The Hidden Risks of Early Retirement — with Taylor Schulte

In this episode, I’m joined by Taylor Schulte, founder of Define Financial and host of the Stay Wealthy Retirement Podcast. We unpack why retirement, especially early retirement, is far more of a psychological challenge than a financial one. From identity loss to spending anxiety, this conversation highlights the real risks people overlook when planning their exit from work.

As mentioned in this weeks episode, a link to Taylor's own episode that dives deeper into the 4% of stocks that have actually provided shareholder wealth can be found below,

https://open.spotify.com/episode/7qmkmpwrfOpqTKamBD5c7Z?si=1ca3856e3a5440ea

If you have a question, suggestions, or a topic you would like us to cover, please send an email to: podcast@foxplan.nz

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The information shared on The Dollars & Sense Podcast is general in nature and does not consider your individual circumstances. Dollars & Sense exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Tim Ellis (FSP778196) and Brodie Haggerty (FSP778174) are both Financial Advisers providing advice on behalf of FoxPlan Ltd. FoxPlan Ltd (FSP39630) is a licensed Financial Advice Provider. Important information can be found at www.foxplan.nz/disclosure 

Transcript

SPEAKER_00 0:00

Welcome to another episode of the Dollars and Cents Podcast. This week you're listening to myself, which is Tim Alice, but joining me on the show is a very, very special guest to the show, Taylor Schulte. Taylor's the founder of Define Financial. He's also the host of the Stay Wealthy Retirement Podcast. And with more than 300 hours behind the microphone sharing wisdom with listeners, this week Taylor and I are going to be talking through the different experiences and nuances that people may face when planning for or even implementing an early retirement. Taylor, thanks again for agreeing to come on the show. I'm extremely excited to host you on the Dollars and Cents podcast.

SPEAKER_01 0:49

Tim, thanks so much for having me. I'm really excited for our conversation today.

SPEAKER_00 0:52

Oh, fantastic. And as I'm very sure that you are aware, I've been a longtime follower of the You Stay Wealthy Retirement Podcast. In fact, uh admittedly, I might have stolen one or two ideas of yours uh over the years that has proved pretty useful for my own show.

SPEAKER_01 1:09

That is okay. Um I appreciate you admitting that. And uh I will make it clear to your audience that uh you are always so gracious to reach out and ask if you can steal something before you steal it. So thank you.

SPEAKER_00 1:21

Not at all. Now, uh as is tradition with the Dollars and Cents podcast, uh every guest to the show with their first time coming on the show gets their uh their own personal introduction to the show. Usually that involves me being able to find a bit of dirt or or or goss about uh each guest that's come on. As the small village New Zealand is, it's very easy to find a friend in common that I'm able to do that. But with you being in San Diego, I think on this instance you might actually be quite safe from that. And I've only got nice things to say about you. Okay, okay, okay. With that out of the way, can I give you your dollars and cents podcast intro?

SPEAKER_01 1:55

Yes, please. I'm excited.

SPEAKER_00 1:57

Okay. So uh you are a CFP, a certified financial planner based in San Diego, California. You founded uh Define Financial about 12 years ago now. You're also the host of the Stay Wealthy Retirement Podcast. Podcast has about uh well more than 260 episodes. Apple has placed you in the top 50 uh investment podcasts, and Forbes actually put you in the top 10 personal financial planning podcasts. It's been a really fun journey. Fantastic. Uh you're also part of the uh retirement podcast network and uh what perhaps one of the most outstanding accolades. Uh, if you know head isn't big enough yet, you were named the uh number two independent financial advisor in the United States by uh Investipedia.

SPEAKER_01 2:43

Yeah, it was a lot of fun to be recognized by them for a handful of years. They no longer issue that award, which is kind of sad, but um, yeah, it was really, really gratifying and really rewarding to receive that uh uh acknowledgement.

SPEAKER_00 2:54

Oh, I I I can only imagine. Um but outside of business, you're also a father and uh a husband. I am. Three crazy kids. I'm we uh I'm only on two so far. And uh I think if anybody's crazy in this scenario, it'd probably be you for the third.

SPEAKER_01 3:12

That that is that's accurate.

SPEAKER_00 3:15

Yeah. Um but in your early 30s, you left a large wealth management firm to start defined financial uh on the basis of wanting to be more aligned with a client-first based approach as opposed to working with a firm that will look at the company's bottom line um before the client. Is that fair to say or uh summed up about right?

SPEAKER_01 3:35

Yeah, that's fair to say. You know, I mean I had a great first half of my career. I learned a lot, no hard feelings at all. I just wanted to do things a little bit differently, so I took the leap and started my firm in 2014.

SPEAKER_00 3:47

Wow. Uh congratulations and and well done. And once again, welcome to the uh the Dollars and Cents podcast. Uh, it's a pleasure to have you with us.

SPEAKER_01 3:55

Yes, yeah. Thanks again for having me, Tim.

SPEAKER_00 3:57

No stress. So just before we get underway, as is our duty in New Zealand, I just want to be super clear to listeners. Everything we're going to talk through today is general in nature. It's not designed to be specific financial advice. And we highly recommend that you seek the relevant professional before making any major decisions. With that out of the way, let's get underway. So, Taylor, I I understand that the core business of Define Financial is working with clients that are uh near on or in retirement and helping them address uh some very pressing uh pressing issues and uh decisions that need to be made um when preparing for retirement or or even in retirement. So what I was really hoping to do is take this time today to more or less pick your brains and ask some questions about topics that uh I I feel could be uh the most pressing or imperative things to consider before planning for or implementing uh an early retirement.

SPEAKER_01 4:54

Yeah, that sounds great. I would love to dive in with you.

SPEAKER_00 4:57

Let's get right underway then. So when when considering people that you've come across and and helped who have been uh attempting to implement an early retirement, say in their 50s as opposed to what's more traditional here around 65, uh, you know, what what are the different psychological shifts you've noticed that earlier retirees seem to face that perhaps uh more traditional retirees don't really come across or need to deal with?

SPEAKER_01 5:25

Yeah, look, I I think it's worth acknowledging first and foremost that everybody's situation is different and everybody's transition into retirement is different. Heck, I mean, some people just don't retire, right? They they work forever. You think about Warren Buffett, who, you know, has recently just stopped working. Um, so you know, everyone has a different path and feels differently about this major life transition. When it comes to early retirement, on one hand, those that are aiming to retire early have typically, at least in my experience, have typically put a lot of thought into that decision. Maybe they've even arranged their retirement planning accordingly. You know, they decided in their 30s or even 40s that they want to aim for an early retirement and they've constructed their retirement plan to enable them to do that. So, on one hand, those that are aiming to retire early typically put more thought into that decision. On the other hand, it is an untraditional decision to your point that, you know, typically in New Zealand, people are retiring closer to 65, which I think is, you know, the same here in the United States. When people think about retirement, they think about, you know, in their 60s, age, you know, age 62, age 65. Um, so because it's untraditional, even though they've thought ahead, I think it still causes them to question if it's the right decision for them. And I think just no matter what, whether it's early retirement, whether it's a traditional retirement age, in my experience, it's never ever an easy decision. It's always really, really challenging. And again, I think people underestimate how big of a life change or life decision this really is. They talk about it, they plan for it. And then when it when when push comes to shove, they start to panic a little bit. They're like, Am I truly ready? What am I going to do with myself? Do I have enough money? All of a sudden, all these questions start to come up. And I see it really get really hard for people to actually pull the trigger and move into retirement. And that's a delicate conversation. You know, we want to give people permission and confidence to make that decision. Um, but I don't want to push them into it because it is a really big life decision. I mean, I don't know if this is a fair analogy, but you know, like getting married. You know, you don't want to like force somebody to go get married. They have to kind of go through that process in their own time and they have to be ready. And I find that retirement is the same way, again, whether they retire early or retire later, or, you know, still struggle and continue to think they maybe want to work for a longer period of time.

SPEAKER_00 7:41

Yeah. And do you think that um the level of difficulty to make that decision and confidently and actually implement is any different uh for people in their 50s versus uh people that are uh um nearing 65 or uh I I think one consideration that would need to be included in uh in New Zealand, um anybody that's turned 65, rich or poor, in good health or poor health, working or not working, will receive uh a superannuation payment. Uh by no means enough to support an entire retirement, but that is one thing or advantage that people uh waiting until 65 have that perhaps people uh retiring in their 50s don't have. I don't know if there's something similar in the US, but does that ever play into the level of difficulty to make that leap, in your opinion?

SPEAKER_01 8:29

I want to be careful about making like broad sweeping statements here and acknowledge that I do operate in this bubble of higher net worth financially successful retirees. So I'm sure there are plenty of people out there that like as soon as they have enough or as soon as they're eligible for Social Security or some sort of fixed income, they hate their job and they're ready to retire and move on with their life. Like I'm sure there's there's a you know a segment of people out there. In my experience, working with higher net worth, financially successful people, um, most of them tend to really enjoy what they do. They've had really rewarding, satisfying careers. And it doesn't really matter how much money they have. We can tell them a hundred times that their plan is successful and like it's nearly impossible to run out of money, that they have everything they need to make that decision. And it's still a really, really challenging decision to make, even when Social Security kicks on and that income kicks in. So I find that it's not always the financial conversation that it's not just money that drives or the amount of savings that drives that decision to give them the confidence. Because no matter what, like there's even if you have, you know, whether it's a million dollars or$10 million or$20 million, there's still that question in the back of your head, like what if, right? What if something happens? And remember that, you know, more money, more problems, uh, more expenses. So, you know,$10 million might sound like a lot to some people and not very much to others. So we have to be careful not to judge people by the amount of money they have as well. So I really do find that it kind of comes back to this psychological challenge of retirement and less of a financial challenge.

SPEAKER_00 10:07

I I I couldn't agree with you anymore. Um, because uh you you're trying to answer an emotional problem with uh with logic, it is never gonna work. I could show them five different spreadsheets from five different pieces of software that all five are telling them that they're gonna be leaving uh first-class tickets to their inheritors. And um there there's no chance unless they uh extremely blow out their lifestyle, um, that they're ever gonna run out of money. But that's you know, using logic to try and answer an emotional question. Um it's not what's gonna get the confidence to to actually retire wealthy and and and with purpose and confidence.

SPEAKER_01 10:47

Yeah. I think it surprises a lot of people, you know, because most of their careers they're focused on making money, saving money, investing money. They might even have like a target retirement savings amount. You know, once I reach a million dollars or two million dollars or five million dollars, like that's when I'll retire. So a large part of their life and career has been focused on a certain dollar amount. And all of a sudden they get to that stage and they start really evaluating this decision and they start to realize like it's not so much of a financial decision, right? It is more of an emotional, psychological challenge. And it becomes really, really difficult, which is why I do I do enjoy talking about this and bringing to the surface these psychological challenges, but I don't think they get talked about enough. And I think people do need to prepare accordingly and start to think through these psychological challenges earlier on so that they are prepared when that time comes.

SPEAKER_00 11:35

Yeah, and and how do you how do you facilitate that? Or how have you found what have you found to be successful when asking people what to consider to uh actually be mentally prepared to make that shift easier?

SPEAKER_01 11:49

Well, I enjoy leading with education. I, in most areas of my life, I don't like to convince people of anything. I don't have any like major hot takes. I'm not trying to like win an argument, I'm not trying to twist your arm and convince you, Tim, that like you need to retire tomorrow or that you need to understand these psychological challenges. I like to educate and share really helpful information in a number of different ways, mediums, sources, um, and put that good, helpful information in people's hands and let them kind of come to their own conclusion. So that's my approach to this. Now, um, given that, most clients, most people we talk to, they reach out to me, whether it's through email or they schedule a phone call with our firm, they reach out to us after having listened to some of our content or read our email newsletter. Um, they they've heard our beliefs and philosophies and, you know, our different feelings about retirement. They've heard all this. So by the time they come to us, they're kind of prepared to have these conversations. So we're not really catching people off guard and having to facilitate, you know, multiple meetings to help, you know, explain these psychological challenges. Like they tend to know they exist because I've been talking about them for so long. So I like to lead with that education and put this good information out there, start to get people's wheels turning a little bit, thinking about these things, giving them different ideas, questions to ask their current advisor, questions to ask their spouse or conversation starters with their spouse. Just start thinking ahead. Um, so yeah, it is challenging. I guess more than anything, I want when clients come to us, when clients reach out, when they're having these retirement timing conversations. I really just want to provide the space for them to have that conversation and to talk through it and to ask their questions. Um, and a large part of it is showing them with confidence that their retirement plan is healthy. I want I want to like get that off the table as quickly as possible, right? You know, Mr. and Mrs. Smith, like, let me show you uh your the health of your financial plan that even if there was these catastrophic events that occurred, your plan would still, you know, remain healthy. We might need to make some changes, right? But it's not gonna fall apart. You know, it's not gonna go to zero. Um, so I want to get that financial conversation off the table as quickly as possible, give them that confidence, and not just open the table for that more emotional conversation about this very, very big life transition.

SPEAKER_00 14:04

Sure, sure. Uh okay, well, and before I move on, I just want to see if we can get some key takeaways for uh for listeners here. Let's imagine uh a couple that uh the children have left the nest and they are now starting for the very first time to consider the the early retirement, but they've done no conversation, uh no meaningful in-depth conversation. They've done, they've not engaged a financial advisor. Um, you know, is is there a list of resources or a place uh that you would recommend they could go to before engaging uh a third-party facilitator, such as a financial advisor, to help prepare them for their line of thinking or a good place of accessible resources?

SPEAKER_01 14:47

Yeah, I guess the the two people that come to mind, I think you're familiar with are uh Dr. Daniel Crosby and Brian Portnoy, um, two incredible thinkers and authors in this, you know, behavioral finance uh I don't know, psychology of money kind of space. And they've talked about and written a lot about you know these different challenges. And so uh each of them have some really great books. Um, Daniel Crosby's most recent book, The Soul of Wealth, is fantastic. He's written others as well. So, you know, if reading is your thing, I think those are a couple of people to look to to start to learn. But I really do think a large part of this is having some of these conversations and being realistic and honest about what this upcoming major life event is and not to chalk it up as like just this other this this next box that you're gonna check because I I rarely see that it's that easy. That like, yep, I've saved my million dollars and uh I'm collecting my social security and I'm gonna go in and hand in my notice tomorrow and retire. It's rarely, it's rarely that simple. Um, for those that do aspire to retire early, I think they do end up facing maybe more challenges earlier on in retirement than those retiring at traditional ages. So I'm happy to dive into a few of those, maybe like non-financial challenges that tend to creep up that are often overlooked. Please as more of kind of a starting place for, I don't know, those who are curious.

SPEAKER_00 16:15

Yeah, far far away. I'd I'd love to get your take on that.

SPEAKER_01 16:18

Yeah. I I think first and foremost, you know, in retirement, no matter when you retire, there's this, it's often referred to as the identity gap. There's this identity gap of like, you know, for the last 30 years, my identity was a doctor, right? Or an attorney or whatever your trade is. And now that you're retired, there's this, of course, a honeymoon period where you're traveling and enjoying retirement. But then there's like, who am I? What am I going to do with my time? Right? Uh, what's my what's my purpose? And for those who are retiring earlier, I think they have more of a challenge because they have a longer time in retirement and they're younger. Uh, they don't have the social, you know, circles that they once had at work. And so they are a little bit more challenged in that department. Also because they're younger and it's this untraditional age to retire at. Um, it's maybe not as celebrated by their peers. They're maybe judged by this early retirement decision where somebody retired at 65. It's expected, it's, you know, it's respected, it's it's almost like celebrated. Like you reach that age. It's time for you to retire. Like, let's celebrate it. Where it's like, wait a second, Tim, you're retiring at 52. Like, what do you mean? You know, and maybe there's some judgment and some challenges that come along with that in you know, your social network. So I think just no matter when you retire, finding purpose and finding your identity and closing that identity gap is really important. And I always like to highlight here, um, this could mean maybe working part-time, you know, maybe you know, you love animals and you want to volunteer at an animal shelter, or uh, I don't know, you actually want to work and earn some income and you get a job at a local pet store and you love interacting with people, and now you have, you know, some so social people, you know, some uh communication, some people, some friends around you to kind of fill some of those gaps. Um, maybe you love to play golf, right? Instead of just going to the country club every day and just like playing golf, maybe you get involved with the golf course, right? Maybe you sit on one of the committees to help make the golf course better and help make some of the decisions that drive the success of the golf course. So there's like a lot of different ways that you can find your purpose and get involved and contribute to this world. It doesn't have to be uh volunteering, it doesn't have to be continuing to work. Um there are other ways to go about that. So the the first one I want to bring up was just finding purpose and identity. Um, the second, and this is pretty well documented in a number of different areas, is for those retiring earlier, there's this potential for increased uh cognitive decline risk. So uh uh one study in specific from the psychology, uh, what's it, the psychology and aging journal suggested that early retirement can accelerate this decline because it isn't accompanied by sustained mental engagement, right? You don't have those people at work, you don't have that social interaction, you don't have those obligations and responsibilities. And so it's often equated to this like uh use it or lose it model. Like you're not using it like you once were. There's decades of problem solving and social interaction and you know, uh, you know, all uh, you know, structured cognition with your peers, and all of a sudden it's like suddenly just like gone. And so we have to think about how are we gonna continue to you know work our brains in retirement. If we retire early, we have a longer time period to ensure that we stay, you know, mentally healthy. So something for those retiring early to certainly think about. Like a stimulus. A stimulus, I I think you know, that identity gap and closing that certainly helps with it. And that's my kind of my point is like um staying busy is one thing. I'll pick on my dad here for a minute, you know. Uh he's retired and he'll I'll have the try to have these conversations with him and he'll say something like, like, I'm busy. I'm always busy, I'm always doing something, right? But the thing the things he's doing are just like things by himself. Like he'll go to the gym and then he'll go surf for a couple hours, um, you know, and then he'll go like have lunch with a friend. And, you know, that that's pretty much like his day, which is very different than like um I don't just surf, but I also, you know, volunteer at the surf camp and help teach like other kids how to surf and like sit on the board and help make some of these decisions, right? Like again, my my golf course analogy like get involved in the golf course, sit on a board, sit on a committee, like help run the tournaments, like do something to contribute and you know, mentally stimulate yourself and stay involved. So um, it can be done in a number of different ways. I'm sure there's little things like you know, reading and you know, continuing to learn, learn a new skill. Yeah, like learn a new instrument, learn how to play chess. Just the other day, uh my son and I together uh were learning how to play backgammon. Like I've never played backgammon before. And so we're like, there's all these weird, crazy rules, and I can only imagine, you know, somebody who's 65, 70, like go learn a new game, you know, like it it stimulates your brain and it helps, you know, prevent against this increased cognitive decline risk. Um and we've already alluded to it, but again, like I think the the third thing I'll bring up is just that kind of social isolation. Sure. Um, especially if Tim, you're retiring at 52, but all of your peer group is still working and plans to work till 65. So you're hanging out and you're like, hey, where is everybody? And everybody's like, dude, I'm at work. Like, I don't know what you're doing. And so it becomes challenging, you know, from a social perspective. And, you know, again, a well-documented that social isolation can be a problem. And I do think it's it's largely ignored. I often just hear from people like, I'm fine, like I'm fine by myself, you know, like I'm fine going on walks for a few hours and going to the gym and I see people and you know, I make phone calls. Like, I just think it's it's very different than being actively involved with a group of people and having an obligation to them and having to. engage and small talk and like it's just it's you know problem solve work on projects together just very different than like grabbing lunch with a friend from time to time.

SPEAKER_00 22:07

Uh a hundred percent. And I I've I think I've uh heard you talk about this on some of your um previous episodes on your own podcast. Uh you actually gave a really good tip um for people to use but I think you also warned that the risk of not considering this one is two or three years later you're back in the workforce.

SPEAKER_01 22:26

Yeah absolutely yeah and and that can happen too and that's another challenge too retiring earlier in your 50s makes it a lot harder to go and get a job again if you decide you need or want to go back to work. Right? You've you've left your career behind you, right? You're now retired and let's say at age 57 or 58 you're now realizing you want to go back to work. Well it's a lot harder to find a job in your late 50s after you've been traveling for five years in your early retirement. So um that is a challenge too when you want to go back to work and you're not as hireable in many cases.

SPEAKER_00 23:00

Sure. And I I think one of the tips that you gave in that particular episode was maybe spend six months prior to retirement trying out different um social activities, uh being on a board or being involved in a charity that's that's close to you. Maybe being involved in one that's not so close to you. You you won't know but go and give them a a try for a set period of time. Agree on the six or so that you're going to do that prior to retirement and you might find something new that you enjoy more than you thought you were ever going to enjoy that could serve as a purpose once you do make the leap into retirement.

SPEAKER_01 23:35

Yeah. Yeah I'm a huge fan of of trying things out. I think I might have shared on on one episode like you know I'm I'm 40 years old but I actually tried it out um I think it was five years ago I took uh an entire month off just disconnected from everything my family and I went to Hawaii got a house for a month and I just disconnected and it literally felt like I had retired. I felt like I was at work for 30 years and like I had nothing and I learned a lot through that experience. So that's an extreme version for you know someone in their mid 30s at the time but I I I am a fan of like testing things out and trying things out. Um even when it comes to retirement if you have the ability to phase into retirement right you start to work 75% of the time then next year it's 50% of the time then it's you know 25% of the time and then you're like an on-demand consultant for a period of time. Like those phased retirements can work out really well instead of just like cutting it off tomorrow.

SPEAKER_00 24:27

Sure. Sure. Well if it's all right with you I'd like to bring it back to uh my next question being more in line with the financial side um rather than the psychological side. But uh in saying that it is completely a psychological question. So a lot of the people that I have noticed that have achieved an early retirement or clients of mine that are planning an early retirement or or right on the brink of it now, they quite often are in that position because they have acquired shares in the company they work for or they've been able to purchase them at discount prices via a you know an employee equity scheme. And those shares make up a very very large portion of all of their retirement savings. They've always planned on using those shares for retirement but for however long they've been working for that company they have been acquiring these shares they've grown in value to such a a great level and they're emotionally connected to them but now they need to use those to fund their retirement. Is this common with with clients you've come across before and and if so you know what challenges have you found people have faced when needing to actually use those assets to fund retirement?

SPEAKER_01 25:39

Yeah if it's not concentrated company stock like your example it's still often like an asset class. So for example we see a lot of people especially over the last you know 20 years um people have made most of their money and accumulated most of their wealth by investing in the broad US stock market, right? Your SP 500 funds uh because it's been the best performing asset class and those here in the United States that's what they know and that's what they're largely invested in. And hey it's actually worked out really, really, really well for the last 15 or 20 years. So if it's not like a concentrated company stock, oftentimes it's the majority of their investments are in one single asset class. And I would kind of treat this challenge the same way, whether it's the S P 500 and everything's in that asset class or everything's in a single stock. Now a single stock is certainly uh more riskier than than uh you know a broad based asset class like the S P 500 but it's still uh the psychological challenge uh still exists there and that fear of maybe I should ask you a follow-up question is what you experience is it more of this emotional connection to this company or is it more of yes I know there's a lot of concentration risk here, but I don't want to pay the tax bill to get out of this stock and buy something else. I don't know the tax structure, you know, out there in New Zealand. So maybe that's not as big of an issue.

SPEAKER_00 27:07

It is certainly a very, very important consideration and and it completely depends on how tax is being addressed whilst uh uh acquiring the shares I I don't want to go down that rabbit hole of tax and crossing lines of sounding as oh I uh I claim to be a US tax specialist uh far from it with no aspirations to do so but uh no I'm more getting at the psychological side of um you know that this this might have made up 60% of their their entire wealth and they've worked for the company they know new products are coming out they've seen the value of those shares go from the first day they were employed to being insignificant a nice part of my remuneration package to now an extremely meaningful amount of money uh but they have to use them they have to forego them they have to they're aware of the concentration risk maybe they need to diversify them they need to sell them dump them when's the right time we've got these new products coming out maybe I you know hold on to them for a while and I use maybe an investment property that I've got to fund retirement it reminds me of that that old adage you know what what got you here won't get you there.

SPEAKER_01 28:19

And I think it applies here as well where you're just like yeah but like this company right it made me all this money over the last 30 years like you know and like you said like I I know everything in the pipeline that's coming through like you know the same things that's gonna happen over the next 30 years. Like why would I why would I you know take my my money out now. So it is really challenging. So I guess first I'll just quickly acknowledge a lot of times I with our clients it is often a tax issue. It is often like yes I you know there's a lot of concentration risk here but like I don't like I don't want to pay the tax bill right that's a pretty giant tax bill I'd have to pay to get out of this this stock um or this fund. And so often that is a big part of the conversation and our kind of quick responses deserves you know much longer conversation but quick responses uh and you've probably heard this before but don't let the tax tail wag the investment dog right don't don't hold on to the wrong investment or a bad investment just because you don't want to pay the tax bill. Because if that stock or that fund drops by 20 or 30 or even 50% gosh well like paying that tax bill a few months ago is now looking pretty good. So we want to be careful about letting taxes drive this decision. Outside of that, yes, we do see people get really emotional about companies um we can go about this a number of different ways. I do like to highlight I I like to as you know I like to use like data and history to support a lot of these conversations um because I think history does repeat itself and I like to highlight that you know this company that you worked for for 30 years, I'm sure it's a great company, right? There are a lot of great companies out there. And guess what? Good companies go through really difficult times. I remind people of Amazon that dropped by 95% at one point in the early 2000s. You know, we've seen General Electric, a great you know global company drop by I think it was 85%. Netflix, Facebook, all these great companies have had really, really challenging times. So just because it's a great company doesn't mean that the stock is always going to perform to your expectations. So we have to be careful about just thinking you know this is a good company and it'll continue just like produce great returns. In retirement we have to be careful about volatility right um this, you know, maybe the next 30 years this stock will produce good returns but maybe it's going to take you on a wild ride, right? Do you want to go on this wild roller coaster in retirement when you really need this money? Probably not. So we want to think about you know how smooth our returns are they certainly not going to be predictable but like we don't want our portfolio jumping around day to day when we're taking money out to fund our retirement. So it's a really fragile delicate conversation similar to our other one. I don't want to come in and twist somebody's arm that you need to go and sell everything tomorrow. But I do want to kind of meet them where they're at and start to educate and talk through some different scenarios um and uh and hopefully come to a conclusion. And where we typically end up is we don't make a giant change tomorrow. We typically come up with a multi-year plan to unwind these positions at a comfortable pace that you know handles their tax concerns at the same time. There's just no other easier way to go about it. And I guess the last thing that comes to mind is like I don't want a captain a sinking ship. And so if somebody is putting themselves in jeopardy and their retirement plan at risk because they're too stubborn to let go of this you know giant portion that's taking up their retirement savings like it it might just be somebody we we can't work with. Like we just don't have the expertise to help. So that's just the reality of it as well. Sure if if and I'm sure you caught it I shared a recent episode uh about a hundred years of of stock market data that just shows like how few stocks actually contribute to returns. So once you see that data it starts to remind you like diversification is really important. It was mind blowing that one yeah I mean less than four percent of stocks over the last 100 years contributed to shareholder wealth less than it was like 3.7% of stocks. So if you think you can pick those 3.7% of stocks like by all means go for it. But like I certainly don't think I can.

SPEAKER_00 32:19

Yeah but a truly inspirational um episode one that I actually did share uh the moment I heard it I shared it with two other financial advisors as well. I I won't go into all the details of it here but uh I'm sure we could put a link in in this week's episode to uh to that very one uh as I think it does serve um uh as a great resource to actually reflect um and now it's uh that was the updated version though with a hundred years of data where previously the report was out with only 90 years of data yeah I think it was yeah I think it was 90. Yep correct great cool well moving on uh let's let me pick your brains on this um when doing a a retirement plan discovery and and and developing a retirement plan for your clients whether they are 10 years out or um wanting to retire tomorrow but only engaging in planning for the first time now I assume your process is the same as mine is one of the big questions that need to be answered is how much is enough to support the lifestyle that they want and to truly feel wealthy in retirement is going to need a level of funding.

SPEAKER_01 33:26

We need to determine what that figure needs to be to give you the the the wealthy uh retirement that you want how do you help clients determine what that figure needs to be and how much is enough yeah so again acknowledging that I do operate in this bubble here we work with a lot of financially successful people that have been really really good savers um most of our clients whether they know it or not most of our clients have oversaved for retirement and so while they may not feel like they have enough and they may come to us saying how do I create income out of this bucket of money? Can I create enough income? Most of them have done a great job and have oversaved and have more than enough. But to your point we still want to go through this exercise and we still want to highlight what this amount is mostly because we want to give them confidence to actually spend this money in retirement. And so for us, we always start the process whether they're 10 years out from retirement or you know six months out from retirement, we always start the process with tax projections first. I'm not saying it's required that every financial advisor should do it this way. It's just how we think and how we go through the process. So to us taxes touch every piece of your financial plan, every piece of your retirement plan. And so we want to understand what's your tax situation today, what's your projected tax situation year by year throughout retirement and where are there opportunities or even periods of time where we have to be careful with income decisions or investing decisions or healthcare decisions. So we want to understand the tax picture first. From there we'll move into understanding your cash flow. So where might income be coming from in retirement you know maybe New Zealand you've got this guaranteed income source here in the US we might have Social Security maybe a client has a pension maybe they have a rental property and then second to that what are their expense needs their current expenses are pretty indicative of their expenses in retirement we can identify some areas where expenses could be higher and could be lower maybe in the early years of retirement they're doing some extra travel and some extra spending so we can you know document those but how somebody spends money the amount of money they spend is pretty indicative of how they'll spend money in the future. So documenting those expense needs. And then from there we like to evaluate the health of their plan um in dollar terms. So instead of saying you know Tim you know based on all these inputs and everything that we have from you know your plan has a 99% chance of success. We like to convert it to dollar terms and say hey based on everything you could uh you know after taxes spend$20,000 per month starting in retirement uh we do use a dynamic withdrawal strategy so that amount could go up or down throughout retirement so we'll talk through that a little bit but we'll say you know Tim you know based on everything based on your plan you could start off retirement uh spending$20,000 a month from from your nest egg uh but you shared with us that you're currently only spending or only need to spend, you know,$5,000 or$10,000 from your portfolio, which means there's a$10,000 delta there. You've got an extra$10,000 per month that you could be spending on something. So now let's have this spending conversation what would you do with this extra$10,000 per month and you might say I don't know like I don't think I could spend an extra$10,000 a month. I don't even know where that money would go. Great let's talk about potential charitable giving or what about your kids we want to set money aside for your kids for the future or your grandkids um do we want to earmark a bucket of money potentially for a long-term care expense um or it might just help them sleep better at night to to know that they're spending 10 grand a month and they could be spending 20 grand a month and that might just give them a lot of peace of mind. So I just found like putting it in dollar terms really helps to drive that that income, that spending conversation rather than putting it as a probability of success. Now we will pair that with a probability of success just to confirm that the plan is healthy from a Monte Carlo analysis perspective. Sure. But I just find like in dollar terms going through that process I just explained really helps to bring to the surface how healthy the plan is and how much they can truly spend in dollar terms.

SPEAKER_00 37:41

I I I makes great sense. Thank you so much for sharing a little bit of insight into uh you know the journey that you you take to help people feel confident in in in making the decision to to pull that trigger. But throughout your your travels have you ever found that there's a a common area that always gets neglected or or something people simply don't think about before it gets brought to their attention?

SPEAKER_01 38:04

I think the hardest thing no matter what is it's a lot harder to spend money than people think.

SPEAKER_00 38:09

Yep.

SPEAKER_01 38:10

Uh they've done a great job I mean those who are great savers are not typically great spenders. And so they work their butt off they amassed this amount of wealth and they don't know how to spend it all. And so I think that's probably the biggest area and that's why again like I love to put it in dollar terms and show them the potential and have these conversations to help give them that confidence to actually spend this money. I don't want to see clients pass away with millions of dollars that are unused and they didn't get to live the the retirement they work so hard for so I think that's that's probably the one area that gets neglected. They're so focused on like can I retire? Do I have enough right those like common questions and they start to realize how difficult it is to actually write checks and watch their account balance go down because they've been watching it go up for the last 30 years.

SPEAKER_00 38:59

Yeah that's what I find people struggle with so much. So uh I like to phrase it like this when when they were accumulating working and receiving a paycheck every fortnight month or week if however they were paid the idea of upgrading the car was almost a given. You know they've been doing that every six months for some people year two years or three years for some people but now that the the weekly paycheck has stopped and there's nothing coming in and all of their assets are actually starting to go down the idea of upgrading the car once again perhaps unnecessarily it just becomes that much harder in retirement for people to feel comfortable to do so. Is that a shared experience?

SPEAKER_01 39:42

Yeah it I it is a shared experience it it is just it's it's a challenging proposition. It's a challenging position to be in um and yeah again when you're used to saving money and investing your money and watching your money grow just becomes harder to spend it and watch it go down. And it's it's hard to watch I I may have shared this in a recent episode but we have this client who she's single her husband passed away she has more money than she'll ever be able to spend and she'll still call her office and say hey do you think I can afford to go on this this cruise you know I'm like like go on the cruise you know get the first class cabin do it all but it's just you know and you know this that your attitudes and behaviors around money and spending they're formed at like age eight. And so when you're 65 like those behaviors aren't changing, right? You are who you are like your feelings and and behaviors towards money and spending that it just is what it is. I can educate you all day long, right? Uh but it's probably not going to change anything. So uh that's why I said earlier we kind of meet the client where they are where they are and understand that this is really hard for them and continue to support them and help give them that confidence to to spend money safely.

SPEAKER_00 40:49

Sure. And and how has it actually played out in reality? If I asked you to start thinking about clients that you've met with that are uh you know three or four years already into their retirement have you ever found that their um their their psychology around spending money has changed or their habits have changed uh in in any which ways compared to how they were whilst working?

SPEAKER_01 41:11

I won't go as far as saying their habits change what I will say is we've had more success stories than I can count watching clients or I should say supporting clients in making some pretty big financial decisions that they probably wouldn't have made without us sure the one that the one that comes to mind is uh a local couple uh just always dreamed of having a beach house just like living on the beach like their home being on the beach and I don't think they ever considered that it could be a reality it was just always that like that dream just like how cool would it be to like live on the beach you know and um I I forget how the conversation originated but long story short there was a house available uh well beyond a price point that they ever considered and we had a lot of conversations with them uh to give them the confidence to make this move which meant spending a lot of their portfolio uh to make this move and make this you know dream come true. And uh we walked them through that entire process from start to finish. It probably took a lot longer than it needed to uh we want to give them the time and space to make this decision. And uh I just still remember them coming into our office everything after everything was all said and done and we're just so incredibly grateful uh for our support during that process I don't want to put words in their mouth but the feeling was like we couldn't have done this without you right like without your support and guidance and confidence that you gave us to make this decision. Cause like how many people would think like I'm making a really am I making a really stupid decision right now with my money, right? You know, buying a beach house like who am I? You know how many like thoughts go through somebody's head and so for their financial advisor to look them in the eyes multiple times and tell them they can do this and show them with numbers that it is feasible, it gives people that confidence. And they don't always act on it but this client did and uh they are incredibly grateful for that. So it's just really really rewarding and cool to see to be on our side of the table and and watch people go, you know, through those events and for us to be a part of it.

SPEAKER_00 43:19

That's amazing Taylor I'm sure that stories like that are uh what uh gives you the energy to put the time into um you know not only your business but the effort you put into your podcast um you know the just hearing you share that story it shows uh what it it tells me that the the purpose is there for you so congratulations on uh on achieving that thanks Tim I appreciate that I think uh I one one last question maybe this is a Kiwi problem a Kiwi struggle I'm not sure I I'd love to know that it was um a a shared experience um with with some of your clients but what I have found is people that have actually pulled the trigger on retirement have now found out that they have Spouse. They're in the same house seven days a week where previously employment gave them an excuse for a reason to leave the house, you know, perhaps five days, four days, or three days a week. Now that that's gone, every day's a Saturday and they're in each other's spaces daily. Yeah. It can be a a struggle for some. I can think of one person that his wife likes to plant trees. They live on a farm. If he doesn't get out of the house, he's planting trees all day long because he's not allowed to sit on the couch while she's out planting trees. Right. It's a struggle. Uh is there is this is this a another shared experience or something you've you you've witnessed yourself with your own clients?

SPEAKER_01 44:42

I can't say that clients come to us all the time sharing this this struggle or concern, but I am very confident that it happens. I think it's very, very common. Um, not everybody is vulnerable enough to want to share it, or they make one-off comments and you don't know really how serious it is. But regardless, I think this all goes back to where we started this conversation with that identity gap, right? Your identity was you're an attorney. You were the breadwinner of this family. That was your identity for 30 years, and now it's not, right? And so that does start to impact the family system. That does start to impact relationships with people around you, including your spouse. And so this is nothing to uh to ignore. It is something that you do have to factor in uh if you want to maintain, you know, a healthy relationship with those around you. So um, you know, I'm a huge fan of therapy. Um, my wife and I have been going to therapy even before we were married. And uh I imagine we'll continue therapy throughout retirement. So I think, you know, for us, that's an important uh solution um to something like this, to be aware of these potential situations. So yeah, I don't know. It's not it's not something that we like solve for with our clients every day, but um, it's absolutely something that should be part of your thinking and part of your planning. Um, and again, I would just go back to that like identity gap. Like, who am I in retirement? What am I gonna be doing with my time? Um, you know, and how can I ensure that it creates a you know a positive, fulfilling environment for those around me?

SPEAKER_00 46:06

Um, it really is.

SPEAKER_01 46:10

So um, yeah, I don't know. It's interesting. Maybe Kiwis are uh more open to to venting their frustrations around this than we are.

SPEAKER_00 46:17

Perhaps we are. Perhaps we are. Um well look, Taylor, I I again, I couldn't thank you enough for the time you've given. Thank you so much for coming on the show. It's been an absolute pleasure um picking your brains. And I'm sure whether on a podcast or via emails, I'll continue to pick your brains for as long as you'll respond as well. So I look forward to coming at you with uh with more tricky questions.

SPEAKER_01 46:37

Yeah, please do. Thanks so much for having me, Tim. Thanks for the thoughtful conversation and really good questions. Thanks again for all the support uh on the Stay Wealthy Retirement Podcast. And yeah, please do keep in touch.

SPEAKER_00 46:47

Sounds good. That's for this week. That's using the