Jason and Emilia discuss his article, “Do You Have A Social Security Back-up Plan? Planning for Reduced Benefits.”

Below is the full transcript:


Announcer: Welcome back America to Sound Retirement radio. Where we bring you concepts, ideas and strategies. Designed to help you achieve clarity, confidence and freedom. As you prepare for in transition through retirement. And now, here is your host, Jason Parker.

Jason: Seattle, Tacoma, Olympia, America. Welcome back to Sound Retirement radio. I just sit in here with a big smile on my face because I was reading through some of the jokes that I wanted to share with you this morning. And I’m such a dork that I’m sitting here laughing at these jokes to myself before I share them. Thank you for tuning in. I appreciate it. This is episode 068. A foolish man’s retirement plan. I’m really excited to talk to you about some of these things today. Before we get going too far, I want to share with you a verse. I always like to renew our minds, first thing.

 Here’s a verse for you. This comes from Matthew 7, verses 24-27. Therefore, everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose and the winds blew and beat against that house. Yet, it did not fall because it had its foundation on the rock. Everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. The rain came down. The streams rose and the winds blew and beat against that house and it fell with a great crash. Gosh. That’s awesome. Okay. I’m very happy to say that I have Emilia in the studio with me this morning. Emilia, welcome back to Sound Retirement radio.

Emilia: Thank you. It’s great to be here again.

Jason: Thank you for being a guest. Are you ready for a joke this morning?

Emilia: I am. You’ve been smiling since we started. I’m excited.

Jason: Okay. What’s a bunny’s favorite place to hang out?

Emilia: A bunny’s favorite place to hang out.

Jason: iHop.

Emilia: (laughs) I was thinking somewhere around hop. I was like, “Oh, I’m gonna think that one.” That’s funny.

Jason: iHop. I’ve got two other good ones here but I’ll save them until next week.

Emilia: All right.

Jason: Because I only use up, I know how much, how good these jokes are now. We’re not going to waste them all. Emilia, we’ve got a program but before we get into a foolish man’s retirement plan. The reason that I chose this verse today is because I love this imagery of building a house on a solid rock versus shifting sands. I just think that as … When we think about a retirement plan, I want people thinking about that. I’ve borrowed that verse a little bit and I’m going to work it back into retirement planning here as we talk this morning. One of the things I’m excited about is we made an announcement to our clients. We’re now going to be releasing this information to the community.

 That we’re offering this Vanguard investment portfolios. One of the great things about Vanguard. One of the things that they’re really well known for is their really low fee structure. I just want to put an offer out there. There are so many people in our community that have no idea what they’re paying in fees. It cracks me up when they come in and they say, “Jason, we’re paying $25 a year in fees and that’s all we’re paying.” Because very rarely, that’s the case. If anybody out there has investments and they really want to know what the true fee structure is and what they’re paying.

 For this month, for the month of November, we’re going to give them the opportunity. They can call us at 1-800-514-5046 and request that we help them uncover all of the fees that they’re actually really paying. We’ll do that at no cost for people. Only during the month of November, though. I think it’s really exciting because when you … There’s only a few things you can really control when it comes to investing. Fees and then you can influence taxes. You have the most control over your fee structures. If there’s one thing that we can do that really helps people, it’s just helps them reduce that fee structure. Our relationship with Vanguard is going to help more people pay less money and fees and I’m really excited about that.

Emilia: That’s great. I’ll be taking some of those calls if needed. If anybody calls us and we’re always here to help. I think this is a great time to really consider those things. Like you said, a lot of people don’t think about that. I get bills and it says, “There’s a fee here.” You really don’t think about how much you’re really paying out to those types of things. I think that’s some great give away information.

Jason: In the financial services industry especially. There’s not as much transparency as there should be.

Emilia: Hidden fees.

Jason: We just want to shine a light on those dark places. We want people to say, “Hey. I’m willing to pay this amount and fees because I’m happy with the service that I’m getting from my advisor. I’m happy with the performance that I’m getting from my advisor and everything’s working well.” If they understand what those fees are and they’re happy paying them, great. I just want to make sure that they really know what those fees are and most people don’t.

 I think if we can help people there, it will be a huge benefit not just to our community right here in little sunny Washington state. But to people all around the country. Again, for the month of November, call us at 1-800-514-5046. Speak with Emilia, she’ll probably be the one taking your phone call. We’re just going to help you hopefully, pay less money and fees going forward.

Emilia: Sounds great.

Jason: What’s next for us today, Emilia?

Emilia: You have an article here that you wrote. Titled, “Do you have a social security backup plan?” If you’d like to share the article with us, I have some questions to follow and just go with you on this. Because when I read the article, it was very, kind of it takes me back to just where I am. I know I’m younger but do I have a backup plan? It really is something you start thinking about.

Jason: One of the reasons too when we’re talking about this before the show. That I thought we should share this particular piece that I wrote. It’s because, it received some … Some people got really angry when they read this. With Facebook comments and stuff. They responded in a very dysfunctional way, let’s just say. With foul language and stuff. Maybe it’s because we’re in the middle of an election year and people are just very passionate about their political party. When we talk about something like social security, this is not a political discussion republican versus democrat. This is just based on the reality of the system that we’ve created. Now, with republicans and democrats and every other one of this elective leaders.

 We’re paying them a lot of money to solve these problems. I think one of the reasons that people responded in such a strong, negative way is because it impacts their security. If you think that it’s possible that something that you need and depend on is going to be taken away from you. Man, that makes people mad. I thought, I’ll just share this article here and then we’ll have a conversation about it. Talk about some of the things people should be thinking about. Should you have a social security backup plan for income?

 I like to have a contingency plan in place for the what if’s in life. For those times when life throws us a curve ball. For example, at my home, we keep two weeks of food, fuel and water on hand in case of an emergency. At work, I continuously backup my computer because if my hard drive fails, then, I want to make sure we have a backup plan to ensure that business can continue to operate uninterrupted. I also buy insurance to protect my family from a financial emergency. Should I die, become disabled, have major health insurance expense, get into a car accident, have our house burn down or need long term care. Then, I have insurance AKA a backup plan in place to make sure my family’s protected.

 The question I’d like to post in this article is, should you have a backup plan in place. In the event that the social security trustees report is accurate with their warning. That they will only be able to pay 77% of scheduled benefits by the year 2033. Before I continue on, I think that’s the piece that make people mad. They think I’m making this stuff up and I’m not. If you look right on your social security statement, this warning. I have it listed on, right on our blog. You can read the warning right on the front page of your social security statement.

 It says, here’s what the warning says. It says, “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing amounts may change because by 2033, the payroll taxes collected will only be enough to pay about 77% of scheduled benefits.” That’s the social security’s trustees report. It’s not me trying to ruffle people’s feathers. I’m just saying, should you have a backup plan. Anyhow, let’s take a quick look at how this projected schedule benefits might impact a man retiring in the year 2015.

 If we assumed that his social security benefit will increase by the historical cost of living allowance. Of 2.5% per year. Then, we would project by the year 2033, his monthly scheduled benefit would have increase to $3,119 per month and you’d now be 84 years old. If we then apply the social security trustees projected reduction and benefits. Assume that social security will only be able to pay 77% of scheduled benefits. Then, this is how that reduction would impact his retirement cash flow. $717 of lost income per month. His monthly income would drop from $3,119 to $2,402. $8,609 less retirement income per year.

 If he lives to age 95, the reduction hold steady. He will have received $118,770 less in income. That’s if he ends up living to age 95 after taking that reduction. That’s pretty substantial. Significant reduction in income for the average retiree at there. A good retirement plan is all about cash flow. It’s your income that will determine your lifestyle in retirement. Not your balance sheet. For many Americans, social security will replace about 40% of their annual pre-retirement earnings.

 One of the first steps you should take when creating a retirement cash flow plan is learn about some of the little known claiming strategies. That can help you maximize your lifetime income from social security. Of course, for our listeners, we have a calculator right online. Where they can go to look to see how much is at stake if they make a mistake with this. It’s easy to access. If your retirement plan is dependent on collecting social security income. Then, it may be prudent to consider a backup plan to ensure you will have enough inflation adjusted income to last for your lifetime. Should the social security trustees analysis actually become a reality.

Emilia: Wow.

Jason: That’s the article that so many people were up and getting their feathers are all ruffled for.

Emilia: Yeah. Well, when I read it. I’m thinking in 2033, how old am I going to be? I’m like, well, that’s definitely probably going to affect me and a lot of my families. It’s like, you really have to start thinking ahead. One of the things I had a question about. Just since you mention, there’s some claiming strategies. Please share that. Because I’m like, if there’s anything we can do to help our listeners. I mean, what are some of those strategies and how can they enforce them?

Jason: That’s a great question. The funding, you mentioned 2033 as you’re looking out, you’re younger than I am. I’m sitting there for myself. That’s right around the time that I’m eligible to retire. It’s the time to a social security is a go. Our generation, we’re always being told, “Hey. Don’t plan on social security, be in there.” The reason is because the trustee’s report comes out every year and says, “This things going belly up because we’re not funding it properly.” Or you know what? I shouldn’t say we’re not funding it. We are funding it but the money is maybe not being appropriated properly.

 I don’t know what the problem is. All I know is that it’s not a good picture going forward. Let’s talk about some of this claiming strategies. This is really important Emilia for people that are either divorced. Really important for people that are widowed and super important for married couples. If any of our listeners out there, that’s you. If you’ve either been divorced, widowed or you’re a married couple. Those, that’s the demographic that has the most to potentially lose. There’s the least amount of information on out there on how this different claiming strategies work.

 Social security is a core component of a good retirement cash flow plan. Its inflation adjusted income. It’s taxed advantaged income and it has a benefit for surviving spouse. Then, there’s also a spousal benefits available. Which very few people really understand how spousal benefits work. You’ve got all these different pieces working together. The challenge is, if you go into the social security administration’s office. Their job is to show you how to get the highest benefit you’re eligible for the day you walk in the office. Not to show you how to maximize benefits over your lifetime.

 The two primary strategies that are available today. By the way, if you’re listening to this at some point in the future, it could change. Because congress could change the rules on this. Right now, it’s the file and suspend and the restricted application. Essentially, a restricted application just basically means that you go in, you file for benefits. You activate them but you restrict taking them, so you don’t receive them yet. The reason that most of the people that we serve today are doing something like that is because they’re trying to make their spouse eligible for spousal benefits.

 I don’t want to get this. Make this too confusing or too technical. The other one is file and suspend. They can file for benefits and then suspend taking them. The reason that they do that is because, it allows their benefit to continue to earn those 8% delayed retirement credits. Usually, we can use the file and suspend or the restricted application to help and show people how to maximize benefits. For people that have been divorced, for people that are widowed and for married couples. Really important.

 Now, before we go on to your question. Because I can just see your eyes burning at me as you’re looking at me. You can’t just wait to ask this next question. I want to share with you. The verse that I shared early on. I’ve taken that in the context of retirement planning. I’ve made my own little adjustments to it and I want to share that with everybody here real quick. The wise man built his retirement plan on the solid foundation of secure cash flow. The stock market crash down. Interest rate rose and inflation beat against that retirement plan. Yet, it did not fall apart because it had its foundation of secure cash flow.

 The foolish man built his retirement plan based on past performance. The stock market crash down. Interest rates rose and inflation beat against that retirement plan and it fell apart with a great crash. I was inspired by this bible verse that Jesus taught. Where he says, “Build your life on a solid foundation. Build it on that rock. On this principles that has stood the test of time.” This idea that we have this loving God that’s just passionate about us and is willing to forgive us no matter how much we screw up. That’s pretty awesome.

Emilia: That’s powerful. It goes right … It supports that exact thing. The verse and how we’re trying to, you know, like you said, make a solid foundation. I guess, that goes right into my next question, Jason. Because I’m curious. What are some plans that you can recommend to start sending or start building that foundation? Where they can go from there?

Jason: The key word that you just hit was plans. What I found in this industry is that most people don’t start with a plan. What they start with is, a risk assessment. Somebody ask them, Well, what’s your risk tolerance? 1 through 10.” Then, they say, based on that. Here’s an asset allocation. They just say, have some money in large cap stocks. Some money in small caps. Some money in mid cap. They don’t really build that around the plan. A plan is not an investment portfolio. It’s not an asset allocation model. It’s not a risk tolerance.

 When you start with a plan, the plan is what determines and drives all these other choices that we have to make. In terms of how we use these resources that people have save for a lifetime. The true answer is to start with a really good retirement cash flow plan. Retirement is all about cash flow. It’s your income that determines your lifestyle, not your net worth. Here’s the question that I want to throw out to our listeners. If you have the ability to build a retirement cash flow plan that is built on a solid foundation, that’s secure.

 Or, you can build that retirement cash flow plan on shifting sands that may or may not work. Depending on a lot of different variables. Which one seems more logical to you? To me, I want to know that my plan is going to work. I don’t want a what if plan. I don’t want to hope plan. I don’t want to well, maybe this will work. Or maybe if I look back at past performance of different asset classes, they have perform this way. I think this will work but I don’t want to be the guy who’s wife is sitting at home. Who doesn’t have enough money to maintain or standard of living after I’m gone. Because my hopes and my wishes and my dreams and my what if’s didn’t turn out the way that I had hoped for them to.

 That’s ridiculous to me. That’s how our entire industry does this. It’s wrong. I just really think it’s wrong. We have a solution for people. We have a solution. They can read the book and they can understand a methodology. A way of diversifying. That gives them a lot greater confidence. We have a radio show that they can listen to every week. Where we bring experts on to this program. To show them and talk to them about all of the different ways things are being done out there. The reality is, most people will just never take the time to really understand. That’s really too bad.

 For example, right now, we’re offering people this opportunity to uncover the fees in their portfolio. There’s no cost for people to do that. It’s not going to hurt them in any way. What could possibly be the negative of understanding all the fees that you’re paying. Most people, because I know there’s thousands of people driving down the road in Seattle right now. Who knows how many people around the world are tuning into this program right now. Most people will never take action. The reality is, most of us like to procrastinate. Procrastination is easier than taking action.

Emilia: Yeah. I think knowledge is key. Like you said, there is no such thing as a question that should, like you shouldn’t be asked. If our listeners have any questions. Even if it’s not regarding the fees. Always be open to asking questions if you don’t understand something. Especially in the financial world. Now that I’ve gotten started here with you Jason, I’m learning so much. Your book was definitely an opening guideline for that. To our listeners, Jason’s book is going to give you the basics going. From there, start developing your plans. Think about these long term plans. Jason mentioned, I’m a little bit younger here but I’m thinking right now, what should I be doing?

Jason: Let me give you a quick example, Emilia. I met with a person recently who they wanted a more secure portfolio. Then, what that was recommended to them is that they go out and buy this bond mutual funds. They come in with this bond mutual funds and we do an analysis on them. Now, it’s okay to own bond mutual funds. I just want people to understand what that means for them. In this particular case, the bond mutual fund was, it had a yield. A 12-month yield of about 2.4%. Which in today’s interest rate, environment people [inaudible 00:20:26] 2.4% sounds pretty good. 2.4%, it had a duration of near 5.

 What so many people don’t understand is that if interest rates go up, 1 percentage point, that means that portfolio is going to drop by 5%. The question I ask this person. I said, is it worth earning 2.4% to potentially lose 5%. This person’s pouring money out of that portfolio. They’re living on that interest income. The 2.4% yield that they’re earning isn’t going to buffer the interest rate rise. They just got pure exposure to duration there. They’re going to lose 5%. That’s a mathematical reality. That’s not, well, maybe that will happen.

 We’re on the cusp of the federal reserve raising interest rates. This person moved their money to that account because they wanted more safety. Now, here’s a logical question that I just can’t wrap my mind around. If we could stick your money in a CD, a bank certificate of deposit. That’s FDIC insured. That’s earning, let’s say, 2.5% with no risk. Or 2.4% and you have a lot of risk. Why in the world you opt for the 2.4% yield that’s less and you have more risk. Or maybe not a bank CD.

 Maybe you use like a fix differed annuity instead of a bank CD. Something that’s safe that you don’t have to worry about market fluctuations. Taking in a way, the principle. I just can’t understand why people would do that. Yet, there are so many people that we meet with all the time that have their portfolio structured that exact way. Nobody has ever explained it to them. People just don’t understand what are in there. What they’ve got.

Emilia: When is a good time for someone to get started on a plan like this? I know some people already have you said, they have, they’ve already got their investments going. Anytime should be a good time to start, right? What do you recommend?

Jason: I was just out to lunch today with a good friend of mine. He’s a certified financial planner. He said, “Jason, if I had a financial adviser like myself when I was 35 years old.” He said, “My life, my financial life would be so much better.” You’re right. There’s never too early to start learning. That’s a great point. Most of the people that we work with are within 5 years of … They’re either within 5 years of retirement. They’re just about to retire or they have already retired. Those are the people that we’re working with. Because I found specialization, we tend to hear the same concerns over and over again. At our firm, we can just be more tuned in and dialed in to what the real concerns are. Of the demographic that we serve and that’s a good thing.

Emilia: It sounds great. What are some resources that you would recommend for developing these plans? Some of the resources that you use here or that you’ve heard about that we can …

Jason: That’s a great question, too. I’ve been in this industry long enough now. That we’ve tried and used a lot of the different financial tools that are out there. Some of them are really good. Some of them are really bad. One of the nice things about working with a financial advisor. For example, our firm. We pay a lot of money every year for a lot of different types of software that we have access to, to help with things like understanding some of this risk building retirement plans. Uncovering the fees that they’re paying. Stress testing a portfolio. Helping people maximize social security. The average person out there isn’t going to want to pay. It’s like when I bring my car to a mechanic.

 I bring my car to mechanic not because I couldn’t figure out how to do it. My mechanic spends hundreds of dollars every month on new tools. He can get the job done more efficiently and he knows how to do it. He’s got the right stuff. Why would the average person out there want to go out and build their own financial services practice for something that they’re going to use just for themselves? It doesn’t scale. It doesn’t make any sense. It would be way too expensive to go that route. It makes much more sense to get professional help. Emilia, we’re out of time. I just want to remind our listeners they can get this free fee report on their investments. For the month of November only. This is November 2015. I want to encourage you to call in. Until next week. This is Jason Parker and …

Emilia: Emilia Bernal.

Jason: Tuning out.

Announcer: Information and opinion expressed here are believed to be accurate and complete. For general information only and should not be construed as specific facts, legal or financial advice for an individual. It 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 investment decisions or other actions taken or made by you based on the information provided in this program.

 All insurance related discussions are subject in 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, North West, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at soundretirementplanning.com.