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Retirement is more than having a plan in place. And while you may be excited thinking about how you’ll spend your days, you have to ask the right questions today (or let your emotions make financial decisions in the future).

Your mind and body have to agree on retirement or it often leads to an unhappy one. 

In this episode, I discuss the five questions you should ask yourself prior to quitting your job and the answers that provide a happy and healthy retirement.

Show Highlights Include:

  • Why retirement is more than financial planning and how to tell if it’s time to leave the job yet. (2:05)
  • Why picking the best time to retire starts by ignoring your calendar. (5:50)
  • The book for living a purpose-driven retirement (no matter what you do). (8:55)
  • What your lifestyle and hobbies have to say about your retirement plan today (and why income doesn’t matter that much). (12:04)
  • Understanding how much money your retirement plan needs and how to protect it from unknown expenses in the future. (18:05)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in, to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. To find out more about me or my team here at ONE Fire and Police, you can go to our website at PensionAttention.com or give us a call at (805) 409-8150. I want to thank you for listening each week and tuning into Pension Attention, and please make sure to subscribe and leave a comment, it's always good to hear the feedback. You can go to our website again at PensionAttention.com, you can click on the media tab and there you can download and subscribe each week. You can also download and subscribe on any platform. You would normally get a podcast, whether it's Spotify, Google, or the iTunes app. And again, leave a comment, let us know what you think. I also want to start implementing something each week, but what I'm going to call question of the week. So, if you have a question, if you're listening to something or you're a client and we normally talk about subject matters that you think could be really good for me to help answer in a few minutes, from a high-level perspective here on the podcast, shoot me an email. You can shoot me an email at bbarrett. So bbarrett@onecapital.com. Shoot me an email and each week we're going to a question of the week and I'll help answer that as we go into the subject matters of that week. Again, give me an email at bbarrett@onecapital.com, whatever question you might have, and I'll help answer it here on the podcast. [02:03.8]

And today on Pension Attention, we're gonna be talking about the five questions we should at least ask, if not answer prior to retiring. And you know what they say about timing, right, it's everything. That's especially true, I think about retirement. And COVID-19 in particular has probably thrown for many people and I've seen it many well laid retirement plans into disarray. You know, maybe you plan to work a few more years, but now things are going around and you're like, maybe I don't want to retire right now. And you're not ready to call it quits maybe, or perhaps retirement was around the corner for you, but now you're worried about an economic downturn, so you plan to stay on the job longer. So clearly there's a lot that goes into deciding your optimal retirement data. For many of you listening right now will be optimal drop entry date. It does require careful analysis of your finances. Yes. And to be sure in that financial arena, that your are adequate to support you in retirement, a supplement to your pension, making sure your deferred comp plan and understanding your drop numbers, that those can supplement your pension. [03:09.2]

But there are also deeper and I would say nonfinancial considerations for us to consider as well. Because finances, they're only one component of a retirement plan, albeit a very important one. And usually, the biggest question I get asked when it comes to retirement, which is Brad, do I have enough money to retire? Can the assets I have saved get me through to retirement. And there are also in that same regard, emotional considerations as you move into the next stage of your life. You want to make sure that you're emotionally prepared for retirement. Because it can be hard, change can be hard. And I talk about this heavily in many of you know, how I got into working with first responders. My stepfather at the time worked for 35 years. a long time. You know, worked for 30 years, drop for five years. And the notion of him when he got on the job at like 18 years old, that was his entire life. So going into retirement, albeit seem like this utopia, I collect a great pension. I have dropped into for comp plan assets, but there's also purpose. There's understanding what at that time for him, a 58-year-old is going to be doing with the next 25 years of his life. [04:22.3]

So, in the past 15 years, I've really liked and enjoy discussing that with clients because, and I'm gonna use some nerd words for a second. It's not just the quantitative meaning the financial numbers, it's also the qualitative, the quality of life, what you want to be doing, finding that purpose, making sure you don't just go from working on a Friday to retired on a Monday. And from a guy who's never retired before me, I also happen to be in an industry where I see guys retiring basically every month at this point within my client base. So, I'm heavily in discussions with those that are in retirement, newly in retirement. In fact, this year as I record this in the first week of April, I've had three people this year alone retire. Each different as you are listening now who may be retiring soon, you're going to be unique as well. But the common denominators I'm seeing, which is where some of these questions I'm going to be bringing up today, come from isn't all just financial. It's also trying to figure out what it means to be retired, what it means to be on a fixed income, being your pension, going from two biweeklies to one monthly pension, albeit also lower than when you were working active duty because you have base pay and overtime. [05:33.0]

So, making sure that our minds, our logic in our bodies are also in tune with our emotional, other psyche within our stomachs. Making sure that those two go together because that's how you live a happy and healthy retirement. And real quickly, before we go into these questions that I've derived, I do recommend starting this conversation about retirement planning as soon as possible. So, if you're listening right now and you've got five or 10 years on and thinking, know what Brad, I got like 20 years before I consider that I know my captain is talking about it, but like that's way, way long time for me. It's not, there's a lot of moving parts and I do recommend starting it as soon as possible because understanding your target date, understanding how the lafpp.com the resources there, your pension, your accruals within the pension, also how your promotions fit into that, or a great way to proactively plan for your retirement as it pertains to income, meaning the financial side, as well as you're going to change. Those of you listening to may not have a family yet, or even a, a spouse yet that may change. So yes, you might be young and first on the job, but the reality is having a plan in place to also encompass a lot of that change along the way, keeps us on track and keeps us in this disciplined approach. [06:42.8]

So, with that, when I talk about planning and why it's important to have this disciplined approach, we need to ask ourselves these five questions as it pertains to when I can retire. Question number one, how much do I have left in the tank? So, retiring, if you're 50 years old for you and you're 25 years on you think, well, shoot, that's my first eligible. I can go and drop enter. What does it look like? I'm just going to do it. Well again, you want to sit back and make sure that that's working for you. Just because you're eligible. Doesn't mean it's a hard and fast rule that you need to retire. You may be listening to me right now, rocking the beach duties, you know, at 23s and 69s and just not getting much calls after midnight. Great. You may think, you know what, I'm actually okay with this shift. I'm joking here obviously, but the reality of that is, as you may find a job that you actually truly love. If you love your job, or even if you don't mind it, why retire? Just because the calendar says your retirement age, it doesn't mean that that's the right path for you on the other hand. Okay, if you're getting cranked multiple times after midnight, and can't find those slots and shifts where you want to go, then maybe it is time because ultimately with your guys's job and as I told about my, my experience with, with my family, with my stepdad, for example, his body ultimately told him that it was time to go. His mind loved the job and many of you listening and that's what I love about working with first responders is you have such a passion for what you do. Retiring is almost bittersweet, right? You love the comradery with the stations. It's a lot like our athletes that we serve as well within the locker room structure. There's a bitter sweet to it because you love what you do, but you also do a job that's very different than what I do. You use your body and your mind, right? You're putting yourselves in harm's way a lot of the times. You're getting up a lot after midnight for certain areas that you have to serve. So, understanding how your body and your mind fit into whether or not it's time to retire. And I think that original question is how much do I left in the tank is an important one to discuss. And back that up with also getting your planning in order and seeing where you are on the financial side of things, making sure that you choose when you want to retire versus your money choosing for you. [08:52.1]

And that leads us into question number two, what will I do in retirement? Now real quickly, you might be hearing that question and being like, ah, Brad, I've worked 30 years on this job. I'm not doing squat in retirement. And that's fine. That's your prerogative. I just wanted to give you my perspective now of working with over 400 families, many of whom have retired at this point and walking them through over the past 15 years, some of the common denominators when it comes to having something to do in retirement hits that old saying of a rolling stone, carries no moss. It provides us purpose. And I think us as human beings, when we get up in the morning, we need something to do, to keep us motivated, to keep us working within our realms and workings biblical. You've heard me say that before, and I believe in it, right? And going from one job and considering it a job into retirement, having something of purpose, whether it's a hobby. And that's why I typically recommend for many retirees when their third or fourth year in a drop, or maybe even right before drop entrance, you start doing some of the things like traveling or spending time more with family or friends and finding those things that you want to be doing and carry into retirement. And a lot of those actually come around with regards to projects. You're probably thinking of man, I got a whole bunch of projects I want to do that. I've neglected whether it's on the house or other things, and that's great, but at some point, you want to make sure that we have some longevity in some of these hobbies and purpose. And I think finding purpose is a really important aspect to having a happy, healthy retirement. If you ever want a really great book, something I recommend, it's actually called The Purpose Driven Life. It's a book by Rick Warren. It's a great book I feel and just an all aspects of life, but something that I've actually provided to a lot of clients who I feel would, might want that in retirement. Again, it's Purpose Driven Life, it's by Rick Warren. You can get it on Amazon or really anywhere. It's a great book to have. And something that lends into the question of what will I do in retirement? [10:43.8]

So going to question number three, and this one's going to be a little bit brief because it's going to be something that we need to view and build on a client-by-client basis. But the question is, how will I pay for healthcare? Now right away, the first thing we're going to talk about is the subsidy, the subsidy that happened in 2011, 2012, many of you remember this and going through whether or not you win for the subsidy or not how that plays into your overall healthcare picture when you retire. Because again, we have to cover that gap between the age you retire till 65 when Medicare kicks in. So, understanding that and building that question, I think it's really important one that a lot of times we need to make sure we take care of, and that's going to take in coordination with the union and the relief association, all these entities that are out there to make sure we build the benefits for you. And so, if you haven't talked about that without your advisor, make sure to bring that up, we'll go through that with clients. And a lot of times it's really more of an information gathering atmosphere and you kind of do that right around drop entrance. But again, it's a question I wanted to bring up and I want to list it in the five of, one of the more important questions to ask with regard to your retirement. [11:46.1]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? Go to www.pensionattention.com to find out how we can help. [12:02.2]

Now question number four and five, are definitely the more common questions and the ones that I'm probably assuming you're thinking about right now as listening to this podcast. We're gonna start with question number four, question number four is what are my current liabilities, my debts, and will those go away when I retire? As you can imagine, over 15 plus years now of working with first responders, I go through a lot of cashflows. And for those clients that are listening, we've done that when we build our block book for you. And if you haven't met with an advisor to build that plan, you can do that with us. You can give us a call at (805) 409-8150 or again, go on our website at PensionAttention.com and set some time cause we're going to build that for you. It's not a budget. I want to be very clear. It's honestly a budget. It's understanding what your outflow is, what your cash outflow is. Why is that important? Right to this question is what are my liabilities and what am I carrying into retirement from active duty? And again, we're going to go through the pay stubs with you guys, and there's gonna be a lot of things that are going to go away. [13:02.4]

Number one, your deferred compensation contributions are going to go away because you're no longer employed so, you're not going to be contributing there anymore. House dues, things like that will be going away. The reality of that though is, and I've said this a lot and I mean, it is somewhat of a joke, but it's also an interesting segue into a lot of conversations with my clients around the one way to alleviate boredom is spending money. So, when we retire, we have more time on our hands. I'm not saying you're gonna be bored. I'm just saying we're gonna have more time on our hands and we're going to be wanting to spend money. So, what we may think may be a reduction in our overhead by no longer contributing to house dues or the deferred compensation plan will make up for that somewhere else. I mean, shoot, even going to a movie, once those open back up, even going to a movie nowadays, you know, costs you 20, 30 bucks. So, expenses are still there, even though they may not be the same expenses you have, they're going to be other expenses. So, this plays into what we call our distribution rate. Understanding your distribution rate before you go into retirement is vital to the financial success of your retirement. I want to say that again, understanding and knowing your distribution rate before you retire is vitally important to understanding and making sure that your, your overall financial plan and retirement plan has success. [14:15.0]

Now, a distribution rate can also be called a withdrawal rate, something we call a sustainable spending rate in retirement. And just to be clear, a withdrawal rate is a number that provides context for the amount you're going to take out of your portfolio in a given year. It's expressed as a percentage and a simple way to determine that number real quickly is your outflows minus your inflows, divided by your assets. So quick example, you have $8,000 a month going out for your living expenses, maybe your mortgage, just your overall expenses within your household. And you have $6,000 a month coming in from pension net after taxes. So, we have a $2,000 need in retirement. That need $2,000 a month. times 12 annually is $24,000 a year. If you have, let's say a million dollars as an example, hypothetical here between deferred comp plan and drop $24,000 a year divided by a million dollars equals 2.4%. That would be considered in my opinion, a sustainable distribution. And there's averages out there in historical data around what is a sustainable withdrawal rate. The general notion is that somewhere around four and a half percent is a generally accepted sustainable withdrawal rate in retirement. [15:29.0]

Now, understanding that and what your number is, again, is vitally important before you retire. It is as important and I've said this many times on this podcast, and when you meet with me and we talk, you're going to hear me say this, okay. Your spending rate is as important as your rate of return. Everyone loves talking about your rate of return. I get it, it's sexy. It's fun. It's got growth to it, mate. Right? You're talking about the stage like, Oh man, I, I did 8% last year, 10% or whatever it is. And that's all fine and well, but understanding and retirement, retirement is about income. We're going from the accumulation phase, the phasic, many of you listening right now are in that, working in saving those working and saving years, believe it or not, it's actually easier than the retirement years. It doesn't seem like it at the time, because during your accumulation phase, you're working in saving years, you're starting a family maybe. You're buying your first house, maybe your second house, you're paying off that house, you're putting those kids through school, a lot's happening. And it's like, man, how am I doing this? The reality is though you have that job that is paying for those things. And you have hopefully a good manager and a good advisor with you to help you do it effectively and efficiently, right? But when you get into retirement, retirement being about income, you're now not necessarily working for your money, you're letting your money and having your money work for you. So, it's that whole notion of work smarter, not harder, but it's a shift in mindset, kind of goes back to the other question I mentioned before of the behavioral finance traits we talked about, about, you know, emotionally or having purpose in retirement. Am I ready to retire? Because one of the financial shifts is having your assets produce the income you need in retirement. Maybe not your overtime as you might be doing now. [17:10.8]

So, understanding your distribution rates and how that works is again, vitally important that withdrawal rate needs to be understood before you retire. And for many of my clients listening here, that's one of the first things that we discuss in our discovery meeting. And if you were to call us in and set a time with myself or one of my advisors in your first 45 minutes or hour of our discussion, you're going to be hearing about that from us. Understanding what your outflow is and your inflow, even if you've got 10 years on is important, because that's how we build a deferred compensation portfolio for you for the long haul to weather, the storms of volatility, to build your rate of return subject to what your need-based analysis is. Your needs-based analysis is what you need to distribute in retirement, your sustainable withdrawal rate. And knowing that is one of the most important things prior to retirement. [18:03.0]

And then that leads us into the fifth question. And again, presumably maybe it's not the most important question because I think all of these are important, but definitely one of the questions that gets asked the most is Brad, do I have enough money to retire? Now, again, as a financial advisor for nearly 20 years now, this is the question I get asked most often, as people are contemplating their retirement. And there are several questions wrapped up into this. And I'm gonna try to address a few of them, but this is actually a great catalyst into that call. That first meeting, if you have not met with an advisor to make sure, you know, at least with some planning around it, of how much you're going to need to retire. And on one hand, people want to know if their assets will support an income. Like I mentioned before, retirement being about income, an income stream, that's sufficient to fund their lifestyle pensions, obviously going to be a large part of that. But on the other hand, they also are asking the question of, and we're really not sure how much income they will need in retirement. The reason is largely is because they actually haven't answered question number four, which is what are my outflows of my liabilities and how much of that will be there in retirement? [19:15.6]

If you don't know how much you're going to spend, or where are you spending your time, it's hard to know how much money you will need. So, retirement full of let's say travel, or maybe it's that second property you want in Idaho or in Tahoe on the Nevada side, you probably know where I'm going with that, right? Those are all things that we needed to discuss beforehand. Making sure that we know what the outflow will be in coordination with your pension and that how's the fit into, again, the assets you're going to have, which right now is the deferred comp plan while you're working and saving and ultimately drop. There's also going to be some VC and SK time that'll be in there. But it's all really important as we build this plan and knowing how much money you're going to need in retirement, ultimately answers the question of, do I have enough money to retire? But I want to answer it from a high-level perspective here on the question of how much money do I need to retire or do I have enough money retire? And it has to do with your withdrawal rate, whatever that number is, if you have a rate of distribution that is at or below four and a half percent, I believe your answer is yes, you can retire. [20:22.0]

If you have a distribution rate that is maybe above that, we need to at least discuss it, understand how much of those outflows are going to be in retirement and some of those may be going away and then we have to discuss some of the things that may be added later. Let's say, for example, long-term care or care that we may need in our eighties, that we have to either insure or have our assets at that time pay for it. So, understanding your distribution rate, why put question number four, right before question number five is so important is because that's how you answer, do I have enough money to retire? It's a function of how much money you need to live, the lifestyle you want to live. And I've said this before, and I'll say it again. You will never hear me as an advisor, tell you how to live. My job is to arm you with the tools and the education and build up and empower you, if you will, to understand what your pension means to you in retirement, because sod has gone, okay. So, we understand basically drop into for compline, become your pool of sod in retirement and understanding its functionality and how those need to work together gets us that answer of do I have enough money to retire and whether the answer is yes or no. [21:29.3]

So, these questions, although there's five of them that I've boiled down over again, 15 plus years now of working with first responders of how much do I have left in the tank to what will I do in retirement? My purpose in retirement, you know, do I have enough money to retire? What are my debts and outflows included in that, as that other question I touched on, which is how am I going to pay for my healthcare between my mid-fifties and 65 and Medicare kicks in, these are all really important concepts to discuss now. Again, whether you have five or 10 years on, you may think it's far off, but believe it or not getting your planning in order now helps it's vital in fact, I would say to building that overall retirement plan that's successful. [22:06.8]

I hope you enjoy today's episode. And before acting on anything discussed here today, remember speak with a financial advisor near you about your specific situations, or again, if you'd like our help, give us a call (805) 409-8150. You can also go to our website at PensionAttention.com and set some time with myself or one of our advisors. Next week on Pension Attention, we're gonna be talking about significant dates in your life, how that pertains to your overall investing and retirement planning. I'm looking forward to it until then stay safe. [22:38.4]

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. [23:01.7]

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