Jason and Benjamin discuss retirement planning.
Benjamin Brandt is a CERTIFIED FINANCIAL PLANNER™ and Founder/President of Capital City Wealth Management, a Bismarck, North Dakota fee-only financial planning company. He is also the host of the popular podcast Retirement Starts Today Radio and the accompanying blog.
Recently, Benjamin was named as one of the top 40 financial advisors under age 40 by Investment News.
Benjamin is also an Iraqi combat veteran having served in the North Dakota Army National Guard for 8 years, including a 15 month deployment to Iraq in 2003. You may have seen Benjamin featured in The Huffington Post, CNBC.com, Forbes, Business Insider, ClarkHoward.com, and many others. In his free time, Benjamin and his wife Kristen can be found on the weekends at the hockey rink, or on the gymnastic and wrestling mats, chasing their six energetic children.
Below is the full transcript:
Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to give you 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 starting the show with me this morning. Emilia, welcome back.
Emilia: Hey, thank you. Good morning, Jason.
Jason: Good morning. It’s always better when we start these shows with you, even though we’re bringing a guest on, I was like, “Man, we got to get Emilia back in here.”
Emilia: Thank you, because I was really excited for my joke today.
Jason: Oh, good. Well, I was so excited because I’ve got two verses that I want to share as we start episode number 206. The title of this episode is Retirement Starts Today, and we’re going to be bringing a guest on, but I’ve been thinking a lot about these two verses, so I wanted to share them with you because they kind of go together.
Jason: The first one is from John 15:11, and here’s what that one says. “I have told you this so that my joy may be in you, and your joy may be complete.” That’s the first one, and then the second one is from John 16:33, and similar but, “I have told you these things so that in me you may have peace. In this world you will have trouble. But take heart! I have overcome the world.” Peace and joy, those are two pretty good things to have, so-
Jason: Now, you’ve got a joyous joke for us this morning.
Emilia: I don’t know why I am so excited because it’s probably not that great, but here we go. What do you call a cow with a twitch?
Jason: I don’t know.
Emilia: Beef jerky. There it is.
Jason: Beef jerky, a cow with a twitch. Emilia, thanks for being here.
Emilia: You have a great show.
Jason: Okay, thanks a lot.
Jason: Everybody, welcome. You’re listening to episode number 206, and it is my good fortune to have Benjamin Brandt on the program. He’s a Certified Financial Planner, a Retirement Income Certified Professional. He has the podcast Retirement Starts Today. Benjamin Brandt, welcome to Sound Retirement Radio.
Benjamin: Boy, I’m so excited to be here. Thanks for having me.
Jason: Benjamin, I’m excited to have you here. This is kind of cool how our time together came to be. You reached out to me. I had mentioned that you had been listening to my show. I started listening to your show, and you’re doing a great job and with 10,000 people a day, we need all the people out there that we can that are helping people make this transition into retirement. I’m really looking forward to learning more about your process and your belief system and why you do what you do. Before we get into all that good stuff, just kind of give our listeners a quick overview. Tell us a little bit about you, your firm, and the work that you’re doing today.
Benjamin: Sure. Well, I record my show from beautiful Bismarck, North Dakota, in the middle of the middle of the Midwest, and our firm is a registered investment advisory firm. We focus exclusively on people living off of their savings, also known as retirees. I’ve been doing that for quite some time. We started our radio show in October of 2015, our podcast, and I’ve been listening to your show for about that long, learning about how financial advisors talk to their prospective clients and how they educate people.
Benjamin: On the personal side, I am married for quite a few years, since 2005, so however many years that’s been. Did some time in the military before that, and have six kids, three of which are very new additions as of about two weeks ago. We’re extremely busy in the Brandt house, but we’re extremely blessed at the same time.
Jason: That’s awesome. I do want to ask you about financial planning and retirement planning and your take on this whole thing, but before I do, I had the chance to listen to one of your podcast episodes where you talk about your adoption, this adoption story where you brought these new babies into your home from foster care. Would you mind maybe sharing a little bit of that story before we dig into the nuts and bolts of retirement planning?
Benjamin: Yeah, I’d love to. My wife and I, we had three kids, and our youngest son Benjamin was going to start all-day kindergarten. My wife stays at home and she was a little bit worried that she would be bored with no kids around the house, and so we decided to investigate foster care. Started foster care in January of 2017, and had a fantastic experience. Had a little one-month-old baby that needed some help and we cared for her for five months and she was happily reunified with her Mom and it was a super positive experience.
Benjamin: We took about six weeks off because it’s kind of hard to love a baby for five months and then send it back, and we’ve got three of our own biological kids, and so it took some time to kind of nurse our wounds and recover, but then six weeks later we said, “All right, we’re ready to start foster care again.” We called our local social services and said, “We’re back in the foster care saddle.” A few hours later we got a call that would change our lives forever when they said, “This has never happened before in the history of foster care. We actually have brand new triplets. They’re being discharged from the ICU tomorrow. What do you think?” 641 days after that, about two weeks ago, we were able to adopt these beautiful identical triplets, and they’ll be two years old this month.
Benjamin: We feel an embarrassment of abundance is what we feel.
Jason: Boy, man, thank you for doing that. That’s really amazing. How is it… where do you guys find the strength? What is kind of your core that gets you motivated to take on that responsibility? That’s pretty amazing.
Benjamin: Well, we just felt like… My wife and I were both raised by single parents and without really any financial means at all, and we are just in and of that we feel like we have this abundance and we really put our heads together and said, “How can we share this to benefit our school and our community?” Foster care just kind of came right into our laps. I definitely think it was direct intervention. If I’m being totally honest, these three girls were born three months early, they had colic for 14 weeks. They were four pounds when they came to us, so it was extremely difficult. In fact, we gave up several times. Usually on the weekends we’d say, “We’re just not made of the tough stuff to do this and when Monday morning comes around, we’re going to have to call social services and have them split up. We just can’t handle this.”
Benjamin: By God’s grace and by little baby smiles and all the things that come along with that, by Monday morning we said, “Let’s do this for another week. We can handle this for another week.” I think we gave up like that five, six, seven times, but then by every Monday morning, we were fine again and ready to tackle another week, and then eventually they were out of colic and eventually they were out of bottles and eating every other hour. My wife slept on the couch for the whole year because they’d overtook our bedroom and I slept in with my kindergartner, but just through God’s grace we got through and here we are and now they’re going to be part of our forever family and we couldn’t be happier about it.
Benjamin: We’ve got a couple of bumps and bruises and scars to show for it, but I think we’re better for it.
Jason: Wow, like I say, I was really inspired by that story. I appreciate you sharing it because there is I know such an incredible need for foster parents in I think just about every community. That’s really pretty amazing.
Jason: I want to switch gears and I want to talk about retirement planning. You are in a similar position as I am in that we get to walk life with real people that are making this transition into retirement. If there was one thing that you could boil retirement down to, what would you say is the most important thing people need to be focusing on as they’re getting ready to make this journey into retirement?
Benjamin: The number one thing, if I could just wave a magic wand and impress upon everybody, is the retirement headspace. If your finances are 100% in order and prepared for retirement but your headspace isn’t, you’re going to do worse than the person that’s not quite there financially but has the proper headspace. The headspace meaning, they’re going to pursue something in retirement that leaves them fulfilled and not bored. The retirement headspace is in my opinion much more important than what’s in your Fidelity account or your Vanguard account.
Jason: You so graciously invited me to be a guest on your show, and as we were talking, you talked about this idea of almost practicing retirement. Talk to our listeners a little bit about that.
Benjamin: We call it The Retirement Rehearsal, and when my kids are in sports, my little guy plays hockey and my oldest daughter plays hockey, and sometimes they get a little bit frustrated when they’re not good at something. I tell them, “It’s unreasonable to expect that you would be good at this thing that you’ve never done before.” I sort of translated that idea into retirement planning in that we really need to rehearse for our retirement. The best way to rehearse for retirement is to use some of your unused vacation pay.
Benjamin: Believe it or not, Jason, there’s over $50 billion a year that gets unused every year in vacation pay. We’re just sort of workers by nature as Americans, and we roll over those vacation hours every year and then we never use them, but in reality, that’s a massively untapped retirement resource. What I want to encourage people to do when they’re two or three or four years out from retirement is to have a staycation where you use some of that unused vacation pay and you stay at home for a week or two weeks over however long you can work it into your schedule and then just rehearse retirement. Practice what it feels like to be retired.
Benjamin: When we think about retirement, we think about the big ticket items sometimes, like buying an RV or taking a big trip, but if we really put pen to paper to it, that’s going to be .000% of the actual time you spend in retirement. The actual bulk of your time is just going to be like a random Tuesday afternoon when it’s just you and your spouse and you’re watching Netflix. You should practice what that feels like because if you’re really bored, that’s going to be a sign that you’re not in the right headspace and you’re not mentally prepared to retire.
Benjamin: If you’re busy and you’re out in the garden and you’re working with grandkids and you’re doing part-time work and you’re volunteering at your church and you’re busy for those two weeks where you’re rehearsing retirement, that is a rally good sign that you are prepared mentally, your headspace is prepared to actually retire. Use some of those vacation hours, get some real data as far as your budget goes, how much you’re spending for a week or two or three of rehearsing this retirement. Put that real data into your retirement plan and see what your numbers look like. There’s a lot of things we can learn from using our vacation pay to rehearse our retirement.
Jason: Boy, I love that, and I love the fact that you mentioned having a good budget. That’s something… the word “budget” is not very popular, so we’re calling it a spending plan, but we developed the retirementbudgetcalculator.com to really help people understand their spending because especially the high-net-worth people, especially the high-income earners, they’re really not very good at understanding where their money is going. You know if you’re out there, you’re a doctor, an airline pilot, an engineer, you’re a high-income individual, you know exactly what I’m talking about. You just have enough, and so you don’t have to really track every dollar.
Jason: Benjamin, what do you think the consequences are for not having the headspace right? What happens if somebody is experiencing boredom? Why is this the most important thing you think? What is the risk that we’re trying to avoid by heading into retirement without retiring to something but retiring from something?
Benjamin: Well, if I’ve seen this once, I’ve seen it a thousand times, but if you are bored in retirement, if you… I’ve talked to so many guys in their late 50s, early 60s, and on the run-up to retirement they wanted to pursue leisure activities. They wanted to golf every day, they wanted to fish every day, and I can’t tell you how many times six months into retirement, someone looks across from me at the conference room table and says, “I’m sick of golf.” It’s kind of a grass is always greener situation where when they’re in the cubicle and they’re kind of counting down the days to retirement, they’re thinking about, “I’d rather be on the golf course.” Well, grass is always greener. When they’re on the golf course every day, they’re kind of thinking, “This wasn’t what I thought it would be and I’m getting bored in retirement.”
Benjamin: Now, if you’re anything like I am or people that I’ve worked with, sometimes when we’re bored we try to spend our way out of retirement. “Well, I’m going to think of a new hobby”, or, “I’m going to become an RV-er.” In retirement, when you’ve got access to your entire life savings with a click of a mouse, boy, you can make some really big decisions that maybe aren’t the best thought-out decisions in order to try to spend your way out of retirement. That can really crack and scramble your nest egg.
Jason: I like that. I like that you use that phrase “the grass is always greener”, because just the other day I was driving my daughter my school and there’s these… right next to her school is this big grassy lot, and there’s these goats. This goat had his mouth like contorted and tweaked just outside the little fence to try to eat the weed. It’s got this whole green grass, all these weeds all over the place, and it’s sticking its face, all contorted, trying to eat the weeds just on the other side of the fence. I thought to myself, “Well, there is a perfect example of the weeds are greener or taste better on the other side of the fence.” It’s kind of funny.
Jason: What about the practical, the exercise of just giving people more confidence? Making sure the numbers are going to work? What does that exercise look like for you? How do people know that they can retire and overcome this biggest fear they have of running out of money in retirement? When you sit down with people, when you work with real people, tell us about what that looks like.
Benjamin: Well, the two biggest things that we want to kind of really nail down on the run-up to retirement is our retirement budget and what we call a Dynamic Spending Strategy. The retirement budget can mean a lot of things, and depending on how analytical a person is, is kind of how we tear it apart. Ideally, we can account for every dollar in a budget and really dial that in. That’s not for everybody. Some people would rather run a marathon right off the couch than dial down to the dollar in their retirement budget.
Benjamin: There’s a couple of different ways that we look at it. Ideally, we’re in like an Excel spreadsheet and we’re examining that and we’ve got that dialed in by our different categories. The other way that we look at it, the simple way, is just looking at, what is your net? While you’re working, what is the net amount that comes into your bank account every month? The net amount is after taxes, it’s after your retirement plan contributions, it’s after payroll tax, it’s after health insurance. It gives us a really good idea of what the spendable amount is, and then we look at that number. Let’s say it’s $5,000 a month and we can say, “Okay, based on what we want to accomplish in retirement, can we get that done for 5,000 a month?”
Benjamin: Now, if we look at… comprehensively, if we look at the rest of the retirement plan and we see that their savings accounts are growing and they don’t have credit card debt, we can say, “Okay, I can see that we’re about existing on this 5,000 a month. I don’t have any red flags.” I’ll give you an example of a red flag would be they’re up to their eyeballs in credit card debt. Well, then that 5,000 probably isn’t quite enough and their medicating that with the credit card. They’re sort of supplementing their own income. There’s the easy budget, and then there’s the really easy budget, which is the Excel spreadsheet versus just looking at your net income.
Benjamin: What we want to compare that to is the assets that they’ve saved up. We don’t want to do linear spending, which is just like the 4% safe withdrawal rule that is 4% forever and ever amen, whether the market is good or bad or indifferent. I’m not a big fan of the 4% safe withdrawal rule. I want to use something more dynamic where clients can look at their investment portfolio balance and say, “Okay, I’ve got a million dollars here. I don’t have to make any changes. I don’t have to make any difficult decisions until my portfolio drops below”, I’m going to make up a number, “850,000. Once it drops below 850,000, I know because of my retirement plan that I need to reduce my income by 10%. I reduce my pension, I don’t reduce my Social Security, I don’t reduce any other income sources, just what’s coming out of my portfolio. I got to reduce by 10%.”
Benjamin: Just by making some of those little decisions ahead of time, they can take out maybe 50% more than what they would have otherwise with the safe withdrawal rate, and that’s all financial planning based, that’s no fancy investments. That’s all just index fund investing that most people, if they’ve been following the Vanguard teachings, have been doing for years and years, but it’s really more financial planning-centric and behavior modification-centric, which I really like because that’s the only thing we can really have control of. We can’t control the market, we can’t control any of those sorts of things. We can’t control trade wars, we can’t control tariffs, but we can control our behaviors. That’s why I really like to focus on dynamic spending.
Jason: Well, that’s interesting. I want to ask you about that. We’ve been in an upward-trending market now for a long time. Have you had to have a conversation with anybody about reducing their spending after they retired? Let’s say they had a million dollars and they were taking $40,000 the market from last year… December of last quarter of last year, market drops 20% in three months. Did you have to have that difficult conversation with somebody about having to reduce their spending at some point?
Benjamin: We haven’t, we haven’t. On average… If your listeners wanted to learn more, they could Google “Guyton’s Rules”, G-U-Y-T-O-N. Most of the time, if you look at a 30-year retirement, there has been two instances on average where they’d have to reduce their spending. There was five instances where they had to freeze their spending, meaning not taking an inflation adjustment, and there were six times that they actually got to increase their spending due to account balances going up over time. We’ve never had to have the conversation of someone that is spending a reasonable amount of money, 4%, 5%, 6%, someone in that range. We do have conversations with clients, though, that are overspending by a lot.
Benjamin: Now, this is their money. I don’t force their hand, but I tell them, “You’re spending 9% per year. This is not sustainable long term.” A year here, a year there, if there’s something out of the ordinary that happens, your plans can account for that, but for people that are overspending habitually, we have the conversations where, “You’re going to run out of money at 79.” Now, strangely enough, some people are okay with that, and we’re talking like one out of a hundred here, but some people are okay with that and it’s their money and if they want to spend it all, more power to them. For most people that are spending reasonably, 4 or 5 or 6% per year, that should be sustainable forever as long as they’re willing to reduce small amounts when the market isn’t cooperating. That should probably only happen two or three times over a 30-year retirement based on statistics of past 30-year increments.
Jason: What is the criteria for reducing? How big of a drop does the market have to take before you would reduce your spending? You mentioned if you had a million and it dropped to 850, is it a 15% decline that triggers the reduction in spending?
Benjamin: It’s a 20% increase in your utilization rate and your withdrawal rate. That’s what triggers it. You could do the math and say your starting portfolio balance versus what you’re taking out. Divide that into itself and if that’s 5%, 20% of that… anything over let’s say 6.25% you would want to reduce.
Jason: Okay, so-
Benjamin: We just type that out in an Excel sheet. We take that from Guyton’s Rules, Guyton’s Dynamic Withdrawal Rates, and we spell it all out on a spreadsheet so the client knows, “I don’t have to make any decisions over this amount. Once my portfolio goes down to this, either from market turmoil or a flat market and we’re spending out from a flat market, that’s eventually going to erode the portfolio. Then, we know how much to reduce and when.” Then, we can ignore the news, we can ignore CNBC, we can ignore everybody on cable news until we hit that point.
Jason: How often should people be monitoring that? Is that every month? Every quarter? Once a year? How often would people be looking their spending compared to their assets?
Benjamin: This really isn’t a day-by-day, month-by-month thing. When we’re looking at spending 4, 5, 6% per year and we look at a 20% increase on that quarterly or annually, we meet with our clients twice a year. I don’t think that they need to focus on it too much other than the twice a year that they meet with us. That’s a learning curve. For most people on the run-up to retirement, they’re checking it on their phone app, their Fidelity or Vanguard or Schwab or what have you every day.
Benjamin: It takes a lot of coaching to keep your phone in your pocket, delete the app, don’t look at it every day because it’s more about sustainable withdrawals in retirement. It’s so much less about the return that you’re earning, but because we live in a… we want things that are tangible, return is the one thing that you can look at because you get a new return every day and something happens in your portfolio every day. That’s what we pay attention to, even though that’s probably the least important thing to pay attention to because you can’t control it.
Benjamin: I don’t know if that answered your question or not, but that’s [crosstalk 00:21:25] where my mind was going.
Jason: Well, we’re always teaching people that retirement is all about cash flow. It is your income that will determine your lifestyle in retirement, not your net worth, and I see this too often where people put the wrong focus, the wrong emphasis on the wrong thing in retirement. They’re focused on it in accumulation years, which makes a lot of sense, but they haven’t made the shift into a cash flow preservation mindset into retirement.
Jason: A minute ago, you talked about low-cost index investing as a solution for people. Do you ever see a time where more of a tactical and active approach makes sense for retirees? Or do you think it’s only passive all the time?
Benjamin: It’s only passive all the time in areas where it’s been proven to work over time. I am an advocate, or I have in the past and am currently using active managers for corporate bonds. The bond market is just… the debt market in general is so much larger than the stock market. I think it makes sense to pay just a tiny bit more in the current rising interest rate environment to get some professionals that can help us navigate that water. These would be people that have been running bond funds for years and years.
Benjamin: I won’t say the mutual funds, but there are some active managers that have been recognized as being debt market specialists. Large-cap stocks, international stocks, I’m a big believer in passive. I’ve been using passive for those investments for a long time. You can build out a portfolio for one quarter of 1% or less. That’s a really fantastic opportunity to globally diversify for a very, very low cost. With the debt market, we have been using an active manager for the last couple of years.
Jason: I want to ask you some more questions about that in just a minute. Folks, if you’re just joining us, driving down the road in Seattle this morning, you’re listening to episode 206. It’s my good fortune to have Benjamin Brandt, CFP, RICP, on the podcast. He has a podcast called Retirement Starts Today. Benjamin, if people want to learn more about the work you’re doing, what’s the best way for them to learn more about you?
Benjamin: Well, we like to say that planning your amazing retirement starts today at retirementstartstoday.com. We put out a new episode every single Monday morning. If you’re looking for something to supplement Sound Retirement Radio, we would you encourage to check out our show. Just type in “Retirement Starts Today” into any podcast catcher and you’ll find us.
Jason: Awesome. Benjamin Brandt. For our listeners, Benjamin has agreed to stick around for a little bit longer for some podcast extras, so if you’re driving down the road, catch the podcast if you want to hear the rest of the conversation. Benjamin, we’ll be right back.
Announcer:Information and opinions expressed here are believed to be accurate and complete for general information only and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investments decisions or other actions taken or made by you based on the information provided in this program.
Announcer: All insurance-related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the President of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046, or visit us online at soundretirementplanning.com.
Jason: Benjamin, you still there?
Benjamin: I sure am.
Jason: Thanks for sticking around for some podcast extras. We were talking about investing, we were talking about passive investing. For most of the portfolio, you like to have an active component for the fixed income side. I want to ask you about the fixed income side, because obviously there’s another area. We’ve been in a declining interest rate now for 30-plus years, interest rates are on the way up. Do you think bonds are going to provide the same cushion to a portfolio going forward as they have in the past? As you think about asset allocation through a traditional lens, what do you think? As you know, now that we’re in this new rising interest rate environment, what do you think people should be doing to help create a portfolio that’s going to buffer them on the downside?
Benjamin: That’s a great question. I hear that all the time is that from perspective clients, you tune into any financial news show and they say, “Well, interest rates are going to rise”, which means bond funds are going to go down. They say, “Well, why own bond funds at all? Shouldn’t we just be a hundred percent in stocks? Or shouldn’t we be in 50% stocks, 50% cash?” I would caution people that just because rates are rising, it’s not a hundred percent guarantee that your bond funds are going to lose money. If rates rise slowly and we use higher yielding investments, potentially, or corporate bond funds, we could still earn… even though the fund could go down in value, we could still earn a dividend that would present a positive return for the year.
Benjamin: If rates are flat, if they don’t rise, and they haven’t been rising as quickly as I thought they would, we are still earning a positive return in some funds. We own bonds and cash because they aren’t stocks, because the stocks are for growing the back half of our portfolio so that we can preserve our purchasing power for a 60, 70, 80, 90-year-old version of ourselves, but it’s way too volatile to count on for monthly income. That’s why we have bonds and cash. You probably want to count how many months of retirement income you have in some more secure assets. In your retirement portfolio, you probably have cash, you probably treasuries, you probably have corporate bond funds, you probably have high yield funds, real estate, things like that. Things that are from cash on, they’re being increasingly more volatile until we get to our stock investments.
Benjamin: I’d just encourage people to count how many months you have in retirement. Count how many, if it’s $5,000 a month, does it really count the number? You’ve got 25,000 in your money market and your IRA, well, that’s five months of where we know our retirement income is coming from. We have five months until we have to look to the next investment. Maybe that’s our treasuries. We’ve got 25,000 in treasuries, that’s five more months, then we’ve got 10 months total until we look to the next. Maybe that’s corporate bond funds or maybe that’s international bond funds, or whatever your portfolio looks like. We just count how many months until we have to touch our stocks.
Benjamin: If you’re half stocks, half bonds, or if you’re 60-40 stock to bond and you’ve got 40% in bonds and cash and you’re taking out 4% a year, well, that’s 10 years until you have to look to your stocks. What’s likely to happen in that 10 years is that you’ll have good markets and bad markets, and if you rebalance occasionally to refill and reallocate those resources back to where you started, you’re probably going to be just fine and you can ride out all the bad times and take profits during the good times and wash, rinse, and repeat for 30 years. I think you’ll be surprised at how effective that is.
Jason: What about Social Security? We talk about how important cash flow is in retirement. There’s so many different claiming options, especially for married couples. 62, 66, or for retirement age, whatever that may be for them, and then age 70. Is there a general rule of thumb? Or, how do you give people guidance on when to start Social Security?
Benjamin: I think the first thing you want to look at is you want to compare, especially if we’re talking about married people, you want to compare the two checks. Depending on how much you paid in and depending on your income over time, you could have a big discrepancy between the two checks. You could have one check that’s $3,000 a month at full-retirement age, and one that’s $1200 a month at full-retirement age. You want to compare those and then you want to take advantage of if there’s an opportunity, where there’s a big difference between the two checks.
Benjamin: In my view, at the very least, you want to defer the largest check as long as you possibly can, at least until full-retirement age, even if that means taking withdrawals out of your retirement account to get you there, or even beyond till age 70. The reason for that being is because that’s the check that has the 100% joint and survivor benefit, meaning regardless of who the check is attached to, who earned it, who paid in the money, regardless of who dies first in the married couple, that larger check is going to be the check that stays. The small check is what goes away, and I know you’ve discussed this on your show time and time again, but it bears repeating. Big check stays, small check goes away.
Benjamin: At the very least, I want people to delay that larger check as long as they possibly can. I’m up for debate when it comes to the smaller check. Requesting that at 62? Okay, if that helps you wait until 70, go for it, but the number one focus should be on that larger check in my view.
Jason: Next thing I want to talk about is taxes. Taxes, right now we have some of the lowest marginal tax brackets we’ve seen ever. What are your thoughts from a tax planning or tax opportunities? Are there any tax opportunities you think that people should be considering as they’re making a transition into retirement?
Benjamin: Yeah, I think people… naturally we look at our annual taxes. We want to get that number down as low as we possibly can. On the run-up to retirement, we’re often earning our peak earning years. I really encourage clients to think about how that is going to change when they retire and think less about our annual taxes and more about our lifetime taxes owed. That gives us sort of the headspace to think about, “Well, maybe I should pay more taxes than I owe now and do something like a Roth IRA conversion to take advantage of these super low marginal tax rates, then I’ll have to pay less total lifetime tax later on, assuming that the tax cuts are going to last and assuming that my IRA account balance is growing over time.” Throw in the occasional stock market correction, there’s great opportunities to pay extra taxes now in order to ensure we’ll pay a lot less taxes later.
Jason: What about the question, and this is one you probably hear a lot, people that want to make this transition into retirement. One of the things they’ll say is, “Jason, have we saved enough?” How do you answer that question?
Benjamin: Well, I really like Monte Carlo analysis. Fidelity has a great system, but there’s tons of systems out there if you just Google “Monte Carlo analysis”, that gives us a likelihood of success. That gives us sort of a jumping off point. It’s going to run many different market simulations for you, anywhere from 250 to a thousand for some calculators, and it’s going to give you a baseline that says, “Okay, you’re 75% likely to hit all your income goals in retirement.”
Benjamin: It compares your goal income to what you’ve saved so far, including Social Security, pension, and those sorts of things, and then we start to move the levers around. What if we retired a year sooner? What if we worked part time? What if we deferred Social Security until 70? What if we collected at 62? Then, we just see how we move that likelihood of success. We move it from 70 to 75 to 80 to 85 and whatever comfort level they have, and then that gives us our marching orders to, “This is the path that we should take.”
Benjamin: There’s all sorts of rules. With the 4% rule, you could say, “Okay, if you’ve saved 25 times your retirement budget, then you’re probably fine. There’s all sorts of napkin math and rules of thumb, but I really want to see a probability of success based on many different market simulations of different market cycles. That really gives me a lot more confidence to tell a client, “You can retire and stay retired for good.”
Jason: Stay retired, that’s what we want. What do you think, though, on the probability of success? What percentage does it need to get to for you to feel confident that you’re helping people make the right decision? Is it 75, 80, 85, 100%? Where does that probability of success need to land before you would say, “Okay, you’re good to go” for you?
Benjamin: Well, that’s a heck of a question because when clients learn about that probability of success, they say, “Well, I want it to be a hundred percent, I want it to be a hundred percent likely”, which that is perfectly natural to do. If you’ve got a hundred percent likelihood of success, you’re probably planning too conservatively and you’re leaving some untapped potential on the table, meaning that you could probably take more retirement income than you are planning for. I would say something in the 70 to 75% range. As long as we’re using dynamic spending strategies, which softer is very difficult. It has a tough time accounting for that. If we drop… if we increase our spending by more than 20% from where we started from, then we’ve got to start reducing.
Benjamin: The Monte Carlo analysis has a tough time forecasting that because it’s something that is just going to happen. It could happen two years into retirement, it could happen 22 years into retirement. We don’t know how and when the market is going to misbehave, but I would say 75% if we’re willing to reduce during really, really bad times in the market.
Jason: What are some of the risks you see out there today that people need to be planning for and accounting for? What are the best ways to plan for those risks in retirement?
Benjamin: Well, I would say some of the questions we ask clients when we’re just meeting them for the first time is we want to ask about the financial independence of their children and of their parents as well. You mentioned 10,000 Baby Boomers retiring every day. Another word for the Baby Boomers is the Sandwich Generation. So many of our clients find themselves either taking care of adult children, where they move back in with maybe a grandchild, or they find themselves taking care of their aging parents. If you’re 60 and your parents are in their middle 80s, sometimes they need a lot of your help. Sometimes we even run into situations where our retired clients are taking care of both their kids, grandkids, and their parents. That’s the Sandwich Generation, is that you’re pinched between the two generations financially or emotionally or they’re living at your house or all of the above.
Benjamin: We want to inquire about what’s the financial stability of your parents and the financial stability of your children. If it sounds like they’re not very financially stable, we need to plus up those emergency funds, we need to keep more cash on hand, which will drag on our return over the portfolio long term, but we’ve got to be prepared for some of these things because you could plan for a $50,000 a year retirement and your Monte Carlo analysis could look fantastic, but what’s going to happen if you go from being a 60-year-old empty nester to being a 65-year-old former empty nester and your daughter and two of her kids move back in because they just went through a terrible divorce? That’s really going to change that retirement budget a lot.
Benjamin: We can’t account for everything, but if there is some question in your mind that you might be part of the Sandwich Generation, we’ve got to try to account for that ahead of time. That means more emergency funds outside of your retirement account and probably more cash and more conservative investments inside of your retirement account.
Jason: Boy, there’s so many things that people need to be thinking about as they make this transition. What about this idea of continuing to work in some capacity to have some income? It’s definitely something we see more and more of these days as people are wanting to retire at 56, 58 years old from a very high-stress 80-hour-a-week job, and they’re saying, “Geez, Jason, if I could work 30 hours a week and make coffee for people and have some health insurance, I’d like that.” Are you seeing people that are willing to make that trade-off?
Benjamin: Yes, and I absolutely love it. I often tell people that the best retirement that we could ever account for is a lifestyle that you craft for yourself, that you don’t feel the need to retire from. Sometimes that means financially you’re getting some financial recompense for your efforts, sometimes it’s just straight fulfillment, but if you can craft that lifestyle for yourself that you don’t need to retire from… We’ve got so many… for some reason we attract a lot of engineer clients, which we love. There are so many consulting opportunities. We’ve even referred our 50 and up clients to job coaches that focus on the 50-and-up crowd where they’ll teach you how to become a consultant, how to negotiate your salary, project based, hourly based, what have you.
Benjamin: Those are our happiest clients far and away because they are getting some financial benefit from working, but more important than that, they’re getting some spiritual, some fulfillment, where they’ve been working as an engineer or any profession really, for 30, 35, 40 years. They still have the desire to leave the profession better than they found it. They want to mentor these younger people coming up the ranks and they get so much fulfillment from that. I’m so blessed that I can walk this journey with them.
Benjamin: Have you ever heard of Doctors Without Borders?
Benjamin: I was talking to a guy from the Midwest yesterday. I had no idea that there was something called Engineers Without Borders. He’s a volunteer, but he’s consulting on a water project in Africa. It’s totally a volunteer basis, but he’s able to bless a community with fresh water that he’ll never visit and he’ll never meet these people, but he is getting so much fulfillment by still… in his 70s, still using his knowledge as a civil engineer to bless some of these communities. Engineers Without Borders.
Benjamin: Now, if I wasn’t an advisor counseling people that are exclusively retired, I’d never learn about stuff like that. I think it’s so cool that you and I have the opportunity to walk with these people and have these kinds of conversations. It’s very fulfilling for me to hear one of my clients being fulfilled in that way.
Jason: Absolutely. One of the things that’s amazing is that I have a whole portfolio full of mentors, people that have done really well in life that are willing to share that wisdom with me as I get to walk life with them and help them on the financial side. That is just such a… really such a blessing.
Jason: You and I have both attended FinCon, and that was… I’ve only attended once. It sounds like you’ve gone a couple of times. That’s where bloggers and podcasters get together to talk about their craft, and boy, that was an eye-opening experience for me. I met a gentleman there who has a blog, and he retired in his late 50s. He’s making not a lot of money, but maybe an extra $30,000 a year or so from the work that he’s doing from his blog where he’s just kind of sharing his story.
Jason: What do you think about some of these new opportunities for people? Whether it’s driving for Uber, or being a blogger, creating a podcast and monetizing those different channels? You’ve been to more of these events than I have. What do you think about that as kind of an encore career?
Benjamin: I know who you’re talking about. I love that guy. I won’t mention his name, but your audience might know who it is. I love any opportunity where you can make some money part time doing something that you enjoy. If you’re a vacation… if you want to become a vacation blogger, if you want to become a travel blogger, if you want to just research your own family’s ancestry and publish those lessons online, there are so low barriers of entry to becoming a podcaster, becoming a YouTuber, becoming a blogger, and then potentially make some AdSense revenue or affiliate marketing revenue from that. If that’s something that gets you fired up as a retiree, I think you should absolutely explore something like that.
Benjamin: Basically, you’re being compensated to shorten someone else’s learning curve that’s coming up behind you, maybe a year or two, or financially they’re a little bit behind you and they want to use your lessons to catch up. Or they’re interested in a hobby you’re interested in. What a great opportunity to become fulfilled by teaching others, but then also, potentially, this isn’t easy, but potentially also earn some revenue, some income from that.
Jason: When you get to talk to people that have made the transition from working into retirement, what do they tell you is the best part after you get to talk with them a couple of months after the transition? What do they usually say? What’s the best part of retirement for most people would you say?
Benjamin: The best part of retirement, I would say the fulfillment. People that are pursuing some activity where they’re fulfilled. Not everybody is happy six months into retirement. Some people feel lonely, some people feel bored, which is something we have to work through, but I would say our happiest clients are the clients that say, “I’m as busy as I’ve ever been. I’m volunteering at the church. I’m picking up my grandkids from school. I’m teaching Sunday school.” I would say the happiest clients are the ones that are very busy and not bored.
Jason: They haven’t retired to the couch and to never-ending episodes of The Office on Netflix.
Benjamin: That’s right. That’s terrible. It’s good entertainment, but you want to have it in moderation. My wife and I just re-watched every episode of The Office last year, but you want to do that in moderation. Don’t have that be your entire retirement, but that is fun to watch Netflix sometimes, especially on cold North Dakota winters.
Jason: Boy, yeah, I bet. Benjamin Brandt, this has been so much fun. One more time for our listeners out there, will you share with them if they want to learn more about the work that you’re doing, maybe they want to reach out to you and have you help them on this journey, what’s the best way for them to reach out to you?
Benjamin: The best way to reach out is to check out our website, retirementstartstoday.com. Search “Retirement Starts Today” in any podcast catcher, iTunes, Android, you name it and you’ll find us, or you can just Google “Benjamin Brandt” and I’ll be there. New episodes every Monday morning.
Jason: Awesome. Folks, you’ve been listening to episode 206 of Sound Retirement Radio. Thank you so much for tuning in. What an honor it is for me to bring other people from around the country onto the program to share with you their wisdom and their expertise. Like Benjamin and I were talking about, 10,000 people are retiring every single day. Regardless of your investments, everybody needs a good plan, and unfortunately, I just don’t think there’s enough people out there that really specialize in retirement planning to help 10,000 people a day. To be able to share some knowledge and wisdom from these other people that are walking life with real people, that’s just invaluable.
Jason: Benjamin Brandt, thanks again. I sure appreciate your expertise.
Benjamin: Hey, I had so much fun. Thanks for having me on.
Jason: Take care.