Jason and Emilia discuss the advantages of a fee only financial plan for retirement.

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 and transition through retirement. And 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. It is my good fortune to have Emilia Bernal in the studio.

Emilia: Yes. I like the way you said that.

Jason: Emilia.

Emilia: Good morning everybody.

Jason: Good morning.

Emilia: Or afternoon. Right?

Jason: Yeah.

Emilia: Yeah.

Jason: Welcome back.

Emilia: Thank you.

Jason: We always like to get the morning started right. We’ve got two ways we do that. The first one is by renewing our mind. And the verse that I have for us today, Emilia, is Ephesians 4:32, which says, “Be kind and compassionate to one another, forgiving each other just as in Christ God forgave you.” And then the other way that we like to just get the morning started right, to get the day started right is with a joke, something to share with the grandkids.

Emilia: A joke, yes. I hope you’re all ready for this one. All right. So here goes. What’s worse than finding a worm in your apple?

Jason: I don’t know. What is worse?

Emilia: Finding half a worm in your apple.

Jason: Oh, man. That is. That would be worse.

Emilia: It would. I can’t even imagine. A little extra protein.

Jason: Kind of along the same lines, a friend of mine had left a bottle of some kind of drink in his car. And the next day, he got back in the car and the bottle was still sitting there, so he decided to start taking a couple of sips out of it. Well, about the time it was about halfway done, almost done with the thing, he looked down and a mouse had crawled into the bottle and died in the thing.

Emilia: Oh, no. I thought you were going to say like a bug.

Jason: This is like, and put the lid on that thing for crying out loud. That is disturbing.

Emilia: My eyes are watering.

Jason: I know. And then the other thing is, as you told that joke. My dad … You know these urban legends that are out there? And I’ll never forget this. My dad, as a young kid, told me a story about somebody that was laying on a blanket at a park, and an ant crawled in their ear. And then a couple of weeks later, so my dad says, this person had this little pimple, this little zit on their face. And they scratched it, and all these baby ants came running down.

Emilia: Yeah. That’s definitely an urban legend.

Jason: I know, but man that freaked me out so much as I kid.

Emilia: I bet.

Jason: Yeah. Every time I’d go to a picnic, it’s like …

Emilia: Oh.

Jason: I don’t want to lie down on the blanket, let an ant crawl in my ear.

Emilia: Yeah. Or when they tell you, you’d eat the watermelon seeds, you’re going to grow watermelon in your belly or something like that.

Jason: The sign of good parenting is that your kids are successful enough to be able to pay for their own counseling for all of the damage you do. Fix that.

Emilia: Oh gosh. We’re having too much fun with this one. Yeah. That was great.

Jason: All right. What are we doing anyway?

Emilia: Yeah.

Jason: This is episode 174, really off track. Okay. 174, fee only financial plan for retirement is our topic.

Emilia: Jason, what is a fee only financial plan for retirement? And why did you decide to discuss that on the show today?

Jason: Well, we hired another person recently. And the reason that we did is because I found that a lot of the people that are reaching out to us are people who are looking for somebody to help them create a plan, but not necessarily implement the plan, or manage any investments, or make any recommendations on insurance. They just want somebody that can help look over their shoulder from a planning standpoint. And I tell you, the great thing is there’s 10,000 people a day retiring in our country. There’s a lot of people that are looking for help with this. I think it’s probably one of the biggest financial decisions of most people’s lives. They’re giving up their work, and so they just want to make sure they’ve got a second opinion. They want to make sure somebody’s really helping them with this.

 Unfortunately though, the way our industry is structured and the way that our firms have traditionally been structured is that you only give that level of advice to people when you’re actually managing their investments for them, when you’re overseeing and charging a fee for the investment management. But because so many of the people that listen to our show have been reaching out to me saying, “Hey. We’ve been managing our own investments. We feel comfortable with that. We just really want somebody from a planning standpoint to look over our shoulder.” I thought, “We really need to scale up to be able to help meet the demand of what we’re experiencing.”

 And so a fee only financial plan is just that. There’s no investment management. There’s no insurance recommendations there’s no products involved, no financial tools involved. It’s just: Can somebody come along and help us create a plan, look over our shoulder? People come in oftentimes when they hire us, they’ll upload all of these spreadsheets that they’ve been working on over the years because they don’t want to make a mistake, and they just want to know that, again, maybe there’s a second set of eyes to help them see things that they don’t see.

 Most people only retire once. Unlike us, as an advisory firm, we’ve walked with hundreds of people down this path. When you see enough things over and over again, sometimes you see trends. Sometimes you see opportunities to capture. Sometimes you see risks to avoid. And so we just have a unique perspective of being able to help a lot of people. And I just want to be able to help people the way that they want to be helped, and so that’s what our upcoming webinar is going to be about, is creating a fee only financial plan, what that looks like for people.

Emilia: That’s great. And just for our audience listeners out there, that webinar is scheduled for Thursday, July 26th at 5:30 PM Pacific Daytime. So if you’d like to register for that webinar, go to soundretirementplanning.com. And you can click on the link there in the right hand side.

Jason: And that is live only. There’s not a replay available for this, so if you are interested in attending, the great thing about a live event is that you get to ask questions as we go, and so we can help address any kind of big picture general questions. We don’t want to get too specific on people’s individual situation unless we’re actually working with them to create a plan. But kind of big picture questions people have, we certainly can help answer some of those through the webinar process.

Emilia: Sounds great. Jason, why should people who are planning to retire create a plan before they retire?

Jason: Yeah. Again, once you give up your income, that’s like your biggest asset. Your whole life has been your ability to earn an income. And retirement, I’m always reminding people, retirement’s all about cash flow. It’s replacing that paycheck that you’ve been getting every week, or two weeks, or monthly, however you get paid. You’ve got to replace that paycheck. And what we want to avoid is people having to go back to work because they made a mistake or because they miscalculated. And I’ve seen people do this a lot of different ways. Sometimes when you open up these spreadsheets and you’re looking at them from all these different angles, you think you’re covering everything. But it’s really easy to forget about some like inflation, or maybe underestimate your budget because you’re not really thinking of all the expenses. Or maybe you’re overestimating your assumptions about rates of return.

 Or in some cases, I’ve seen where people have co-mingled assets, so they look at all of their net worth, including non-liquid assets like a house that they’re living in. And they’ll say, “Well, these are my assets, so this is what I can spend down,” but they forget to break out the piece that’s not really producing any income for them. So there’s just a lot of things you want to be thinking about as you’re making this transition. I mean, those are just a real high level, but there’s a lot of complexity in this. And like I say, most people only do it once. They don’t want to have to go back to work. And especially, a lot of people are in their peak earning years. They’re earning some of the best income that they’ve ever earned, and so we don’t want to give up that job until we know that we really can do it. And that’s what having a good plan helps people do.

 At the same time, I think people, they don’t want to feel like they’re walking in and being sold something, and that’s what can happen when you’re working with a firm that only wants to manage investments for you, or is trying to sell you an insurance contract, is that people are always wondering. Well, is this really in my best interest, or is there some incentive other than just creating the plan? And I think having a fee only plan, where you’re paying somebody for their time and their expertise to put together a plan for you is really the cleanest kind of relationship you can have with a financial professional. I mean, there is absolutely no conflict of interest there because they’re not selling you a product. They’re not investing any money for you. They’re just creating a plan. It’s kind of like hiring an attorney to do your state documents.

Emilia: Yeah. It sounds like a very comfortable situation. You don’t have to feel the pressure of anything. You know what you’re going to get. Come in and get it.

Jason: Exactly.

Emilia: Yeah. And I know you said you’re planning before retirement. But is it also a good idea for people that are already retired to create a plan too? Would that be …

Jason: If they haven’t already, for sure. Yeah. Sometimes people already have a plan. But sometimes people enter into this retirement thing without really thinking through consequences or implications. For example, it’s a good idea if you’re going to be refinancing a house or buying a house before retirement, do that while your income’s still high. You don’t want to wait until you retire. Let’s say you retire at 57 years old, and you don’t have any income. You’re drawing money out of your portfolio. Well, the banks don’t look at that as a favorable income source. So if you’ve already retired and you didn’t capture those low interest rates while you were working, it may not be an option for you anymore to do something like buy a new house or refinance your mortgage.

 In an ideal world, in a perfect situation, we’re going to be having those conversations a couple of years before you retire, and then kind of ramping up those conversations as you’re transitioning into retirement. I have a couple of friends in the community that like to say, “Hey. Practice retirement for a year.” Imagine that this is the amount of money that you have coming in, and this is what you can spend, and really make sure that the numbers work before you just take the leap and maybe make an emotional decision, just say, “I don’t want to do this anymore,” and really try to retire into something, not away from something.

Emilia: Good advice. Great. I want to break this down a little more, Jason. What are the elements of a financial plan for retirement?

Jason: Yeah. Again, the reason when I ask people, again, I just have this unique opportunity, our firm has this unique opportunity to ask people the question. What’s the purpose of your money? Why did you save it? Why do you have it? Most of the time, it’s all about lifestyle. It’s income. They want to know that they’re never going to become a burden physically or financially. It’s for travel. That’s one that I hear a lot. A lot of people, they haven’t maybe traveled as much as they would like. And now that they own their time, they can’t wait to do these river cruises through France, or these long ocean cruises to the Antarctic, just all these wild adventures that people go on that we get to hear about all the time.

Emilia: We do. I heard about today, a 44 day vacation. I was like, “Wow.”

Jason: 44 days. Yeah.

Emilia: Yeah.

Jason: But you’ve got to replace income. That’s going to, for most people, going to mean one of two things. First of all, just about everybody that we talk to has paid into social security, so they’re going to have some social security decisions to make on when to turn that income on, how to try to coordinate it with a retirement cash flow plan, not to make a decision about social security in a bubble. Not just to say, “Well, I get more if I wait until 70. Or I just want to take it at 62 because I don’t think it’s going to be there for me later on.” And those are not the right ways to make social security decisions using rules of thumb, or some article somebody read online. You really have to understand how the decision affects the cash flow plan, and use the cash flow plan to help you understand something like social security.

 We still meet with people today that have pensions, either from the federal government, or state government, or they were retired teachers. Sometimes they worked for a company, and the company had these old pension plans. Maybe they don’t offer them anymore, but they were grandfathered in. Some companies do still have pension plans, and they have to make decisions about survivor options. Should they take a survivor option? Should they buy life insurance? And so income planning as guaranteed income sources are going to be an important part of that equation.

 Some people are going to look at things like annuities to help supplement some of their guaranteed income sources. And so maybe they’ve been presented an annuity contract and they’re trying to get some second opinions about the best way. If they’re going to buy an annuity, what are some of the things they need to be looking out for or watching out for? And so those are income decisions that people need to be making.

 If they’re not going to have guaranteed income, or if they’re not going to have much guaranteed income, then we have to be looking at withdrawal rates from their investment portfolios, their retirement savings. But again, ultimately, retirement is an exercise in cash flow. Most people save the money so that the money will support them the rest of their life. Another way of saying this, Emilia, is if you don’t have income, you don’t have retirement. So you can have assets. You can be high net worth individual, have a lot of assets, but not have income and still be working at 80 years old. But that’s not the ideal picture that we’re looking for people.

 Income, income, income. You always hear me talking about income, social security, pensions. Should you buy an annuity? Of course, the other part to the income side is budgeting. You have to understand what your expenses are. And I see people underestimate their expenses way too much. Sometimes people come in. They’ll say, “Yeah. We have income today of $12,000 a month. But we think in retirement, our budget’s going to be $4000 a month.” But they’re not saving anything. So they’ve got $12,000 a month coming in. They say their expenses going out, $4000.

 But where’s the difference during the working years? Where’s the other eight grand going? So we’ve got to have a good handle on budgeting. That’s why we created the retirementbudgetcalculator.com to really help people understand what that spending looks like, how it’s going to change with inflation, to really get granular so they can see and understand the expenses that are happening monthly, quarterly, semiannually, annual expenses. Get a calendar view of expenses. It’s the only tool that I know of that’s as comprehensive as it is. And for our radio listeners, for our podcast listeners, if they use the coupon code, PODCAST, when signing up for the budget calculator, they get 50% off.

Emilia: Great deal.

Jason: Yeah. It’s really … I designed it. I built it, so I think it’s great.

Emilia: I agree.

Jason: So budgeting’s an important part. Inflation, you’ve got to be making some assumptions about not just how much your purchasing power has today, but how it’s going to change over time because we know that the federal reserve has an inflation target. They want inflation. Inflation is a healthy thing for our economy. And deflation is unhealthy. That means we’re getting into Great Depression type of scenario. None of us want prices to be falling, as much as we think we would, because that means we’re spiraling into maybe something that would be really bad and something really hard to get out of. I remember Ben Bernanke during the financial crisis said something along the lines of, if he could get into a helicopter and throw bags of money out, he would in order to get the economy going. That’s how serious he was about not letting our economy get into a deflationary environment.

 Once you’ve got some of those foundational pieces solved for, then we want to diversify your money across time. One of the things that our listeners probably know, because I sound like a broken record I think sometimes, is that time is the cure to the volatility of the stock market. The more time you have, the more risk you can afford to take. Try to avoid pulling money out of accounts that could be falling in value. Another way of saying this is to structure your income with your assets with your liabilities. So money that we need in the short-term, we want it to be relatively secure. We don’t want to be taking a lot of risk with those assets. And money where we have longer time horizon, we can afford to take more risk because time is the cure to the volatility.

 It’s not just about diversification. It’s about asset allocation. It’s about having your money in the right time segments, and then being diversified within each one of those segments based on what we need that money to do. Money that we need in the short-term, we don’t need it to earn a lot. We just need it to be there for us when we need it. Money that we don’t need for 10 years, we can have a different risk profile with that money. And so diversifying your money across time is important. Stress testing. So once we get all that put together, maybe we should talk about the webinar that we have coming up because I’m starting to ramble on here.

Emilia: No. Do you need a break? No. But for our listeners today, we want to remind you again. A lot of this information, Jason’s going to cover in more detail during our July webinar, which is scheduled for Thursday, July 26th at 5:30 PM Pacific Daytime. And you can go to soundretirementplanning.com to register for that webinar. And also, just again reminding everybody, Jason just talked about the retirement budget calculator. Again, PODCAST, use that promo code and you get 50% off.

Jason: Yeah. At least for now, that’s not going to be available forever. So if people are listening to this show in the future, years from now, that promo may not be applicable anymore. But right now, that’s the deal going on. I was just saying, Emilia, once we create kind of a baseline cash flow plan, because again, retirement’s all about cash flow, then we want to start stress testing it because we know things are going to happen. And this is especially important for married couples. If one person dies, how is the surviving spouse going to be? Are they going to be okay? The other thing I find is that in many relationships, there’s usually one nerd that kind of … Like with my wife and, I’m the nerd with the big ears with all the spreadsheets, and she’s always making fun of me. And she’s the artist.

 And so the good news is, we make a really good team. But when it comes to the financial side of our lives, if something happens to me, she needs people that can come around her to make sure she’d making really good decisions going forward because that’s just not her strength. That’s not where she likes to spend her time or her energy. She doesn’t want to research it and understand it. She needs somebody that can help her. And I find that’s the case in a lot of couples.

Emilia: Very true. I hear that a lot too when I talk to clients that are just getting information from me. And they’re like, “I want my wife to be taken care of.” It’s the same in my household. My husband’s the one that … I mean, we’re both aware of where we work together. But he’s the one that does the research and sits me down. And he’s like, “I want you to watch this and learn this.” And it’s great when you have that support. Even the financial planning is the big part.

Jason: You know, I’ve been a cash and envelope budgeting guy for a long time now. But recently, I’ve been experimenting with using prepaid debit cards for our cash. Instead of putting cash in these different envelopes, I’m putting prepaid debit cards, and then just funding them every month. And there’s something things I really like about using these prepaid debit cards. And I get so excited about these kinds of things. And I told my wife, I’ve got a prepaid debit card for her that’s her spending cash, one that’s her gas money, and one that’s for groceries. And I think it’s the coolest thing. But she kind of rolls her eyes. She’s like, “Oh my goodness. What are we doing now?”

Emilia: Why do I need so many cards?

Jason: We still keep them in the envelopes and just pull them out when we need them.

Emilia: Well, that’s good. It’s organized. Yeah.

Jason: Yeah. And then that way, we don’t have all that extra cash laying around like we did with the old fashioned cash and envelopes. It just makes it a little bit cleaner to not have to take money back out of your wallet and put it back in the envelope. I might do a course on how I’m doing that once I make sure I’ve got all the bugs worked out. But I’m enjoying it, and I’m using the retirement budget calculator to help me keep it all straight, so I’ll teach people how we’re doing this.

 But anyway, making sure that we have a plan for a spouse if anything happens and just making sure that there’s going to be enough income to support that spouse. Sometimes people get sick. And boy I’ll tell you, as a firm that works with a lot of retirees, this just feels like we get hit with this a lot. And you’ve got to remember that you can have all the money in the world, but soon as you lose your health or your best friend, you may not want to travel anymore. You may not have the ability to travel anymore, so it’s really important that we try to think about planning while you have your health and you have some of these things because it changes instantly. We have several people just in the last couple of weeks have experienced a loss of a loved one or a massive stroke. And so we have to understand how the financial plan would work if one of those things would happen. Is that going to significantly disrupt a financial plan?

 We want to stress test against sequence of returns. We know that the stock market doesn’t just go straight up. It feels like that for the last couple of years. We’re starting to see some volatility back here in 2018. But we know that’s not the way it normally works. Usually, the market goes up and down. And we just want to understand how those swings, those shifts in markets, can impact people’s withdrawal strategy. So we stress test against it. We create a cash flow plan, and then we stress test against these different scenarios.

 We want to understand investment risks. A lot of people are using mutual funds and ETFs and stocks and bonds to create these, and sometimes cash and mutual funds and annuities and hedge funds and limited partnerships and real estate investment. I mean, the list goes on and on for all the different financial tools people are using. But what we want to do is, we want to take and stress test their investment portfolio and say, “Based on the way that you have things structured, if we were to see these different economic scenarios play out, how might your investment portfolio hold up? Are you taking the appropriate amount of risk for what you’re comfortable with? Or as you’re getting ready to make this transition into retirement, is it too much risk? How much do you need to have in a more secure preservation place? And how much can you afford to have in a risk standpoint?” Those are the kinds of things we need to dig into.

 We want to understand fees, so fees and taxes. Those are two areas that people have some influence over, Emilia, so we want to understand how much they’re paying in fees. And if we can reduce that fee structure, that usually means more money in people’s pockets, so keep their fees low and understand if there’s any tax planning that needs to take place. Somebody once said to me that a very small hinge swings a big door. And so sometimes it’s little adjustments, little tweaks that can make a big difference in how much money people are paying in taxes.

 I’ll never forget one year I was meeting with gentleman who had a lot of interest income hitting his tax return. He wasn’t spending all of the income. He was just reinvesting it. But all of that interest income, at the time he had a bunch of CDs, was causing him to pay a lot more money in taxes, not just because of the interest income, but all the interest income was causing more of his social security income to become taxable. And it just kind of filtered all the way through his tax return. And so sometimes making little adjustments to those things can change your whole tax picture, so it’s important that we’re thinking about taxes.

 The other one is gifting. For some of the people that we work with, they’ll say, “Jason, we’re not trying to leave something specifically to the kids. It’s important, and we’d like for them to get something. But the number one concern is, we just want to make sure we’re provided for. And then if there’s anything left, it goes to the kids.” Now some people we meet with, it’s very important that they leave something, and they have a specific dollar amount in mind. And it’s okay to, so that’s okay too. We just want to be thinking about the plan and how we’re going to accomplish that and what we need to be doing to get that money to them the most efficient way possible. Woo. That was a lot of stuff.

Emilia: There you go. I think everything you went through, it gives you peace of mind. I think everything you’ve covered, it’s like that plan is going to give our clients, our listeners, something to think about and make sure that they think: Hey, do I have all these? Have I hit all these points? I think it was great. It covered a lot.

Jason: And that’s why we’re going to do the webinar because some people can hear it and it clicks. Other people need to see it. So we’ll show them what this planning process looks like. And then if they want to hire us to help them create a plan or just give them a second opinion on what they’re doing, then they’ll know exactly what they’re hiring us to do for them. But Emilia, I just realized we’re already out of time, so until next week, this is Jason Parker and …

Emilia: Emilia.

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 investment decisions or other actions taken or made by you based on the information provided in this program. 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, and 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.