Is 80% enough?

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome, everybody. Thanks for being with us for another episode of Something More with Chris Boyd. I'm here with Jeff Perry. We are both of the AMR team at Wealth Enhancement Group and our show today.

0:46 We're going to talk about a variety of things, but the first of them is about this 80% thought process. I'm going to call it the 80% rule, but that's exactly what we might call it, but we'll come back to that in a second. Before we get started, I wanted to ask you all to please share our show with someone else. We love doing the show and we'd love to help more people and reach more people. Your ratings and sharing of the show is really the best way for us to reach more people. If you find the show helpful and enjoyable, share it with someone else.

1:27 Give us a rating on where you like to listen. If you're not, by the way, watching us from time to time, do you know that we are now posting our shows both on YouTube on the Wealth Enhancement Group page and on our webpage, which you can find at somethingmorewithchrisboy.com. From time to time, join us on video as well as the audio podcast. You can find the audio podcast wherever you like to listen to audios. Hopefully you have and that's how you're listening right now. Jeff, I wanted to at least mention that from time to time. No, it's good. I appreciate it. It definitely works.

2:07 The more people share and like and rate our shows, the more it gets into the algorithms and so more people can see it. So, that being said, 80%. What the heck are we talking about? I thought it was a 4% rule. What's this 80% thing? 80% is a B minus. Is that good enough? Yeah. Oftentimes when people think about retirement and what they're going to spend, there's this rule of thumb or perspective that you're not going to spend as much in retirement as you do while you're working. Why is that? Well, you might not be commuting.

2:49 You'll spend less on your car and all that goes into the maintenance and the gasoline and so forth. Oh, your costs go down. That's one reason. I won't need to spend as much on my wardrobe. Yeah, dry cleaning, right? Dry cleaning or I got to get a new suit now and then or whatever it is, right? Yep. So, that's part of the rationale. No more business lunches if they weren't reimbursed or there's a lot of things that will come up. That you spend money going out to lunch more often or something. Yeah, good point. So, okay. Well, let's talk about that for a minute, Jeff. Is that true? Will my expenses go down?

3:30 Absolutely true if you're just going to sit on the couch all day. And you're not driving anywhere. You're not going out to eat. You're not going to get any new clothes for your retirement life. You're not going to have any hobbies. You're not going to do anything at all. Yes, that is accurate. So, in other words, that's not really probably accurate. Because we do have other things we want to do with our time when we're not working. We do other things and those things can add costs. Now, sometimes it's just out and about and, oh, we go out to breakfast more. We go out to lunch more. We have more social engagements.

4:13 Maybe we just go shopping more. I see and I live in Florida. I live in a... It's not a per se retirement community, but there's lots of retired people. And I see shopping as entertainment for people. That's right. Shopping, going out to eat is entertainment. That's what they do to break up the day. To pass the time. And so, is it true? I think we have to be a little bit skeptical of that notion. Now, if we want to get granular, because let's say we think in terms of our expenses and we say, well, I've got it almost set up that my mortgage is going to be paid off about the time I retire.

4:54 Well, that's practical. That's relevant. Okay. Maybe that's a good example of an expense reduction because you've got that paid off. So, that's a possibility. That could be downsizing. Things like that that are really concrete. You can say, I'm not going to have this $2,000 mortgage or I'm moving to a less expensive home. My expenses on a home will be... Therefore, my energy costs, my upkeep costs, et cetera, plowing and so forth, whatever. The upkeep outside, inside might go down. That's a good point.

5:34 So, I think we have to get specific as we think about some of these considerations when we put our numbers together. I was doing this financial plan as a project thing with a group of planners and the case scenario was assuming 75% expenses. I was like, well, wait a second. How are we coming up with that? Now, in this case study, the people stopped contributing to their work investment plan. Okay. All right. If you're considering that an expense, then yeah, you're not going to be investing the way you did pre-retirement.

6:16 So, that's a reduction in expenses if we're calling that an expense. I think I'm air quotes, fingers moving. Cash flow, right? Yeah. Coming out of your cash flow. So, investment, there's a number of considerations of how people might have extra money going into investment. And if we're considering that as part of that reason, we're going to have reduction in expenses. Okay. I get that. If we're only looking at our expenses, what we're really spending, then it's a different story. I don't think you're really going to be spending 75, 80% of your expenses because you still have priorities.

6:59 And then you may do new things. I want to travel. You said hobbies. I might take up golf or something else. Pickleball for Jeff here, right? At least I picked one that doesn't cost much money. It's not a big, expensive hobby though. After you get your paddle. You get a paddle and a couple of balls, you're good to go, right? Maybe sneakers. Some shoes. Yeah. Oh, and a shirt. Wait a minute. I got to pay the money to enter the tournaments. There you go. Campus bag maybe to carry your stuff. And drinks after, of course. So you get the point, right? Even an inexpensive hobby has a few costs.

7:40 But look, I think the point is you're going to do stuff with your time. And some of those are expensive hobbies. I think of golf as being a little more pricey. You can do it in a way that's reasonable with where you go and how you do it. But yeah, let's face it. There's some expense in these things. And so whatever that may be for you. It's usually like pent up dreams or demand, we'll call it. Like when I retire, I'm going to travel, right? You'll see the world. That's right. And that can get, I mean, I hope you do. That's why. Yeah. Or even the, oh, I'm not going to go.

8:22 I don't need to go to Europe. I'm going to see this country. There's plenty to see here. Well, you end up getting the RV or the trailer or something, right? Or renting. You end up doing things that have costs. So 80%, our thought process here is be very careful of making a general assumption like that. Unless you're getting into the weeds a little bit and saying, oh, well, the reason I say 80% is I'm not contributing 15 % to my retirement plan, 5% to her retirement plan. And we're not saving for outside the retirement plan, et cetera, et cetera.

9:07 Okay. That could really get that. Oh, our mortgage has gone away, et cetera. Okay. Now we're getting somewhere where I can see, oh, that's why we're saying there's a reduction. Outside of that, I would actually argue you're probably going to spend a little more. We talked about the retirement smile, Jeff. Right. Sure. So if you picture a smile, just draw an air smile, and you see the two highest points upward are at the beginning of the smile and the end of the smile. Meaning when you start your retirement, your spending is likely to be at a higher rate. Or elevated. A little elevated. Maybe these vacations are things you want to buy or hobbies or whatever it is.

9:51 And as you are in your retirement, the cost goes down, down, down. With the theory near the bottom of your cost is you're still reasonably healthy, but you're not doing as much. You're into more routines. Maybe you've done it and now you're more content to just in your routine. Yeah. And then thinking the smile is going back up, you're getting older. Maybe you need some assistance with things you used to do yourself. Or maybe you need some help in the house. Or maybe you need a caregiver. Maybe you need assisted living. Whatever the situation is. So according to the retirement smile, at the end of your near the end of your life, your expenses are high. Not for the vacation reasons, but maybe for some extra help.

10:31 Different costs that you might have related to health care. Yeah. Good point. So, you know, I think as you approach retirement, as you get into retirement, uh, going through retirement, it becomes important to not think of your plan as static. And, um, you know, I, I think when we start, it's one thing to start with a number and, uh, what can happen is over time we find what really happens. You know, we're making an assumption of what we're going to do, but then we need to keep updating the plan and revising it and reviewing it to say, does it work?

11:13 Uh, is this, am I on a path that is sustainable? And, uh, if not, well, I might need to take some action. And if so, we're good. We're good. We're doing our thing. You know? Um, so that kind of brings us maybe Jeff to talking about, um, with clients, why do we do an annual review? Why is it important? Absolutely. You know, we, we, we have this plan throughout our accumulation phase. We're going to contribute so much to our retirement account, to this and that we're going to pay down our mortgage, all these things that we're trying to do to get ready to reach that land of critical mass or what's your number. And you get there and that's, that is definitely, and you meet with your advisor, see how you're doing tracking your debt reduction and your investments.

12:01 Yeah. And then you feel comfortable, you retire, but that is certainly not the end of the story when you need to like be on top of your numbers and in top of your plan, because this next phase is somewhat, I can argue more critical to have these reviews and make sure you're on a plan because you don't have the ability to increase your income so much. Right. Yeah. I have to tell you, it's not uncommon for people to sort of set out their plan saying, I'm going to spend X and they start down the path to retirement. And as they get a little more granular, well, you know, that the house needs a little bit of this and that.

12:46 Well, we did want to take that trip and it turns out maybe their expenses are materially different than they expected. Absolutely. And so as we look back over a few years and say, wait a second, you know, when you retired, you were thinking you're going to spend X, but now you're spending two X or whatever. That's a different plan. And how are we going to deal with that? Right. And that can be, that can be just your cashflow you projected wrong, or you've been too generous to yourself, perhaps. Or it can be that something's happened that, you know, maybe that we talk about when we do our financial planning, the what ifs of life, you know, what happens, you know, good or bad things.

13:36 So one of these, what ifs may have happened. Yeah. Something. Good examples, like a divorced and now they're got a financial dependency on you for some help for a time, or I don't know, what's another common example? Well, you know, a lot of people go into, they leave their full-time job, but their plan is to work another 10 years, make half the amount of money. And maybe somebody's got a health issue or a disability that they didn't expect. For whatever reason, they're not working. So that extra income to support the plan or your investments, maybe you were too aggressive. Maybe you weren't working with somebody who was, you know, had your risk tolerance, right.

14:17 And you were taking too much risk or even the opposite. Maybe you're doing your own DIY planning and you said, all right, I'm retired. I'm coming totally out of the markets. Now I'm putting it in to this money market fund that's getting 6%. And then all of a sudden interest rates go down. And that 6% return that you thought you could live on is 2%. Yeah. So a lot of things change every year. And, you know, I think the annual reviews are people, we tell our clients this and many of them participate. Some don't, they don't want to do it. Or they're just feeling like, oh, I'm happy with the way things are going.

14:57 Not much has changed in my life, you know, that kind of thing. But we still would like to have that meeting anyway. We would. I am surprised. One of the things, I've been doing this four years with you, Chris, but in some things are surprising still. One of the things I'm surprised about is how we, you know, we get new clients and many of them are from other advisors. And I'm surprised that the number one reason is I haven't heard from my advisor in six years or, you know, pick a number, right. And they haven't had, they haven't been doing these annual reviews and the advisor hasn't asked or they missed the communication or whatever the case is.

15:38 But these are really, the annual reviews are really critical. It's an opportunity to meet with your advisor, even if everything, even if the annual review is 45 minutes and everything's fine, that's a reassurance. That's a sense of peace to you, right. That it's okay. But sometimes life events come up or you've done something that you didn't think would impact your plan. You were, you know, you did a gift to the family member that wasn't in your plan, or you decided to buy that RV that you referenced that wasn't in your plan or on the good side. Well, not the good side. I'll say you won the lottery that I was going to say an inheritance, but that's questionable. You had money coming into your plan. Unexpected wealth arrives.

16:20 That's right. So to update your advisor on the life changes, good or bad, and to just see if you're still on track, your cashflow is where it goes. Unfortunately, that doesn't happen as much as people would like. No, it's usually the challenges that present themselves, but not always. No, that's true. And I think, yeah, there's a variety of circumstances that can arise. One is, like you said, it could be new money. I'm not spending as much as I thought. I've got an accumulation. What should I do? Great. That's a great issue to discuss. Sometimes it's my health has changed. I may have materially different concerns because of that.

17:08 How does this play out? What happens if? Maybe it's a little bit about we've had unexpected expenses that we need to deal with. Where should we take it from? Right. And that's an important question. Even if you're deciding to go outside of your cashflow plan and it's a what if, or it's a I didn't see this one coming, where you access those funds and how you access those funds can be a really key component to the overall success of your plan. Sometimes it's about tax planning.

17:49 Hey, I'm not making as much. I'm not taxed as much. I've got this window where I haven't had to turn on my required minimum distributions. I may not yet have turned on social security or when should I turn on social security? I want to do it now. I can use the money. Should I do it now? Or I'm in this window where I don't have either social security or required distributions, but I'm drawing from my investments. Does that present any tax opportunities, tax strategies? The idea of a Roth conversion comes to mind.

18:31 There can be a variety of things that we could look at and say, well, what are some of the windows of opportunities or risks that we need to be planning around and reviewing? And sometimes it's related to tax considerations. Sometimes it's, hey, I have this pension decision. We're turning on a pension. Should I include the spouse? Should I not include the spouse? Should I take a lump sum? Should I take an income stream? I'm just throwing out a whole range of things that have come up over the last six months. We've talked about all these things with clients. What comes to your mind, Jeff? Things, unexpected decisions.

19:14 We're talking about your annual review with your advisor. I'd love to see, not just in the annual reviews, but I'd love to see before an annual review or anytime during the year, if a client has a thing they're thinking about. There's so many things that we don't expect we're going to do. But a little forethought is bubbling up of, I'd like to. It could be, we planned on keeping this house, but it's really too big. Or gee, our kids moved to Arizona and they just had babies. Maybe we should move to Arizona.

19:55 Or let's travel the country. Let's buy that RV. You name it. If you have a good advisor that you're working with, you can reach out to them and say, this is what I'm thinking. Can we model this? Can we project, if we have this added expense, or if we have this reduced expense, or if we want to buy this thing, does it impact the likelihood of success of our financial plan? You can do it at an annual review, if it's just something that's not imminent. You're just thinking about something you might want to do in a few years and model it out and make adjustments. But even if it's just something that comes up and you want advice and you want model, how will this affect my plan?

20:42 It could be a gift too. I'm thinking about helping my child buy their first house. If I give them $50,000, I'm not talking about gift taxes right now, but if I give them a sum of money, does it affect my plan? All these things, it's just critical. You pay your advisor to not only manage your portfolio, but you hopefully pay your advisor to get advice on these times and to keep you on track. I have to say, to echo your point, we love when people bring up that stuff with that planning kind of mindset. I'm contemplating, what do you think? How much? Absolutely.

21:22 Is this a good move or what do you think? Sometimes it's about, I'm thinking about some real estate, either investment property or vacation home or something. Second home. Is that a good idea? Depends. Sometimes it is. It's diversification a little bit. Maybe there's some utility that's an attractive element to it, but how much will it add to your expenses? It's not only the outlay, it's the upkeep. What's that mean? How does that change the trajectory of your plan? Oh, but I plan on retiring to that house later on. Oh, okay.

22:02 That's relevant. Then we're going to end this cost, maybe the cost associated with this house, and then we'll be able to free up that capital. All right, let's model this. Let me see how this plays out. That kind of thing. You can see some virtues to that. The idea of, I want to help the family member with a gift or something. It's an important time for them. They could really use it as a parent. Parents just want to help their kids. No matter how old they get. All right. Well, all right. That's a value. That's something we value to want to help our family.

22:46 Let's make sure it doesn't adversely impact your outcome. You reminded me of something I want to add to this conversation. You said value. I know you were talking about value being added to the client, but values as well. A good financial advisor should not be giving you value judgments. Not what you want, not what they think is right for you. They should be informing you, giving you counsel. Not just saying, here's what you need to do.

23:29 But give you information and help in the process so you can decide what's empowering you to make the decision you want to make. Yep. Just making sure that your eyes are wide open, you have all the information, you know the impacts. I can tell you times I've had this happen, Jim. Client is deceased now, but definitely wanted to make a move. The math was just like, that's not really a good idea. But it was something they felt was going to add to the quality of their life because it's a better location for where they'd be in the heart of the community they wanted to be in.

24:09 So they found a way to do it with family, that kind of thing. But it's challenging because then things change. Family doesn't always have the resources that they thought they would have. So it's one of these challenges that you have to, but what's my role? My role is not to say, oh, I told you so, or you shouldn't have, and say, all right, what do we do now? How do we figure this out? How do you consider moving? How do you consider a reverse mortgage? Would these be tools that could resolve that shortfall that we might be then having? These are the things we run into, and ultimately, our role is just trying to help you figure it out.

24:54 What's the best way to deal with it? And sometimes the best counsel we can give is, maybe you should consider downsizing. Maybe you should consider relocating. And it seems so obvious. I've been in many meetings with you that we get so constrained by our perceptions and our preconceived intentions. We don't consider all the options. Some of them you're mentioning now, and other ones, some of these things are available to you. Have you thought about them? It can't be that simple. And sometimes people say, no, I don't want that.

25:34 It's a value. Okay, that makes sense. Okay, you thought of it. It's not something you want to do. But sometimes I've had clients, this was a long time ago now, 15 years ago, maybe, we did the financial plan and the projections, and they told me they wanted to move to Florida in a few years, maybe five years out. And I kept doing all these calculations and basically came down to, you know what? You should go now. The math was like, your numbers aren't going the right direction. Doing it sooner is better. Time for the move.

26:15 And they did. And they've been happy. It was a good fit, good choice. But when you know that kind of stuff, I think a lot of times we get focused on the portfolio. Sure. And I think clients do too. Yeah. We talk about what's happening in the markets. We talk about, oh, these days it's all, you know, what are tariffs going to do and all that kind of stuff. Some of these variables that are in the news that we're all focused on. And those are relevant. We have to pay attention to those things. But sometimes it causes us to not put as much attention on to the other aspects of land, the financial planning considerations.

26:56 And sometimes those can add even more value than the financial portfolio management decisions, which, you know, these are foundational, all of these, but they're all interrelated. And sometimes it's important to step back from the, the focus on the portfolio. Yeah. The review of the statements, right? Yeah. And, and, and all that's going on in the economy and the Fed and etc. And trying to think about that. And sometimes we need to step back and put it into context of what else is going on and all that that can add value with.

27:40 That's maybe outside the scope of, should we have more equities or less equities or whatever, shorter term bonds or longer term bonds, you know, whatever. And that's why a financial review is so important because it's just a, it's just a point in time, at least once a year that you go in for your review and all these, the things you're focused on, the things you're not focused on, but we talk about them all, you know, we'll, we'll go through the portfolio certainly, but we'll talk about life changes and how you're tracking on your plan. We'll probably ask you if anything's changed in your estate planning, right? Anything's happening there.

28:21 Any family. You have fisheries once in a while. That's right. I know. Can't tell you how often we find just something's not what it's intended to be. Right. Some of the mundane things are good to review too. That's right. And it's an opportunity for these things to come up because the conversation spurs these things and it's, you know, an hour or two of your time and it's very well spent. You know, we go to the doctors for checkups, right? Yeah. We get the oil changed in the car because we want it to keep running. Right. And all these, you know, we get the, the sidewalks power washed and we do all these home maintenance things.

29:03 It's something as important as your financial plan and your financial security for the next year, five, 10, 30 years. It's definitely worth your time. If you're not, if you are doing it, you see the value of it and you're going to keep doing it. And I'm positive that if you're not doing it, I think you should be. Yeah. Give it a try for a little bit. I think you'll find value. And if you're not getting that kind of help from where you, you know, who you turn to for that kind of advice, consider talking to us. We'd be happy to talk to you in any case, Jeff, thanks for the topic. Good information. So two things we talked about today, reconsider that 80% question and don't overlook an annual review until next time.

29:53 Everybody keeps trying for something. Thank you for listening to something more with Chris Boyd. Call us for help, whether it's for financial planning or portfolio management, insurance concerns, or those quality of life issues that make the money matters matter. Whatever's on your mind, visit us at somethingmorewithchrisboyd .com or call us toll free at 866 -771-8901, or send us your questions to amr-info at wealthenhancement.com. You're listening to something more with Chris Boyd financial talk show wealth enhancement advisory services and Jay Christopher Boyd provide investment advice on an individual basis to clients only.

30:33 Proper advice depends on a complete analysis of all facts and circumstances. The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth Enhancement Group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss. Listeners should consult their own financial advisors or conduct their own due diligence before making any financial decisions.