up to both your income streams and the amount of investments that you need to live on. So not knowing that, believe it or not, makes you underestimate what you really can spend. So therefore you’re not enjoying the fullness of your life because you’re not, you’re not spending as much as you can if you did know. So the first thing is really finding out how much you’re going to spend and that could change.

People say in the re they start retirement, they based upon if they did know what they’re going to spend. But now you have all this free time so now you can travel more, go out more. So you want to kind of figure out how much you can spend in retirement. So not knowing how much you can spend, but also kind of tying this out that depending upon what accounts you have, whether you have a taxable account or, or a tax qualified, again, two clients have the same amount, same amount of money, but they can spend different amounts because one they’ve already paid the taxes on and the retirement account they still have to pay taxes on. So making sure that you have a plan, knowing what your income is, knowing what your expenses is, looking at, you know, your pension, your Social Security.

So when you kind of have a plan, there are tons and tons of studies that show that if you have a plan, you would be more successful in retirement. I wish everybody, you know, if they retire, you have to file your tax return each year. Wouldn’t it be great? Matt Halloran, everyone who retires has to complete a retirement plan, a financial retirement plan. People would know, okay, when they can retire what they can spend, we wouldn’t have to worry about maybe some people not spending enough or on the other, on the flip side, running out of money.

Matt Halloran [00:02:53]:

I’ve heard you say this before or I’ve heard other, other professionals say this before. There’s the go go years, the slow go years, then the no go years. And so I love how you really talk about that and making sure that you have a plan because there will be a time where you potentially are spending more money and then that what you’re spending the money on can change or how your spending will change as you continue to get old.

Larry Heller [00:03:14]:

Okay, now factoring it, factoring in inflation, which you do as, as well.

Matt Halloran [00:03:20]:

Well, so, so I think that’ll lead us right into number two here, to create an income only strategy instead of total return strategy.

Would you mind defining that before we dive in?

Larry Heller [00:03:28]:

Yes. So a lot of times people come to me and they say, I just want to live off my interest and my dividends. I don’t want to touch my principal. I just want to live off the interest and the, and the dividend.

So that’s kind of what I say is an income only strategy versus a total return strategy where you have investments that provide you income and dividends, but you also have investments that provide you for growth. And why do you need that? Because you want to have certain assets going to provide you for growth. Because you may be living 20, 30 more years so you want to stay ahead of inflation. So if you just have something that has a fixed rate of return and a while ago, probably dating myself a little bit, but there are, there were times where they, you had 7, 8, 9% fixed income and people were able to just buy CDs and live off that income.

But what happened was interest rates fell and interest rates for the same people that were living their lifestyle now can no longer live the same lifestyle because the income wasn’t as much. So by having a growth strategy, if interest rates go down, that you at least have some options where you may earn more money on your equities to provide you with some growth over the course of the cost of your life. So that’s kind of the differences on there. And then, you know, with interest rate investment only there is what’s called duration risk. There’s credit risk, there’s a lot of other risk if you’re just trying to keep yourself with income and with bonds or fixed income.

And then of course if you just, you, if you do some dividend paying stocks, you’re also looking at one sector rather than a much broad, broad basket. So we’re a proponent of a total return strategy. In fact, we call it the Heller Wealth Management Reserve investment strategy. And you can click onto our website and look at a previous podcast that we did on this strategy.

Matt Halloran [00:05:23]:

So we’ve talked about the reservoir strategy also in the past when it comes to this.

But, but one of the other things is what, what do we do about how do maybe that’s too. I just realized I was going to ask you a question that was probably going to be a totally new podcast, brother. So let’s just talk about the reservoir strategy. I love when you bring this up because I think it’s such an important reminder of one of the big differences that you guys have with your firm.

Larry Heller [00:05:47]:

Yeah.

So I mean the reservoir strategy again, we kind of have three different reservoirs. A short term, a medium term and a long term. So the short term, that’s the money that you have that wants to meet your income needs. And usually we say two, maybe three years in this reservoir of your expenses to meet the next three years. And then the medium term kind of investments that are a little bit more aggressive than short term, maybe a little bit fixed income, some private credit in here and which would provide you with income a little bit more risk, but kind of your intermediate and medium term reservoir.

And then you have your long term reservoir, which we really talk about equities in here. And what happens is when the equities do well, you’re going to kind of take some of the profits and that reservoir is going to flow back into your short term reservoir. Plus the dividends on both the long term reservoir and the interest on the medium term reservoir also flow into your short term reservoir. So therefore you really don’t have to worry about what’s going on, especially less month here with the ups and downs and volatility in the stock market because the money that you have in the market is 10 year money in our reservoir strategy.

Matt Halloran [00:07:02]:

And so that really leads us right in number three, which is a lot of times people are wildly risk averse, they’re terrified of losing their money.

So they have too conservative an investment portfolio. So break that down.

Larry Heller [00:07:14]:

Yeah, so I mean there’s been studies like that. If you’re a couple age 65, the odds are that one of you is going to live to almost. One of the spouses is going to live to almost 90.

So that means that’s 25 years that at least one of the couples is going to be. So we want to at least to provide for that and Then if you’re just a, a male 65, a female is 85. And if you’re male, 65 is 82. So you’re still planning for multiple decades so you can have just a too conservative portfolio. I mean, we saw that happen a few years ago when interest rates went down to almost right now interest rates have ticked up a little bit, but there’s talks of a cut in the interest rates.

So you don’t want to just have a really, really conservative portfolio because you’re worried about the fluctuations. Again, our reservoir strategy will help you avoid losing sleep overnight with the volatility in the stock market.

Matt Halloran [00:08:14]:

And you definitely need to have. And you broke this down before, you know at least a little bit of your portfolio that’s trying to grow a little bit. Right.

Just, just in case, how do you balance that?

Larry Heller [00:08:26]:

So again, part of it is what your risk tolerance is. So we, we kind of, look, we do, we, we do a risk tolerance analysis so we know that depending upon how much the market moves, you won’t panic. So that’s one that we balance. Two is what your expenses are, what you’re pulling out of the portfolio, what you need for, for that.

And we also talk about longevity. We have clients that come to us and they say, I’m planning to age 100. I see we have one couple that they’ve been clients now 25 years, maybe longer. Matt Halloran. Because they’re both one’s 91, 88 and 25 years ago, they both told me they’re both living to age 100.

So they’re, they’re 90, 80 right now, in great health. No reason to believe they won’t make it to age 100. So. So people are living longer. So if you have just a conservative portfolio and inflation kicks back in is much higher, the use of your money doesn’t go as far.

So you need to have some things that are going to grow in your portfolio.

Matt Halloran [00:09:28]:

Wow. Planning to 100. I have to say, when I first, first got into this industry, which was after you did planning didn’t go to 100, man, that was not something that people were really talking about.

Larry Heller [00:09:39]:

So I mean, some people, some people still say, you know, I’m done at 85, but you don’t really know.

I mean, there’s no way of really. No. We have multiple clients, male, female, in their 90s and healthy. So. So that’s what I can tell you right now.

So if you’re in your 50s or 60s and you know about to retire, there’s going to be more and more with, with a lot of this medicine coming forward, people are going to be living longer and longer.

Matt Halloran [00:10:11]:

Yeah. All right, so that was number three. Now you’ve spent a halfway decent amount of time talking about RMDs and the difference required required minimum distributions. You know what, dude, they could have named that something different.

That’s so hard to say. But RMDs are a really important consideration and a huge mistake that a lot of people make in retirement. Let’s dive into that one.

Larry Heller [00:10:32]:

Yeah, so it’s actually waiting until normal your required minimum distribution. So let’s just talk about that for a second.

So now your required minimum distribution is, is 73 years old. If you were born in 1960 or later, you don’t have to take a required minimum distribution until you’re 75. So what does that mean? So all of your qualified accounts, your IRA, your 401ks accounts that you haven’t paid taxes on, the government is going to want to know, is going to eventually want their taxes. So a few years ago, post this pre secure act, the retirement, the required minimum distributions were at 70 and a half.

You had to start to take out certain minimums out of that account and pay taxes on. Now it’s pushed back three and then eventually five years. So what happens is that account, their retirement account is growing. And if you’ve invested in the stock market, could be growing very significantly. So what does that mean?

That means you’re, you’re delaying pulling out the account so the account can grow bigger. But when it’s bigger now, your acquired minimum distribution is bigger than and that can kick you into a much higher tax bracket. So if you retire, let’s say at 65 and you don’t have to take a requirement and distribution to 73, you have these eight years that you might be in a very low tax bracket. And you actually, you may want to take some money out of your qualified accounts during those eight years or you may want to do some Roth conversions again. Another podcast that we’ve done is the Roth Conversions.

So waiting until you’re 73 or 75, sometimes it does make sense. It depends upon how much is in the account, depends upon what your tax bracket is in there. But if you’re in a low tax bracket and you have a very large retirement account, you may want to consider taking some out before the requirement distribution. And accountants are probably rolling over in their graves when I say take money out of qualified account and pay a little bit taxes now rather than later.

Matt Halloran [00:12:35]:

Ah, yes, I, I’m sure that There were some CPAs there who just twitched just a smidge when, when you said that.

But again, you know, this is one of the reasons why you work incredibly well with, you know, CPAs and other professionals to make sure that you are looking at the entire picture. Because if you just have a myopic only tax approach, then you’re not going to be able to make the moves that might be necessary for you to really have the retirement you want.

Larry Heller [00:12:59]:

Yeah, absolutely.

Matt Halloran [00:13:01]:

All right, so we’ve had podcasts on RMDs, we’ve also had podcasts on Social Security. And so please go to the, the podcast page, do some searches.

We, we dive into the stuff really deeply. But let’s talk about Social Security optimization at, at this high level.

Larry Heller [00:13:17]:

Yeah. So when should you take that? Now, there are a lot of, a lot of factors that come in here.

What, what’s your health, who you’re married to? I mean, are you married or are you single? And is there a big age discrepancy between those? All those things come into play whether it earlier, you want to take it later. So normal, normal retirement age now is about 66 and it’s going up each, each year by a, by a month.

So if you were born in 1960, your normal retirement age will be 67 years old. But if you wait until you 70, that number could increase by 8% a year, pushing your benefit up even more. But should you wait or should you take it earlier? Because obviously if you take it early, you have certain years that more years that you’re using it. When is the break point on that?

So you can kind of get an idea of when is the optimal time for you to take it. And then if you’re married, there are strategies. Should you take your spouses first and possibly your own later on? Or if one spouse worked and the other spouse did not work, you may want to consider waiting to age 70 but because if you die, your spouse only gets one of them. So if you’re both alive, one spouse gets there, the working spouse gets their full Social Security, but the non working spouse gets half of the working spouse’s Social Security.

So you get that while you’re alive. But if you, if you die, you lose one of them. So maybe waiting at the age 70 to make the one spouse’s Social Security as high as the possibility, as high as it possibly can be is as a possible solution. Again, all these different variables, it depends on. Everybody depends upon what you, what your scenarios, what your income needs are, what your life expectancy you think is.

And differences between married, single and the age differences between the spouses.

Matt Halloran [00:15:19]:

All right, so from a high level, what we’ve talked about is one, not knowing how much to spend in retirement, creating an income only strategy instead of a total return strategy. Two, conservative portfolio construction. Right. So that you’re not really being able to grow as you need.

Number four is RMD’s required minimum distributions. And then number five, which is not optimizing your Social Security. Okay, bringing it home. Here is, here’s something that you have interviewed some actually very interesting people who are attorneys talking about wills, power of attorneys, beneficiaries, trusts, all of those sorts of things. So how does that come into play and what sort of mistakes do people make with those?

Larry Heller [00:15:59]:

Yeah, this is a lot of mistakes here. I mean, part of this is really not retirement, but I kind of, kind of push this in here. And one of the things that we see is people don’t have their estate tax plan in place or their estate tax or a lot of their documents in place. And while you’re alive, it’s real important to have a health care proxy and a power of attorney in place in case you get sick and somebody needs to make certain decisions for you. Obviously that usually happens in your retirement year.

So having those documents are extremely important. And we’ve seen people that don’t have them in place. And then, you know, having documents in place and having what you want to have to your to your assets be transferred upon your death to your heirs is even extremely important. Again, you’d be surprised how many people that still don’t have wills or trust to kind of determine where those assets would be. And then a lot of times it’s not just your will because titling of contract of law kind of supersedes your will.

So we’ve had clients come in and they said, oh, I have a great will and this is going to happen and this is going to happen. But all their assets are in joint, so it doesn’t happen on the first death that they want it to be. Or we’ve looked at beneficiaries on their retirement accounts and they’ve been missing a child. And one time we actually found an ex wife still listed as a beneficiary there. So making sure that you have everything put into place.

And of course, if you’re lucky enough to have in New York over $7 million, there’s some estate tax issues that you want to make sure that you put into place. So not having the proper wills, trusts, power of attorneys, beneficiaries accounts set up properly. Major mistakes that we see over and over again.

Matt Halloran [00:17:51]:

I was just watching a video earlier today that just under 70% of Americans don’t have wills or trusts.

Larry Heller [00:17:57]:

Man, that’s surprising.

Matt Halloran [00:17:58]:

That was, that was really eye opening. All right, well bring us home, Larry. Where, where do we go from here?

Larry Heller [00:18:03]:

Okay, so just to state again, the six mistakes that I see in retirement that you should avoid, not knowing how much you can spend in retirement. Number one, creating an income only strategy instead of a total return strategy.

Two, three, creating a too conservative investment portfolio. Four, waiting to withdraw from your IRAs or 401ks until you’re acquired minimum distribution. And five, not optimizing your Social Security strategy. And finally six, not having the proper wills, correct asset titling, power of attorney, health care and beneficiaries. And these are just some of the mistakes that I have seen.

There’s more than six, but we wanted to keep this podcast and so we’ve only included six today.

Matt Halloran [00:18:52]:

Well, listen, I want to first off, Larry, thank you very much for downloading all of this and thank you all for tuning into the Retirement Unlocked podcast. If you found this episode helpful, please like subscribe and share it with someone who might benefit. And I know there’s a lot of you out there who 36 like John’s making that mistake. So please make sure that you share it with your friends.

And if you want to take the next step in the episode description, below you’ll find a link to Heller Wealth Management website with more resources and the option to schedule a complimentary 20 minute call with the Heller Wealth Management team. Your ideal retirement starts with a conversation, so let’s get it started. We’ll see you next time on Retirement Unlocked.