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There’s a popular retirement advertisement that asks “what’s your retirement number?” Most retirees agree that having a higher retirement number through saving is better than having a lower number. 

And while that’s true, it misses the mark about the most important retirement aspect: 

Retirement income. 

Retirement income lets you spend every penny of your retirement every month without worrying that you’ll run out of money. 

In this episode, I’m revealing why your retirement income lets you enjoy your retirement instead of saving every cent so you don’t run out. 

Show Highlights Include:

  • How to avoid blowing all your retirement money (without depriving yourself of vacations or fancy dinners) (8:53) 
  • Why living in an “Atmosphere of Scarcity” in retirement robs you of giving your grandchildren memories they’ll remember long after you’re gone (9:08) 
  • The counterintuitive way saving more for retirement can bankrupt your nest egg (10:23) 
  • How to spend every penny of your retirement without worrying about running out of money (10:46) 
  • Why having only $900k in your nest egg can be more fulfilling than having $1 million (12:39) 
  • How to retire 3 years earlier than you thought and have enough money to enjoy your retirement (18:34) 

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 decisions.

Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1500 clients nationwide. With over $2.5 billion in assets, they’re a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now here's your host Brad Barrett. [00:26.1]

Brad: Welcome to Make your Money Matter, the show for truth seekers who are fed up with outdated financial advice. My name is Brad Barrett, I'm a managing director and partner here at One Capital Management. And it's my goal on this show to reaffirm what you know, to be true and to challenge the advice you may have been told is true. Here at One Capital, our mission is simple to help our clients and you listeners live well and not just survive, but thrive. Friends, we live in a world where we are consuming information at warp speeds and it's easier than ever before to access information, getting more difficult to find truth. And that's what we're after because after all your money matters and knowing the truth on how to plan your financial future is vital to your financial success. Now, before we get started on today's program, if you want to find out more about me or our advisors here at One Capital Management, you can go to our website at onecapitalmanagement.com. You can also give us a call (805) 409-8150. You go to our website; you can click on the media tab and you can hit download and subscribe the Make your Money Matter podcast. You can also download and subscribe on any platform where you would download your podcasts, whether it's Google podcast, the apple in store app or Spotify. And by the way, leave us a review, let us know how we're doing. The more feedback we get the better. [01:47.4]

And as I mentioned last week on the, Make your Money Matter podcast today, we're going to be talking about what I call what's your number. You know, in the age of television and computers, the average person, alright, is bombarded with advertising, you and I both know it. And according to Nielsen ratings, an average hour of TV contains more than 15 minutes of advertising. So more than 25% of your viewing time is actually spent watching commercials. The United States alone 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 was spent on TV closely followed by digital advertising. And in the past two years, digital advertising has actually crept up as you can well imagine. And advertising you think about it, it's essentially messaging. It's a form of communication designed to advance your position. It's quick, it's memorable and should inspire you to believe something, whether or not that's something is actually true. In Washington DC, the federal trade commission, otherwise known as the FTC assumes the responsibility to protect all of us consumers by ensuring that there is what they call truth in advertising. [03:00.5]

Now, according to the FTCs website, and I quote when consumers see or hear an advertisement, whether it's on the internet, radio or television or anywhere else, federal law says that ads must be truthful, not misleading and when appropriate, backed by scientific evidence. The federal trade commission enforces this truth in advertising laws and an applies to the same standards, no matter where an ad appears, “in newspaper and magazines online in the mail or on billboards or buses.” Well, that's pretty clear, nothing really ambiguous there. Advertising must be truthful. So how is it that certain advertisements seem contradictory? And this leads into my point on today's podcast around what's your number. For example, let me give you a quick aside here. Beer ads, okay. They often convey the message that alcohol will enhance your social life. They'll often use images of young people drinking beer at some type of upbeat, fun gathering, you know, a party atmosphere. Everyone is smiling, you know, and chatting and of course, they're have a beer in their hand, right? Well, let's contrast that ad to another beer ad. [04:07.6]

A couple of years ago, there was a famous super bowl ad showing these two guys at a grocery store. They went in to check out two items, beer and toilet paper, but they only had enough money to buy one. So, they chose the beer. And when asked, if they'd like their beer put in paper or plastic bag, they both gave the resounding answer at the same time paper. And of course, they need the receipt to sound like a couple of guys worth hanging out with one night, I guess. Now those two commercials are just one example of contradictory advertising message. I'm sure you can think of many others, but there's one in particular that came across my mind a few months ago when I was actually watching the masters, the golf tournament. There's a well-known investment company that runs a series of commercials. I'm sure you've seen them. They ask retirees a question. What's your number? A simple, concise question, what's your number? [04:57.8]

Now 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 planning bulls down to a simple savings goal, a number that once achieved will allow you to stop working retire? What's your number? Maybe, maybe not now in contradiction to that ad as another commercial, as we probably all remember this, anyways we are old enough here, the publishers clearing house, I know you've seen it. The announcer says 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 that after hearing that ad, he probably said yourself, man, if I had $5,000 a week coming in for us in my life, I probably stopped working and retired today. We all have those dreams sometimes right. [05:52.5]

Now it's an effective ad and based upon the publisher's clearinghouse ad, you probably also have a coffee table full of magazine ads, you didn't realize you wanted right. But when you think about the two messages, they're very contradictory. The first claims that retirement is all about a pile of assets. The second says retirement is all about income. So, on a larger scale, it's the same debate that largely gets talked about on our radio program and on this podcast and something we like to bring up as advisors because understanding the fit for each of our clients on a unique and custom and tailored basis is what's so important here. Putting the entire us population of retirees into one singular bucket of it's about a pile of assets or it's about all about income is really wrong, in my opinion. If you think about it, understanding that assets drive income and they're largely related and how that works for your specific planning is what really matters. So, these companies out there are trying to advertise to say, if you just do this, you'll be fine. Well, there's a lot of variables in that for each of us, we are not made the same. We do not think the same. That's the beauty of our country. We also have our own goals and objectives that may not be what others are. Plus, most people have very different income streams. So social security will be one for the majority of us. There's also those with pensions. There's those with rental assets, there's other assets that need to be put in a place here versus just a number or a savings goal. [07:19.9]

And I don't want to digress too hard on that, but posing a question sometimes, make sense here just for you to think about. So which commercial do you think describes the better retirement strategy? Is it better to have a savings goal or an income goal for retirement? Now real quickly, that's something you really should be discussing with your advisor to help you build out a holistic plan if you haven't done so, you can give us a call here at One Capital Management. You can call us at (805) 409-8150 or go to our website at onecapitalmanagement.com to set that time with an advisor, to review your specific again, goals and objectives, not just in retirement, but while you're leading up to and saving for retirement to build that strategy for you. But look at it this way. Why are some people afraid to enjoy their retirement? Now you might be thinking, Brad, what are you talking about? How could someone be afraid of enjoying retirement? And in over 15 years of doing this myself, I've seen many people understand that they, we sit with them and we have the assets that they've entrusted to us to help them manage. They can see very clearly when we run distribution rates, investment rates, over the historical performance of what we've done with them. Also, future forecasting through Monte Carlo situations, right? That they'll have enough in retirement yet they are still afraid. [08:37.5]

Now why are some people so worried to spend any money during their retirement years? Well again, what I want to say here is, it's because they're afraid of running out of money. I want to say that again. They're not afraid to enjoy their retirement, they're really afraid they're going to run out of money, which will in turn, not let them enjoy retirement. They're constantly of depleting their retirement nest egg, if you will. Either through spending too much or investment strategies that could result in losses or not understanding their risk, as it pertains to their portfolios. They look at spending as the pleading, their savings and they live in a fear of, again, losing money. As a consequence, it creates what I'll call an atmosphere of scarcity in retirement. And living in an atmosphere of scarcity will deny you of a lot of life's true riches. Think about it this way. How do you put a price tag on a retired couple, finally taking the vacation that they denied themselves for decades during their working years? How do you put a price tag on the smile of your husband or wife when you're able to take them out to dinner or on a trip again? Or how do you put a price tag on buying airline tickets to visit grandchildren? Obviously, you can't, by the way, you automatically think of another ad, the MasterCard ad, right of it's priceless, because it is these things are priceless. Some are 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 and running out of money too soon. I mean, what happened to the whole happily ever after? [10:10.5]

So, when you hear an announcer on a TV commercial ask, what's your number you should ask, what are they really selling? And that right there is Brad Barrett's PSA on all things advertising. But 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. I think we all can agree with that, but most important of all is how much income those savings generate. Retirement is about income. Again, they go together, they're not in a silo by themselves. They have to go together. Income and retirement is a permission slip, if you will, to enjoy the life that you deserve, the life that you earned. Steady, sustainable income, that will fund your retirement lifestyle, that's what it's about. Allowing you to spend every penny of your monthly income with the comfort of knowing that there'll be more income arriving next month and the month after that and the month after that, the rest of your life. That's a sustainable distribution. [11:12.7]

Right now, most of the time when clients come in, they’ll talk about previous performance history and items like that, which again is a marketed aspect that we've sub consciously been marketed to for many, many years. And no doubt rates of return are important. but a rate of return will always only be one half of the story. Again, a rate of return will always only be one half of the story. The other half is how much you're spending rate is that is your net sustainable spending as a percent of liquid assets understanding, Hey, Brad, I'm spending 7% of my liquid assets, is that sustainable? That's important to go through with your advisor, to understand the risks involved with a portfolio that needs to earn that and also the draw down feature of that, and then putting that backstop against sustainable historical data. That's why, when you hear the publisher's clearinghouse commercial, the one that focuses on income, your mind drifts into this dream state or euphoric dream state, because you don't have to worry about what you're spending necessarily. I mean, you sorta do, right? Because if you're spending more than what they're sending you as important, but it's a infinite income stream, so they say. [12:25.3]

So, if retirement is all about income, it just makes sense to use distribution strategies as I'm mentioning here today that maximize the income that's being generated from your retirement savings. Let me give you an example of what I mean, if you ask the average retiree, would you rather have $1 million in your retirement accounts on the day you retire or $900,000 virtually everyone would answer a million dollars, right? In essence, they're looking at things from a what's your number perspective. And from that perspective, the bigger number always wins or at least that's what people think. Now, what if you were to ask a different question, one that looks at things from an income perspective. What if I were to ask, would you rather have $1 million generating a 3% retirement income, meaning $30,000 a year or $900,000 generating a 4% retirement income, which is $36,000 per year. Well now I think that most people say I'd rather have the higher income. [13:24.9]

So, you see how income and assets have a lot to do with each other. They're a married concept. They need to go together because one drives the other and the rubber meets the road is understanding the portfolio manager, someone like us, One Capital Management, how we're managing the assets, for the rate of return and then together with us and the client, your advisor, and the client relationship on where your spending is and putting those two together to understanding what your net draw down or your sustainable distribution rate is. That's what in effect gets you to the overall sustainability of your retirement. And on episode eight of the, Make Your Money Matter podcast, we actually touched on this subject for the whole entire episode. How much can you receive in retirement from your investments? Which has a lot to do with looking at your retirement from not only a what's your number perspective, but also from an income perspective. And if you want to find out more about that, go ahead and listen back on episode eight, and we'll talk a lot about it, but real quick, I just want to touch on one thing as we discussed heavily in that episode was what is a withdrawal rate and what is a sustainable withdrawal rate? [14:32.5]

Real quickly, a withdrawal rate, as I mentioned is a number that provides context for the amount you take out of your portfolio in a given year. Now, a sustainable withdrawal rate, simply put, you want to choose an amount, you can withdraw annually from your portfolio and still be reasonably certain you will not run out of money during your lifetime. On episode eight of Make Your Money Matter, we talked about some of the studies that have gone on historical studies that have actually shown probabilities in the 80 90 and a hundred percent success rate relative to the amount of income or rate of return you need to earn along with what that means for your net distribution rate. So essentially at a high level, and again, I would refer to episode eight on the, Make Your Money Matter podcast, a sustainable withdrawal rate, many studies have been done over time. Going back to again, the original study in 1994 by William Bengen, he found that he 4% initial withdrawal rate was a hundred percent successful over a 30-year rolling period, dating back to 1926. So essentially with that said, a retiree could have withdrawn $40,000 from a million-dollar portfolio and increased that $40,000 every year by inflation and never run out of money. [15:42.9]

Now that heavily depends on a few factors. One, the retirement planning horizon, basically your years in retirement, the portfolio mix, your allocation between stocks and bonds and the probability of success you are comfortable with. So, we talked a lot about on episode eight, we'll go through. But when you think about looking at these numbers and these advertisements that are all around us about rates of return and having the most in the bank, yes, that's important, but contextualize it into your specific planning. Back to my example, a million dollars generating 3% versus $900,000 during 4%, the income is higher on the lower number. Now I'm not saying that's the right avenue for you necessarily, but if you haven't talked about this with your advisor, or if you're one of our clients here, we talked about heavily when it comes to what we call our spending as a percent of liquid assets that you see in all of our wealth forecasts. It's really important to know how that marries with your investment plan and ultimately your retirement plan, because that's how we don't live a life of scarcity. We want to live in abundance in retirement, you earned it. [16:46.6]

So, the context around what your money is earning for you and what you have available to get those earnings is really important because that's actually helps your mindset in retirement. Know, that you're going to be okay, you're comfortable. You have an advisor that knows your situation, knows the tax implications of also the distributions, which we didn't talk about heavily today, but we had to take all of those factors into consideration, right. If we're taking it from Roth IRAs, traditional IRAs, 401ks cash, all those have other tax plays inside there. So, taxes are also a big part of investment planning and a big part of distribution rate planning. And ultimately how you look at your assets from a number, what they don't say on the advertisements, right. They don't say you need to have a certain number in IRAs. You didn't have another certain number in taxable assets. They just say a big number and they make you decide what that is. So, what I'm really trying to say is understanding that unique and custom-tailored planning is most important for understanding how your hard-earned assets are going to serve you in retirement. Whether it's an amount that generates an income, or if you know the income you're looking to need in retirement. And we can back into the amount it's going to take to save, to get that income. Knowing that now is vitally important to making sure that you have success in your retirement. And if you're in retirement right now, same thing, you want to know what your assets are doing for you. [18:11.7]

So again, if you haven't discussed that with an advisor, reach out to one of our advisors. This is what we do. This is what we live and breathe as private wealth managers with managing over $3 billion for clients. This is our specialty. You can give us a call (805) 409-8150. Again, you can go to our website and you can schedule some time with any one of our advisors there as well, at onecapitalmanagement.com. [18:34.3]

And I want to share a quick story about this that actually happened to a client of mine about two months ago. We were sitting down going through the updated planning, some new accounts that come in, some assets that he was receiving now that he's getting closer to retirement from options and things like that within his company. And we sat down and went through everything and he realized that he has more money than he actually planned for largely through good planning and understanding his spending as a percent of liquid assets. And what we found out was that his goal of a five-year retirement strategy actually moved up about three years. So, what if you could retire a year or two earlier than you thought was possible? I bet that brought a smile to a lot of faces in that meeting. We had a great time and he almost shed a tear. I thought it was great for me to see as an advisor. It was just so important about the planning that we do in the plan that we try to make sure it's out there in our community to know that planning helps with a lot of aspects when it comes to not only your money, but also with your mindset, your behavioral finance traits in retirement, and knowing that, how those work together. So, share that story because his five-year time horizon for retirement moved up about three years, like I mentioned. [19:46.6]

So, I actually put it out there saying that planning was a very heavy part in that. We also had good portfolio management, fe also had a great design in terms of living within his means. So, all that was working for his benefit. So, are you doing that? If you're not reach out to someone to make sure you're finding that advisor to build trust in, to help you align your retirement goals and objectives and build the plan that best fits you. [20:10.3]

I want to thank you for listening to the, make your money matter podcast this week before acting on anything discussed today, remember to speak with a financial advisor near you about your specific situation, or if you'd like our help, you can visit us at onecapitalmanagement.com or give us a call at (805) 409-8150. Next week on the Make Your Money Matter podcast, we're going to be talking about defense wins championships and diversification wins returns. I'll explain more, what I mean next week, I'm looking forward to it until then stay safe. [20:42.5]

The information in this podcast is educational and general in nature and does not take into consideration the listener's 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. [21:05.8]

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