Ep. 118 – 4 Questions to Help Your Income Plan

You’re finally approaching retirement after years of building your retirement income. What do you have to do now that you have arrived at the summit of your retirement?

In this episode of the Secure Your Retirement podcast, we talk about the four questions to consider helping shape your strategy for spending the retirement income you’ve worked a lifetime to build. We also cover the different approaches you should consider when it comes to a retirement plan investment.

In this episode, find out:

  • How long should I expect to live? Factors to be considered when planning retirement around your age.
  • How much will the cost-of-living increase during my lifetime? Have a retirement financial plan that looks at inflation.
  • When should I retire? Factors to consider when retiring early or later.
  • Where should I place my assets? The 2 types of money that you need for your retirement plan.

Tweetable Quotes:

  • “There’s a lot of unknowns when we get into retirement, and we can only plan for so much.”– Murs Tariq
  • “Fixed annuities offer a good alternative to pay for income needs.”– Radon Stancil


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon:Welcome everyone to our retirement in action. Today we’re going to talk about a very, very exciting topic and the reason why it’s exciting is could you imagine yourself getting to that goal that you’re now retired. We talk about it a lot. When that conversation around this idea that I’ve reached the summit, you think about this person that’s worked so hard to get to the top of the mountain. They’ve done all the work, all the training, all those things well before you ever try to climb that mountain, and then finally you make it to the summit, and we’re calling this basically or talking about this, this idea of the retirement summit. Ten we say, “Now what?”  
 Well, what do you have to do once you get to a summit? Well, you got to get back down. You got to start really doing a different type of planning. There’s one type of plan to get to the top. There’s another type of plan to get ourselves safely home. Really what we’re going to consider in this episode is four questions to help shape your strategy for spending the retirement income you’ve worked a lifetime to build. Now think about it. For decades and decades many people work for someone else or for themselves in a business, and they get income coming in every year, and now all of a sudden, you find yourself there in retirement and you now want to have income that’s going to last throughout your retirement plan. What we’re going to do is walk through four questions that you need to think about and plan for when it comes to retirement.  Murs going to get us started with our first one.  
Murs Tariq:That’s right. Question number one is it’s a tough one to answer, it is how long should I expect to live? There is data on this, and then there’s actual reality on this. When we’re building out these plans, when we’re thinking through all the different moving parts when we’re building out a plan, the question does come up. Well, how do we even plan for this future? Say you’re 60 or 65 and you’re planning on retiring. What we have to do now is support the next 25, 35, even 45 years of retirement, without any work income coming in the door for the most part of people. That statement there can get a little overwhelming and it comes to, well, at some point we have to plan that we’re not going to need the money anymore which is when we pass away.  
 I’ll tell you the average of someone who is 65 today, a male can expect to live to age 84, and then a female can expect to live to age 86 and a half. Now we all know how averages work. They are basically numbers all over the place that are jumbled together and you get one number that spits out. You have some in the high end and you have some in the low end, so that average is built up of people living into their hundreds, also people passing away early in their early sixties, and that’s how we arrive at that 80 or for males 86 and a half for females.  
 I will tell you that when we’re building out these plans, we are never saying that we are okay if we run out of money at age 84 and 86 and a half, that is in our opinion, a little too risky. Also we have no clients that say that that’s how they want to plan it either, that, “I want to spend all my money and I want to make sure I do it by age 85.” There’s a lot of unknown when we get into retirement and we can only plan for so much.  
 What we’re really looking at, and what we have seen in reality is that one out of three 65-year old’s today will live past age 90 and one out of seven will live past age 95. If you think about it, it just makes sense. Medicine has gotten so much better, and we are seeing people living longer and longer. We have clients that sit in front of us all the time that say, “My father passed away at 96. My mother passed away at 97. I have a brother that’s in his late, late eighties or late nineties.” We just hear that more and more whereas a conversation 20 years ago was completely different, so life expectancy is increasing to a degree, or at least we’re seeing the numbers in your favor.  
 Yes, we definitely want to plan for later. We’re going to plan in that 90 to 95 range, as far as making sure that there are still sustainable assets there. It does a couple of things. One, if you live to 95, well, great. We’ve planned for it. The other is, well, what if there is a scenario like a long-term care scenario, that’s going to use quite a bit of our assets in our earlier ages, maybe in our seventies or eighties? Well, we plan on having assets until age 90 or 95, so it’s well within the plan in that hypothetical. The what ifs get covered when we plan for such a longer span of retirement living. How long should I expect to live? Nobody has the answer, but if we err on the side of caution here and go conservative, it works pretty well.  
Radon:Yeah. I would say don’t do this one. We hear this one all the time. “Well, my mom or my dad only lived until they were 80, so I’m probably not going to live past 80.” My dad lived until he was 95 and that was after he had parents who died in their sixties, at least his dad did. Be aware that, hey, by the way, some of the things that you have access to, maybe your parents did not.  
 All right. That leads us to question number two. How much will a cost of living increase during my lifetime? Another huge question that honestly, we don’t have an answer to, but here’s some things that we can do to plan through it. I’m just going to kind of give you some numbers. If you look at the last 100 years of inflation, it’s just a little bit over 3%. If you look at the last 10 years, it’s only about 1.5%, very big difference there. Here’s the thing that I want you to be aware of though. You can go look at and pick little times, intervals of time, where those numbers were really high and they were really low. In fact, we got periods that was deflation, meaning everything was going down in price. That was what happened in ’08 and we’ve seen that throughout the different years throughout that 100 year look.  
 All we can do is say, “Look, if we take 100 years, throw it at 3%, that’s probably a pretty conservative number. Now, the numbers are compelling though, when you start looking at that, and that’s why we believe you need to have a retirement financial plan that looks at this and Murs And I use a software program that really helps us think that through. Murs is one who does a lot of the planning. Murs, you know these numbers better than I do and if somebody needed a certain amount now how much it increases, and I know you’ve know those numbers pretty good, and you can, you can say that quicker than I can.  
Murs Tariq:Right, yeah. It’s crazy. If you have someone that is maybe 60 and they are looking to retire at 65 and you’ve got a 3% inflation rate, just 3% only over five years, if we’re planning for age 60 to 65, can increase the amount of need by $1000 a month, just that tiny little 3% or if they’re now 80, that’s taken that $1000 extra need to closer to $2,500 extra a month. Inflation is definitely a factor, something that we need to plan on, for sure.  
Radon:Yeah. I think the best way to do this, sometimes we’ll have folks come in and they try to do a spreadsheet. I will tell you that a spreadsheet is good. We can do some pretty simple things with a spreadsheet, but there’s a lot of different things we have to think about. In fact, one of the things that a lot of times people don’t think about is that we split income apart. For example, I don’t need to inflate my mortgage payment because there’s no inflation needed, that’s a fixed payment for 30 years. We split that apart and then we only inflate the part that needs to be inflated. We really want to spend some time with our retirement financial plan to help us think that through, in order to get the answer that question accurately.  
Murs Tariq:All right, question number three. When should I retire? Retirement there are so many different that we need to be thinking through. Obviously the best scenario is you love your job, you can continue in your job until you’re 70, because a bunch of things happen there. One, at 65, you become eligible for Medicare. At 70, you become eligible for the highest potential social security income, and so that is usually the best scenario. Now, most people don’t have any desire to be working into 70 so the question becomes when should I retire? When is it most advantageous to retire? That’s a very subjective question. It could be one answer for one family and another for the other.  
 Things that we need to be thinking about are, “Well, all right, if we retire early, what are the impacts going to be there? If I want to retire at 60? Well now I’ve got health insurance coverage that I got to figure out from 60 to 65 to get to Medicare. I’ve got a shortage of income because I’m not even eligible for social security yet. I may not even be eligible for my pension yet, if I’m getting a pension.” Then you’re giving up the ability to save into these plans, you’re giving up the ability for these plans to continue to grow. The majority of people are going to really start seeing that compounding effect in their fifties, so you don’t want to cut that short.  
 Now, the other side of this is when should I retire from a market perspective? The last thing anyone wants to do is walk into retirement and walk into another bear market, or imagine last year. It feels like it’s been forever, but last year when the whole pandemic started, and you walked into this idea of retirement in February of 2020. Well, we all know by the end of February into March, the pandemic had come into play, the markets were tumbling, and the market in the matter of weeks fell 34%, the S & P 500 fell 34%. Imagine if you had decided, and you had already put in your notice that you were retiring and that million dollar 401k dropped by 340,000. Now you’re thinking, “Oh man, do I have to go back to work?”  
 Now, unfortunately, there is no answer, there is no good way to pick the best time to retire from a market cycle perspective. All we can really add here is to make sure that you’ve got an investment philosophy that you really believe in, that you believe works for you, and hopefully is going to get you out of harm’s way in these struggles that the market is going to provide, we know that. We know that if you’re living 20, 30, 40 years in retirement, you’re going to see some tough years. It’s statistically proven. Every five to six years we’re seeing some type of correction or some type of bear market in the market, so that’s a 10 to 20, 30% loss.  
 I’ll ask you the question, can you sustain that? Can you handle that from a numbers perspective, but also from an emotional perspective, if you’re in retirement. Just things to think about. When should I retire? It really comes down to you and your preference, but at the very least have an investment philosophy, that really lines up with the answer to when should I retire?  
Radon:This is a good piggyback, but it’s another question and it comes right along with some of those things that Murs was just saying. Question number four, where should I place my assets? We’re going to make this very simple. Murs and I talk about all the time there’s two different types of money that we need. One that’s going to produce income and one that we’re trying to get growth and income from. But the one that we believe, so if we were to split those two places up, and we said, “Look, let’s think about our income and let’s talk about our essential needs, the money that we need to pay the common bills that we know we’re going to have every single month.” That’s got needs and then we got wants and then we got money that we want to give away.  
 That needs money that we have to have, we believe should be produced by something that’s going to give us guarantees. Now, that could be social security, a pension, that’s some, And then usually I’m going to have a gap there on my needs analysis. On my needs analysis, I’m going to say, “Okay, well, I need a little bit more,” so now I got to go say, “Where can I get some guarantees?” and I’m going to have a short list. CDs, money markets, treasury bonds, and fixed annuities. That’s kind of the places I can get guarantees. Obviously, the CDs, money markets are not offering very much, neither is treasury bonds right now, so that kind of drives us down this idea of well annuities. I will tell you that Murs and I do use fixed annuities. I think that they offer us a good alternative to give us that as income, pay for those income needs. If you want to know more about that, we did a whole entire series on fixed annuities, fixed index annuities.  
 Now the other category are, hey, we want to invest for growth, which means we’re going to be in the stock market. But if we’re going to do that, you got to figure out there what type of an approach do you want? Do you want a buy and hold that says, “I’m going to hang in there no matter what,” and the market’s going down 30, 40% and somebody’s telling you just to hang in there and not worry about it. I will tell you that the clients that Murs and I talked to and will have, do not want that. They don’t want that stress. They don’t want that pressure. They say no, they would much prefer to make a decent rate of return, but have a plan in place that would protect them from a significant loss. We, our approach is, we do that through actively managing the account.  
 Now there could be all kinds of arguments around this. You could have somebody to say, “Yes, but if you do that, you’re going to give up upside.” That’s possible. That is possible. But again, go back to what you think. Some people say, “No, I would rather have a decent rate of return and know that I’m going to be protected from significant loss. I’m okay giving up some upside. I understand that there’s a potential there,” but again, go back to what Murs was talking about, about when do I enter retirement? Well, if I enter retirement and I’m in a buy and hold scenario and the market’s crashing, that can be devastating. If I’ve got that plan in place, then I don’t have to worry is this going to be a big crash because I know I’ve got a plan in place. I think that’s really, really important, but that’s four questions. You have anything to add on that by the way, Murs? Sorry.  
Murs Tariq:No, I think you summed it up very nicely. Four questions for helping figure this out and navigating all of this, I think is plenty to get us started.  
Radon:Good. Again, I’ll tell you, go visit our website. We’ve got a whole blog article on this particular topic, has all four of those questions with bullet points to help you think that through. That’s pomwealth.net\blog and a there’s a new article put there every single week, every Wednesday. Check that out. We do appreciate very much you listening. Hope you have a great week, we’ll talk to you next week.