Ep. 176 – The GPS Retirement System
When you think about the GPS in your car, you think about how it will direct you to the right destination. The most important part of your GPS is knowing where you are so it can help you get to your destination.
Our retirement program is similar to a GPS designed to help you get to your retirement destination without any worries.
In this episode of the Secure Your Retirement podcast, we take you through our GPS retirement system and explain why it’s powerful. Listen in to learn how we help you prepare for any roadblocks that arise during your retirement.
In this episode, find out:
- Why we liken our retirement plan process to a GPS system.
- The different things that help us understand where you are like income, assets, and more.
- The numbers we use to estimate if your plan can get to the end of your retirement.
- Why we use age ninety as the end of your retirement to plan the GPS retirement system.
- The “what ifs” we look at to prepare for potential roadblocks that may arise during your retirement.
- Why we do the GPS annual updates with our clients to help adjust things in their favor.
- “It doesn’t matter how much you have asset-wise, it’s all about how much you plan on spending in retirement.”– Murs Tariq
- “We use our retirement planning process system to get you all the way from where you are now through retirement.”– 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 Stancil:||Welcome everyone to our Secure Your Retirement Podcast. Today, we’re going to talk about guiding ourselves or being guided throughout retirement. We call it our peace of mind retirement process, but we really liken this whole entire process, or we compare it to what we call it, our retirement GPS system. So why is it that we would compare retirement planning and that process to a GPS? Well, let’s think about it for a second. If you were to get in your car and you’re trying to get to a destination, having a GPS can help you stay on track to get to your destination. Now, when you think about that GPS though, what is probably the most important part of a GPS system in your car? A lot of times people will immediately say, I need to type in my destination and that is true, but I cannot get to my destination unless I know where I’m at currently.|
|Think about it. Have you ever been in a parking garage where your GPS system could not reach the satellite? And so it just sits there and it spins because it can’t see you. So it doesn’t know where you’re at. So it has no way to tell you how to get to your destination because it doesn’t know where you sit. And then finally you get out of that parking garage, it picks you up and it says, oh, we know where you are now. We can help you get to your destination. So we’re going to now think about that illustration of a GPS and how we’ll apply that to the retirement planning process. By the way, what happens if you put in your GPS destination, it knows where you are, you put in the destination and then there’s a wreck on the road. There’s a wreck on the highway.|
|What does it do? It will reroute you and take you around the wreck or, and get you back to your destination. But what if you make a wrong turn or because you need to stop and take a bathroom break, or you got to go to the store? It’ll basically say, Hey, here’s the way to get you back on track. We use our system, our retirement planning process system. We do that to get you all the way from where you are now, all the way throughout retirement. So you might be sitting here listening to this and saying I’m five years out, 10 years out, I’m right in retirement. And no matter where you are, we can lock that in and then help you get all the way to the end of retirement. So now what we’re going to do is I’m going to transition and I’m going to ask Murs and have him to explain what we use to identify where you are. We use a program, he’s going to explain how do we figure out, first of all, where you are.|
|Murs Tariq:||Yeah. And I think this is a great question, a great way to start. Really, we start all of our relationships with this idea, this retirement focused financial plan. And that’s step one in figuring out this whole GPS as to where we are today. And so I’ll give you a little bit of a breakdown as to what all goes into this. And there’s a good amount of information that goes into this. Why? Because we want to understand every little piece, which helps us understand all the turns that you may need to be making throughout retirement. All the decisions that are going to come up in retirement and then potential roadblocks. Do we need to reroute? Do we have issues that we need to be thinking about to make our plan more efficient, but it all comes back to, we got to know where you are today.|
|And so to understand that we got to understand, are you working currently? And what is your goal for retirement? So you may be a couple years out from retirement. You may know that you’re retiring at the end of the year, whatever that is. We need to know what that scenario is so we can plan on, Hey, at some point, income’s going to stop coming in the door from an actual job. And now our assets need to start doing their job to provide for retirement. Then we’re going to want to understand income outside of employment. So typically what that’s going to be is social security and pensions. On the social security side, there’s major decisions that need to be made. So we’re usually going to want to know, Hey, what if you take it early? What if you take it at full retirement age? What if you take it at 70 and all the ages in between so that we can help both of us think through when is going to be the most optimal time for social security? And that’s a whole separate podcast in itself.|
|But the quick thing there is that there is no fit answer for anyone. There is no, Hey, wait till 70, but I’ll leave it at that. We want to understand what your social security situation is. If there are pensions, we want to understand that. Also, not just how much is going to be coming in the door, but also is there survivorship attached to the pensions. So if something does happen to you and you leave someone behind, are they going to benefit from the pension from your company? Other income sources that we want to understand as well are going to be things like, Hey, do we have a rental property that we actually net some good income off of? And we want to build that into the plan. Do we potentially have a sale from a business that we’re getting regular income from for a period of time? Oftentimes we actually see when someone retires, they either go back to work to consult with their company, or they want to do something part-time.|
|So we want to understand realistically, what is that income looking like? And for how long is that going to last? That’s just a few examples of other income sources that we may be seeing in retirement. Then once we have income figured out, we also want to understand what are the assets that we have accumulated over our working years that are going to help fund our retirement. Typically, that’s understanding what do we have in 401k IRA accounts? What do we have in Roth accounts? What do we have in investment style, brokerage accounts? Are there any annuities out there? Are there any insurance policies out there that can provide income? All these different things. We start asking the question and understanding, Hey, how much do we carry in the bank? What’s our comfort level about having cash in the bank? So we get pretty deep involved into the asset category.|
|We also want to understand property. Right. If you’ve got a home that you’re living in, we want to understand what the value of that is. And also if there’s other property or land out there, we want to know what that picture looks like as well. And then from there, the other big major part is because so far I’ve talked about, what’s going to come in the door income wise, what do we have to work with asset wise? But the other side of the coin is, well, how much are we going to spend? And I’ll tell you, this part can make or break a retirement plan. And we see it all the time. Doesn’t matter how much you have asset wise. It’s all about how much do you plan on spending in retirement. And that’s going to show us, are we going to have a comfortable plan? Are we going to have a type plan?|
|Are there adjustments that need to be made in a multiple of layers? So spending, we make that pretty simple. We want to know what your fixed type of expenses are. Usually what I’m talking about there are your flat type of expenses, like a mortgage. That doesn’t really change until you pay it off. And it has an end date to it, or maybe a car payment that’s fixed, but has an end date to it. We want to know what those payments are as well as when did they end so they can come out of the plan when you do pay those items off.|
|And then really it’s your needs. What do we need to stay relatively happy? So pay the bills, eat, do little things here and there in retirement. And then our wants, what do we want out of retirement? And sometimes I think we neglect this category and we don’t really know what we want to spend money on and how we want to enjoy retirement. But I would encourage you to think it through. For some it’s, what am I going to spend on travel? For others it’s, maybe I want a second home or whatever that may be. We want to throw those wants and those fun things into the budget as well.|
|Radon Stancil:||And I was just going to say on that one, one of the things that we get to do there on the wants is we sometimes create what we call a fun fund. And in that fun fund, we basically say, I want to travel heavy for the first five or seven years once I get into retirement or 10 years, and then we take that off. But that is again, that’s kind of like this whole idea of getting to understand where am I at? What do I need to begin with?|
|Murs Tariq:||Yeah. Yeah. And I’ll tell you, sometimes don’t get overwhelmed with this idea of knowing what we have to spend. That takes time. It takes time to understand what you’re spending, especially if you’re working and if you’ve got good income coming in the door. A lot of times we don’t think about how we’re spending, as long as the bills are getting paid and we’re saving here and there. We’re not worried about it. What does happen when we transition into this retirement phase or start really thinking hard about retirement, we focus a little bit more on how we’re spending, especially if we’re drawing on our assets to spend, we focus more on that. So it takes a couple years to figure that out, but we need a little bit of a baseline to get the process started.|
|And so that’s really the major things that we need when we’re building out this retirement, financial plan is understanding what’s coming in the door from various sources of income. What do we have to work with? And then how are we going to spend the money? And that from there takes us now we’re able to run some simulations that can provide a ton of value in a bunch of different ways. And so Radon, if you want to kind of walk through, what do we get out of all this? When we take and put all this data into this powerful software, what do we get out of all of this?|
|Radon Stancil:||And so ultimately, one thing that we don’t know is what is the end of retirement? Whether that be good or bad, I don’t know, but we don’t know, we know life expectancy, but we don’t know what that day is going to be. So whenever we’re talking about the beginning parts, which is what Murs just went through, what we want to then say is, are we going to be able to make it to what we feel is the end of retirement or the end of our life? Now we typically use age 90, but sometimes people will say, I feel like my grandmother lived until she was 100, and my grandmother lived all these different older ages. And so we’ll use 95. We’ll use 100. We don’t care on that. We just don’t like using less than a 90 year of age.|
|Now, some people will say, I don’t have any of my family that’s ever lived to 90. I don’t want to use 90, but that could be dangerous because you might be that one. And if you run out of money at age 80, because you thought you were going to die at age 80, and then you got 10 more years to go, that could be a problem. So let’s just pretend that we say, look, we’re going to use age 90. So we took all of this information and says, this is where we are at today. And then we run that out and we say, what does it look like at age 90? And we assume very conservative numbers in there. So we’re going to build in inflation. You’ve heard a lot about inflation in the news. We want to make sure that we put that in there. We’re going to think about things like healthcare. We’re going to think about things like, well, I’m going to also invest the money.|
|Well, I’m going to get a return on it. So let’s grow the money. Although on that one, we always use a very conservative rate of return and be very honest with you. We’re usually using four, 5% as kind of our number that we use. And if you look at that and go, why are you using such a low number? Again, we’re trying to run it conservative because we’re trying to get all the way to our destination. So then what we do is we look at that and we say, well, can we make it to our destination? If you want to go back to the GPS, if I know that when I look at the GPS and my destination is 400 miles, I need to understand, well, do I have enough money to pay the gas, to get me there and to be able to fuel. If I got an electric car, do I have enough charge to get me to my destination?|
|And we’re doing this now with our finances is, do I have enough finances to get me to my destination, age 90, 95, 100, whatever that destination is. And then what we’re able to do when we look at that is to say, yeah, you’re going to make it. You have no issues here. Every now and then we’ll have a scenario where we say, well, Hey look, it gets a little tight on the current plan. We might want to make an adjustment. And sometimes it’s a very small adjustment. Maybe we look at the spending plan and we take back maybe we say, look, is there any way we could adjust the spending plan by just $500 a month? Another scenario is the person says, Nope, I don’t want to adjust it, but I’m willing to work part-time for five years or I have a consulting business for five, 10 years into retirement and it doesn’t have to be much.|
|It could be that oh, it’s just going to generate $30,000 a year, $20,000 a year. And that now says, oh man, now we’ve got plenty of room to make it to our destination. Because that’s our whole goal. We want to make it to the destination. So what we’re doing is on day one, a person could be sitting with us. They’re 55 years old, 60 years old, and we’re looking out 30 years to age 90 and we’re projecting. So that’s kind of like when you punch everything into your GPS and it says, ah, we’re going to make it to our destination based on no roadblocks, no traffic problems, no health problems, nothing. We’re going to make it to our destination. It just shows a straight line.|
|So it looks good. But then we got to figure out what do we do along the way? What do we do along the way to make sure that we actually do make it to that system? So Murs, can you talk about how we help our clients every single year, do a GPS, if you want to call it, check in and how we adjust that and look at that.|
|Murs Tariq:||Yeah. So once we have this initial baseline of the plan figured out and everything looks good, then we want to be looking at some of the what ifs that we need to be thinking through. So if someone is retiring early, before social security age, we want to look at a bunch of different things that could be coming up, which is when do I want to take to turn on my social security? And there’s a big analysis that we do there to help someone understand the pros and cons of taking it at 62, taking it at 67 or waiting until 70. And we show how that affects the GPS, how that affects how much money is left at the end of the day.|
|Another big one that comes up is, Hey, everything looks just fine today, but what if we have a long-term care scenario? This is a big, big topic that people are worried about as we get further into retirement. And a lot of times we don’t have long-term care insurance in place, right at this moment. And sometimes the idea of paying for long-term care insurance is, it’s scary, it’s expensive. And a lot of times people are wondering, Hey, is it worth it? So what we’re able to see there is, well, here’s what could potentially happen if we run into a long term care scenario and we’re able to simulate that with this whole system and say, here’s how much potentially it could cost. Say you go into a nursing home at age 80. Here’s how it could potentially cost based off of where we are today and based off of how the cost of care is going up. And then it helps us to start thinking about, can we afford to self-insure or do we need to transfer some of that risk to an insurance company?|
|And that sparks a whole other conversation out of that. Another big one is we need to understand because it is a reality, is that what if a spouse predeceases the other, what if something happens to one of the two and is a surviving spouse going to be okay? So things that we start thinking about there is, well, what’s going to be coming in from social security? We’re going to be dropping one of those incomes. Another one is, is there pensions involved? And is there survivorship on those pensions to provide for that spouse that’s left behind? Are the assets going to be good enough to sustain the spend rate that we’re at today? Or do we need to think about reducing that? All these different questions start to come up and that we’re able to simulate some of those big, big topics.|
|And it’s not always something that we need to think about that’s grim and negative. It’s also fun. There’s also fun that we get to start planning into these plans. And Radon gives the analogy of say with the GPS, right? So say that we have a roadblock and what does the GPS do? Well, it tells you how to get around that roadblock. It tells you how to navigate around it. Hey, looks like there’s construction up ahead. So now we’re going to take this alternate route. We have clients come to us all the time, coming up with a roadblock of their own and it’s not negative. It’s usually positive. Hey, I’ve decided that I would like to buy a second home or my favorite story, it’s a true story, we had a client that came to us after they retired and they said, Hey, we love the plan, everything’s looking good, but here’s what we want to do now. We want to sell our home. We want to buy an RV and we want to travel the US for the next 10 years.|
|While that was a thought in their mind, it was never really a reality. But all of a sudden in retirement, it became a reality. And now we had to run numbers. So it was a positive roadblock in their plan. And we just had to make adjustments. What is the house going to sell for? How much is the RV going to cost? What is the monthly maintenance going to be? How much are we going to travel? All these different things that we had to build into their plan to make sure that they can really enjoy the next 10 years of their life. And I’ll tell you, they’ve been doing that for somewhere around seven or eight years. And really, we only see them once they make it back through North Carolina to come visit, not us.|
|They come to visit their grandkids and pick one of them up and take them for a trip. But they’ll happen to stop by the office to check in with us. So roadblocks can be good, but they give us things to think about. And so there’s a lot of power. Once we have a baseline set, there’s a lot of power into our ability to run all these different what ifs that are in the back of your mind. What if this happens? What if that happens? What if we want to do this? Can we afford to do this? So great things come out of doing some preparation ahead of time.|
|Radon Stancil:||And then there’s the reality, right? So what happens is every single year we sit down with our clients and we update where we’re at in the destination. If we started, when we were 60 at 61, we’re a little bit further down the road, 62, we’re further down the road, 63, so forth and so on. And we’re updating reality. So every year this program that Murs was just talking about, we sit down with our clients and we update and say, Hey, we’re further down the road. And maybe those what ifs that Murs is talking about comes along the way. We’ve had clients come in and say, Hey, this is where I’m at. I’ve been in retirement five years. We really want to redo the kitchen. What does that look like? And then we are able to not just sit there on the first day and simulate, but we’re doing this all throughout retirement, every single year, updating those numbers all the way down the road.|
|Because what’s going to happen is, I mean, now we’re talking to a lot of clients right now that are 70, 75 and they’re saying, Hey, I think I want to go into a continuous care retirement community. And so we now are a reality. We’re down the road. How do we do that? How do we navigate it? Well, we’re going to sell the house. We’re going to try to raise money here. We’re going to have to do a down payment. We got an extra amount of monthly expenses. That’s all just adjusting to get us to our destination. And so I know we’ve shared a lot. I hope this has been beneficial. We have a whole blog written on this. If you go to our website, which is pomwealth.net, go to the blog page and all of this is there in written format. We’ve heard it from a lot of folks that said they love to read sometimes in addition to listening. So we’ve got this written up in a nice way there for you on the website. Anyway, we hope that this has been helpful. We’ll talk to you again next Monday.|