Speaker 1 (00:02):
Welcome to the Retirement Wealth podcast. Our goal is to help those retired or soon to be retired investors make more informed financial decisions and live an enjoyable retirement. Our host Mike Lester is the Founder and CEO of Talon Wealth Management. Mike is an investment advisor representative of Retirement Wealth Advisors, Inc., an SEC registered investment advisor. Thanks for joining us today. And let’s get started.
We definitely all have different feelings about debt.
Speaker 3 (00:35):
Pay off your credit card each month, carry no balance, get a mortgage, try to pay it off sooner.
Speaker 4 (00:41):
Do everything you can to stay out of debt, which might mean living modestly.
Speaker 5 (00:44):
You’ve got to keep up with it, but yeah, I definitely think about it often.
Speaker 6 (00:48):
Don’t buy into those credit cards. They will ruin your life.
Speaker 7 (00:51):
A snowball that you want to get rolling as early as possible.
Well, according to the Federal Reserve Bank of New York, a surge in credit card spending and home purchases increased American household debt by $313 billion in the second quarter of this year. That’s the largest jump since 2007. Mike, in your opinion, as a financial advisor for over 20 years now and as a fiduciary, should we be debt-free when we stop working?
Mike Lester (01:20):
Well, I think there’s a difference between being retired and debt-free in this report, and I’ll get back to your question, Kristin, but the report concerns me because it’s reminiscent of 2008, when there was just all of this debt that people had with their households and then the economy got bad, they lost jobs and they couldn’t cover the expense. So we’ve all heard the ads. I mean, all you have to do is turn on the radio and there’s somebody selling mortgages, and they’re going to save you money, and interest rates are at all time lows, or turn on the TV, you listen, take money out of your house now because it’s appreciated to this big amount.
Mike Lester (01:52):
Well, that’s true if we look around the United States and we look at home values, there’s clearly a bubble there, but I’m worried about what’s going on because if you’re borrowing money against the value of your house today in a bubble and then the value of your house isn’t likely to be that high in the future, now you have this debt you have to pay off and you see where I’m going back to the 2007, 2008 period, where people were borrowing money and it just turned into a problem. So I don’t like it. I don’t like it for markets and I don’t like it for the economy. Not right now in the short-term, but in the long-term, I think it’s a potential problem. So this is just another reason to-
Something to keep our eye on for sure.
Mike Lester (02:28):
Keep your eye on, right. And something that we’re keeping an eye on because I don’t think that ends well, and I think it will continue. So that number, I think it’s higher, as far as the amount that people are borrowing against their homes. I think it’s higher and higher.
Mike Lester (02:40):
So now back to your question, should we be debt-free in retirement? Well, it depends on how you feel. So technically, interest rates are low enough right now that if you have a complete financial plan, in other words, you know how your money is likely to work for you, you know where your income’s coming from, you adjusted it for inflation and taxes moving forward, and you’ve got the right financial plan, it’s not a big deal to have a debt with a home because interest rates are very low. Now in financial services, we would refer to that as leverage. So if interest rates are really, really low and your payment works with your budget, then carrying debt on a home probably isn’t a bad idea because historically interest rates are extremely low right now. They’re probably going to be higher in the future.
Mike Lester (03:23):
Again, I’ve had clients in their 80s, and the only reason I mentioned 80s is if you’re 80, your life expectancy isn’t as long as if you’re 60. So you’re 80 and you go get a 30 year mortgage, chances are you’re not going to live to 110.
Mike Lester (03:38):
But hey, I mean, why have all that money tied up in a house? I mean, those clients can finance it, carry that debt throughout at a low interest rate. Yeah, sure, they’ll pass away before the loan’s paid off, but ultimately, what was their goal? Is it to live in a home that’s paid off or was it to enjoy retirement? They had the opportunity to enjoy retirement. If the bank takes the house back at the end, so be it, I guess.
Mike Lester (03:59):
Now the other frame of thought would be, hey, listen, Mike, it just makes me really, really uncomfortable to have debt in retirement. I just want to know that if the sky is falling, my home is paid off and I’ve got a place to sleep. That’s the other way to look at it. So when I’m having these conversations with individuals at the office and they ask me, well, what is my opinion, I hate to put it back on them, but I say, “Well listen, I want you to be able to sleep at night. And if having a mortgage is going to mean you’re tossing and turning, then let’s come up with a plan where you don’t have a mortgage. But if you’re comfortable with leveraging low interest rates, let’s come up with a plan where you can do that.”
Mike Lester (04:34):
So Kristin, financial planning can be flexible, but it’s meant to be tailored to the individual or to the family, and make sure that it works for them. It’s my job to make sure you don’t run out of money in retirement. There’s different ways to go about doing that, but I want to tailor it to the individual and make sure it works for each family.
That’s what makes Mike and the team at Talon Wealth Management stand out above the rest, at least in my opinion, is their planning, it’s about you, what you’ve done, what you want and what you need and what’s happening with your family. To find out more, GuardingYourNestEgg.com. How many hours of sleep do you get a night typically? Is this your snoring that Katie sent me? That’s not you?
Mike Lester (05:17):
No, it’s not. No, I’m not a big snorer. I mean, it may happen later in life, but I’m not a big snorer. I’ve got a hard wake-up time of like 6:00 AM, just because that’s it. So regardless of when I go to bed, it’s pretty much 6:00, 6 30, my body just says, “Hey, it’s time to get up.” So I probably get seven, eight hours of sleep. Something like that.
Hey, that’s pretty good.
Mike Lester (05:36):
I’m about seven or a little less is my average. But according to the Bureau of Labor Statistics, in 2020 Americans got an average of 10 more minutes of sleep per day than the year before. I guess there were only so many shows to binge, so some extra Zs does make some sense to me. I did nap a little during pandemic, but Mike, you help people plan their financial future. And often they complain that certain things keep them up at night. What are typically the issues that cause them that tossing and turning?
Mike Lester (06:09):
I think for most people, I mean the biggest concern is, I mean, you turn on the TV and you get the 24 hour news cycle and it’s scare tactics 24/7. That’s how they get your eyes glued to the TV and that’s how they sell advertising. But you have to take a common sense approach to investing and you have to take a look at what’s likely to happen moving forward when it comes to markets. And so a conversation that I’m having time and time again at the office is, “Hey Mike, what do you think is going to happen?” Because what has them lose sleep is my nest egg is doing pretty good or really well right now because markets are doing very, very well, but when does this end? When does the market go down? I can’t afford to lose 10, 20, 30, 40% of my portfolio. I want to make this transition into retirement or I want to stay retired, and if I lose too much of my principal, that’s going to become a problem.
Mike Lester (06:58):
People wonder what is the plan? So there’s a tendency to go, I’m just not willing to commit to the market at this point. It’s at or near all time highs. So I’m just going to stay out of the market, but then they continue to see markets go up and then they’re frustrated by that. So we have to take a look at just fundamentals. And if we take things into consideration, let’s take a look at first of all employment. So one of the things that drives the market one way or the other is going to be employment numbers. So if people are employed and working and spending money, the stock market tends to do better. We’re coming off right now of all of these unemployment benefits, and different states have handled it differently, but pretty much everyone, unless they make a change, there’s always a disclaimer, but pretty much everybody comes off of unemployment benefits in September all across the US.
Mike Lester (07:46):
So we’re coming up on September and we just had some really, really great jobs numbers. Well, that shouldn’t be a shock. I mean, we could have anticipated that the jobs numbers were going to be doing better and better because they know they’re losing the unemployment checks.
Mike Lester (08:02):
So they’re going to be out getting jobs. So we can expect those numbers to look good. We’re dealing with some things. The Delta variant of COVID is a potential headwind, but again, it’s more contagious, less lethal. We are better equipped to deal with COVID than we were before. So are we likely to see shutdowns around the world again? Maybe in some countries, but in the US we’re much better equipped to handle it, even though we know we’re going to see cases spike. So again, potential headwind, but I don’t think for the most part the market is going to be too concerned about that because the likelihood of shutting this economy down again is lower than it was prior.
Mike Lester (08:42):
So as we have more of an understanding of what COVID is likely to do, or we have more confidence in our ability to deal with COVID, as people are going back to work, if anything, I think the Delta variant of COVID is incentivizing people to vaccinated. I mean, it has shown that it’s effective against Delta and/or maybe your symptoms would be less severe if you get the Delta variant of COVID.
Yeah. Keep things going more normal, which is what we all want, frankly.
Mike Lester (09:08):
Exactly. And if there’s a silver lining to Delta, it’s that it’s likely to encourage more people to get vaccinated. I mean listen, I manage money for a living for families all over the US. More vaccinations means more confidence that the economy will do well and won’t shut back down and means the market probably does well.
Hey, I never thought about it that way. The more people that are vaccinated, we can feel more confident about the economy. That’s really interesting perspective.
Mike Lester (09:36):
You peel back the layers and you say-
Because it mitigates some risk and it’s all about that. Yeah.
Mike Lester (09:38):
It mitigates risk, that’s right. So you start peeling back layers and you can’t forecast too far out, but if you forecast the next several months, or if you just forecast the third quarter, which we’re in now, it’s probably pretty good. You get into the fourth quarter, I hope it’s good, probably good, a little less certain. But eventually, what everybody’s worried about, which is things like inflation, things like spending, things like our debt. I mean, all of these things are going to come to roost and I’m not super confident going into first, second quarter of 2022. And again, that could change.
Mike Lester (10:09):
But here’s the thing. If you’re sitting down and talking to somebody about their investments and talking to them about their financial future, and as long as you come up with a plan that says, all right, we’re going to do the best we can to navigate this. And if it’s likely to do well, we’re going to be more aggressive because we want to capture gains when they’re available. But if the risk is just too high, if the probability of success is low, why stay committed to a plan that’s likely to lose money? Why not just move your clients into a more conservative position? So there’s some back and forth there. And people who don’t have active management on their portfolio are stuck with a hang in their approach, and I just don’t believe long-term, particularly in the environment we’re in right now, that that’s a winning strategy.
Speaker 1 (10:50):
If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at Retirement.Tips/plan, and we can do that for you complimentary. Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast. Visit our website at Retirement.Tips for more free retirement planning and investment resources. Thanks for tuning into today’s show, and we’ll see you next time on the Retirement Wealth podcast.
Speaker 1 (11:23):
Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting, or investments regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments may fluctuate, and when redeemed, may be worth more or less than originally invested.