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.
(00:27): 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 that 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. As I say each week today, the challenge is no longer the access to information, but rather it's finding the right information. And more importantly, how all of that information applies to you. And that's my commitment to you here each and every week, because after all your money matters, and before we get started on this week's episode to find out more about me or our advisory team here at one capital management, you can go to our website@onecapitalmanagement.com or give us a call.
(01:20): You can call us to eight oh five four zero oh nine eight one fifty. So in this week's episode, I wanna talk about something that is very intricate, but at the same time, very simple. And it's the notion or the biggest question that most people have when they call us from the podcast or from our radio programs or from our referrals, from our clients, which we're so blessed to have. And that question is a very simple one. How do I know how to know when I can retire? Now we've talked about this subject at length on this show, and I've talked about it constantly within our firm, within our clients, but I wanna break it down to a high level, like simple aspects to look for. We all all know that those listening right now, we we've scripted and we've saved. And, and, and we know where we're at somewhat. And if you don't know, that's when you wanna sit with an advisor to make sure you go through, you are planning, but the question is always back there, right?
(02:16): Am I really ready to retire? What does it look like? Am I leaving money on the table by retiring now versus next year? So I wanna go through some simple calculations that we here at one capital management go through and we design a well forecast for our clients. Now we obviously go much more in depth than I think everyone listening should find an advisor to go more in depth on, but at least wanna kickstart it with a few calculations and ideas around a date in which you're looking at retiring. And for some listening right now, you're like, you know, Brad, I got it all handled. I know I'm gonna retire at 60 or 65, or maybe even 55. I know how I'm gonna structure it all. And it brought up something that happened actually a couple weeks ago, my daughter and I were on a daddy and daughter date, and we were walking into a restaurant and the hostess stand had like a really low bar hanging off from it, where they put the menus on.
(03:07): And my daughter was kind of running in she's she's about four and a half she's she's running in. And I kind of yelled at her, Hey, Kate duck, because she was heading right towards this bar, this low hanging bar that was like perfect head length for her, where she was gonna run right into it. Totally get flat backed. I'm like Kate duck and no joke. She turns around at me and she goes quack. And then proceeds to hit her head on this bar. Now, anyone listening, right? Who's a parent or a grandparent understands very clearly that two things are going on in your mind. One you're concerned about your kid and two, you're trying to hold back. Laughter because she literally in the midst of her banging her head and flat backing herself on this hostess stand, she had the audacity to give a one liner, give a Quip.
(03:51): And I bring this up because a lot of times I'll meet with people and, and I don't mean this in a bad way, but they're like, no, I got it. Quack. I'm good. Don't worry about me. Don't tell me about what's ahead. Don't tell me about the bar I'm about to run into, or the pothole I'm about to sink my wheel into. And it's kind of funny, right? When we think about it, because sometimes what we see in ourselves as a four and a half year old can actually be the same. We'll see in different aspects when we're 55 or 60. And I just wanna share on today's episode that these are ideas to start the inspiration around helping answer the question. Now, as you know, and as I've said, multiple times, having counsel and that advisor with you to really walk you through the entirety of it is vital to the success of the overall retirement plan.
(04:38): And also the investment that go into it. I share this all the time, the analogy of a car, I know it's overused, but I like it. And it makes a lot of sense to me. If you think about it, everyone talks about a stock or an investment. It's the engine, right? This, this fancy engine that runs and is so great and super efficient. And that's all great. But if it doesn't have a chassis and tires to run on, it's gonna go nowhere. So investing and planning come hand in hand. Now see if you can relate to this, you've contributed to your retirement plan over 20, 30 or 40 years, maybe you've been paying extra on your mortgage, or maybe you've already had it paid off. Maybe you keep some cash on hand for those unexpected expenses or maybe some upcoming big ticket purchases. And you always wish and often wish there was a way to pay less in taxes.
(05:26): Sound familiar. Well, that's pretty much everybody right now. Not in all those camps, definitely the last part around paying less in taxes, but you've worked for 30 or 40 years and are approaching retirement pension, maybe social security, whatever it might be in are now looking at maximizing your benefit. Now here's often what comes next and why I wanna share this relatability. You look at the account statements and begin to wonder whether that's your deferred comp plan, your 401k statements, your IRAs, whatever it might be. You look at the account statements and begin to wonder whether these investments you are in are the right ones to own for where you are in life. I wanna say that again. You're looking at your account statements at some point, whether in your forties or fifties, and you kind of take a look at the account and you kind of go are these the right investments for me that I bought and invested in when I was 20 or 30 to carry me in to retirement.
(06:22): And you begin weighing your options for making withdrawals from your retirement account, something I'll talk about. And we talk about a lot on this show and you weren't exactly sure how all this is done. And you're nervous about the risk maybe of a stock market pullback and maybe the possibility of running out of money. As I've shared before, in nearly 20 years of being a financial advisor, the most common denominator of all aspects of anyone who walks through our doors is the fear and anxiety around running out of money or set differently the sustainability of your retirement. And then guess what is it happens? You begin searching on the internet. Now I know you're listening right now and I know we do it. It's, it's totally normal. We do it from everything from a medical condition, all the way up to how Chris rock responded to will.
(07:11): Smith's slap all right, the internet is there. And that may even be how you ended up here, by the way, listening to this. And after a lot of searching and reading, you realize that there are just so many options to choose from and you resort to simply eliminate options that you're not as familiar with, or have heard maybe negative things about. Then you take what's left and you try to put together a coherent strategy while continuing a search to find information that supports what you have already contrived. Now I bring this up because there's a lot of behavioral traits that go into it. Some of it's herd mentality, some of it's different aspects around your own perceptions of your world and making sure that what you're reading fits into that perception, neither good nor bad, just something I wanna to notice. And the other weekend my kids and I, we were out playing on Saturday and we came back when I was a quiet time, we're gonna watch a show.
(08:07): And so I sat on the couch with them and I actually pulled on Netflix on the kids version and we're on there. And we were sitting there and I think for the first time, it dawned on me that there was literal paralysis by analysis. There were many options. Me and my kids were like, what, what, what show? I mean, when I was growing up, it was like one of three shows and you had it every half an hour. And also you didn't have a cable box. So it was just that channel as anyone listening, probably relates to this, it was that channel. And if you missed it at four o'clock after school, that was it. Now we had this plethora of options. And I bring that an example of when I was with my kids last weekend, because it was the same thing that we go through when we're looking up an investment vehicle or whether a Roth IRA is right for you or what options you should have in your 401k, or how to look at retiring on the internet.
(08:55): The internet is great, but it can also provide us with a paralysis by analysis. And I'm not here to say that the DIYers listening, the, the do it yourselfers, I'm not saying that's a bad thing. I'm just saying you gotta really contextualize how you're looking at your situation and making sure you have objective advice going into it now, regardless of the details of how you might be looking at things on the internet, let's say, or talking with colleagues, what you do next is critical to your long term success. When it comes to planning, the decisions you make will determine the trajectory of your financial future. And it's my opinion, imperative to have a good plan. So follow. So let's get into it here, what to do and how are you to know when you can retire? Now, there is a lot to this if done correctly.
(09:45): And at some point you're probably gonna want some professional help as I mentioned, but there are a few things that I want to go through to get things moving in the right direction. And the first thing I wanna bring up one of three today to is calculating your income needs. So that is the bare bones of retirement planning 1 0 1. Now we at one capital management, we take that a little step further enhance that with inflation numbers and just a whole bunch of different things. But let's just start at the beginning. Before you jump in and begin picking, you know, from the assorted list of investment that you found on the internet, you should actually understand that investing for a second is actually the very last step in the process. And I'll mention that here as item number three, you would be well advised in my opinion, to set aside all of those for now and begin with your income needs.
(10:31): You can't sidestep this all right, because you have to know this figure before you can do anything else now to do this right. We have to sort through and total up your bank accounts, then your insurance payments, then your tax payments, then your monthly living expenses. And by the way, for listening, you're like, oh my gosh, Brad, that sounds like too much. And by the way, you might be right. So me break it down for you. There's two things that matter when it comes to understanding your outflow, both now and in retirement is living expenses. And the other is lifestyle expenses. Now living expenses is everything from your mortgage or rent payment to your insurances. Like I mentioned to food, all the stuff that you need to wake up and actually need as living expenses for the day, for the month, for the year, the other side of it is lifestyle aisle expenses.
(11:18): Now this portion of it is really simple in the sense that this is more your wants. So say differently. There's two, four letter words need is your living expenses want is your lifestyle expenses. So this is where you wanna add your goals, your savings, your things like that. Now a point to make here that when you're going through this is at some of the items you're gonna calculate before you retire will be there when you retire. But some won't. So we have to kind of also dissect the two. So number two, in the retirement planning, 1 0 1 category here is calculating your income gap. So once you have the figure on how much you have going out, you need to add up all the sources you will have coming in, in retirement. For many, that'll be a pension. Some that might be some social security. It might be some rental income or other fixed sources that will come in after active work.
(12:13): All right? So once you have that number, you subtract the expense number from that number. And that's how we identify the return, which now comes into investments. That's how you identify the return you will need from your investments. So the calculation that I just went through will tell you the yield you need from your investments in this figure, shouldn't be more than four to 5%. That is a sustainable average of distribution. Now real quickly for those working right now, you're in the accumulation phase. You're contributing to your retirement plan. Maybe you're paying down a mortgage, putting kid through school, whatever it might be, ultimately you're gonna get into the distribution and that will change quite a bit. So now we need to marry the rate of return with the withdrawal rate. And the four to 5% is a historical data around studies year over year around.
(13:07): If you're taking four to 5%, the probability of your assets lasting your lifetime is high. So let me give you example of what I just mentioned. And I've brought this up on the show before. So many of you listening, have I heard this before, but it's so important that every couple months or so, I like bringing it back up and in different ways. So let's say you have $10,000 a month is your outflow. That's your living expenses and your lifestyle expenses in retirement, but your income pensions, rental income, maybe some social security, whatever that might be is $8,000 a month. So you have 8,000 coming in $10,000 going out. So you have a $2,000 a month net need, right? $2,000 a month multiplied by 12 to get an annual number is $24,000 a a year. Now let's add some taxes in there for a second because the majority of our clients, the majority of retirees have their distributions coming from tax deferred assets, 401ks deferred compensation plans, 4 0 3 BS, different structures when it comes to retirement.
(14:12): So we have to add some taxes. So let's round that number out to a, to total of $30,000 a year, $24,000 a year for the net need. And let's add another $6,000 for taxes taken out every month as withholds. So $30,000 a year. And let's say, for example, between all of your retirement assets, you have a million dollars saved up $30,000, divided by a million is 3%. Now that may mean nothing, but after this discussion, you can see that it's below your four to 5% withdrawal rate. That is a very healthy and sustainable based on historical data. A lot of averages, a lot of probability curves, money, car situations that is very stable and sustainable distribution rate. Now why I bring up investments as the last part here is that also tells us as money managers and portfolio managers and financial advisors to our clients that okay, the client needs to pull 3%, which means we need to earn at least 3%.
(15:09): So constructing a portfolio around your distribution rate in retirement is key. It's very different than when you started working in your twenties and thirties. And you were designing your portfolio for growth, knowing that you had time on your side, knowing that you had contributions going in now it's different. We are now drawing from the account. Number one, number two, we are also not adding to it. Those I know those are polar opposites, but they actually are two separate categories. We are withdrawing and not adding. So building a portfolio that allows for both has to come into play here. Now, the last thing I'll bring up here is inflation. All right, I'm gonna add this here to the, to the point, because as inflation will be in our future now, as I've stated in the past couple weeks, you know, there's a large conversation going on both internally here in our investment committee, us advisors and economics.
(16:02): Who've been doing this for nearly 20 years and looking forecasting out. We're still looking at a sustainable three to 4% over 30 year inflation period. Even with this large, you know, 7% figure we're looking at right now, but we have to look at it as a long term average. But even if we use historical figure of three and a half percent, let me give you some math for a second here. If we use it historical three and a half percent and project that out for your retirement, we can estimate that in 15 years, your income need actually increase by 68%. So we have to consider the headwind in your calculations. This is where you take retirement planning 1 0 1, you sit with an advisor to build a custom-built plan because the, it becomes a really dynamic than just static numbers of $10,000 a month and $8,000 a month.
(16:51): As my hypothetical example, it becomes is much more, three dimensional, much more dynamic. And so really to getting the idea of answering the question that you might be having either subconsciously or maybe having with your spouse, or actually just out loud. And you're actually wondering it of how, and when is the right time for you to retire, this is the basis of calculating your income income, need understanding your income gap, and then how that income gap relates to your investments. That's the 1, 2, 3 punch process. If you will, and past that, that's where you go and seek counsel, find that advisor to help build your plan around answering the question for you of when you are to retire. And Ralph Waldo Emerson once said the mind once stretched by a new idea, never returns to its original dimensions. I use that quote because I hope that I might have stretched the dimensions of your mind just a bit.
(17:50): So you can kind of see the contextual advantage around knowing these three basic items around income, retirement, and then how your investments play in and past that seek advice because ultimately the real measure of your wealth other than the calculations is how much you'd be worth if you lost all your money. So the protection of your money, the understanding of the money, what it means to you. I'm not saying you're gonna lose all your money, by the way. I'm just saying that we have to think about this. We talk about money as a net worth statement, but the reality is there's a lot to you as a person, as a father or a mother, as a other, or a sister as a child. There's so much in the world that we get wrapped up in the money aspects of things. The more you plan, the more you answer this question for yourself around the checklist of things you can go through, the more you're able to be free and actually live out your worth and purpose, in my opinion.
(18:44): And I think that's, what's so advantageous that doesn't show up on a quarterly report necessarily as a rate of return, but it's such a value added by a good trusted advisor. And if you wanna seek our help, please feel free. You can reach us at 8 0 5 4 0 9 8 1 5 0. Or you can go on our website@onecapitalmanagement.com. I wanna thank you for listening to the, make your money matter show. Remember before acting on anything us today, speak with a financial advisor near you. And if you're not sure where to turn and you'd like our help, you can visit us@onecapitalmanagement.com or give us a call 8 0 5 4 0 9 8 1 5 0. And until next week always remember to make your money matter. The information in this podcast is educational and general in nature and is 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.
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.
