Jason and Emilia discuss the basics of a sound retirement plan.
Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. It’s my good fortune to have Emilia Bernal back in the studio with me.
Emilia: Hello. What a beautiful day today too. Yes.
Jason: Oh man, it is good. Life is so good. It’s good to have you back.
Emilia: Thank you. It’s great to be back.
Jason: Episode number 201 is titled Back to Basics, and I-
Emilia: Back to Basics. That’s really nice. I think going back to basics anytime is a good idea.
Jason: Yeah. So we’re going to start with the best way is to renew our mind, and so we’re going to start with that. Then, we’re also going to have a joke.
Jason: So here’s our verse, and this comes to us from John 15. “I am the vine. You are the branches. If you remain in me and I in you, you will bear much fruit. Apart from me you can do nothing.”
Jason: That is good. Yeah.
Jason: We’ll talk a little bit about how that has inspired me recently too, but Sheriff said, “Give us a joke. Give us something to put a smile on our faces.”
Emilia: Okay, so here we go. What has two legs, but can’t walk?
Jason: I don’t know.
Emilia: A pair of pants.
Jason: Oh God, yeah, that’s pretty good.
Emilia: Yes. Those are always fun.
Emilia: Yes. So, going back to basics Jason, you have a lot of information you want to go over today, but how would like to start? Would you want to start with your story?
Jason: Yes, back to basics. So I started thinking, well I was getting, I kind of had writer’s block when it came to our show. I was like, “Gosh, what am I going to talk about? We’ve been doing this for 10 years. I’ve got nothing else left to say.” Then I thought to myself, “We’ve got to get back to basics.”
Jason: I remember I read a book about Coach John Wooden, considered to be one of the greatest basketball coaches of all times. John Wooden, every season with these amazing athletes, the very first thing he would do with them is teach them how to put on their socks and tie their shoes. I started thinking to myself, “Man, if John Wooden’s going to go all the way back to those basics, then we need to be doing that with retirement planning too.” Just because I’ve heard myself say it a million times doesn’t mean all of our listeners have.
Jason: So, there are seven keys areas that I want to talk about today. The first one is beginning with the end in mind. I want to share a story, an article that I wrote for a recent magazine recently, because the very first step in this process is to begin with the end in mind, to really have a strong vision, a strong purpose for where you’re going.
Jason: I was inspired by that verse that I read this morning, and so as we think about that verse and think about this article. So, the title of this particular article was, or is The Legacy of A Nurse Log.
Jason: “As I hike through the Hoh Rain Forest, I read an interpretive sign that was placed by a funny looking tree with roots exposed as if it had grown on top of a rock that had been removed. The interpretive sign explained what a nurse log was.
Jason: The forest floor can be a harsh environment for new life. Plants and trees of all sizes and shapes are fighting for water, sunshine, and nutrients, and when a tree dies and falls to the ground something amazing happens. Little tiny tree saplings begin to grow along the fallen tree. By growing along the top of the fallen tree, the saplings are given advantage over the life that is struggling to survive on the forest floor.
Jason: Atop the fallen tree is a height advantage with more access to sunshine. The fallen tree acts as a sponge and helps retain rain water for the new saplings. As the fallen tree begins to decay, it provides nitrogen and other nutrients for the saplings. After years and years of growth, eventually what remains is a sapling that grows into a mature and healthy tree with the nutrients from its fallen ancestor coursing through it.
Jason: The nurse log is a beautiful reminder of what it means to leave a legacy, what it means to stand on the shoulders of giants. We will all leave a legacy, and it’s important that we’re intentional about how our life affects those who come after us. Often, our greatest legacies are the values we instill in our children, our stewardship over that which was entrusted to us, and our faith that nurtures us.
Jason: At first, I saw an empty space under a funny looking tree. Now, when I see that empty space I’m reminded of what it means to live a legacy.”
Jason: So that’s the article. Now, it’s been getting a lot of attention. I wanted to share it with our listeners, but the very first step Emilia is to begin with the end in mind, to begin with purpose.
Emilia: Purpose, yes.
Jason: I’m reminded of that verse that I shared where Jesus, he teaches things in such a simple way that’s so timeless, and it just captures our hearts for all eternity. He says, “I am the vine, you are the branches.” I was inspired by that as I walked through the Hoh Rain Forest, and I saw what it meant to be connected.
Jason: One of the things I’m reminded that Jesus taught, in the bible it says, John 4:8 says, “Whoever does not know,” or, “Whoever does not love does not know God, because God is love.” God is love.
Jason: One time, some people were trying to challenge Jesus, and they said, “Well, what’s the greatest commandment?” Jesus says, “Well, I’ll give you a brand new one. Here’s the greatest one of all.” Jesus says in Mark 12:30-31, “Love the Lord your God with all your heart, with all your soul, and with all your mind, and with all your strength. And he second part of it is to ‘Love your neighbor as yourself’. There is no commander, commandment greater than these.”
Jason: So, the interesting thing about this Emilia is we start talking about this foundation that we’re going to build upon as we enter into this new phase of retirement. Some people like to leave out, when they remember this verse, they forget or they don’t talk about the first part that Jesus says, “Love God with all your heart, mind, and soul.” They just want to talk about, “Love your neighbor as yourself.”
Jason: I’m reminded, the second bestselling book of all time is Rick Warren’s book. It’s called The Purpose Driven Life, and the very first line in that book says, “It’s not about you.” It’s not about you. The problem is, if we start with, “Love your neighbor as yourself,” you’re making this whole thing all about you. What Jesus is saying, you don’t even know love unless you know God.
Jason: That’s just a great starting point for the foundation of our life. It’s a great … If people don’t know anything about God or Jesus today, if that’s the only thing that they know, you can write it on the back of a business card.
Emilia: Great purpose right there.
Jason: Love God with all your heart, and love your neighbor as yourself. Yeah, real simple.
Emilia: So, did you want to … So after we have our purpose in life, which we just covered, that brings us to a number two, which was overcome the fear of change.
Jason: Yes. This part is so important. We can teach people all day long about the things that could improve their life, and I’m reminded, I met to people just in the last week where we were able to show them how they could have a plan.
Jason: First of all, they didn’t have a written plan. So we were able to say, “Here’s what a written plan would look like.” We were able to show them how to reduce their fees significantly, significantly. We were able to help them realize how much risk they were taking, and how that they could reduce their risk, how they could create a cash flow plan.
Jason: They’re in retirement now. They have no cash flow plan, so we show them how they could do that. Show them how to optimize their social security, pay less money in taxes. I mean, all of the pieces of the puzzle were there. It’s so obvious, and it’s so good.
Jason: Then, when the time comes to actually implement, they are frozen. They’re frozen in fear, and they’re frozen in worry. I’m reminded that we can educate people, but if there is no confidence, if there is no action as a result of the education, then it’s all wasted. This show has to be more than just entertainment. It has to be about people having the confidence to make their life better.
Jason: Sometimes we let fear and worry keep us in a less than optimal space. We’ve just got to be open to overcome that, because you can have all the logic in the world, but if you don’t have the courage to move forward it’s just, you’re not going to get anywhere. I’m reminded, we can get into all the nuts and the bolts of the planning, but ultimately people are in charge of their destiny. They’ve got to realize that they’ve got to move. They’ve got to take action.
Emilia: Yes. So, I’d like to remind our listeners, for new listeners and our current listeners, if you want to go back to the basics and you’re still in that accumulating knowledge and learning more about planning and retirement planning, Jason’s got a webinar coming up May 15th. That’s Tuesday, May 15th at 5:30 pm pacific time. You can go to soundretirementplanning.com to register today. So again, going back to basics and just, maybe just refreshing your memory and thinking about where you want to start again, and finding your purpose, and overcoming your fears.
Emilia: Then, that brings us into the third step that you were talking about which is, and you say this all the time, income.
Jason: Cash low, cash flow, cash flow. Yeah, so I had a person ask me recently, multi, multi, multi, multi-millionaire. He said, “Jason, you know, I kind of see my net worth as, that’s the tool that generates the cash flow.” So he said, “Maybe you could talk a little bit more why you’re always talking about cash flow.”
Jason: I just want to share a story. There’s a client that we work with right now, today, who’s in his mid-70s, still working, multi-millionaire on paper. Most of the wealth is tied up in assets that don’t produce any income.
Jason: So you see, you can have all of the net worth in the world, but if you don’t have income you don’t have retirement. It’s really not, retirement is not an exercise in net worth. It’s not, “He who has the most toys wins,” because you’ve got to be able to pay for all of those toys, and maintain all those toys, and have time to use all those toys. Really, it is all about cash flow. It’s not your net worth.
Jason: So, just getting people to shift out of this mindset of accumulation, and into distribution and preservation is really an important for a step.
Emilia: Great. Great important stuff there. Then after we have the income, people want to go onto the next step, which is investments and how to work with that income and continue to have more I guess you could say.
Jason: Our investments are so important, and really. One of the questions we like to ask people, “What’s the purpose of your money? Why do you have it in the first place?”
Jason: You need to be able to answer that question, but I found people that will come in. They’ll say, “Jason, “I’m happy with my financial advisor, and I’m happy with my investments,” but that’s the only piece that they have figured out. If it’s the only thing that they have, then they’re missing all of the rest of it.
Jason: Yes, having a good investment strategy is important, but I’ll never forget Emilia, before the financial crisis hit, there was a couple that I met. When they retired, they had retired a few years before the financial crisis, they had about $500,000 saved in their retirement accounts. They never worried about what the stock market was doing when they were working. They were invested very aggressively, and they didn’t care. The market would go up, the market would go down.
Jason: Well, retirement came. They had no budget, so they didn’t really know how much they were spending, and they never shifted out of that very aggressive investment strategy. They kept their foot pedal to the metal.
Jason: After the financial crisis is when I met them, and I’ll never forget, these folks, their retirement savings was almost completely gone. They had less than $100,000 left, and they were looking at selling their house so that they could figure out how they were going to continue to maintain their lifestyle. They were only in their early 70s.
Jason: So I’ve seen the consequences. I’ve walked life with people who have focused on the wrong thing in retirement because they’re still thinking about accumulation. They’re still trying to think about maximum rate of return instead of thinking about the most important thing, “What’s the purpose of the money? Why do you have it?”
Jason: What most people say is, “I just want to be able to maintain my lifestyle. I want to be able to travel. I don’t want to have to worry. I don’t want to become a burden to my family or my friends.” So, once you get clear about why you have it, then we can start putting together a good plan. Unless you have some clarity, you’re going to be bouncing all around, and just chasing returns, and high rated funds, and you just got the wrong focus.
Jason: Investments are so important. Accumulation is so important, but just make sure that it’s for the right phase of your life.
Emilia: Yes. Then, the next big thing that we get a lot of questions about, and people want to know, “What are the best strategies?” are is taxes, because that’s still, was it death in taxes?
Jason: Yeah. I guarantee it, aren’t they? Well, so taxes are an interesting thing. Most people that I talk to say, “Jason, I love living in America. We have so much here. It’s so nice to drive on nice roads. It’s so nice to have safety that we can act, and we can have businesses. We can go to the grocery store, and we can ride in public buses and not have to worry about violence that so many other people around the world have to do deal with.”
Jason: Most people say, “I don’t mind paying my fair share in taxes.” They recognize that taxes are, in many cases are a result of the wealth that they’ve accumulated. The flip side is, not paying any taxes, because I know people in that situation too. I can guarantee at any day of the week, if you could flip that on its head and the person that pays no money in taxes at all because they have no wealth, they would be willing to switch places with the person that’s wealthy and pay more money in taxes any day of the week.
Jason: So it really is a blessing, and it’s really a blessing to be able to live in America, but at the same time, most of the people we serve, they say, “Jason, we just don’t want to pay more than our fair share in taxes. We want to do what’s right, but we don’t want to pay more.”
Jason: I meet with people all the time that have financial advisors, and they have CPAs. Nobody has ever sat down with them to help them understand the tax implications of these retirement accounts where they’ve never paid taxes on it. It’s a really easy exercise.
Jason: But even more important than that, just yesterday Emilia, I had a chance to meet with a gentleman who was referred to us by an attorney. He wanted to pay less money in taxes. After looking at his situation, I mean, we spent maybe an hour together. He didn’t need any new financial products or financial tools. He had all of the tools that he needed. What he needed was a better strategy. He needed a better way to think about the money.
Jason: By the time our conversation had ended, he realized that by making a few small adjustments he was going to be able to cut his annual taxes in half. He was going to go from paying about $9,000 a year to about less than $4,500 a year in taxes. It wasn’t a situation where we were able to bring him on as a client.
Jason: This was just a one hour consultation, really for, he was looking for somebody to reaffirm what he was thinking, and nobody was giving him this advice. So sometimes it’s just getting a different perspective, somebody that can look at things and help you crunch the numbers to see if there’s a better, more optimal way to do things. So taxes are important.
Emilia: Great. So that takes us to our sixth area, which is health. Big thing in retirement, and a lot of changes happen when you get older.
Jason: A lot of changes, big expense. Once people get to 65, I know a lot of people that kind of postpone retirement until age 65. What’s even sadder in some case, because the deductibles that some people have are so high that they will put off getting medical procedures that they really need. I meet a lot of people that wait to get those knee replacements and hip replacements. They’ll be hobbling around with a cane for a year and a half until their on Medicare so then they can get it paid for at a bigger, and not have to pay as much money.
Jason: Under the Affordable Care Act, that really changed things for people. I remember I met with some folks who had retired in their late 50s. So they had a long time to go before Medicare was going to kick in, but they had done a good job. They had saved over $1 million for retirement.
Jason: The cool thing was that they had saved that money in different pots. So they had taxable accounts, non-qualified accounts. They had retirement accounts, like IRAs, 401ks, and money that was tax deferred. So they paid taxes when it comes out. Then, they also had Roth IRA’s, so they had some tax free money.
Jason: What we found was that by having a good withdraw strategy isn’t just because we need to know how the withdraw strategy’s going to work from a tax standpoint, from a cashflow standpoint to support your lifestyle. Now it also plays a part in how much money you pay for your health insurance premiums. Under the Affordable Care Act, the money coming out of those non-qualified accounts, that money has already been taxed. The Roth IRA money comes out tax free.
Jason: What we were able to find is that we were able to generate the income that they needed in retirement and keep their health insurance premiums really low. Because of the Affordable Care Act and how that works, and how those health care premium subsidies are based on your income, not your assets. You can have $10 million in the bank, but if you’re pulling money out of the right accounts you could be paying a lot less money than other people. So health insurance is important.
Jason: The other thing there Emilia is, and this is one that people don’t like to talk about, but it’s long-term care.
Jason: People are living longer than ever because of science, technology, and medicine. We have to have a plan for how are we going to handle, how are we going to pay for it if it happens. We pray that it never happens to anybody, but if it does, what’s the plan and the strategy that we have in place? Because again, one of the first things people say is, “Jason, I don’t ever want to become a burden to my family physically or financially.” So let’s just make sure the resources are going to be there so that you don’t have to have that impact on the people that you care the most about.
Emilia: Yes. I had this conversation with my sister just two days ago. We’re still fairly young, but just think that far ahead, because she’s a nurse, and she sees it so much. She just says, “You know, you need to be ready. It’s going to happen.” Kind of a thing-
Jason: Well, for you and your sister especially, because when you walk into a nursing home there’s the population of women to men.
Emilia: Oh yes.
Jason: There’s a lot more women there then there are men, so us guys tend to go first, and our beautiful wives take care of us. Then there’s nobody there to take care of them. So, yeah.
Emilia: Again, just another reminder. We’ve gone over these really important areas for your retirement planning. Before we go onto our last, seventh step, I just want to reminder our listeners again, there is a webinar. Sorry. Jason is having a webinar on Tuesday, May 14th at 5:30 pm. I’m going to say that one more time just to make sure everybody got it. So that’s Tuesday, May 14th at 5:30 pm pacific time, and you can go to soundretirementplanning.com to register today.
Emilia: So Jason, we have one more step that you were going to review with us today, and that is estate and legacy.
Jason: Yes, so important. So, of course there’s things like meeting with a qualified estate planning attorney, maybe even preferably like someone that’s specializes in elder law.
Jason: We just need to make sure the will, power of attorney, living will, possibly a trust, that you have these documents that they’ve been updated, that they’re relevant to today. I mean, some people don’t know that if you die and you don’t have a document in place to give your loved ones the ability to access your online pictures, that you might get locked out of all of these photos that you hae stored in the cloud. So there’s documents that you need to make sure that you have access that you can just continue on with life when something happens to somebody.
Jason: So that’s important, but there’s other little nuances Emilia. One of the neat things from my perspective, as somebody that helps real people down this journey is, I get to talk to a lot of people. I get to hear a lot of stories about mistakes that were made. Just recently, I was talking to a person who shared with me that the beneficiary designations were incorrect on an IRA, and that when they lost a loved one it ended costing them hundreds of thousands of dollars in taxes as a result of an incorrect beneficiary designation. Again, having somebody that can help look over all of this isn’t just about making sure the estate documents are right, but some of these little nuances along the way to make sure that your beneficiaries are right, because it can cost you a lot of money.
Jason: Now, that’s important, but the idea of your ultimate purpose, that’s why we started the conversation with the idea of the nurse log. With this idea that, being able to ask questions like, “How will I be remembered? What have I contributed?” I mean, I’ve thought about that question for years. “How will I be remembered? What have I contributed? Is the world any better as a result of the time that I was gifted, or made a steward?”
Jason: But I think the ultimate question is, and … one that I think about a lot. Well, let me give you one more before I get there. Sometimes my friends say, “Jason, you’re obsessed with death,” and I’m really not obsessed with death and dying.
Jason: What I’m obsessed with is living my best life. In order to live your best life you’ve got to be able to understand where it is you want to end up. I know I’ve seen people, I’ve seen more people get off track, and they end up in a really dark, ugly place. I don’t want to go there, so I’ve got to know what the destination is if I’m going to be able to get there.
Jason: One of the questions I asked my friends the other day was, I said, “Hey, when we get to your funeral, and they’re playing all those pictures of your life across the screen from the time you’re a little baby til a teenager, and standing in front of your first car. Then you’ve got the picture of you when your wife, or your spouse on your wedding day, and then the kids come into the picture. Then they show you this and all that, what song are they going to play as that music plays?” Because I’ve had the opportunity to experience a lot of different songs, and I’ll tell you, there’s an emotion that just wells up in you. The pictures are awesome, but when the song plays it really gets you.
Jason: The last piece though, the very last question Emilia, and this really comes back full circle with where we started today. The two most important questions I think people can ask, because what my mentor taught me was, “Find somebody who has a better question, not somebody that pretends to have all the answers.” So, the better question is, and I’ve learned this from my mentor Dean when I had a chance to speak at his funeral.
Jason: What I learned was that the best question is, who did I love, and how did they know they were loved? I think if you really get that one right, man, you can really have an amazing retirement. Again, getting back to basics, the whole purpose of this is to say, “Let’s remind people how to put their socks on.”
Jason: “Let’s remind people how to tie their shoes. Let’s make sure they have a really great plan.” It starts with having a purpose, overcoming fear, having income, investments, making sure you’re not paying too much money in taxes, you’ve got a good health care plan. Then, that you’ve got the right documents in place, and that we’re thinking about your legacy. With that, we are out of time.
Emilia: Alright. Thanks Jason.
Jason: Alright Emilia. Thank you.
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Investing involves risks. Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Ave NW, Silverdale, Washington.
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