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Whenever you think of retirement, there’s a nagging question floating around in your head: 

Will I have enough money for retirement? Or will I run out? 

Nobody wants to run out of money and have to either leech off their family members or get a soul-sucking part-time job. But being ultra conservative with your money doesn’t always help. 

In this episode, I reveal 2 key strategies that prevent you from bankrupting your portfolio in retirement. Listen now to enjoy your retirement years.  

Show Highlights Include:

  • 2 ways to figure out today if you’ll run out of money in retirement (even if retirement is decades away) (1:47) 
  • Why following your passion is a recipe for burnout, depression, and an empty bank account (and how to prevent this by following your purpose instead) (5:41) 
  • The weird “Financial Therapy” method for preventing yourself from running out of money in retirement (11:55) 
  • The insidious “Kardashian Effect” trap that gnaws away at your bank account and portfolio with nothing to show for it (17:03) 
  • How the “wealth whispers” mindset tweak makes you the wealthiest person in your neighborhood (17:26) 

To schedule your complimentary retirement track review, head to https://onecapitalmanagement.com. You can also call us at 805-410-5454 or text the word ‘TRACK’ and we’ll reach out to you.

Read Full Transcript

Welcome to Make Your Money Matter, the show that aims to change the way we think about financial advice so you can make better financial decisions. Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1,500 clients nationwide, with over $2.5 billion in assets. They are a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now, here's your host, Brad Barrett.

Welcome to Make Your Money Matter, the show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett. And it's my goal to help distill the best ideas when it comes to your finances so you can make more confident money moves. Here at One Capital Management, our mission is simple, to help our clients and you listeners take control of your finances and build the life you deserve. Friends, today the challenge is no longer the access to information, but rather it's finding the right information, and more importantly, how that information applies to you. And that's my commitment to you here today on the Make your Money Matter podcast, because after all your money matters. And before we get started on this week's episode, to find out more about me or my team here at One Capital Management, you can go to our website at onecapitalmanagement.com or give us a call (805) 409-8150. And if you are on the website at onecapitalmanagement.com, you can click on the media tab and there you can download and subscribe to the Make Your Money Matter podcast. You can also download the podcast on any other platform that you would otherwise download a podcast, whether that's the apple app on your phone, Google podcast or Spotify, and leave us a comment. Let us know how we're doing, it's always good to get feedback. And as I say each and every week, if you like the show, share with someone you like, and if you don't like the show, I guess, share with someone you don't like.

But today we're gonna be talking about something that has a lot to do with the overall question. I think everyone has, has around planning or investing, or maybe even working with an advisor. And it's this almost nagging question of, do I have enough money? Will I run out of money, say in retirement, or in my I later years? And I wanna dissect this rather large subject matter and to a few very poignant things that I think everyone should consider when asking yourself this question. And the first and foremost one I believe is what you've heard me say many times before is your why. Why are you doing what you are doing with your money? Said differently, if you are spending less than you're bringing in, you are saving money, it's natural. The other part of this whole thing is, is there emotions your psychology around money? What money actually means to you?

Something I've studied for many years now and, and being a financial advisor for nearly 18 years. I see it first-hand every day and I'm so blessed to be able to talk about it now, more so than ever before on a platform such as this is largely around the psychologists, I just mentioned around money. How different people view money. By the way, there's no right or wrong answer here. And a lot of it boils down into two main areas and it's sort of this nature versus nurture environment, right? One of 'em is your DNA. Your God given just DNA around money. The other side of it is what we call circumstantial, something you've lived through good or bad. And right now, if you're listening to this, just think for a second, have I lived through something that has either shaped or changed the way I view money? It could be good, it could be bad. You could have grown up as a trust fund baby, and that's all great, nothing wrong with that. And you view money as just something that you've always had. You could also grown up where you're clipping food stamps, or maybe it's a bit of both. Maybe it's the rags to riches to rags or riches to rags to riches story. The up and down, we've all seen it. I was a part of that when I've been able to have food on the table, growing up and then seeing my parents split and seeing my dad's company basically go to nothing.

And just going through all of that shaped the way I viewed money. And by the way, it's why I'm talking to you today. It's why I've been in wealth management and financial advising since I can remember. Nearly 18 years now, my entire adult life and some. And I share that because it's important the way we look at money, when we ask ourselves a large question, which is, do I have enough? Or the subset of that question is will I run out of money in retirement? I have two kids, six and four, a boy, and a girl, Brooks and Kate, and just recently Veronica and I, my wife and I started talking about allowances and the difference between allowances and salaries. And one thing that we've shared in the Barrett household that I've wanted to instill in my kids around money, being a financial advisor myself, you're probably gonna roll your eyes when a financial advisor says this, but I want them to understand the difference between receiving it and earning it.

And there's a distinction between the two, right? One you're working for it, one get if you check off some stars just because you're hitting a task list. And there's a difference there because when they earn it, and if you look at the psychology of money around workforce, labor force and all these statistics that are out there, the earning just feels better. It's more profound. It makes you want to come back and it makes you want to accomplish the things and be successful in whatever the purpose is that God given in their life. And that's something also to find out from yourself. Don't just be a salmon, swimming upstream, trying to just make a bunch of money. You wanna do something that you love, that you're passionate about, and even more than passionate about you have purpose in it. The whole notion of follow your passion sometimes can be some of the worst advice anyone can give you. Now hear me out on this.

Society keeps telling us in order to be happy, we need to follow our passion, right? We've probably had a lot of advice and counsel in our life, whether from parents or uncles or aunts or grandparents or colleagues, maybe even a mentor saying you should really just follow your passion. Now, the definition of passion, if you look it up is a strong feeling of enthusiasm or excitement for something or about doing something, essentially, it's an emotion. Think about that. Passion is an emotion. And the one thing we know about emotions is that they're not controllable. Society keeps telling us in order to be happy, we need to follow our passion, but think about it differently. Follow your barely controllable emotion. Sounds kind of ridiculous when you say it that way. And I me this in a bad way, but passion is unpredictable and wears off. It's like motivation. Motivation to go work out or do something will end up wearing out. It's an emotion discipline, however is not.

And by the way, it's the reason why people in their thirties, typically thirties and forties end up feeling stuck or unfulfilled and really not closer to their goals. Truth is time for all of us, right is the most valuable thing we do. And it runs out very quickly. So instead of wasting your time by following your passion, the reality is what I mentioned is finding your purpose in what you're doing. It has a strong correlation to how you view money and the money that comes from following your purpose. It's not your hobby or what you like doing on the weekends. It's what you have inside of you to help other people. Your purpose gives you the exact plan on what you should do, who you should help and where you're ultimately going. It makes decisions easier and your path clear and is not relying on emotions. And those two really correlate passion and purpose or motivation and discipline correlate a lot with how we view money. And money is a tool that we receive by earning something that we were working for, is it not? So, when we talk about things like money and how we look at and asking ourselves a really big question of, do I have enough? Start there, start with the psychology of it first.

Now, one of the more persistent analogies I've heard in my career as a financial advisor is the story of climbing and descending Mount Everest. You've heard me share this on this podcast and those of my radio program have heard me share it there. And as the story goes, more climbers per on the way down in the mountain, then they do climbing up it. So, when we equate that to our client's wealth journey, the cold climbing of Mount Everest spending lots of time and effort to get to the summit of the peak of their financial wealth, maybe that's retirement, maybe that's financial freedom, whatever that looks like for you, that's your peak only to be left. But the question is, how am I gonna get down this mountain safely? Do I have enough to do it? So, while many analogies are tired and overdone, frankly, I bring this up quite often because this is actually not a bad one. The problem is this.

We as a financial industry and why I wanna show this in this podcast, us have done an awful job at guiding our clients down the mountain with the same degree in care that we provide on the way up and here's proof. Your working years of what I typically call your accumulation years. That's what you're working and saving and working, and saving and hopefully investing and finding the right advisor. And in those years, most investment firms are marketing to you in those years. They want to build the wealth for you. Look really good, doing it, right, help you have your money work for you versus you working for it. They'll say all those taglines and that's true and hopefully they're doing a decent job. But now you get to this point where all of a sudden, you've hit this crescendo, this peak, whether again, that's retirement for you, maybe that's, you know, being financially free, just having your debts paid off, whatever that is when you talk about that with your advisor. Typically what happens is the advisor looks at you with a blanks face and kind of goes, okay, we made it. This is what I think we should do going down. They're not an expert actually in the downhill part, which again, back to the analogy of the ascending and descending mad Everest tends to be the trickier part.

Now you've all heard of the 4% rule. You've heard me say this a lot on this program, this podcast. And we talk about a lot here One Capital Management, but we don't specifically talk about it as a 4% rule. Like most people talk about it. We discuss it rather as a spending rate, a spending of your liquid assets, understanding your distribution rate. Now this 4% rule was popularized in the mid-nineties by basically a bunch of historical study of withdrawal rates by this guy named William Bengen. I've mentioned this on the program before you can look back at previous podcasts and, and we can go through that. Although this rule has been regarded as relatively failsafe by many, many of the assumptions used in origination are somewhat incongruent with some minute assumptions. And by the way, this is the same philosophy I've typically held personally around the notion of you should be more conservative as you get older or your fixed income should relate to your age, you've heard that before. So, if you're 30, you should have 30% fixed income, or maybe you're 70 listening to this right now and you should be 70% fixed income. Those are all rules of thumb, building it out specifically and purposely for you, for your family, for you and your spouse and your kids and your grandkids is really what matters.

Now you can run things in our industry called Money Carlo analysis was basically showing you a bunch of different scenarios of best-case scenario, worst case area, what have you, and then realizing, okay, what's your probability of landing in the worst-case scenario, what's your probability of landing in the best-case scenario. And you can kind of go through all this and this task becomes a structure of withdrawals to stay within the acceptable probability of success range. So where am I going with this? Number one, it's important to understand your psychology of money. Something I talk with my clients heavily about, and I've heard from a lot of clients that a lot of our meetings tend to be more financial therapy than anything else. Not necessarily I'm going into the meeting thinking that, but it becomes that way organically because there's so much more round money than just the numeric numbers themselves. Wouldn't you agree?

So, when you think about that, number one, the psychology of money, how you view money, understanding what you're going for to help yourself ask that question of, do I have enough, or am I gonna always have enough money in retirement to number two, understanding, okay, let's put some pen to paper here. Let's figure out what the liquid assets you have and then figure out the two main components that go into that. Well, it's really three I should say. One is income, what you have in retirement or what you have when you are at your financial freedom peak, or that social security, maybe it's a small pension, maybe it's rental income, whatever that is understanding what's coming in. And then also, so what's going out the cash outflow. And the cash outflow should be bifurcated in two scenarios. One is living expenses, which is essentially feeding yourself, keeping the lights on, bathing yourself, having a insurances in place, like all the basic stuff, right? Gas, things like that food, right.

Then there's well, I call lifestyle expenses. This is more the qualitative side of things. This is the goals. I wanna buy a new truck, or I want to go see my grandkids twice a year or whatever those goals might be. Maybe it's a trip with your family or your spouse. Those tend to be lifestyle goals. You add those two up, you have your outflow. If your income in retirement or in your financial freedom period is if your income is less than your outflow, the difference between the two needs to come from somewhere, right? It's coming from your savings. So, this is where we put pen to paper. This is how we answer the question fundamentally, after we figure out the psychology of how you, you view money. We fundamentally answer that by saying, okay, that number that you need, let me give you an hypothetical example.

Let's say you have $20,000 a year coming in from maybe a small pension, a social security or some rental income or something like that. $20,000 a year. And your lifestyle and living expenses are $50 a year. That's what's gonna cost you to live. I'm making this up, it's a hypothetical, right? So, you have 20,000 coming in 50,000, going out. There's $30,000 that is needed, okay. We have what we need to pull. Now we need to focus on what our savings number is to pull that. As an example, let's say over the years, you've saved a million dollars and it's liquid and by liquid, I mean, it's either in a brokerage account, an IRA, a 401k, and it's accessible to you. Now there's some rules and requirements around that for the ERISA governed, qualified plan accounts I just mentioned things like 401k and IRA, but we're gonna blow past that for analogy for a second.

Let's say your entire liquidity is a million dollars. If you're pulling $30,000 a year on a million dollars, that's 3% that is under what most people assume to be a very sustainable distribution rate. Now I'm not saying that's right or wrong. What I am saying is that we need to discuss that as client and advisor to, to make sure you're involved in saying, okay, I'm gonna be polling 3%, which means I want to earn more than 3% to make sure I always have money to sustain for inflation, which is obviously around right now for, also for growth. And just making sure I have the same assets I went into retirement or being financially free with that I will in 20 or 25 right. Now, the other answer might come and say, okay, now that I see that, how do I make that number less? And by less you think about it as enumerator denominator conversation. If you increase the denominator, all other things, the same you'll decrease the output. So, if that million dollars went to let's say 1.5, guess what your distribution rate with the same $30,000 coming out just went from 3% to about 1.5%. Did it not? So, if you think about that, understanding once you figure out the psychology and the emotions of it, we start answering what you need.

This is why I preach so heavily on planning and forecasting, because all the though it may seem like we're making some assumptions. They're calculated number one, but number two, it's really important to map out and understand that track that you're going down, which by the way, is why we offer this retirement track review meeting for all of our clients, for all those that get referred to us, whether through the podcast or the radio program, because it matters when you really look at it. So, the two main components I wanted to come in today, focusing on when it comes to understanding the question, the big nagging question and concern that really to me, is the difference between living a life of abundance versus living a life of scarcity, answering that question matters. And quick aside on this subject, and I share this with my clients often, and again, doing this as long as I have, I wanna share this today around the first aspect that I brought up with around the psychology of money, and we can get trapped in this, keeping up with the Jones’s, or I call it the Kardashian effect sometimes where we wanna have what the other person has. And the reality is I'm pretty that most people just look rich and stunt on others rather than actually being wealthy and defining wealth for yourself is really important.

And understand this looking rich is loud, wealth is quiet, wealth whispers. Think about that. So, when you understand the psychology of money, how you view it, then actually sitting with someone and planning it out, looking down the road, bringing it back today's world and saying, got it. I'm clear. Now I know what I'm saving for and why I'm saving. Back to what I said, understanding why you are doing what you are doing with your money is the real start to the answer of the question is how much money do I need to be financially free.

I wanna thank you all for listening to the Make Your Money Matter. Remember before acting on anything discussed today, speak with a financial advisor and near you. And if you're not sure where to turn, you'd like our help visit us at onecapitalmanagement.com or give us a call (805) 409-8150. And until next week, remember Make Your Money Matter.

The information in this podcast is educational and general in nature and does not take into consideration the listeners' personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.

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