Why is Retirement Planning Important?

Knowing if you are on track for retirement to not run out of money

Watch Erin Kennedy and Nicholas Royer from Group 10 Financial discuss knowing if you are on the right track to retirement. They emphasize the importance of considering lifestyle expenses in retirement and conducting a retirement income analysis. They discuss the significant cost of healthcare in retirement and the need for proper planning. They also touch on the importance of adjusting retirement plans as goals and circumstances change, and tax strategies for legacy planning.

With over two decades of experience as a Registered Financial Consultant (RFC®) and Master Registered Financial Consultant (MRFC), Nick has been dedicated to assisting pre-retirees and retirees in achieving secure and confident retirement lifestyles. Together with Group10, he offers guidance to assess your retirement vision, develop tailored strategies, and embark on the path to your financial dreams. Group10 remains committed to continuously monitoring your portfolio to align it with your objectives. Schedule a 15-minute strategy session call with Nick and his team here.

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Transcript:

Erin Kennedy (00:16):

Hello and welcome to Retirement Wealth Academy. I’m your host, Erin Kennedy. Thanks for being with us. This show is dedicated to helping retirees and pre-retirees sort through some of the most complicated topics about retirement. And for the answers we turn to local experts. Today we have Nick Royer with us. Nick, it’s good to see you again.

Nick Royer (00:33):

I love being here.

Erin Kennedy (00:34):

I’m glad because, you know, we have an important one today. This one comes up a lot. How do I know if I am on track in retirement? Determining what we’ll need to live on in retirement is very difficult. So how do I know if I’m on track? How do I know that I’m not gonna run out of money?

Nick Royer (00:49):

Well, when you get to retirement, you almost got to envision what that’s gonna cost you. What is your lifestyle expenses? A lot of people say, “I know what the phone bill is. I know what the, you know, my mortgage is. I know what the, the HOA fee is.” But when you think about the lifestyle, you know, my grandpa when he, uh, um, when he retired, he actually looked at it as a bad thing. He worked for I think 40-some odd years at Ford Motor Company.

(01:11):

And when he retired, he looked at it as, “Now I have eight hours more time a day to spend money.” Right? And so, there… wh- when my, when my dad first started working, he worked in a movie theater, and that movie theater was like 25 cents for a movie ticket and popcorn. And we think about how much that costs today. So you don’t wanna sit in the house all day and not do anything, you’re gonna be doing things-

… and that stuff is gonna cost. So you almost gotta figure out what that lifestyle expense is gonna be, figure out how much you’ve saved up, and then do a little work to figure out what we call retirement income analysis to find out, “Okay, if I know I’m gonna be spending this amount, and I know it’s going… I’m bringing in this amount of income, when does it run out, if it does?” And hopefully your money lasts way past age 100.

(01:56):

And a lot of people are like, “Well, I only need it to last till 83.”

(01:58):

You know what? I mean, and, and I’ll, I’ll just tell people… wh- what… “Do you know anybody passed 83?”

(02:03):

“Oh yeah, I know a bunch of people.” That could be you.

Erin Kennedy (02:06):

And you don’t want to take that phone call on their 84th birthday.

Nick Royer (02:08):

That’s right?

Erin Kennedy (02:09):

Yeah.

Nick Royer (02:09):

You never want to have that conversation that, “You know what? You’re… you, you just kind of ran… you’re getting low, you got to start dialing back.”

Erin Kennedy (02:15):

Right, right.

Nick Royer (02:15):

And so you almost have to look at these and then like I say red line is we just need to figure out how… um, when does that money run out, if at all? Is there a red line that exists? And then hopefully, you’re smarter and you’ve done planning early. We call it the rule of 55. Uh, if you’re 55 years old, you need to have a financial plan. Um, you might think that’s too young. No, you do, you do need one. And if you’re 65 years old, the worst thing is to retire and then show up at your financial advisor’s office and say, “I need a plan now.”

(02:44):

“Hold on, you’re already retired.” It’s hard to fix things once that’s already happened.

(02:49):

So you gotta do some of this, this leg work early on.

Erin Kennedy (02:52):

And I’m sure that one important part will be determining how to pay for health care, right? Because that is often the biggest expense in retirement.

Nick Royer (02:59):

Oh, it’s crazy. I mean, uh, you know, uh, I mentioned before Fidelity Investments, uh, did a study that an average couple age 65 to, uh, n-… to, uh, ni- i-… 95 years old, I think, is how long they figured they would last. Uh, that couple’s going to spend over $300,000 in health related expenses-

(03:17):

… over their retirement years, not counting longterm care.

Erin Kennedy (03:20):

Right.

Nick Royer (03:20):

And if we think long term care, right now, if you want a nursing home stay in the state of Florida, uh, i-… uh, private care, that’s, that’s gonna be $100,000 a year. So we’re not talking Mickey Mouse like little prices. We’re talking big prices that you’re going to have just from, you know, healthcare related expenses.

Erin Kennedy (03:40):

Now what if my goals change in retirement? I can assume I want one thing now but being five years, 10 years into m-… retirement I can, uh, I, I… sure a lot of people change what they want?

Nick Royer (03:51):

It’s just like showing up at a house. If an electrician shows up in the house, they don’t know what they’re getting into. They don’t know what’s happened before.

(03:57):

They have a framework for what to do, and then they have to mimic. And that’s all that you have to do in retirement is you gotta put an initial blueprint together. And we’ll create a one-page blueprint for people, everything in their life on one page. Very simple to see. And then every year we come back to that blueprint. And we just say, “Okay, here’s your blueprint from last year. Has anything changed? Is there anything we need to adjust or adapt?” And they might say, “Yeah, you know, th- this has changed, I need more income. The house is paid off,” maybe the house isn’t paid off. We need to tweak and know, and then we can make adjustments uh, as, as we need to. But you almost got to build this framework, and then adjust as time goes on to your changing life.

(04:39):

Um, you know, when you’re 85 years old, you’re gonna be much different as a person with needs and everything else than you work at 65, 55, 75.

(04:47):

And saying that I built a financial plan when I was 65 and never making a change again, ever, is not good planning.

Erin Kennedy (04:55):

Right. In retirement, a lot of us start to think or maybe sooner about legacy planning. So what strategies are there? Tax strategies that address either what I want to leave behind to charity or my family?

Nick Royer (05:07):

Well, and wh- what most Americans are doing is they will leave… they built up… th- their biggest asset is a 401 K in an IRA.

Erin Kennedy (05:14):

Right.

Nick Royer (05:14):

Which is pre-tax money. And I call those ticking tax time bombs because if you have a million dollars in a 401 K or IRA, and you leave that to your beneficiaries, and let’s say you had three kids, did you know that Uncle Sam is actually going to be the biggest heir to your money? Because they take their money first. They don’t say, “Hey, you know what? We know you’re down on your luck. You just lost mom and dad. Um, we’re gonna waive those taxes on that money.” No, Uncle Sam claims first.

(05:42):

And so here you might have $300,000 out of that million dollars go away to Uncle Sam, and the three remaining beneficiaries split the remaining $700,000. So they actually don’t get as much money as Uncle Sam. And so that is tax inefficient. So what you want to do is have as much tax-free money built up sometimes that’s tax-free wealth and Roth IRAs and things like that. Sometimes it’s tax-free death benefits or life insurance and different stra- strategies like that, that somebody can use to pass on tax-free wealth.

(06:13):

That’s how millions and millions of dollars has been passed through the wealthiest families in the country has been through strategies like that.

(06:20):

Not just saying, “Well, you know, I have IRA money,” which is the most tax inefficient in passing that on. So, ta-… doing a tax analysis is really important, or what we call a tax X-ray, since you can find out how you can leave the most amount of money to your beneficiaries as humanly possible.

(06:38):

You know, it’s nice to see the strategies that are out there. I can see why people get overwhelmed but you talking it through was really, really helpful. Nick, thank you so much for your help with this.

Erin Kennedy (06:46):

Great being with you, Erin.