Mail Bag; Expenses in retirement, caring for your estate, 49 and no retirement savings

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. Hello, and welcome to another edition of Something More with Chris Boyd. I'm Jeff Perry, and I'm here with Russ Ball of our team AMR, and we're co -hosting today as Chris Boyd is at a tax conference.

0:45 I don't know if that's an exciting thing or a boring thing that he's doing, but he's down at the Ed Slot meeting and gaining additional information that he'll take back to us to use for our client's benefit. We have the privilege of sitting in again for Chris today. How are you today, Russ? Pretty good, Jeff. I'm doing well. How about you? I'm doing great. Thank you. It's time for a mailbag segment. As our listeners may know, if they're regular listeners, from time to time we take these questions that we receive. People email us who hear the show or clients say, hey, this is a good one for the podcast. And we write them down and we save them.

1:26 And when we have enough to cover an episode, we say, let's open the mailbag. And so we don't really have a mailbag and pulling out a letter like the old days, but we do have these questions that have come up that we think are not just questions that a particular client asked us and we answered or a particular listener, but have some broad appeal. And so you ready? Definitely. Let's go. I feel like I need a sound effect. I don't know what the sound effect for mailbag would be, but kind of ruffling some papers. I guess I could have a visual for the people who watch us on YouTube. But the first question, I'm not going to make up names like they do either.

2:08 Bob from Bourne says, the first question is about someone who is getting ready to retire and they're doing their planning and they're hearing this information that says when people retire, they can count on spending less money. And so this is a real common piece of advice. In fact, I just received a email from Fidelity recently talking about this issue about what level of income should you plan for and their range in the article in the Fidelity article was you should expect to spend 55 to 80% of your pre-retirement level of cash flow expenses in retirement.

2:56 And I must say, Fidelity is a fine company. We do a lot with them, but I don't agree. So you do a lot of financial plans and you work right next to Chris Boyd. We don't do that when we're talking to clients. That's not our base case, right? No. And actually, come to think of it, the previous firm I worked at, I think that was what they were saying too, the 80%. And it's widely cited around 80% to plan for your expenses. But here, and I think prudently, we plan for 100%. So basically, it's not like you have to trim down some of the expenses as soon as you hit retirement to be 80%.

3:47 We just say, all right, well, let's just transition. So we have our pre-retirement spending and our post-retirement spending, and they're going to mirror each other. And then any other expenses that come as goals, but the general living expenses, we usually keep the same heading into retirement. And I like that because for one, let's say that's true that 80% is all you really need, then we're creating that little bit of an extra buffer for planning. So that in and of itself is like, all right, so does your plan work with 100% of your pre-retirement expenses? And if it does, great. Then if that number comes down a little bit, there's more to spend on other things or whatever it might be. But just for peace of mind, and we were talking about this before, the idea that when you retire, psychologically, it's difficult.

4:36 You have to switch. So you're not getting income anymore from your job. You're getting income from yourself, from your own savings. And so to think, well, I'm going to do that, that's kind of scary. But then I also have to reduce it by 20%. That might not feel that great. That might not feel that comfortable. So especially early on in retirement, I think there would be ideally enough to cover those pre-retirement expenses. We've talked about, I agree with you completely, on a related subject, we've talked about the retirement smile on the podcast before. And if you think of a smile, draw a smile, if you don't know what this is, and you see at both ends of the smile, you're at the highest level.

5:22 So if you draw the smile in the beginning, this is related to spending in retirement, in case people thought I went off somewhere. So on the left-hand side of the smile is when you first retire, and that's your highest level of spending typically, meaning I'm retired, I'm free, let's go. So we're buying a camper or we're going on a month cruise where whatever it is, people tend to have some spent up desires, which many costs money. Some things we do are free. I'm but some things cost money. So we spend a lot of money there.

6:02 And then it gradually goes down as you get into your routine. Maybe you're spending time doing nonprofit work. Maybe you're volunteering here. Maybe you've taken up these recreational activities that are local to wherever you're living that don't cost a lot of money. And then as you get older, back to smile starts going up and expenses come in that you didn't have before. Typically healthcare related, maybe going to the doctor more, maybe need some help at home. Maybe you used to clean your house, but now you're like, that's too much for us now. We're going to have somebody come in and then maybe you need some home care or whatever the situation is. Maybe you need to remodel the bathroom because you don't want a tub anymore.

6:47 And I think of that as I think of how much am I going to need in retirement? Not as a less, but a different, right? And starting out thinking I need 55 to 80%. I just don't like it. I think if, because that when you tell people that, and then they do their, hopefully they're doing a budget before they retire. We want you to do that. And if they just take their current spending and say, okay, I only need 70% on average. Oh yeah. I can generate 70%. I think that's a restrictive type of retirement that they're planning for, and they may not be able to live the retirement life that they want.

7:28 So to your point, I completely agree. If not, just change, meaning I haven't just paid off my mortgage. So my expenses are going to go down, right? Then yes. Okay. You take that off the top or we're downsizing. So our expenses are going to be less or on the flip side of that, we're buying a second home and we're going to be snowbirds. Well, that's more expenses, right? And second, or we have all these travel plans. So, these rules of thumb are interesting and people like to read them as just going through their phones, but they can be dangerous to think that people actually make a retirement plan based upon this generalized advice.

8:11 And that's what I love about what we do. Russ, just spend a minute talking about how we actually go through individual circumstances when we're projecting retirement income for people. It's not just a formula. Yeah. So we run through a number of different analyses within a financial plan. So when we take your pre-retirement expenses and we say, all right, what are the goals for when that income stream is turned off? We put in all the goals that you have. Maybe it's like 5,000 a year for vacations. I want to make some gifts to grandchildren, whatever it might be.

8:54 We separate those out as specific goals that can change over the years. Maybe you want to go on a vacation every year, but not until into your nineties. That might not be what you need to do. There's a base living expense that we plan for. And then on top of that, additional goals. And usually, as you mentioned in the retirement spending smile, there's a lot of good research that shows that that's how it works in reality. And when you first retire, you want to live that retirement dream and you want to go on those vacations. You want to do everything that you want to do with your family, all the free time you now have. So we can put that all into a simulated cashflow and then run it through a number of different models like the Monte Carlo simulation, where it takes a look at, all right, based on previous market conditions and a whole range, like a thousand different scenarios of what the market might do.

9:48 It takes a look at how is that going to work given those goals, given those spending, those living expenses, how is that going to play out over time? If you live until your late eighties, early nineties, whatever it may be. And we can literally see what that window is going to look like. And do you have enough to cover that or not? Right. And it's a very thoughtful process and it brings up, because I think when people get their retirement vision and they start to do their own cashflow, they understand the normal bills. Even if they're paying off their mortgage before retirement, they get that, we're not going to have that $3,000 payment, whatever it is.

10:34 And they get that, but things that are not recurring tend to be left out. And you talked about vacations and gifts and all that, but even other things that don't cross their mind, like they have a house, they say they're going to stay in the house and the house is 20 years old. Well, if you plan to live or hope to live another 25 or 30 years in retirement, you're going to need a new roof. You're going to need a new furnace. You're going to want to remodel something and things like that. The list is endless of what we talk to the clients about, and it's very individualized, but if those things aren't planned for that $30,000 new roof in 10 years, that will really change the likelihood of the success of that plan.

11:23 Because there's a lot of things, new cars, how are you going to pay for that? I know that's when you do it with everybody, right? So how much do you spend on a car? How many cars do you have? How, when are you going to get one? And so you put all that in and you really get an accurate picture, which we also, as we talked about, I think a week or two ago, you do an annual review and you look at the plan and update the plan, tweak the plan. And that's how you get a good model. You don't get a good model by saying, oh, I saw this Fidelity article. I can go with 55% because I'm a real frugal person. And then you're living in retirement and you're not living the retirement that you want. Yeah. And I think with the article as well, it's like 80% or whatever it might be, that might be the reality of how it plays out, but you don't want to plan for that.

12:14 Because yeah, maybe there is that second house or that boat that costs a lot of money in retirement or whatever it is. 80% of your living expenses now, it might be different after you retire. There are a lot of variables that you can't really anticipate. So just keeping that number consistent, I think there's a lot of value to that. Even if the reality is you might end up spending a little bit less, but let's have that buffer so that we know that we can cover it. Absolutely. All right. So that's your first mailbag question. Let's shift over to a different kind of question about retirement. Maybe a little less positive. This one came from a 49 year old person and they say they have nothing saved for retirement.

13:00 What should I do? And that's a big question. It is interesting though. I looked up some stats knowing that we were going to answer this question and it says about 20% of Americans, 50 and older have nothing saved for retirement. So that's one in five person. This data is from the AARP. That's tough to think about being approaching 50 or at 50 and have nothing for retirement. The average, according to this 2024 study by AARP is that most Americans on average will need the equivalent of one and a half million dollars to be able to have a comfortable retirement.

13:45 We said this in another episode about saving for college. Do something is the first thing, right? So 49 years old, so you have perhaps another 20 years of retirement. So you're not 70 saying you have nothing, you're 49. So the first place to always look is with your employer. Because there may be some great advantages to matching options, right? So if you're working, this 49 year old person is working, investigate is there an employer plan? If there is, find out the details and see if it's worth contributing.

14:25 It's usually worth contributing if there's a match, if the employer is matching. Secondly is I would say check with the Social Security Administration to ensure that their information is accurate and to get an estimate of what your social security benefits will be at retirement age. Hopefully you've been working. If you're 49, hopefully you've been working for 25 years and you've been contributing to the social security system. And let's make sure that number is accurate and let's know what that number is. It's certainly not going to be enough to live the type of retirement you want. Next, I would want to know what your income is right now.

15:07 And I would also want to know what your debt is, what your expenses are. Do you own a house? Is there a mortgage on it? I'd like to get two statements from you. Statements, I call them statements. They are statements, but it's not like some complicated thing. I would like to get two statements from you. One, a budget. I'd like to know what you're spending and what you're making, what you're spending, your cashflow statement, your budget, whatever you want. So we can see if there's any wiggle room in your spending, like are you spending on things that you really don't need? Are you in debt and need to get control of your debt management? Because how much debt you have at retirement, whether it be a mortgage or a consumer debt, is going to have a significant impact on if you can retire.

15:54 So I'd want to see a cashflow statement. And I'd want to see, next I want to see your net worth statement. So what do you own? Do you have a house? This 49 year old who doesn't have any retirement savings, it's a real different analysis if he has a paid off home worth $700 ,000 or if he has a home worth $700,000 and owes a million dollars on it, or if he's in a rental situation. So that's not known in the question. So I want to know what you own and what you owe to see if you have a debt management problem. So that's where I want to start with this person. And then I want to get that person into contributing into assuming, let's assume that they have a work plan.

16:40 I want to get them working to get that, help them get that set up. And then I want to find money in their budget to get them contributing the max to a Roth every year that they have left, another 20 years. And with that, back to the previous question, then you can go do your thing, Russ, and put all that into our software. Right. And then it's deciding if they decide that's the time to pay down the debts and really start saving in earnest, cut the expenses that they don't need, then it's like, all right, well, definitely let's save. But like a lot of people, I get the impression that a lot of people think, all right, saving means saving in cash or saving in a CD.

17:27 If you're 49, you still have a pretty good runway. You're probably going to be working for quite a while if you haven't had any savings at all. So that's a pretty good runway to retirement. And in those instances, it would probably be prudent to look into investing in something that's going to have a slightly higher return. Even if you are somewhat risk averse, sometimes it's worth investing a little bit more in equities or in something with a little bit higher growth potential in order to make up the difference and to catch up a little bit. And 49, I think there's still enough time there to get invested, obviously not overly aggressively, but in order to make those funds grow as you start saving over time.

18:12 Also making use of the catch-up contributions after 50 to really do everything you can to start really saving so you don't have to work for a very long time. And like you said, I think a lot of people in that scenario about to turn 50 thinking, well, if I don't have a retirement now, I'm probably never going to have a retirement savings. And then they just don't bother. It's like, all right, I'll just live off of social security, or they think social security is going to be enough to cover what they need, not really knowing exactly how much it's going to provide each month.

18:52 So definitely if there are people out there that are in their 40s and they think, well, I guess a retirement, a nest egg is just not going to happen for me. It's never too late to start. And just start saving and start investing. And it's amazing what compound growth can do. Absolutely. And if you don't have an advisor and you haven't had any experience in investing, it's definitely worth to talk to someone who's a fiduciary. A fiduciary is another word for having your best interest at heart. Sometimes when people are nervous about finances because they haven't had any experience with it, they end up, this is going to sound like a negative comment.

19:37 It's not intended to be, but they end up at the wrong place for them. The word financial advisor is broadly used inappropriately, in my opinion, by some people. And you might end up with a salesman who's selling you a specific product, or maybe someone who's going to convince you that a certain type of life insurance is right for saving for retirement. So this is review for some of our listeners, but whoever you're working with, whoever you consider working with, I encourage you to ask these three questions. One, are you a fiduciary? And that's a legal and moral standard that the person that you're working with has to act in your best interest.

20:17 Not what's paying them the biggest commission, not the product, the one product that they have that they sell to everybody and tell them why it's the best product. But are you a fiduciary? Are you obligated to that standard? If it's no, I say move on. The next question, so assume the person says, yes, I'm a fiduciary. The next question is, how are you compensated? Everyone who's providing you service, doctor, lawyer, financial advisor, auto mechanic, landscaper, they have to get paid. I mean, that's the model, right? So how are you paid? And if the person can't tell you within 30 seconds, then maybe they're not the right person for you.

21:01 If they're explaining some complicated formula or some way that they get residuals back from whatever they sell you, I would suggest that might not be the right person for you. They should be able to say, I get paid this percentage, I get paid this much an hour, whatever the situation is, something that you understand and you know what it is without question. So are you a fiduciary? How are you compensated? And the third thing I think you should ask anybody that you're working with is where will my investments, my money, my funds, my IRA, whatever it is, be held? And you want it held as a third party.

21:42 The answer is whatever they tell you, but you want it held by someone other than the advisor. You want it at a third party custodian. So for example, if you worked with us, we are fiduciaries, we get charged a percentage of the assets that you have with us or by our, if it's a certain type of situation, most of its assets under management fee, and your assets are held at Schwab or Fidelity. Those are the two places that we use. And the third part I'm focusing on now is because if you aren't happy with us, if you aren't comfortable with the relationship, you don't even have to talk to us to break up with us.

22:24 You can go to the third party, you can call Schwab and say, you know, my advisor isn't working out for me and its communication is broken down. So I just want to switch advisors or I want to go to someone else or I want to go to retail, whatever it is. And so it's important not to have to count on your advisor to make that decision. And it's also prudent that your advisor doesn't hold your cash. It's becoming more and more infrequent that advisors are holding investments by themselves. But just make sure that you, they're a fiduciary, you know how they're paid and the assets are held by a third party custodian. Yeah, we had a conversation with someone recently on that topic.

23:06 Specifically, I think they had a family member that was unfortunately, you know, burned by a situation like that. I don't know if it was some kind of Ponzi scheme or something like that. But, you know, it's not even custody at Wealth Enhancement, which is our company, but it's custody at these, you know, very large national institutions. Fidelity has been around forever. Schwab has been around forever. And it's not, it's not held with the advisor ourselves. We were just managing. Yeah. And there's insurance to cover things for those third party custodians. So, you know, bigger point is if you're late to the party, you know, you know, you're behind, you know, you've just figured out retirement's coming and you haven't done anything, do something.

23:54 And if you're looking for an advisor to help you walk through that, happy to talk to you. You can just call our office, 508-771 -8900. And we'll be happy to give you a complimentary meeting to see where you're at and to offer some thoughts on best next steps. Digging way into this mailbag for this next question. I do need a sound effect. You need a bag or something. I need something. So, this is more common than I anticipated. I had run into this as a practicing attorney, but I think I'm running into it more with our financial advising clients.

24:36 It has to do with estate planning and choosing an executor. So, this question comes from a client who said, I know that I need a will because we ask them during their annual reviews about their estate plan. And sometimes, you know, they say no and we encourage them and then six months go by and we're talking to them again and they haven't done it. And one of the reasons is they haven't done it is they don't know who to pick. So, this question is, I know that I need a will, estate plan, but don't know who in my family I should choose to take care of my estate. How can I decide who should be my personal representative, executor, healthcare proxy, power of attorney, you know, whatever, trustee, successor trustee, whatever the estate is calling for.

25:17 How do they pick that person out of, you know, I think most families default, we're talking about a situation maybe with adult children involved, but it doesn't have to be. How do I pick a child? What if the, you know, we can go back in history and it's the oldest male child, right? Well, that's probably not a good place to start. You know, you should pick someone who you have complete confidence in is one interested in doing it. You know, see, I've seen estate plans. I had one client who did all the documents, gave the suggestions to them about how to talk to the family about it, offered them to come into the office.

26:06 They didn't want to do it, meaning the creator of the estate plan. And they just never had the desire, courage, whatever, to talk to their family. And she ended up appointing the person that she thought was right, but never told her. And that person just didn't want to do it. So appoint someone who is interested in it and that you've talked about it. And you think that they are aligned with your ultimate estate planning goals and they have the time, capacity, and capacity meaning a couple different things like the time, but also meaning the cognitive intelligence and ability.

26:52 It can get complicated. And then share with them. And also if there's other individuals who might have expected, you know, the oldest child thing that we kind of joked about, explain to them this is advice, not legal advice, that they're not the executor or who is the executor and why. That will avoid hurt feelings if you have a good reason. And it will avoid potential legal challenges to the document saying, you know, I was, mom told me I was going to be the executor. Mom told me I was going to get this inheritance or something was changed. You know, all these things that we see in TV movies actually do happen.

27:36 So it's a difficult conversation. And I also want to make sure that you consider that it doesn't have to be a family member. And sometimes to avoid family strife or to, or in the best interest of your beneficiaries, maybe they're not, maybe it's not in their best interest to be the executor for whatever reason. Maybe they're not healthy. Maybe they're not, maybe they're not good in math. You know, maybe they're not good with details. Maybe they're just too busy with their career. You can pick someone, whoever you want. Yeah. Yeah.

28:16 I know people who have chosen, you know, had a trusted friend be the executor of state. And, and it could, it could, you know, avoid some of those conflicts of interest that could pop up or, you know, some kind of animosity between family members. Of course, you don't want to see that, but definitely has to be someone you trust fully. And you, you know, it's going to have your best interest if you're no longer around. And it's a difficult decision, but definitely one that you want to have conversations about that you want to talk to people about it. It doesn't, you shouldn't have it be a secret. Right. It should not be a secret. Right. And you don't have to, you know, you don't, the advice isn't, you don't have to like get your three children and your grandchildren in the room and say, this is what you're getting.

29:03 This is what you're getting. You can just explain to them that it's created an estate plan that Sally Jo is the executor. And this is my attorney. This is my financial advisor. And you're all in the will. We love you all. We chose Sally Jo because whatever, whatever the reason is. And, you know, I've talked to her about what we want to do and I want you all to get along and I want any strife about this. And, you know, just a simple meeting like that can really go a long way to preventing hurt feelings or legal challenges. And it's, it's just the best advice. And, you know, I, I listed off a bunch of documents there, a will, a trust that's determining where your stuff's going to go generally and how it's going to go delayed all at once over a period of years, whatever you decide.

29:55 But a healthcare proxy is also important, which determines if you're not able to make your own medical decisions. It appoints someone to make those decisions for you. And you definitely need to talk to that person. I mean, you can have your wishes outlined in the documents, but it also helps to make sure that person understands them, agrees with them. People have different views about end of life and you want someone to be your advocate, not someone replacing their values for your values. And that, so that healthcare person doesn't have to be, the healthcare proxy doesn't have to be the same person as your executor to your will or your trustee, you know, someone in your family or a professional may have different strengths, right?

30:44 You know, maybe someone in your family is a nurse and really understands all the healthcare stuff, the terminology, and someone else in your family is a lawyer or an accountant, or, you know, an engineer, someone who gets details and might do a great job being the executor. And then you have the power of attorney, which could be the same person as one of these or someone, someone different. And that document is designed for being able to handle your financial affairs. If you're not able to, if you have some cognitive challenges or you were injured somewhere or had some medical procedure that made you not available. And so that may be someone totally different, or that may be a professional.

31:28 I would just kind of end my comments before you add yours is don't not create these documents because you don't have the perfect person. Yeah. Find the best person. And these documents, most of them can be altered, amended, redone, if something changes in life, and you have a different person you want to name. But it's important that you do. It's a gift to your family. And if you don't do these documents, and something happens to you, it can create a lot of strife in your family, which is usually the most compelling reason that people have these documents.

32:08 Yeah, yeah. And I've definitely seen what can happen without a pre-planned estate. But to your point, I think finding someone with the strengths that align with whatever your, you know, whatever the needs might be, I think that's a great way to look at it. Like, all right, like I have one relative, like a niece or nephew who might be really good in the financial aspect, and one who's very organized, and I trust fully and another person that's works in the healthcare field or has experience going taking, you know, family members of the doctor, whatever it may be. I think playing to those strengths is definitely prudent and a good way to figure out who should be what, and it doesn't all have to be the same person. I think that's a probably under-realized point there.

32:53 And to tell them about it, and to share that your reasoning with everyone, that's really not everyone, you know, but the people who need to know. Yeah. And we have some resources on that. We have a couple of handouts that we can email people, you know, no obligation, not just trying to help people take care of their their situations, and these are love letters. One's called a love letter, and then there's like an accounting of everything, like a worksheet so you can start the process. If you think these documents are helpful, let us know, and we're happy to pass them along to you to help your process. Russ, the mailbag is not empty, but we have run out of time, so we'll save the other questions that we plan to discuss for our next mailbag, and we really appreciate you listening.

33:44 You have a lot of choices on podcasts and YouTube shows that you can watch. If you'd like our show, we'd love you to subscribe, give us a good rating. If you're going to give us a bad rating, then move on, please. But, you know, those likes, those shares to other people, the more that you do that for us, you are our marketing team. The more that you do that for us, the more people that we reach, and hopefully you agree with us that these episodes are helpful to your personal finances. So, Russ, thank you for joining me today. Great job, and thank you for listening. We sincerely appreciate it, and until next week, keep striving for something more.

34:26 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. Proper advice depends on a complete analysis of all facts and circumstances.

35:06 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.