Planning for Uncertainty in Retirement
Key Points – Planning for Uncertainty in Retirement
- Controlling Your Financial Future
- A Morbid Reality with Financial Implications: Death Is a Part of Life
- One of Today’s Biggest Unknowns: The $3.5 Trillion Budget Plan
- Today’s Decisions and Actions Can Create Your Future
- 18 minute read | 28 minutes to listen
What do the $3.5 trillion budget plan, pandemic, unemployment issues, and life expectancy all have in common? There is a great deal of uncertainty across the board. In the quest for financial clarity and confidence, there’s no doubt that today’s decisions and actions can create your future. Dean Barber and Bud Kasper discuss how those decisions and actions are critical when it comes to planning for uncertainty in retirement.
Video & Article: Retiring at Market Highs
Video & Article: Retiring with $1 Million
Download: Retirement Plan Checklist
Register for the Barber Financial Group Educational Series
Controlling Your Financial Future
Dean Barber: Thanks so much for joining us here on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper. All right, Bud. Here’s the deal. We’ve got a scenario out there and this will hit home with a lot of people. Whether it was due to the COVID pandemic or other circumstances, it is very difficult to control your own future when you’re beholden to the corporation that you work for.
We have looked at the studies of people who are planning for their retirement and have ideal date in mind. Let’s say that you’re going to retire in 10 years, so December 1, 2032, is your date. People set that up and they make plans for it, but so many of them don’t get to retire on their own terms. So many people get disrupted by downsizing, layoffs, and all kinds of things that can happen at work.
How Can You Plan for Uncertainty in Retirement?
People always talk to us about how they can plan for uncertainty in retirement. I think that the uncertainty that you have during your working career is as great, and in some cases, maybe greater. You and I both know, Bud, that we can create our own future by the decisions and the actions we take today. That’s true every day. In retirement, you’re basically saying, “I’m in charge now. I can predict my future and plan for the uncertainty in retirement.”
Let’s review what you can and can’t control, and how it impacts your retirement.
Can you control inflation?
Can you control what tax rates are going to do?
Can you control how much you’re going to pay in taxes?
Can you control how you’ve predicted inflation into your future?
Can you control the markets?
Can you control interest rates?
Here’s the biggest question. Can you control how those things will be handled so that you can give yourself the highest probability of the proper outcome in the future? The answer is absolutely, unequivocally, yes.
Preparing for Corporate America’s Cruel Realities
Bud Kasper: You can if you’re ready to prepare for it and accept the consequences of what a full-fledged comprehensive financial plan can dig out. You’re so right. People are at the behest of the corporation because they can only put aside so much due to the government regulations with that. Some people would like to save more, but you can only put in X-amount of dollars every year to get the company match. That’s the whole mantra of 401(k) investing.
Dean Barber: If people knew what was coming down the road, they could plan for it. If your company said you weren’t going to get a raise for the next four years or reduced your compensation because of tough economic times, you will have some decisions to make. There are some things you may have to cut.
You might have some tradeoffs for the things you like to do versus the things you need to do. But in corporate America, it never happens that way. You could show up and suddenly be out due to a round of layoffs. That’s happening at Cerner in Kansas City. Did you see that a record 4.3 million people left their jobs?
Bud Kasper: I did.
Dean Barber: That was by choice, obviously, but why did they do that? They did it because there is a true talent shortage out there today. People are trying to predict their future by the decisions that they make today. They realize that there are other companies that are willing to pay them more than what that existing employer is willing to pay.
You’re in the Driver’s Seat
Bud Kasper: The reality is that many of the 4.3 million that left their jobs in August were in retail industries. When you think about that, are people really doing this? Are they sacrificing their future for some sort of semi-retirement before they’re even close to retirement? It sounds that way.
Dean Barber: I think people are waking up to that. I was having a conversation with my son just this last week. He’s almost 30 and has a very solid career. He’s into six figures and is doing extremely well. He has other companies coming to him saying that they notice what he’s doing. They notice that he’s made a name for himself in the industry he’s in and are trying to recruit him.
I think you have a lot of that going on out there right now. That’s a good thing. It can be good, but also challenging for businesses. I want to get off for that topic and go to the fact that everybody can predict their own future by their current decisions and actions. Planning for the uncertainty of your retirement is possible.
Specifically, for those of you within 10 years of retirement, you can create the retirement that you want. You’re in the driver’s seat. You’re in control, but it takes very careful planning and constant monitoring of that plan to make it work.
A Comprehensive Financial Plan Can Prevent Sacrifices
Bud Kasper: It’s a sacrifice. If you’re not willing to sacrifice in the years that you’re working, you’re going to sacrifice when you retire because you wouldn’t have saved enough money. You haven’t prepared for it. Sometimes we look at this one dimensionally. We only think about the return on our 401(k). There are so many other factors that go into retirement. If you’re not aware of those, you’re missing the boat.
Dean Barber: You made the word sacrifice part of the discussion. I think what you’re saying is the sacrifice of time to create the plan.
Bud Kasper: That and lifestyle.
Dean Barber: Maybe, but maybe not.
Bud Kasper: Yeah. Could be.
Dean Barber: It could be a psychological thing. Many people are already there or they’re closer than they thought to unnecessarily sacrificing today for what they think they need in the future. That comes with the lack of a financial plan.
As you’re thinking about your financial plan to eliminate uncertainty in retirement, there are a few videos and articles that we’d like you to check out. Along with our Retirement Plan Checklist, we have two videos, Retiring at Market Highs and Retiring with $1 Million, that will give you the education you need to plan for uncertainty in retirement.
A Morbid Reality with Financial Implications: Death Is a Part of Life
Bud, are you ready to create your future by the decisions and the actions that you take today?
Bud Kasper: I’ve been ready for the last half of my life, Dean.
Dean Barber: How do you know when the last half of your life started?
Bud Kasper: I don’t know. I knew you’d come up with something to try to trip me up.
Dean Barber: You bring up a good point though. If you knew when it was halftime and you’re halfway there, you’d make some different decisions. It’s very interesting. I don’t want to get morbid, but death is part of reality. When we talk about creating your future by the decisions and actions that you make today, our health is a big part of that.
The things that we do today—eating, exercising, etc.—will impact our longevity to a very large degree. You don’t have 100% control over that, but you can control what you do today and take as good care of yourself as you possibly can
Financial Security for the Surviving Spouse
My ex sister-in-law happily remarried to a great guy. He was a 65-year-old veterinarian in a small town in Kansas who planned to sell his practice and retire in 2022. They had plans to do all these things once he retired. Three months ago, she was gone, and he was doing some work around the house. She came home and he was dead in the kitchen after a massive heart attack.
That is something that changed her life forever. It changed everything. My point is that when we are working, there are certain things that are beyond our control when it comes to our employers. In retirement, we must plan for the possibility of a premature death of a loved one.
If you plan for that and know what the consequences are going to be for the surviving spouse from a financial standpoint, suddenly the financial uncertainty that grips so many people in that type of an environment is gone. They can now grieve and do the things that you normally would do in that type of a situation. It doesn’t become a financial emergency where you wind up making poor decisions.
Projecting Life Expectancy and Planning Accordingly
Bud Kasper: I’m going to give you something that’ll make me infamous. I don’t care if it’s Mark Twain or Ben Franklin—death is a part of life. On a serious note, I’m glad you brought that up because I just met with a client of mine. He’s a surgeon who told me that he’s ready to start talking about retirement. He and his wife did everything right and are a great couple.
One of his friends became seriously ill and another one who died. He reflected on that and decided that at 70, he’s ready to retire. I reminded him that we’ve been working on his plan for several years and that he’s in a beautiful position at this time. In our comprehensive financial planning, it would be easy for us to have a short lifespan. All the numbers would look rosy.
Dean Barber: For sure, but that’s not the way we would do it, though.
Bud Kasper: No. We even go past their normal life expectancy. Let’s say 94 for a woman and 92 for a man. Is there a chance you can get there? Only your heredity can tell us that. But nonetheless, if we do that, we’re stressing the plan for a longer period. If you get a good score coming out of that length of time, you probably are going to be fine when you go through retirement.
Dean Barber: There’s no doubt about it. Many people have some fictitious number in mind about where they think they need to be from a dollars-saved standpoint. They don’t have any way to justify it because they’ve never done any planning for the uncertainties in retirement. They’ve been so focused on working and saving hard to build their nest egg. Without the comprehensive financial planning, you don’t know what that number is.
Taking Tax Planning and Social Security Claiming into Account
In the Retiring with $1 Million video, we go through four different scenarios. We look at people with the same amount of money and Social Security—in other words, the same earnings’ history—and they invest the money the same way: 60% total stock market, 40% total bond market.
What we wanted to do was take the investing discussion out of the equation of retirement planning. We showed how by applying tax planning and Social Security claiming techniques. Couples can have far more income than what they thought if they just follow what we would say is the traditional type of planning. I encourage people to watch that because you can make such a difference in the amount of money that you can spend monthly and annually for the rest of your life by doing good planning. That can have a far bigger impact than even the underlying investments. I don’t think people realize that.
Bud Kasper: They don’t. Unfortunately, not enough people explore it early in their lives so they can truly prepare. I was making a joke, of course, when I said that death is part of life, but …
Dean Barber: That was profound.
Uncomfortable, But Necessary Conversations
Bud Kasper: It is. The reality is you can plan for that and other uncertainties in retirement. What if the husband were to die at 75 and we stopped the plan from that perspective to see how the surviving spouse can handle retirement for the rest of her life. Let’s say she lives to be 95. Those are things people don’t like to talk about, but they need to be understood because there’s a plan around that as well.
Dean Barber: It’s interesting that you talk about that. I have some clients on the east coast who I recently talked to. He’s 77 and she’s 72. We had to make some decisions on where to take some income from next. We staggered out their income scenario so they could get periodic raises, increase the income to keep up with inflation, etc.
I asked them how their health has been and how they wanted to structure their plan. What we did was structure a plan with the most conservative option to predict income for her until she was 95.
That takes him to 100. With his family history, he’s probably not going to be there, so we had to take the more conservative approach. That’s the type of financial planning we do on a consistent basis in our Guided Retirement System™, whether it’s in person, on the phone, or in a virtual meeting. We’re looking out one, three, five, 10, 15 years, and trying to predict the future. We know we can create the future we want by the actions and the decisions that we make today. That’s how you can have so much more clarity in retirement than you ever can during your working years. During your working years, you’re basically at the mercy of your employer.
Finding the Truth of Your Retirement’s Future
Bud Kasper: With the length of time that you and I have been doing this, I think the reality is that people don’t know what reality is. So, we create it for them because otherwise they’re flying blind. How many people are retiring with no sense of what a plan looks like, feels like, and what it can demonstrate in the future? I love it from a professional perspective because it allows us to do some wonderful things for people and take some of the questions off the table.
Dean Barber: It’s a question of fear and risk. There are a lot of people that fear the unknown of the future. They fear the unknown of their health and potential long-term healthcare stays, the unknown of the political environment, the interest rate environment, the markets, etc. That often causes them to live well below their means. The real risk is the risk of not living the life that you could because you’re living in a state of fear. Our Guided Retirement System can remove that state of fear with an air of confidence because you can look forward with that right plan.
Bud Kasper: It’s really a no-risk opportunity for you to find out truth about your retirement future.
Dean Barber: That’s what you need to know. What is your future going to look like? Our Guided Retirement System doesn’t just take you to retirement, it takes you through retirement.
One of Today’s Biggest Unknowns: The $3.5 Trillion Budget Plan
Bud doesn’t know this yet, but I’m getting ready to give him a quiz. We’re going to find out how many of these questions Bud gets correct.
Bud Kasper: I love this. OK, shoot.
Dean Barber: The first question is, will the $3.5 trillion budget plan that is being proposed by the Democrats pass as it is?
Bud Kasper: No.
Dean Barber: If you know that much, then which parts of the $3.5 trillion budget plan will not be passed? What will be in the final plan, and how much will it be?
Bud Kasper: I think everybody knows the answer to that. The actual infrastructure needs to be there.
Dean Barber: That’s another plan though, Bud. I’m asking about the $3.5 trillion plan.
Bud Kasper: I know you are. I don’t know, what do you think?
Dean Barber: I have no idea. That’s the true statement. We don’t know. We don’t have any control because the votes have already been cast. The people that are going to make that decision are already in place. We have no chance to replace them before they make whatever decision they make.
It is a huge unknown as to how this impacts inflation, future taxes, our retirement accounts, our ability to do the things that we want to do in the future, and how the inflation may impact the markets. That is the biggest unknown that’s out there today.
With all that uncertainty, my question is how in the world can I tell people that they can create their own future by their current actions and decisions that you make today? How is that possible?
Holding on to History to Help with Planning for Uncertainty in Retirement
Bud Kasper: Well, for one thing, history. Even though they’re different, the things we’re experiencing are similar to things that have previously occurred. We can revisit those times to see what happened to financial plans and review necessary corrections to improve the potential outcome.
Dean Barber: You make a big assumption that people have a plan that they can go back and stress test through that timeframe.
Bud Kasper: That’s true. Yes.
Dean Barber: When that plan is created, one of the things that we do is assess everything in the future that we’re uncertain about. We can have some vague idea of how these things might turn out and start planning for that by stress testing the existing plan through those times that are similar to what we think the outcome’s going to be.
Then, when we know what the outcome’s going to be, we can stress test the plan for that outcome. That way we know what it is going to do to our client’s ability to continue to live the life they want to live and retire at their desired date. We can determine if tradeoffs will be necessary. That’s how you plan for uncertainty in retirement.
Bud Kasper: Yeah. It’s almost factoring in unknowns that can become known, and what impact they will have. Retirement is a serious business. One thing that worries us a lot is that people are being misinformed and misled into products rather than planning. Taking that comprehensive viewpoint still excites me today. I enjoy going through a person’s financial situation so that we can determine how it is going to work.
The Goldilocks Plan
Dean Barber: At the heart of it, that is the biggest fear for most people. They ask, “Am I going to be OK? Can I do the things that I want to do? Will my family be OK if something happens to me?” All of those are lingering what-if scenarios.
You don’t start with those what-if scenarios, though. You only get to those what-if scenarios after you build what I will call the Goldilocks plan. That’s the plan where everybody lives happily ever after. You have your long life expectancy, everybody stays healthy, and you get to live the life you want to lead. You build that plan as if it were a fairytale land. Sometimes those plans work out, but most of the time, something out of left field disrupts that plan.
Stressing the Importance of Stress Testing
That’s what our stress testing is all about. We stress test for the possibilities of higher inflation, higher taxes, Social Security benefits getting cut, etc. When we do that, our clients can see that we’ve planned for that uncertainty in their retirement. Then, they can do what they want to do and not worry about it.
Oftentimes when people have been clients for four, five, 10, 15 years, and we’re doing the review, they’re like, “I don’t worry about this stuff anymore. I can come in and talk with my CERTIFIED FINANCIAL PLANNER™ professional two to three times a year and discuss whatever the cadence I choose. I can do the things that I want to do for the reasons that are important to me.” That’s what retirement’s supposed to be, Bud.
Bud Kasper: Yeah. I’m making up a number here, but I would say 98% of the time, we’re planning for a couple. But guess what? One day, it’s not going to be a couple.
Dean Barber: Correct.
Bud Kasper: We need to plan for that as well. Or let’s say that mom can’t deal with life on her own anymore and you bring her in your house. I know you had that experience with your grandma. So, here’s another life experience. Should we plan for that? If that’s a probability, not a possibility, a probability, then yes, we should plan for that.
Making Sure Your Loved Ones Don’t Feel Like They’re a Burden
Dean Barber: When we do our prioritization exercise, most people will choose a card through that says they don’t want to be a burden to their family. What does that really mean? That person doesn’t want burden their family’s lifestyle during their last days. That could include that person moving into their family’s home or other needs. What that person is really saying is that they want to be independent for the rest of their life. They don’t want to be dependent ever again on anything or anyone.
That’s one of the biggest things when you get into your later years in retirement, is that potential loss of independence and how that impacts your loved ones. That’s a very big deal. We build that into the plan for a lot of people. What do we have to do to make sure that that wish is carried out?
Bud Kasper: My mother is 94. She lives in a retirement village and has her own apartment. But at 94, things happen. She has a little brain bleed from a fall and had some memory loss from that. Fortunately, most of it came back.
It’s important to me that I have communication with her. I talk to her almost every day to check with her and make sure her attitude is good and that she can function the way she wants to.
Dean Barber: You’re a good son. You’re teaching your children what it’s really like to be a good son.
Bud Kasper: Yeah. I’m going to need that myself someday.
Dean Barber: You will. When we talk to our listeners on America’s Wealth Management Show, we’re trying to provide them with that education.
Today’s Decisions and Actions Can Create Your Future
As I said earlier, you can create your own future by the decisions and actions that you take today. Life is full of uncertainties. Those uncertainties stem from trying to get back to a more normal life and hopefully coming out of the COVID-19 pandemic.
We also have supply chain, inflation, and employment issues, and don’t know what the future holds as far as taxes and Social Security. We’re at close to all-time highs in the market as far as valuations. That creates a big sense of uncertainty for most people in retirement or those thinking about retiring in the next five to 10 years.
We want to emphasize our Guided Retirement System can remove all concerns with planning for uncertainty in retirement. What’s more, you can replace it with clarity and confidence. We’re asking you questions to prepare the plan for your life no matter what the future brings because we stress test for it.
Pension Plans? Yes, Pension Plans
Bud Kasper: I had an interesting and highly unusual meeting just a few days ago. This couple had pensions. Five to 10 years ago, what were people talking about? Underfunded pension plans.
Then, along comes a 10-year bull market with a little bear market in between, but nonetheless, it’s been a great time. You haven’t heard as much about pensions, have you?
Dean Barber: Yeah, no. Not at all.
Bud Kasper: That’s because the market regained some of the need that was there to fund these into the future. What if we go into another bear market again? Are we going to hear that all over again? Are people going to say is, “I was going to do the pension, but I’m not sure if the money’s going to be there. Therefore, I think I should take responsibility for it.” Which is the best route for you to go?
Dean Barber: It depends on your personal situation. You and I both know that. You bring up a valid point with where markets are at today.
An Educational Series Preview: Financial Horror Stories
We have an educational series. The next educational series event is going to be on October 20. We’re going to talk about financial horror stories. There was an example on Reddit of this guy who made the huge mistake of trying to time the market back during The Great Recession.
He had gotten out of the market late 2007. The markets were very choppy, but they kind of waffled around up through mid 2008. At that point, nobody really knew what was going to happen. That was before Lehman Brothers and AIG and all that took place.
He goes all in back into the market in June 2008 and just got wiped out in that last part of 2008 and the first part of 2009.
Bud Kasper: He thought he could really make a killing.
Dean Barber: He though could do it, right? Don’t do that. Don’t think that you can control the market, especially those of you that are in retirement or are planning to retire soon.
Eliminating the Uncertainty of the Market
What do you do? You go back and look at history to understand the duration and depth of bear markets. You are going to ask your money to deliver income to you as opposed to working for your income. Create a strategy where the money is going to be there—it doesn’t make much but doesn’t move much. You can spend that for the next two, three, four years—whatever your comfort zone is or whatever the plan tells us you should have there.
Then, you layer on another strategy that might have a mix of some equities, bonds, and maybe some international stuff thrown in there. After that, you have another strategy that’s built for 10 years and beyond. That way, if you’re wrong and the markets do well, you can take the winnings off that last strategy and put them back into the strategy that you’re spending out of.
That eliminates that uncertainty of the market, but it’s not something you can guess at. There are very few people who can figure that out and do it on their own. For those of you that can, congratulations.
Most of you need the help of a CERTIFIED FINANCIAL PLANNER™ professional to understand asset and tax allocation, and how that income stream is going to mold with Social Security, etc. That’s what we do inside of our Guided Retirement System to help you plan for the uncertainties in retirement.
Don’t Make Other Peoples’ Mistakes Your Mistakes
Bud Kasper: So, mark your calendar for October 20 to hear Dean discuss financial horror stories. That doesn’t have any seasonality associated with it, does it?
Dean Barber: I don’t think there’s anything spooky that ever happens in October.
Bud Kasper: I would even put a hyphen next to financial horror stories and it would be learning from others’ mistakes. That’s great. That’s coming up October 20. How do people participate?
Dean Barber: Right here at deanbarber.com. All you’ve got to do is register for educational series. It’s biweekly. You’ll get an invitation, see the topic, and choose whether you want to view it or not. It’s all done virtually. We generally do it at 6 p.m. Hop on there, sit down at your computer, bring your spouse along, and get educated.
That’s what the educational series is all about. We’ve been doing that now for several months. We started it back when we couldn’t do the in-office educational series due to the pandemic. This has just taken off and it’s amazing.
We’ve got several hundred people that are signed up for the educational series right now. I encourage people to get out there and do that because the smarter you become, the less chance there is of you being taken advantage of by what I call financial salespeople.
Bud Kasper: Right. I’m glad you brought up the word education because as a CFP® professional myself, we need to continue our education every year. A certain number of hours must be accumulated for us to keep our designation.
Education with a Slice of Entertainment
Dean Barber: I don’t know what good it’s doing. You still don’t know the answer to this $3.5 trillion budget package. What’s going to be in it?
Bud Kasper: You don’t know what’s in it either, hotshot. But it is self-education from that perspective. We’ve always addressed this on America’s Wealth Management Show to keep people informed through factual information that we can provide. Then, you can use that information and determine what’s in your best interest. Hopefully the show is in your best interest.
Dean Barber: I also want to remind people that you can catch America’s Wealth Management Show anytime, anywhere. You can find it on your favorite podcast app. While you’re out there on that podcast app, I want you to check out our podcast, The Guided Retirement Show™, which is a separate podcast. It’s in a different format, has a lot deeper discussions, and features professionals across all kinds of industries.
Bud Kasper: I also think you’ll be entertained by it. It is educationally based. When we get in these difficult markets, this difficult economy, and midterms coming up, there are a lot of questions out there. We’re looking for answers, too.
Dean Barber: What you want is ask a question of somebody who is a professional in the industry that already knows your situation. The answers to the questions that you have are going to depend on your personal situation. They’re not general questions that can have a blanket answer for everybody.
Thanks for joining us here on America’s Wealth Management Show. Everybody, stay healthy and stay safe.
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