The Five Year Plan

In this episode, Joe Yocavitch discusses essential strategies for preparing for retirement, focusing on income planning, risk assessment, and the importance of a comprehensive financial plan. He emphasizes the need for individuals to understand their financial situation, including Social Security benefits, healthcare costs, and market volatility, to ensure a secure retirement. Joe also highlights the significance of having a financial advisor to navigate these complexities and create a tailored retirement strategy.

Transcript

SPEAKER_02 0:00

Welcome to the heart of your money with Joe Yakovic, president and founder of JML Financial Group. We hope today's show can help you on the road to your financial wellness. Now, here's Joe Yakovic and the Heart of Your Money.

SPEAKER_03 0:14

If we're sitting about five years out from retirement and we need to prepare, and there are probably people in that situation listening right now to the Heart of Your Money, Joe, thinking, it's too late. Like, what could I really do at this point to secure anything for retirement? What do you say to those people?

SPEAKER_00 0:32

The first thing you need to do for us is have a complete picture of what we're looking at and what we're talking about. And one of the things that we do, and we and you can ask anyone over the age of 50, you know, income is so important going to retirement. And being in retirement or going into retirement, you had to prepare yourself for some of those things that could happen to us. What happens if the market turns sour when you're starting to take money? The other thing is we need to cover what Social Security and pensions do not cover. Have a risk assessment of the person's portfolio and a pre-retirement income plan. So we'll know going in five years out what approximately what people are going to need going into retirement and any of the shortfalls that could occur.

SPEAKER_03 1:19

So is that retirement pre-plan worksheet, is that available to anyone that goes to JMLfinancial Group.com?

SPEAKER_00 1:26

Correct. You can go right on, go in there and uh at the top bar, and you can click on it and it would actually reprint and start to fill them out when you meet with me. So you're somewhat prepared bef before we actually sit down. And I'm ready for that. No different than a doctor. Before you come in, you have to fill out a bunch of stuff.

SPEAKER_03 1:46

Oh my God, there's so much paperwork at the doctor's office. This isn't like that, is it?

SPEAKER_00 1:49

Not as not as severe, but there is some information I need to, you know, uh to address and and one of his risks and one of his, you know, what type of uh income are you expecting? Do you have a Social Security? How much is it? Did you take? You know, what one did you take? And a lot of people don't know even now what Social Security benefit they should get. Either wait till they're 70 or wait till they're 67 or 68 or their spouses. So we help them design Social Security planning and we give them information to go along with that. Besides my book, I have other books that I hand out being able to cover the lifestyle that we have. You know, everybody has a different lifestyle.

SPEAKER_03 2:27

You mean everyone doesn't want to fly first class in the lay down seats when they go to Europe?

SPEAKER_00 2:31

And have to wait six hours in line to get away.

SPEAKER_03 2:33

Well, that's a whole nother story right now.

SPEAKER_00 2:36

I thought you'd appreciate that. But yes, yeah, we don't know that until we start to talk to people about that. Do we have enough liquidity going into retirement? You know, you're five years out. And most people, it just it is what it is. They put so much emphasis on 401ks and IRAs. And no one's paying tax on that money yet until they have to.

SPEAKER_03 2:56

And we're told that's a good thing. Oh, you don't have to pay taxes on it now. What a good idea.

SPEAKER_00 3:02

Very good idea. But now the Piper wants to get paid. But it also affects everything else. It affects your Irma, it affects Medicare premiums, it affects your Social Security, it affects other things that you have going on in your life. And that's where we become the most interesting guy in the room because now we're looking at what are the best strategies. You know, what are the best ways to do this to pay the least amount of tax, not the most amount of tax. And sometimes we do it before they actually retire. So we'll we just had a client talk to us. We're coming, I'm coming in next week. I said, okay, and we they've been a client of ours for 20 years, and he said, you know what, Joe, it's really funny that we've been working together for 20 plus years, and now I'm at that point that you prepared me for just to start to take a distribution and start to roll the money over uh from his 401k. But we've been doing Roth conversions on this gentleman for probably the last 10 or so years. So he didn't have to pay all his taxes at one time. He paid it over a period of years, and then when he goes into retirement, we're gonna take full advantage of all the big, beautiful bill accounts that that the administration has given to us, meaning that we get the maximum standard deduction for husband and wife, maximum, and there could be close to, in this case, 40 plus thousand. They get this the local, state, and local tax, it's called salt tax, that also has been increased. So all these things are gonna benefit us going into retirement. So we can put some of those dollars into the Roth conversion and such, we are in a much, much better position. The other thing, how do I give that person an income? Now, let's in this case, we have a this couple, uh, both pensions and social security is gonna amount to give or take uh about 7,000. And they want about $8,500, $9,000 per month to live on. This is this year. So we had to make some you know changes to the portfolio and changes on how they're gonna receive the money. Remember this. This is a, and by the way, all these years they've been paying uh for their health insurance through their company. Now Medicare comes in. So again, another added cost in the equation, and we have to be careful we don't put them in a higher tax bracket because Medicare will want more money. The biggest concern is where we find those dollars. What are the best ways to start to take the dollars that they've earned all their years, their assets, and turn it into an income? Now we become more so of an income planner, another type of pension plan, another type of Social Security plan that will give them an income for the rest of their life with no downside. I mean, all the downside risk has been taken care of, so you can't lose money. But again, if we can just put away X amount of dollars for the client to make sure he has no issues in terms of income. So we if we got the Social Security, we got the pension, and we have some of these guaranteed, never to worry about vehicles, and we suffice the amount that they needed, the rest of the money that they have, and this is money coming in from the remaining 401k or Roth, whatever, should be, in some cases, pedaled to the metal. Putting money into index funds, funds, putting money into the stock market, the U.S. stock market, purchasing and what percentage of international stock market indexes. You need to have a bucket strategy going into retirement. What I mean by that, you need to have some money that's completely taxable. And who's taxable are your IRAs and 401ks. And there's so much money in these buckets of that vehicle that it's all going to be taxable when they receive it. We need to cut some of that out to try to do our best to convert that money because we don't know what taxes are going to be in the future, Sari. Think about it. But you know where taxes are going to be in the future?

SPEAKER_03 7:07

No, but we think that they're potentially going to be going up. I mean, that's the guess, right? Yeah.

SPEAKER_00 7:12

Correct. And most people feel the same way you do. That, you know, it's because even if you factor in, and I did the math on this, uh, it really is scary. If you did the math on it, what would, you know, it uh at a percentage uh if you had money invested, hypothetically, and you had money invested in whatever it may be, but let's just say a hundred dollars. You know, what do you think that hundred dollars would be worth in ten years from now if you happen to have five percent inflation? You have any idea what that money would have to grow to or at least be worth in the next 10 years? Tell us. How about $162.84?

SPEAKER_03 7:51

That's a big thing.

SPEAKER_00 7:52

So that means you have to have that much money, think about it, that much money to have the same purchasing power of $100 today. Well, if you and I both agree there with that money, give or take, that means you have to take out more money out of your IRAs and 401ks to suffice the lifestyle that you're accustomed to because of inflation. I mean, it's just it is what it is. So I'm playing that game all the time with the client and making sure we are able to not take more risk necessarily, but give them a good strategic plan that addresses all those things. And you said earlier, health care. I don't know where healthcare is going. So I need to make sure if we can pay the least amount of taxes on the money when they're taking it, distribution, then their Medicare premiums will be less and they won't have to pay any more additional funds to Medicare. How about that?

SPEAKER_03 8:52

Also So we save the money. Yeah, and if you're paying less money in taxes, that's more money that you can potentially allocate towards long-term health care, which is something we haven't even gotten around to talking about on this show, because that's such a big hot button for people now, too, because the cost of that has kind of skyrocketed.

SPEAKER_00 9:10

Oh my lord, it's gotten crazy. And if you really asked, and I did this the other day, just for the heck of it. I asked a bunch of folks that were over the age of 60. I was just in a room and I said, Got a question for you. And I didn't I just kind of in conversation, I said, What do you think the biggest concern is going into retirement for you? You know the number one and number two and number three thing was? I'm gonna give you the first one. You ready for the first one? This is the and I was in a room full of professionals, and I was just shooting the crap back and forth. They said, outliving their savings, running out of money. And one biggest thing they said, and and I got this in my brain, you know, the longer we live, x you know, life expectancy, they're worried about their next eggs having enough. That's a concern, you know. The other thing was health care costs. That's where we're talking about it today. You know, do we deal with health care and the expenses are rising dramatically? You know, and programs like Medicare, long-term care, nursing homes, assisting care is especially costly. And we have those conversations right up front when people go into retirement, or five years out, we're starting to have those type of conversations. And the third one, they didn't mention market volatility, which I thought they might, but they did mention inflation. Because they're seeing purchasing power over time, and it's costing more money to live the lifestyle. And I mean, look at gas, it's temporary, I understand, but you understand that's inflationary.

SPEAKER_03 10:34

It still hurts when you go to fill out the car right now.

SPEAKER_00 10:36

You better believe it, it does. And I'm like at the other day, I'm like, I can't believe I spent $75 to put gas in this car. I can't remember when nothing happened. So again, this is these are things that I do every day because I'm used to them. It's it's my second nature. You know, it's uh it's like sports, you know. I've been doing it for so long. I work out, I I can almost close my eyes and work out without, you know, not knowing what I'm, you know, where I'm at. I can know and I can feel what's taking place. And what people need to do going into retirement, they need to have the same mentality. Or at least let me speak with them, let me sit down with them and show them the master plan, make sure they call us or visit us at JML Financial Group and check us out and see what we're all about. And that's what we want to really focus in on is helping people and how we can do that. Because it really doesn't matter, and we see this all the time, needed 250,000. And I didn't have people have 250,000, I have some people have two million, but I have people that have 150,000. I'm not gonna shut you down, but I want to make sure that the ones that have 250,000, $500,000 that have money in 401ks, you better start getting prepared for this because if the market changes or tax law changes and you're gonna be paying ordinary income from the money you're taking out. And another problem that we just talked about just a little bit is sequence of return. If the market goes down when you're taking money out, I mean you're talking the dangers of the market can turn any time on us, but in distribution, remember when you put money away, that uh it's pretty simple. But when you're talking taking withdrawals, and you're made when asset prices are lower, share with you. This transfer to a temporary market drop is permanent, Sari. I think it's a permanent loss, and it shortens the longevity of retirement savings. That's the issue. It's not just a loss that occurs, but to recover from that loss and you live a long time, that's a double whammy. That's what I'm faced with, and that's what people, when they come in my office, I explain that to them. And I don't have to go into detail, I'm not here to educate them on everything about money, but I need to have them understand how some of these basic fundamentals need to be in terms of encourage them to understand it. And I think a lot of times people go, I never thought about that, and I'm glad you brought that up. That's where I want to go. If I can get something where I'm not having to worry and you know, stress that comes in, I'm a hero, you know, really.

SPEAKER_03 13:27

So you've just described to us the danger of sequence of return risk. And I would like to have a conversation. Then what is the play to guard against that? Because we can't control what's going on in the market.

SPEAKER_00 13:40

Well, the solution is real simple. When you come into my office, the first thing that we do, we we well and I have a five-step process, but let's just go for the first three. We sit down and have a conversation with you. That's the first thing. I need to find out, you know, what your objective is. You know, what do what do we want to do? Do we want to, you know, continue to grow? Do you want to stop working in five years? Uh, do you want to do something on a part-time basis? Can you do something on a part-time basis? Will they allow you to do something on a part-time basis? We get that all off the table, and that really gives us clarity on today and what matters really in the future for that individual. Then we take your stuff, all and I say stuff because you could have all kinds of things funds, indexes, stocks. I mean, we really perfect and go a deeper look at current financials picture for yourself. This is all done free. There's no cost to this. We do this as part of our service with our clients because we want to know what they currently own. Maybe they don't even understand what they own. I bring it out to their attention. And we do that. Again, comprehensive view of all your financial components. Matter of fact, I'll only, because of my background, property and casually, I'll look at your automobile and homeowners insurance and see if it makes any sense to keep the same deductibles that you have now and try to lower the price. So again, I'm looking at liability. If somebody trips and falls on your property, what happens? Uh, then we go with the offensive and defensive. I'm looking at places to park money and move money in the right direction, and I'm also looking at things that are defensive, meaning that how do I protect your money? How do I make sure you have that guaranteed income? So the question you had is you know, I can have some of your money edged off purposely, never having to have a worry at all on your mind. Some of that money will be put that way. So you can do the things you want to do. And by the way, just to let you know, when people do it this way, they have no stress, good or bad, they live a lot longer because of that. No stress brings, you know, better, you know, for themselves and their family and what they bring to the to the game, like I say. It's important, and that's what one of the things, if not any of the things, that I think is most important is bringing stress down when you're in retirement. And people get stressed out very much so when going to retirement. I'm going, you don't have to be as stressful that you can have to be. You don't have to be this way. You if you have somebody that's really kind of holding your hand and taking you through these issues that we're all faced with, not just, you know, the 50 plus or the 60s, it happens to everyone I speak with. There's not a person going into retirement. Because to me, and I think you'd agree with me, retirement, you know, it's a serious thing and it's a way of life when you go in retirement. Because remember, you're going from making money to now spending money. That's a different mindset.

SPEAKER_03 16:36

It is. And everyone's retirement isn't going to look the same. I read more and more articles every week about work optional. Like you were talking about part-time. I read a story, I don't know if you saw this, about a guy. His name was Tommy, and Tommy was in car sales for 10 years, and he decided to go out on his own. And now he negotiates with car dealerships on the behalf of buyers for a thousand dollars.

SPEAKER_00 17:02

I sold that.

SPEAKER_03 17:03

He'll do the haggling for you. That guy is making around $200,000 a month providing that service. And that's something that anyone could do in retirement.

SPEAKER_00 17:14

Absolutely. I read that and I thought, man, I'd do that now.

SPEAKER_03 17:17

I know. I need to get in touch with Tommy and get some pointers here.

SPEAKER_00 17:20

Yeah. So yeah, it's it's something like that. You you reinvent yourself. But I think an overall people go in retirement, and if you have an advisor, you need to have somebody that really looks at the big picture. You're looking not just somebody that looks at the money, which is important, but you need to have somebody that understands buckets of money. You need safe money, you need some middle of the road money, you know, and you need some aggressive money. And you need some taxable money, tax-deferred money, and tax-free money. These are all different buckets that we're all it's all available to all of us. Just a question of the person that you're talking to, do they understand that strategy? Do they understand what bucket they should take from first or second or third? That's the real kill. That's when I'm talking about that, I'm talking about it's almost like you go into a poker game. You don't know what to do because everyone is is playing the same way. And you have to really start to think about what the best strategy would be for that individual and where that person is located from health-wise, think about it, where they want to locate themselves, because they say, Well, let's go to Florida. Have you ever been to Florida in the middle of the summer? I have. I don't think it's a nice place. Matter of fact, I the water is actually almost warmer than warm water, like uh, what do you call it? Uh like a bathtub.

SPEAKER_03 18:44

And then the bugs. Oh my god, the bugs are out of control.

SPEAKER_00 18:48

So, what do you do? Do you st I I don't know what the answer is. All I know is you need to have a plan. We put the plan together for you.

SPEAKER_01 18:55

Securities and investment advisory services offered through Integrity Alliance LLC, member SIPC. Integrity Wealth is a marketing name for Integrity Alliance LLC and is not affiliated with Integrity Wealth. Joe Yakovic is an investment advisor representative and registered representative with Integrity Alliance LLC, a registered investment advisor and member SIPC. Integrity Wealth is a marketing name for Integrity Alliance LLC. Integrity Wealth is not an affiliated company. Opinions expressed on this program do not necessarily reflect those of Integrity Wealth. The topics discussed and opinions given are not intended to address the specific needs of any listener. Joe ML Financial Group does not offer legal or tax advice. Listeners are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results. Fixed annuities are long-term insurance contracts when there is a surrender charge imposed generally during the first five to seven years of own annuity contract. Indexed annuities are insurance contracts that depending on the contract may offer a guaranteed on your interest rate on some participation of any of a stock market index. Such contracts have substantial variation in terms, cost of guarantees and features, and no cap participation or returns of significant weights. Investors are cautioned to carefully review an indexed annuity for its features, cost, risk, and how the variables are calculated. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals or taxes, ordinary income, and if token prior to 59 and a half, a ten percent federal tax penalty. Converting an employer plan accounts traditional IRA to a Roth IRA is a taxable event. Increased taxable income from Roth IRA conversion may have several consequences, including but not limited to a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Rebalancing reallocating can entail transaction costs and tax consequences that should be considered when determining a rebalancing reallocation strategy.