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You might think you’ve got retirement planning all figured out. But some mistakes in planning for the future are more common (and costly) than others.

And knowing the number you want to retire at is one thing. Understanding it is another. 

In this episode, I discuss how to maximize the income you generate and how much you should save for a happy and healthy retirement.

Show Highlights Include:

  • How the world of advertising affects your retirement planning today. (1:28)
  • How to put a price tag on your most valuable retirement (without the fear of saving too little). (5:35)
  • The income philosophy for maximizing every penny and knowing how much income makes you happy. (15:15)
  • How to retire earlier than you thought possible (and with more money than you realize). (10:40)

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, in order 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 you can give us a call. You can call us at (805) 409-8150. I want to thank each of you for tuning in each week here to Pension Attention, and please make sure to subscribe and leave us a comment. It's always good to hear feedback. You can go to our website again at PensionAttention.com on the media tab, you can click subscribe, and again, you can actually download our podcasts on anywhere you download a podcast for any platform, whether it's Google, Spotify, SoundCloud, and on the iTunes app and you can leave us a comment there. [01:27.3]

You know, in the age of television and computers, the average person is bombarded with advertising. I'm sure many of you feel this way. I know I do. And according to Nielsen ratings, an average hour of TV contains more than 15 minutes of advertisements. So more than 25% essentially of your viewing time is spent watching commercials in the United States. As we probably all realize is the largest advertising market in the world. A couple of years ago, there was more than $200 billion spent on total advertising. About 40 of which 40% was spent on TV closely followed by digital advertising. Now advertising is essentially messaging, right? It's a form of communication designed to advance your position. It's it's quick, it's memorable and should inspire you to believe something, whether or not that's something is actually true. iIn Washington, DC, the federal trade commission, we know it as the FTC assumes the responsibility to protect consumers by ensuring that there is truth in advertising. Now I had to look this up as you all know me, kind of the nerd that I am and according to the FTCs website, and I , “when consumers see or hear an advertisement, whether it's on the internet, radio or television or anywhere else, federal law says that ad must be truthful, not misleading and when appropriate, backed by scientific evidence. The federal trade commission enforces these truths in advertising laws and applies the same standards, no matter where an ad appears in newspapers and magazines online, in the mail or on billboards or buses.” [02:58.3]

Well, that's pretty clear, nothing really ambiguous there, advertising must be truthful. So how is it that certain advertisements seem contradictory? And that's my message on this week's episode of Pension Attention. For example, and we all know this one, beer ads. They often convey the message that alcohol will enhance our social life. The law often use images of young people drinking beer at some type of upbeat, fun gathering, a party atmosphere, right? Everyone is smiling and chatting and of course they're drinking beer. So, what do you think has beer enhanced your social life? I know it gives us liquid courage here and there. And has that been your experience? Well, let's contrast that ad to another beer ad. Do you remember the famous super bowl ad showing the two guys at the grocery store? They went to the checkout, they checked out with two items, beer and toilet paper, but they only had enough money to buy one, so they chose the beer obviously. And when asked if they'd like their beer put in a paper, plastic bag, they gave the resounding answer paper. And of course, they need a receipt too. I don't know about you, but that's a smart move on my part. I'm definitely hanging out with those guys. [04:06.3]

Now, those two commercials are just one example of contradictory advertising messages. I'm sure you can think of many others, but there's one in particular that I'm thinking about the why I want to write this week's episode around. I was watching the masters, the golf tournament a couple of weeks ago. And there's this well-known investment company that runs a series commercials. I'm sure you've seen them. They ask retirees a question. What's your number? A simple, you know, concise question. What's your number? The ad is designed to convey the message that retirement can be reduced to a single savings goal. What's your number? And once you achieve that goal, voila, you can retire. So, what do you think is that what retirement boils down to a simple savings goal, a number that once achieved will allow you to stop working and retire? What's your number, maybe, maybe not. Now I've shared on this program or the past few months. And as I share in stations, when I'm able to go and physically be there that over the 15 years plus that I've worked with first responders, I usually get the resounding number in their mind, that's around a million dollars, right, between deferred comp plan or drop, this million-dollar number. [05:11.7]

And as I've said before, I'm not saying it's right or wrong, but it's putting it in context, the, how that's being used in your retirement. And I'll talk about that in a minute. Now in contradiction to that ad is another commercial that we've all probably seen and know about for many, many years now, the publisher's clearing house. Remember those? I know you've seen it. The announcer says, Hey, you can win $5,000 a week for your life and then someone you choose wins $5,000 a week for their life. And I'm sure after hearing that ad, you probably have said yourself, man, if I had $5,000 a week coming in for the rest of my life, I'd stopped working and retired today and do whatever it is, right? It's an effective ad. And based upon the publisher's clearinghouse ad, he'd probably have a bunch of coffee table full magazines. We've all been there. It's cool. But when you think about the two messages, they're very contradictory. The first claims that retirement is all about a pile of assets, right? Some number, the second says retirement is all about income. Now on a larger scale, it's the same debate that I've had many times over my career and something I talk about constantly here on our podcast, Pension Attention, and in our practice here as financial advisors at ONE Fire and Police about which might be a better retirement strategy. [06:27.0]

You know which commercial that I just mentioned, do you think, describe it the better retirement strategy, is it better to have a savings goal or an income goal for retirement? So, let's look at it this way. Why are some people afraid to enjoy retirement? You might be thinking, Brad, what are you talking about? Who's afraid to enjoy retirement. Well, some people are, they're worried of spending any money, any money at all in their retirement years. And it's because they're afraid of it running out of money. As I've shared before, the number one thing I talk about when I meet with new prospective clients, I don't care if you have five years job, or you got 25 years on the job, the concept of understanding that someday you will be taking from your money to supplement your life in retirement. That concept brings up these anxieties around, am I going to have enough? What is that number? What does that mean for me, Brad? And they're constantly afraid of depleting this retirement nest egg that they built either through spending too much or investment strategy, jeez, that you know, result in losses. So, they look at spending as the pleading their savings and they live in fear of losing money. [07:29.9]

Now I'm going to talk about this in a couple of weeks too. I wrote an episode and something I've used through my practice around the difference in retirement of abundance versus scarcity. So, tune in for that in a couple of weeks, that's a good one. But I want to talk about this right now in terms of living in an atmosphere of scarcity. Because I believe personally as an advisor and a human being is something I share with all of the 300 plus families we represent here at ONE Fire and Police between LA city fire and LA city police, that living in an atmosphere of scarcity will deny you of life's true riches. Think about it this way, how do you put a price tag on a retired couple, you and your wife finally taking the vacation that you've denied yourselves for decades during your working years, or put a price tag on the smile of your husband and wife when you have enough money, you feel comfortable with that and you're in retirement spending more time together. And by the way, let's put aside the jokes from the pension and the retirement dinners right around the whole half, the income twice, the husband that's all there. But the reality is there is a lot of time in life that we are going to be able to spend with that spouse. So how do you put a price tag on visiting your grandchildren or an airline ticket to go visit grandchildren? All these things come to play, that'll MasterCard, commercial, right, priceless. But those are headed components to understanding what money can do for you and how to relate to that. So that you have a healthy relationship and a retirement life emotionally of abundance and not scarcity. [08:52.6]

So obviously you can't, you can't put a tag on many of those things, I just mentioned. They're priceless. Some are, you know, generational memories, but if you live in an atmosphere of scarcity, you'll always be afraid to spend money, for fear, again, of depleting your retirement nest egg or running out of money too soon. I mean, geez, you think about what happened to happily ever after, right? So, when you hear a, an announcer on a TV commercial ask you and why I'm bringing this up as I was watching the golf tournament the other weekend, what's your number? You should ask, what are they really saying? [09:24.2]

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. [09:39.7]

Okay, real quick, let's break this down for a second. You know, saving more money rather than less money for retirement is a really good thing. In fact, it's a necessary thing. More savings is better than less savings, but most important of all is how much income those savings can generate? Retirement, I want you to hear this loud and clear, and I say this often. Retirement is about income. You've heard me say this before a withdrawal rate or withdrawal rate is as important as a rate of return. Understanding those two, the symbiotic relationship between the two is vital to the financial success of your overall retirement plan. Because once you understand the withdrawal rate, the income retirement being about income, it's like a permission slip to enjoy your life, a sustainable income that will fund your retirement lifestyle, allowing you to spend every penny of your monthly income on what you want to spend it on with the comfort of knowing that there'll be more income arriving next month. This is what we backstop it against your pension, that earned benefit that you've received for your 25, 30 years of work when you retire. [10:44.7]

And that's why for those of you listening right now that have heard that publisher's clearing house commercial, the one that focuses on income, your mind drifts into a, a dream state, right? A euphoric dream state. So, if retirement is all about income, it just makes sense to use distribution strategies is why talk about it so heavily in our practice here at ONE Fire and Police that maximize the income that's being generated from your retirement savings. But it's important understand that some strategies are better than others at maximizing income. And let me give you an example of this. And by the way, if you haven't sat with someone or don't have an advice that you have trust in and understanding what your sustainable distribution rate is, or you're spending as a percent of liquid assets, you can give us a call. That's what we're here to do. We specialize in working with first responders and their investment in retirement planning. You can call us at (805) 409-8150. You can also go to our website at PensionAttention.com and you can set some time with myself or one of our advisors to review your retirement track review meeting, to make sure you are on track for where you want to be and understanding what that number and that income can be generated when it comes to retirement to supplement your pension income. [11:51.9]

So, my example would be this. And again, this is hypothetical, but understand that this is where I'm driving the difference between assets, a pile of assets, if you will, the amount of savings you're going to have between deferred comp plan, drop you know VC and S K time, that'll come out around then versus understanding what that'll do for income. If I were to ask you, would you rather have a million dollars in your retirement nest egg between deferred component drop on the day you retire or $900,000? I mean, you're probably thinking Brad, that's a ridiculous question. Virtually everyone would answer a million dollars. And in essence, you're looking at things from a what's your number perspective. Remember that ad I mentioned earlier, and from that perspective, the bigger number always wins or at least that's what people think. Now, if I were to ask you a different question, one that looks at things from an income perspective. If I were to ask you, would you rather have a million dollars generating 3% retirement income, meaning $30,000 a year or $900,000 generating 4% retirement income, which equals $36,000 per year. Well, now I think many of you are probably thinking I'd rather have the higher income. So, remember retirement is all about income and the distribution strategies we use to generate income will make all the difference in the world. Understanding how diversification I know it's a boring word, and you think it's always overused, but how important it is and having the active management and the rebalancing that we do for our clients that generates that income, that build that sustainability. It also allows us to marry that with the overall cashflow and retirement plan, we have to understand what your number is to drive what your withdrawal rate is. [13:30.3]

Because those numbers, as I mentioned, as a hypothetical, you can see how as the rate of return may go up, you can actually have less in savings. So, this is the concept I bring up and saying, when someone brings up to me, Hey, Brad, between my deferred comp and a drop I want to have a million dollars. I say, great. Now let's drive what that means for income, because I'm already thinking for you what it means when you leave active duty and there's no more sod, right? And now you're dropped to for comp plan. vc and sk time, that's kind of like your pool of sod for the rest of your life. I'm already thinking in that context. And I want to illustrate that each of my clients that, so they are enrolled in that same philosophy. As many of my clients listening know that I'm a big believer in educating along the way. Understanding what we're doing and why we're doing it is really important so that when you leave our office or leave a phone call or a zoom meeting, that we're on, you feel confident, comfortable, not only in the trust that you have in me as an advisor, but as our firm with the strategy we're putting in place, and why looking at things from both sides or income side and an asset-based side is so important. And again, as I mentioned, the distribution strategies we use to generate that income does make all the difference. And in fact, when you think about things a little bit deeper, a really pleasant dream should emerge. [14:46.8]

If you use an optimal retirement income distribution strategy, how corny that statement may be optimal, retirement income, distribution strategy, but are important that is when it comes to actually making sure that the assets you work your tail off, off for 30 years works for you in retirement. Not your buddy, not your fellow colleagues, not your friends for you, for you and your wife, for you and your family, a strategy unique to you that maximizes every penny of income from your retirement savings. You just might find that you need less savings to retire than you originally thought. That's rubber meets the road here, ladies and gentlemen, understanding that notion, I'm not saying that million-dollar number is wrong. I'm not at all. What I'm saying is making sure that you haven't put it in, in context with your pension income, with your lifestyle, your outflow, both pre and post active duty, right? That's how you understand how much money you need to actually have in your accounts when you retire. [15:44.0]

We can help with that; a good advisor will be able to put that together. Many of you're probably thinking if you can, I don't know how long ago was for you that are listening right now, but when you're going through the drill tower and you're signing all these policies, like the Conseco policies, and then you get to the deferred comp plan, you're kind of like, okay, I think I know what that means. You get to first proby house, you'd meet with a captain. Hopefully the captain says, Hey boy, dude, for a comp plan, you start doing it. You know, 10 years goes by and you don't really touch it. I'm probably talking to a lot of you, who've done this. I see it all the time, very normal, by the way, very normal, but understanding that I want to actually show you, okay, let's look 30 years out and work backwards. Wouldn't that be powerful to see what number you would need, which assumes inflation, assumes a conservative rate of return has a lot of assumption in it, but a really good point, practical viewing of what the number you're going to need when you retire, whether you have five years left or 25 years left, and you only got five years on or something, it doesn't matter. Math works when we projected outwards. [16:39.7]

And moving away from a financial number as I mentioned just a minute ago, what about something more personal? What if you could retire a year or two earlier than you thought was possible? I bet that brought a few smiles to some faces. We all know the job that you guys do is hard, but it's also beloved. You do, and you and work with so many great guys, the camaraderie at the station, I've been there as a family member, understanding what you guys go through. And so, I always love talking to people about the emotional side. You know, there's the, there's the qualitative side I mentioned the quality of life, the emotional side of going from active duty to retirement, as well as the quantitative side, the numbers where the pension lines up, you know, all those kinds of aspects. So, we'll go through both of those, but knowing and understanding your unique specific plan is vital to the success of your specific retirement plan being lived out for you and your wife and your family. And you know what those things are, are possible. If you're employing good strategies and disciplined approach and hiring someone that helps you with that, a professional that works with you. [17:42.2]

So, if you're not talking with your financial person right now about forecasting out, understanding what your number would need to look like, and more importantly, what that number can then generate an income and the sustainability numbers that go around that you can give us a call, call us at (805) 409-8150. You can also go to our website at PensionAttention.com and you can schedule some time with myself or one of our advisors to review where you are in your planning. And by the way, if you're thinking Brad, I have no idea what my planning is or what you say are my goals and objectives, we have a process that will actually help you with that. Our discovery process allows you to ask the right questions for you to answer those questions both now, and then we'll forecast those out, understanding your values, your interests, your relationships, and all that contextualized with how your assets both now, and as you're working and saving work into that to generate a retirement income and looking outwards to come backwards, we'll answer a lot of questions as I've said before. [18:40.1]

It'll answer things like how much should I be contributing to my deferred comp plan? Should I be contributing in traditional or Roth? Where's my savings? Should I refine my house? It actually filters a lot of questions that I work with clients through. And if you're a prospective client listening right now, or you've heard about this Pension Attention and myself and my firm from one of the guys in your stations, if you're not talking about this kind of stuff with your advisor, that's really important for you to bring up and make sure they specialize in that in understanding your plan. And if they don't, you can give us a call (805) 409-8150. You can go to our website at PensionAttention.com and set some time there. [19:14.7]

Before acting on anything discussed today, remember to speak with a financial advisor near you about your specific situation, or again, if you'd like our help, you can visit us at PensionAttention.com or give us a call at (805) 409-8150. Thank you for listening to Pension Attention, on our episode next week, we're going to be talking about a gentleman named Tennessee Williams and his famous words, ‘You can be young without money, you can't be old without money.’ We'll discuss more about that next week. I'm looking forward to it until then stay safe. [19:47.2]

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. [20:10.2]

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