RAIRA-Show-EDU-Y25E08

The transcript is about the retirement and IRA show, where hosts Jim Saulnier and Chris Stein share financial advice. They emphasize the importance of covering basic expenses throughout life, called minimum dignity floor expenses, with secure income like Social Security and pensions. They also discuss the need for asset reserves to cover unexpected expenses and planning for different scenarios, such as if one spouse passes away. The hosts aim to help listeners plan for a secure retirement. The retirement and IRA show represents the words and views of the show hosts exclusively and should not be construed as investment, legal or tax advice. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. All economic and performance information is historical in nature and is not indicative of any future results. Any indices mentioned on the show are unmanaged and cannot be invested indirectly. Diversification and asset allocation strategies do not assure profit or protect against loss. Never make any investment or financial decisions based on information offered on this show without first consulting your financial, legal or tax advisor. Financial planning services offered through Jim Saulnier and Associates, LLC, a registered investment advisor. This is the retirement and IRA show coming to you from beautiful northern Colorado. Join us as certified financial planner Jim Saulnier as well as Colorado State University finance instructor and certified financial planner Chris Stein teach you about IRAs, 401ks, annuities, social security, pension plans and estate planning in a fun and enjoyable show. Whether you are listening live in Colorado or streaming from their website or iTunes podcast, Jim and Chris want you to know that they're available to help you plan for your retirement. Just visit their website at jimhelps.com, that's jimhelps.com and click the meet the team button on the homepage. Now here's Jim and Chris with today's show. Well, hello and welcome to the retirement and IRA show, EDU edition. Today is going to be a solo show for me but it is going to be that show that I have promised you so many months ago that would finally roll around the next time Jim was unavailable to record. He's unavailable today and what I'm going to do today is give you the short form version of the description of our retirement planning process. We did the long form version last summer into maybe an early fall. It was like nine shows or something like that where we went in painstaking detail through our philosophy and how we do things and how you might consider doing it on your own if you're a do-it-yourselfer. We got into lots of detail there but it took nine shows or so to get through there. I promised I would give a concise version of that and that's what's going to happen today. In an effort to do that as concisely as possible, I will dive right in. Our basic philosophy is as follows. We call our approach to retirement planning the secure retirement income process. When you hear that, that's our official phrase that describes our approach. The philosophy is this. We believe that there are certain expenses that are most important to cover throughout your entire life because if you fail to cover these expenses, you will suffer or undermine your basic standard of living. We call these expenses your minimum dignity floor expenses. Generally they come in the categories of food, utilities, transportation, housing, and healthcare. We believe you're going to face those expenses all the way to the bitter end and that there is comfort in knowing as a retiree that those expenses have been addressed very directly to protect them or cover them no matter how long you live. The way we propose you consider covering those expenses in the long term is with what we call secure income. Secure income is an income source that will last as long as you do so we find that it's a perfect match or cover for those expenses that are going to last as long as you do. So we prefer to cover them that way in the long term. We propose that you cover any short term minimum dignity floor expenses and your lifelong desired or fun expenses with asset distributions that you create a reserve of assets to cover surprises which would include things like aging related expenses, long term care expenses, buffer reserve for maybe miscalculations or surprise events that come up. So as much as we might put forth effort in doing a projection or you might do it on your own, you're trying to tell the future and you're likely to be wrong and there's likely to be surprises. So we would propose that you have a reasonable sized buffer or reserve to take care of those things and then once you've done all of that, if there are any assets left over, you would want to add those assets to your fund budget, what we call the total dollars available for your fund budget, we refer to as your fund number. So our process is very much geared towards discovering what truly is left and available to spend on fun once your other priority items have been covered. So that's the basic philosophy. So let me dig in a little bit deeper without going into the weeds and turning it into a nine show exercise. But first, if you wanted to actually approach things the way we propose, our first step is we've got to get an estimate or projection of your minimum dignity floor expenses. So what you're going to need to consider there is a reasonable budget for food, utilities, transportation, housing and healthcare and then some people will have some other things that may not cleanly fall into one of those categories. Insurance premiums, for instance, would be part of the minimum dignity floor. Mortgage payments or other loan payments would be part of the minimum dignity floor. These people have some one-off elements, but mainly it's those five categories and anything else that you would consider an absolutely must cover expense that lasts for the rest of your life. Once we have that projection, now we know our first goal, which is to cover those expenses for life no matter how long we live. And so the first step is to judge how much existing secure income might we be able to rely upon. And by secure income, we're generally referring to social security, pension income if you have it, and income annuities. And the reason we rely on those is those are income sources that are guaranteed by a deep pocketed third party and are going to continue as long as you do no matter how long you live. So effectively what you've done is offload to that third party longevity risk or the risk of outliving your money if you live too long and still need to cover these expenses. So the second step is to estimate or optimize your secure income. So that's going to look at, gee, now that we know the goal, the minimum dignity floor size, when might it be best to turn on our social security, our pensions if you have flexibility there, those sorts of things. Once you've got your existing secure income sources identified, then you compare the two. You compare the minimum dignity floor expenses to that secure income and identify gaps. For a lot of people, there's going to be a gap immediately because in a lot of cases when you retire, there's a period of time before the secure income turns on, what we refer to as the delay period. So there might be years, maybe many years in some cases, where you're going to need to fund minimum dignity floor expenses prior to your secure income turning on or being on fully. So you're going to identify that. We call that the short term or the delay period minimum dignity floor needs. And then you're going to look long term and see if even after your secure income is turned on, even after your social security and pension are engaged, is there a shortage, maybe sometime in the future, and then calculate or estimate what you might need to set aside to cover that in order. And by cover that, what I mean is set aside enough money so that the older you, if they were to face this projected shortfall in their secure income ability to cover the minimum dignity floor, that they would have the financial resources available to buy more secure income, which usually comes in the form of purchasing an income annuity of some type. So you can see early on, all of our efforts in these first few steps are establishing the minimum dignity floor expenses, applying or estimating the secure income to see how much of those minimum dignity floor expenses are covered, and then estimating what gaps exist so you will need to use assets to fill in any shortfalls. So you're already kind of carving up some of your portfolio, if you will, saying these couple pieces are needed just to get this foundational coverage of our minimum dignity floor itself. Once you're done with that, we look at that for a couple, if there's two of you. If there is a couple, we always want to revisit all these same estimates and calculations for a survivor. What I mean by that is oftentimes the minimum dignity floor and the secure income situation change if one of you predeceases the other, and we want to make sure that we don't have any additional shortfalls or gaps in the projections that we need to deal with before we move on to the fund expenses. So we would look at what we call survivorship scenarios. So if you're doing this on your own, you're going to want to do a projection for the couple living to a ripe old age, look at your minimum dignity floor secure income for that scenario, and then also look at maybe five years into retirement or five years from today, if you're already retirement age, one of you passing away and seeing what's the reduction in secure income, what's the minimum dignity floor changes, is the shortfall that we were projecting for the couple, is it smaller or larger when one of us passes away at a young age. And we just want to make sure we've looked at kind of all three potential scenarios, right? The three scenarios are two of you alive or one or the other of you alive as a single survivor to make sure we've addressed minimum dignity floor needs in any of those three cases. Once you've got that done, essentially now you've carved off and most people will need to take some of their assets from their portfolio and dedicate them to covering the minimum dignity floor. Every once in a while, you'll have someone that has enough secure income that they have no need to apply assets to cover the minimum dignity floor, but that's rare unless you have some good-sized pensions that are turned on immediately upon retirement. But now we've got this foundation set where the minimum dignity floor is kind of dealt with with a plan that includes longevity protection via secure income being the main source of funding for the long-term minimum dignity floor needs. The next step then is to kind of judge viability of your overall vision for retirement by throwing in your fund expenses or desired expenses and see how much of your assets from the portfolio are needed for that, right? What we call in-house, we refer to this as your fund vision, your initial idea of what you want to do for fund and most people have some idea what they want to do for fund in retirement and so I think it's a useful exercise to estimate how much assets would be needed to fund the lifelong vision that you've got for the desired or fund expenses. And then from that point, you'll start to see how much of the portfolio is still left after A, protecting the minimum dignity floor that the secure income that you have doesn't automatically or naturally protect and B, how much is needed for the fund vision. Maybe there's still some left because remember what I said early on when I described the philosophy. We want you to also have reserves for surprises to include aging LTC expenses that might come up in the future which could potentially be fairly substantial. So let's assume at this point you still have some additional portfolio assets kind of unspoken for or what we call undeployed at this point and now you're going to have to make a judgment call to decide, does that reserve look reasonable for us to feel comfortable in retirement that that's enough to handle surprises and LTC expenses or things like this and this is where you'd start to include, you know, one thing that can protect you a bit from surprises in the world of LTC is if you have long-term care insurance, a lot of people don't have that so they're going to have to rely solely on the reserves for this kind of thing. Maybe there's illiquid assets not part of the portfolio we could consider part of a reserve like home equity and things like this come into the discussion to essentially, you know, try to answer the question, is there enough reserve left over, you know, there are enough undeployed assets in the portfolio for us to still feel comfortable we have a robust plan and hopefully you'll find that the leftover assets at this point, the undeployed assets are actually bigger than what you feel you need for these reserves because it's at this point when you have this kind of leftover or excess reserve, one might call it, that you can bring that money, add it to your fund vision and establish what we have termed in our office the fund number. Your fund number truly is your kind of your initial fund vision plus any additional assets that are available once all of your reserves have been established and other obligations you might have or put on yourself like a guaranteed inheritance for your children or other goals you might want to assign a higher priority than fund but if you, you know, have gotten to an understanding that you have a reasonable reserve, you're feeling good about excess assets above that have really no other job in life other than to be added to your fund. So that adds to that fund vision establishing your overall fund number which you can feel free hopefully to spend as quickly or slowly as you want because it's purely discretionary dollars for discretionary expenses not needed for the other priority items like the minimum dignity floor, like the guaranteed inheritance, like the aging reserves, things like that have already kind of been dealt with separately. But we do have to admit at this point that, you know, I kind of described the best case scenario which is once you look at the undeployed assets and judge the reserves that you actually have excess, more reserves than you feel you truly need to feel comfortable. What if you don't have enough? What if the reserves aren't enough or what if the reserve is non-existent at this point? That's really where you start to have to discuss, you know, as a couple or within yourself if you're alone, is my fund vision too big? Do I need to dial that back, freeing up some assets for reserves or should I look at fundamental changes to the plan like working a little bit longer or moving to a less expensive place or some of the things that could change the fundamentals of the plan and free up some more dollars that right now don't look to be available enough to provide you with a comfortable, robust plan because the reserves aren't large enough or maybe even non-existent. So it's kind of here where you've got some, you start to really reveal the path of your plan if it's, if you've got plenty, hopefully we're now adding to your fund number, we're adding, you know, excess reserves over to your fund that you can run out and spend during your go-go period, the early years of retirement. Sometimes there's not enough and that takes some conversations in the mirror or with your spouse over the kitchen table. So once we've laid this all out, if you've followed along so far, we've kind of identified pools of money with different jobs. We've got the money we need for short-term minimum dignity floor coverage, maybe during that delay period. We've got a set-aside of money for future minimum dignity floor needs to purchase additional secure income if needed later on. We've got early fund spending that might be needed, which is usually the heavy spending years. We've got an estimate for fund later on in life. We've got reserves for emergencies, other surprises or LTC expenses. The reason why we've labeled these and kind of segregated them is this now helps to inform us on how we should position or allocate our portfolio because as we always say on the show, let what you need the money to do for you and when determine how you hold the money or invest the money. That really gets to this concept that we internally, that Jim, of course, came up with the label asset positioning. We want you to segregate, it's probably as good a word as anything, dollars in the portfolio and invest them properly based on when you need the money and what it is needed for. Those are the two things that really kind of we believe drive how dollars are invested or held. Money that's needed in the short term for minimum dignity floor and the delay and some of the early fund spending really doesn't have much risk capacity. You need to have access to it readily so it needs to be quite liquid and it really has no capacity to go down in value. You just have no time to recover because you're going to be spending it soon. Certain dollars, you're going to place either in something as simple as cash or cash like holdings or at least principal protection which protects it from going down. Other portions of the portfolio, other positions are reasonably only needed way down the road and for maybe something discretionary so there's a lot of risk capacity there. You'd invest those dollars differently and the whole goal with this is to make sure you're comfortable through retirement. Our approach is geared very much towards addressing the financial needs that you've got but also the emotional issues that come up with spending your own money in retirement and we find a lot of people freak out when say their portfolio drops due to market volatility and then they decide to delay spending that they otherwise would have done. The best remedy we found to protect against that is to have dollars available for near-term spending that are separated from that kind of volatility. So that's what I mean by letting your needs, the jobs you've assigned to these different pools of money determine how you position them in your portfolio. And then finally, there's other issues of course that I didn't discuss that are all part of a retirement plan. What I've walked you through is kind of the heart and soul of the secure retirement income process but there's kind of auxiliary issues which are quite important so worthy of being addressed, taxes and tax strategies. So income taxes, you don't want to pay more than you have to. You want to make sure that there's no looming tax nightmare coming your way that you might want to address and you should investigate tax strategies either on your own or with some help that focus on your priorities and things that you're most worried about in your tax life. Estate planning can be a big driver for a lot of people. Everyone should have the type of estate planning that helps make sure decisions can be made for you with regard to your health and your finances if something were to happen to you, that assets will go where they're supposed to go, that if assets are at risk for a variety of reasons, are there protections in place for those assets? Those types of questions come up and a talented estate planning attorney can assist you with making sure that your estate plan is up to spec. More specific things in the estate planning world, if you have got a dependent child or a special needs child that will require financial support when you're gone, there's specialized types of estate planning that would go along with that, you'll have to deal with those types of issues and some of those issues may very well impact some of the steps that I mentioned earlier. I didn't call them out at the time because not everybody faces those but some of these auxiliary issues are so important and impactful that they are going to influence the size of your minimum utility floor and what your reserves are available to do and what dollars are available for you to spend versus withholding for some other purpose. Gifting is a big thing for a lot of people. If the reserves are large enough, many people don't add it to their fund vision, they realize they can gift either to a charity or family members during life or if they're not comfortable doing it during life, they can create a plan or strategy for the gifts to happen via some type of inheritance or charitable bequest at their passing and there's a variety of ways to deal with those types of things. So that's just a sample of some of the auxiliary issues that come up that you might want to get into once the fundamentals of the approach or process have been addressed. And that in a nutshell is pretty much it, our approach to how we deal with retirement planning cases. I know there's a lot of you out there who do some version of what we do on your own. This description is really to help those understand how we do it to see if you wanted to embrace that philosophy, either doing it on your own or with professional help from us or others. The devils in the details, of course, there's a lot of detail that I left out, but that was intentional. We went into all the gory details in our multiple part series, so if you hadn't listened to those and were interested in getting into those gory details, if you go back and look at our shows back in the June-July of 2024 timeframe, they're all labeled. If you go to our website, you can search through them at theretirementandirashow.com. I know a lot of you listen to the podcast via various podcast services, but there is a dedicated website for the show that has an archive of all of our past shows and you can pretty easily find them in there. But to recap the steps real quick before I sign off here on what appears to be a much shorter show, I got through this even faster than I thought I would, but the steps would be this, you're going to estimate your minimum dignity floor, you're going to then estimate and optimize your secure income that you have right now, any shortages, then you're going to dedicate assets to cover up any difference between your existing secure income and your minimum dignity floor, both in the short term and the long term. You're going to review that minimum dignity floor and secure income situation for both a couple and survivors. If there's two of you, you want to look at both the two of you and one or the other of you as a single survivor to make sure that all three scenarios are prepared for. You're then going to estimate your fund vision, what assets are needed to do all the extra fund things that right now you believe you want to do in retirement. Determine if there's then any assets left over that could be dedicated for reserves to cover surprises, misprojections, underestimating inflation, surprise expenses that come up, those types of things to include aging and long term care expenses. If you have plenty of reserves and you feel there's excess, now you've got excess that you could add to your fund vision, creating your new fund number that you can then allocate however you'd like. We would encourage you to do it, you know, more heavily in the go-go period, those early years of retirement. If you're short on reserves, you're going to have to do some thinking about what you might want to cut or adjust or just, you know, accept the fact that you are not prepared for surprises that come up. Some people go ahead and I didn't talk about that before, but some people go ahead and forge ahead knowing that it's kind of tight and if something goes wrong, they might have some trouble, but they're going to just take the adage of dealing with it if it comes up. That happens sometimes. I think most people are more comfortable if they have a more formal reserve or, you know, preparedness for surprises that might come up. Then use all those dedicated dollars you've now identified of when you're going to use them and for what purpose to help you decide where you want to put your assets, how you want to hold them or position those assets. And then also look at all the other auxiliary issues that you might have, tax strategies, estate planning, gifting, charities, other, you know, family issues, other things that might come up that you might want to build into your overall plan. And then you're going to monitor and update as needed over time. There can be a lot of chaos early on in retirement and by chaos I just simply mean a lot of new decisions that come up and transitionary periods and moving off of One Health insurance, going on to Medicare and all these, you know, yearly decisions that happen throughout your 60s usually. Once you get deeper into your 70s, most people end up in kind of a steady state where most of the decisions in retirement have been made and you've got your plan in place and things are deployed and you're just kind of monitoring and tweaking over time. But most people need to be fairly hands-on and watching pretty closely in the under 70 years old phase because there's just a lot of things going on in that period. Some people will get through that period a little faster than others, but monitoring the situation and updating as needed is always a prudent thing to do whether you're doing it yourself or having others help you. So that, those of you who are waiting for it, that's it in a nutshell. If you think I left anything out that I need to address in a follow-up show, certainly let me know. Those of you who walk to the show or exercise to the show, think of this as a taper day. Not a whole lot going on. The shows can only be, well, we're not even approaching half an hour here. But I think I accomplished what I wanted to do, which is get everything nice and tight, a little compact package. Appreciate you listening. Let me know if you've got questions. You can send those emails directly to me or to Jim. Jim's email is jim at jimhelps.com. Mine is chris at jimhelps.com. And if you've got questions you'd like to submit for a future Q&A show, please do that. Send those directly to Jim. He's the gatherer of questions. Put in the subject line, there's a question for the podcast and maybe a word or two about the subject. And everyone else, take care. I'm sure next week we'll have a more normal length show. But hopefully you can take this extra time here to ponder your own retirement. So take care, everyone. We'll be back with you next week with a brand new show. You have listened to Jim on the radio, read his quotes in the media, and enjoyed his banter on iTunes. But even now you may wonder what sets Jim Saulnier and Associates apart from other financial planning companies. The answer is quite simple. Jim's diverse team of professionals specializes in retirement planning. They form a lifelong relationship with you and measure their success not through product sales but through the security and prosperity you may achieve in your retirement. Jim's entire team shares his unwavering commitment to placing their clients' best interests first while offering their services at fair prices with full disclosures. The professionals at Jim Saulnier and Associates are available to assist you with your retirement planning needs. Visit jimhelp.com to schedule your complimentary coffee and a second opinion meeting. That's jimhelps.com or call 970-530-0556. The Retirement Denier Ratio represents the words and views of the show hosts exclusively and should not be construed as investment, legal, or tax advice. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. All economic and performance information is historical in nature and is not indicative of any future results. Any indices mentioned on the show are unmanaged and cannot be invested indirectly. Diversification and asset allocation strategies do not assure profit or protect against loss. Never make any investment or financial decisions based on information offered on this show without first consulting your financial, legal, or tax advisor. Financial Planning Service is offered through Jim Saulnier and Associates LLC, a registered investment advisor.