Go Into Retirement With Confidence

May 29, 2021 | Estate Planning, Financial Planning, Investing, Retirement, Tax

Many workers don’t know if they can retire. On this podcast, Karl explains how to go into retirement with confidence.

Hey, welcome to the podcast. Thank you for joining us very much on this long Memorial Day weekend. Happy Memorial Day to all of you in the next couple of days, depending on when you listen to this. Of course, we put out these podcasts early every Saturday morning. Yes, we don’t just work five days a week. So welcome to the podcast. This is Creating Richer Lives. My name is Karl Eggerss. Our telephone number is 210-526-0057, and our website is creatingricherlives.com. And of course, you can always look at all of our information on there. There’s a free resources page that has all of our blogs, podcasts, television interviews, radio interviews, any blog articles we write. It’s all going to be right there for you.

And if you’d like to discuss something specific to your situation, there’s a place right on our homepage at creatingricherlives.com, and we can have a 15 minute conversation about what’s going on in your life and see if there’s something we can help you with. Just a reminder, this show is brought to you by Covenant Lifestyle Legacy Philanthropy.

Well, this week was not much different than the past few weeks in terms of the market continues to kind of grind higher a little bit. We had some, of course, more economic news coming out, and some of it, you’re seeing some of these economic readings that are really, really high, the highest inflation numbers in the last 40, 50 years, some of these are saying, and we continue to push on our theme that we will see some of that taper off in the next few weeks and months. And I think the bond market is certainly telling you that, because of the fact that we haven’t seen interest rates rise. If these numbers are so scary, why aren’t interest rates going much, much higher?

One reason is because people don’t believe it’s going to continue. They think it’s temporary. And number two is that we still have a lot of bond buying by the government, going in there and buying bonds and suppressing interest rates. But we are literally at the same place in interest rates on a 10-year treasury that we were going all the way back to late February. So we really had that big spike up in January, February, March, and then it just leveled off from there. So we will see how this plays out over the next few weeks, and stay flexible. Again, we’re not trying to predict where things are going. It’s just our consensus that we believe that the economic data will start to soften a bit and, again, those crazy numbers that we’re seeing will start to slow down a bit.

But we are in a new inflationary period. It’s just what magnitude. And I think some people think it’s higher than perhaps what we think, but the market does continue to grind higher. And of course we did have the Standard and Poor’s 500 and the Dow Jones all up about one percent this week, and the volatility index, remember, that thing spiked up to about 30 over sometime in I think early May we saw that, and here we are back down into the mid-teens, very, very low level for volatility.

So if you’re somebody that is trading out there and you’re trying to get protection, it’s a cheap time to buy insurance or protection, if you wanted to do that. We’re a firm believer, more so than doing that, of having a proper asset allocation, and it sounds fairly, you know, you hear that all the time, well, just diversify, but there is a lot of truth in having a portfolio that you don’t have to move around, depending on the news, depending on the economic data, depending on what you think is going to happen next week or the following week. And so you build an allocation based on what your situation is, what’s going on in your life, and taking in consideration some of that data, but longer term. And you put that together and you make adjustments without making major moves. That’s how we like to do it.

But this week, we did see some of the things that kind of stood out a little bit. We saw a big bounce back for semiconductors. A lot of people thought, are those starting to roll over? They’ve been unbelievably strong, specifically in the tech sector in semiconductors. We have that chip shortage going on around the world, and they started to kind of roll over. But here they are, very close to an all time high. Once again, they were up four and a half percent this week, aerospace and defense up about four percent, the metals and mining up about four percent, oil itself up around four percent. Some of the home construction stocks, some of the airline stocks up about three and a half percent. So those were your strongest areas, and the pot stocks, by the way, I always love to mention those, up about seven percent. I was going to say flying high, but we probably shouldn’t do that. So the pot stocks did very well this week.

On the downside, again, leading the way down, percentage terms, the volatility index was down 17% this week, and utilities going down a little bit. Again, weak, not horribly weak, but down about a percent and a half. The healthcare sector down, low volatility, ETFs down, consumer staples down. So what you’re seeing this particular week was, again, a movement back into some of the growthier areas. And we saw some of that speculation come back. We saw some of it come back in the cryptos. Remember, we talked about the crypto crash on last week’s podcast. We saw a little bit of bounce back and they kind of sold off into the weekend, but look at some of these stocks, some of these meme stocks, the AMCs of the world that had, I mean, just had a huge week and actually reached as high as $36 on Friday, only to finish at $26. But I mean, just a few days ago, this was a $12 stock.

So we’re seeing these meme stocks had a pretty big week, GameStop in there, too. What you watch for in some of these, by the way, is buying exhaustion. And that’s what we saw. So they reach new highs, and then the selling comes in. The buyers are no more. Everybody that wanted in is in, and you see them go to a new high and then reverse course. And we saw a recent high for GameStop in the last few months, and then it reversed in the middle of the day and came back down and finished down 13% on the day. But we started to see some of that frothiness, some of that speculation come back in the market this week, and you see it in technology. You see it in really across the board in some of these meme stocks.

Is it as simple as saying, well, as long as interest rates stay low, people speculate? Potentially. That does have a bearing on that, because we certainly see a negative correlation with tech and speculative things with interest rates. Is that because they’re doing it on borrowed money? Perhaps, that may be the reason why. And so with interest rates kind of hanging in there and just being fairly benign lately, you’re not seeing a rotation out of that. So interesting to watch.

So again, not a huge, anything major this week, but we did see a little movement back into kind of these growthier technology, speculative areas, more so than the value areas this week, which may or may not be healthy, but it certainly shows you the persistence of this bull market, that just when things are looking to roll over, regardless of what they are, you tend to get some buy-in coming in, and buying the dip and money flowing in because we still have money flowing, don’t we, from the government, and we have money going into bonds. And so this is continuing to push higher. But we do have, again, pockets of excess that you should be concerned about.

And if you don’t know if your portfolio is vulnerable and really how much sensitivity you have to these things, this is where we can help. So if you want to reach out to Covenant, just go to creatingricherlives.com, reach out to us. We can take a look at your portfolio, do an analysis, and tell you where some of your holes are, some of your vulnerabilities, and maybe even where some of the opportunities lie that you may be missing. So that’s what we can do.

In terms of something I wanted to talk to you about this week, and I always like to talk to clients and have conversations with people and really let you guys know what’s going on and what I’m hearing from clients, this whole retirement transition from working to retirement still fascinates me. Retirement spending still fascinates me. And I honestly don’t think you can really feel totally comfortable in retirement if you don’t have a proper financial plan. And a lot of studies are out there right now that suggest that for whatever reason, a lot of people believe they aren’t eligible for a financial planner, they shouldn’t get one because you have to have tons and tons of money for a financial plan.

That is not the case. A financial plan, to me, is simply looking at your cash flows, what’s coming in, going out, looking at your assets, looking at your liabilities, figuring out what you want to do with those things, taking current law and potentially future law into consideration. And then the strategy begins of really defining how are we going to do this, the techniques of doing this, and making you feel comfortable. What I continue to see is people retire. We do a financial plan. The numbers look very, very good, because we’re using conservative numbers. We’re taking into consideration taxes.

We’re doing very specific strategies, and the numbers are great, but yet people don’t always feel comfortable because the transition from having income every two weeks, you’ve got this income coming in, this paycheck, to all of a sudden retiring, and maybe you even did it before Social Security. Maybe you’re not getting a pension. So you’re literally living off of your savings for a while. It’s an uncomfortable feeling, right? You’re used to adding money to the pile and now not only are you not adding to it, you’re actually taking from it. And it’s a scary feeling, especially during bear markets or sell-offs.

But here we are at highs, and I still see this sense of people worrying a little bit about this. And sometimes it’s not just one spouse, it could be both spouses. But that’s really, the point is, again, to not necessarily look at something stagnant and say, “Yes, this is what’s going to happen. You guys are good.” This is about an ongoing conversation about what do you want to do and figure out what that does mathematically to your portfolio, to your financial plan. And there are so many things, techniques, that can really optimize that. And it’s amazing how much money it actually adds to your portfolio by doing some of these techniques. And those can be Social Security claiming strategies. Those can be gifting now versus later, those can be Roth conversions. There’s so many things that can be done.

Again, that’s not a blanket recommendation for you. That is possibilities for each and every person individually, depending on their situation. You know, some people are married to somebody that’s quite a bit older, and so it’s do they take Medicare and I don’t? Do they take Social Security and I don’t? Do we do Roth conversions on my IRA, but not hers, or vice versa? Those are all things that cannot be simply answered in a blanket fashion by me just telling you. Those are things that have to happen with conversation.

And again, what is the ultimate goal? Usually the goals are take care of our lifestyle, and if we know that’s taken care of, we want to leave money to our kids and grandkids. That’s the legacy part. And there’s also the philanthropic part. We want to leave some to charity. Usually it’s done in that order, but it can be done out of order. Sometimes I’ve had clients where the kids are taken care of and they really want to give most of their assets to charity. Well, the question becomes, do you do it now or later? These are all different things that have to be extracted through conversations, and there’s techniques and strategies. So talking through that is how you do it, and then putting the math and the techniques around it.

Now, again, there’s a big psychological part here. I mean, one of the hardest transitions I always see, besides a sudden death, or even a non-sudden death, and the transition of a widow or widower and us helping them through that, and the docs and the retitling things, those are things that are, you know, that’s number one on the tough scale. Number two, though, is retirement, believe it or not. It sounds like, I can’t wait to retire. I go into retirement with a hundred percent confidence. Some people don’t go into it with a hundred percent confidence. Even when we’re behind them, saying go into it with a hundred percent confidence, they don’t, simply because it’s just, they’re savers. And now you’re saying, look, you can spend some of this money.

And that’s the whole second part of this is, well, how much can I spend, and do I need to throttle it back? And how much am I allowed to take out? That’s where experience from an advisor that works with tons and tons of clients in several situations can look at a situation and say, “Look, you can do the things that you want to do. I know your lifestyle. I know what you’re trying to accomplish. But let’s back it up with some math. Let’s back it up with all these different inputs.” It’s real easy to say, I know what I’ve got coming in, and I know what I’ve got going out. Yeah, but are you taking inflation into consideration? Are you taking taxes and credits into consideration, and what that looks like in the future, as well? That’s where really we have to rely on some software to help us do those things.

And that’s where we can run different analysis to really do the what if scenarios. What if you want to take that trip? Does that really affect the big picture in a negative manner? Is it enough to where you can’t retire because you want to do that? Those are the conversations that we have, and there’s a lot of psychology in this, and I will tell you, it’s never comfortable. All the clients that I’ve worked with over the years that have gone through this, none of them have regretted retiring. None of them have regretted that, with proper planning, but they’ve all gone through that transition of, okay, I’m going to do this, and now I don’t have earning capacity. And the older I get, my earning capacity goes down. Do I have enough? Do I have enough to do what I want to do?

And so if you’re struggling with that question, we can help. And it’s not necessarily us taking the magic wand and dinging you over the head and saying, “Now, do you feel better? Now you’re going to change.” No, people are the way they are. People are either built as savers, built as spenders. They’re analytical. Some like pictures, not words, all of that. That’s for us to figure out through conversations. But if you’re a saver, it’s not going to be easy for you, and you need to know that, but you need to rely on the expertise of someone to say, “You know what? You can do this. Here’s how this is going to go down.” And I can tell you, knock on wood, I still haven’t ever had a client run out of money.

And so, because naturally what happens is people do throttle their spending during tough times or what have you, and when things pop up, but what we want to do is really make sure that we’re taking into consideration some of these what if scenarios, that what if we did have a $30,000 emergency? Could we still go through that? One of the toughest scenarios was probably a year ago when somebody just retires and then COVID hits and the markets are really struggling, to say, oh my gosh, I don’t have this income anymore from my job. That’s a tough time. An easy time to retire would be in 2009, when the market’s already fallen. You retire, and then all of a sudden, the market goes through this huge, huge bull market after that. So you have to take some of that into consideration.

But again, there’s this song and dance, this ebb and flow, between how much can I spend, how much do I want to leave? And that’s why it’s an ongoing conversation. Whether that conversation is quarterly, whether it’s every six months, whether it’s once a year, it’s an ongoing conversation. It’s not a document. There’s no computer algorithm that’s going to tell you this. You can read all the articles you want, but this is somebody who knows your situation and has this ongoing conversation and cuts things off at the pass. Hey, I saw this new tax credit that applies to your situation that you weren’t aware of. There’s a new Social Security claiming strategy that affects you in particular. Only 10% of our clients are affected, and you’re one of them. Those are the conversations that we have ongoing.

The software is helpful. It keeps things out of the gutters. Kind of have this hit it down in the middle of the fairway. By the way, congratulations to Phil Mickelson. One for the old guys. So you hit it down the middle of the fairway, right? And that’s how you have to do it. Stay out of the ditches. That’s where the software comes into play. But the techniques, and getting surgical about it, that is where the experience comes into play.

But this is not an easy transition. So if you’re somebody sitting there today, going, all right, I’m 60 or 65 or 70, whatever your age is, and you’re contemplating retirement and you just don’t know, can I do it or not, to me, you have to have a plan. And it’s very easy for us to track spending now. It’s very easy for us to see what type of assets are going to have the most taxes and asset location and all these different things, to really figure out and really increase your chances of having a really successful retirement, where you’re comfortable and not thinking about all of this stuff. You don’t want to be thinking about this on Memorial Day, right? You want to be saying, I’m comfortable in retirement. This is great.

But what I see oftentimes is people that are so worried about it, they’re not living their full life. They’re not spending what they really want or should, if that’s their goal, because they just really, I’m just not comfortable. And so what ends up happening is they live a life that’s not really what they wanted. And then guess what happens? All that money’s left over to the next generation, which maybe that was part of their goal, but not primary. Primary was taking care of themselves and living a richer life with their cashflow, their lifestyle.

So I hope that’s a little helpful. I think that’s something that just, give yourself a little grace that when you’re about to retire, no matter even if you have that financial plan, even if it’s a hundred percent confidence, there’s still a little angst when you put that slip in and say, I am done, but I can tell you this, the other side of it, when you have somebody handling it for you, and you’re spending time with the grandkids and you’ve got your hobbies, and maybe you’re even doing some volunteer work, those are fun times. I’ve seen my clients. They are just having a ball in retirement and saying, I don’t know how I ever had time to work, because, you know, they fill their time up. They’re not sitting around just watching TV.

Hope that’s helpful. Again, if you’re in that situation, reach out to us. We’d be glad to help, 210-526-0057, or go to creatingricherlives.com. I hope this was helpful, guys. You guys have a great Memorial Day. Appreciate all the servicemen and women out there. Thank you very much. And we will see you back here next week on Creating Richer Lives, the podcast. Take care, everybody.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, including the investments and/or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment related content will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation, or prove successful.

Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing. Covenant is neither a law firm nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request, or at creatingricherlives.com.

 

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