The Strategic Wealth Hour
The Strategic Wealth Hour is a dynamic and engaging radio show designed to help listeners take control of their financial future with confidence. Hosted by experienced advisors, Tom Hadican, Charlie Sottoriva, and Arron Bockman, the show breaks down complex topics like retirement planning, wealth and investment management, and protection strategies into clear, practical guidance you can actually use.
The Strategic Wealth Hour
The Retirement Income Conversation
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In this episode of The Strategic Wealth Hour, Tom Hadican and Aaron Bockman break down one of the most important questions facing retirees and pre-retirees: how do you turn a lifetime of savings into a reliable retirement paycheck? The conversation covers where retirement income comes from, how to calculate your income need, why expenses matter more than account balances, and how Social Security, pensions, investment accounts, cash reserves, and annuities may work together in a comprehensive retirement income plan.
Tom and Aaron also discuss common retirement income myths, the impact of inflation and healthcare costs, the limitations of the 4% rule, sequence of returns risk, and the role guaranteed lifetime income strategies may play for certain retirees. Whether you are approaching retirement or already retired, this episode offers practical insights to help you think more clearly about cash flow, risk, taxes, and long-term confidence.
To learn more or schedule a complimentary retirement income analysis, call 314-548-4866 or visit www.chesterfieldfinancialgroup.com.
And now it's time for the Strategic Wealth Hour, a dynamic and engaging hour of helping you take control of your financial future with confidence by breaking it all down. Now, here's your host, Tom Hadikan, Charlie Satareva, and Aaron Buckman from Strategy Wealth Solutions on the Big 550 KTRS.
SPEAKER_02Welcome to the Strategic Wealth Hour on the Big 550 KTRS. I'm Tom Hadikin. I'm here today with my colleague Aaron Bachman. Aaron, unfortunately, Charlie couldn't make it this week. Is it unfortunate? Unfortunately, yes. He's playing around in Nashville in a concert with his two of his kids. So we'll give him that. We'll give him the week off. What do you think?
SPEAKER_00I like it.
SPEAKER_02Well, uh, here we are. August, middle of August, really. I got kids starting school uh next week.
SPEAKER_00It's crazy. I got to uh take my son to Toronto for the uh for the Cardinals game this last weekend. That was pretty fun. We also went to the hockey hall of fame, got the kiss the cup. They said the lady at the uh at the front who's taking pictures, she goes, I I wouldn't kiss that. And I'm like, dude, I'm gonna kiss it.
SPEAKER_02I've been to the uh I've been to the Rogers Center, formerly known as the Sky Dome.
SPEAKER_00Yes, yes, yes.
SPEAKER_02Uh it used to be one of the marvels of the world next to the CN Tower. Did you go up in the CN Tower?
SPEAKER_00We did go into the CN Tower, and I was very, very fortunate. Um I don't know if I should say his name, but a guy who used to play for the Cardinals is very good friends with my brother. I don't know if like what the, you know, if I should say this person's name, so I'm not going to. But uh got us uh field passes, and we got to go on the field for batting practice, let my son under the rope, got to go take get some pictures, got like seven autographs. He was having the uh the time of his life. It was absolutely awesome.
SPEAKER_02It's a cool place to visit uh in a previous career, many, many years ago. I used to stay in the Sky Dome Hotel that overlooked the field. Uh so it was interesting, but it's a great spot. The CN Tower is very tall. It's about 1800? Three times as tall as the St. Louis Arch. Yes. So interesting stuff. All right, Aaron. Today. Today I want to talk about one of those concerns, the biggest concern retirees and pre-retirees often talk about, and that is how do they turn a lifetime of savings into a reliable retirement income package, right? Or paycheck, or how do they put that together? So many people spend decades, right, working, accumulating assets, saving into their plans at work. But very few spend enough time learning how to distribute those assets efficiently. You know, retirement isn't just about building wealth, it's about creating a sustainable and lasting income. Aaron, when people come into our office, what's the number one concern you hear?
SPEAKER_00Well, if they're coming into office to talk about retirement without fail, the biggest question they ask is, Am I gonna run out of money? Am I gonna be okay? Uh I and people will often say this, uh they'll say, When can I retire? And I I always have the exact same answer. I go, right now.
SPEAKER_02Yeah, it's your choice.
SPEAKER_00And then they go, well, no, I mean, am I gonna run out of money? And I go, no, I didn't you didn't ask that question. But yeah, they ask, um, am I gonna run out of money? Uh how is how is inflation going to impact me? What about market volatility? What about health care costs? What about taxes? What if I live too long? And I emphasize that one because that is a I don't want to say it's a newer one for us, but it's certainly one that uh we are addressing more and more and more. And I I'm admittedly pulling this from the recesses of my brain, but Tom, do you remember? I believe we've seen the studies that say if you've got a married couple at the age of 65 or older, I believe we have a a 25% chance that one of the two of them is gonna live past like 95. Does that sound about right?
SPEAKER_02I think uh a 95% chance that one of them No, it's it's a 25% chance that one person in that relationship will live till age ninety-five.
SPEAKER_00Yeah. And uh I think that uh that is something that people think, well, I I'm not gonna be the one who uh who lives to ninety-five. I'm like, well, you you know, with advances in medicine, you you just never know uh how long you are gonna live. But the biggest thing I would say is that c collecting or saving money is different than deploying that money in income. And people often forget that what gets you to retirement isn't the same thing that gets you through retirement. So we have to create or recreate rather a stream of income for that uh individual. And I think that's for some individuals it just feels overwhelming.
SPEAKER_02Yeah, retirement planning is not about your account balance, right? It it is, it's about creating that wealth, but it's about your cash flow. Now you can have a ton of money saved, you can have a million dollars saved. But if you don't know how to generate income from those assets, retirement can feel very uncertain. So let's start by discussing the major sources of income we looked for in retirement. And there's basically, you know, when I think of it, uh it's like a five-legged stool. We used to call it the three-legged stool. We're gonna expand it to the five-legged stool. The first leg of that retirement income stool is gonna be Social Security, right? Social Security. It provides a foundation of guaranteed lifetime income. The timing of when you claim these benefits, though, can dramatically impact your lifetime payout. We talk about Social Security, it's been in the news lately. I believe there's a uh bill in front of Congress to talk about the troubles facing Social Security and how we can fix it prior to the year 2033, I believe the date is. So it's something to pay attention to in the news these days. The second leg is employer pensions. While fewer and fewer people have access to a pension today, those that do can receive a predictable monthly income for life. Where do we see those? Aaron teachers, government workers, right? Some union trades will have those, but they're they're a big part of their retirement. The third leg, and it's that it's it's often represents the largest portion, is what they've saved. Maybe their 401k, their 403B, IRAs, individual retirement accounts, Roth IRAs, their personal savings. These accounts represent the largest portion of their retirement savings.
SPEAKER_00Yeah, and I would also say that you have to add in their taxable investments. Think of uh a brokerage account. And sometimes people will say, Well, uh, what is a brokerage account? What is an investment account? What is an IRA? And I think the easiest way to describe any of those is to say, imagine sitting in front of you, there was a cardboard box with a giant black magic marker. I put the word IRA, or I put the word brokerage account, uh, or I put the word 401k. The box itself is just a holding container. So a brokerage account is just a holding container that can hold mutual funds, stocks, bonds, CDs. Now, in some cases, it can hold real estate, gold, um, Bitcoin, all sorts of yeah, it can hold all sorts of different types of investments. But I think that for retirement planning, let's bring it on back, is one of the sources of retirement planning is going to be dividends. Here in St. Louis, we are very familiar with Amran.
SPEAKER_02Oh, yeah.
SPEAKER_00And um companies you think about this like Procter and Gamble, uh, Coca-Cola, those are companies who paid a dividend for a very, very long time. So sorry about that.
SPEAKER_02All right.
SPEAKER_00The uh one of the things that we often remind our clients about is that it's not just one source that you're going to be uh drawing from. Again, we talked about this five-legged stool, and you want to hit that last leg for us, Tom.
SPEAKER_02Yeah, that the fifth leg, the fifth leg of the stool is income-producing assets, right? You can have rental properties, right? You own some property that's creating a rental shrew of income. You may have ownership in a business. So some people after they retire may turn that hobby into a business and an income-producing opportunity. Another thing people might look at is redirecting some assets into an annuity that can create a lifetime guarantee of income. And we're going to talk about annuities a little bit later, and we had a whole show on them a couple weeks ago, but it's something we want to cover as we create income and retirement. These assets can provide recurring income that's independent and not correlated to the market performance. Aaron, now I want to talk about some myths that we hear about retirement income planning. You know, we want to clear these up because these misconceptions can cause people to make these decisions feel comfortable in the moment, but it may not serve them well over a 25 or 30 year retirement.
SPEAKER_00Yeah, I think that when you just mentioned this 25 or 30 years, we often are not surprised to hear that somebody comes into our office at the age of in their late 50s, their early 60s, and they haven't done any retirement planning. But if you ask them, hey, how how'd that uh trip to uh Dustin go? Oh, oh, it was great. We did this, this, this, this, and this. And how long did you plan that? Oh, I've been planning this for six months. So those they'll spend more time planning a trip to Dustin than they will the quote unquote trip that's gonna last them 30 or 40 years.
SPEAKER_02I was just in the Dustin area last month, actually. Yeah, it was fun. Good family trip. So myth number one if I have a large enough account balance, I automatically have an income retirement plan.
SPEAKER_00That is a big one. If somebody has a seven-figure account, um they'll think, oh, I've got a million dollars, I've got two million dollars. That's that's enough. Well, uh enough is define what that means because it's gonna be different for every single person. But it's also about, again, what gets you to retirement isn't the same thing that gets you through retirement. The stocks, bonds, mutual funds, investments that you're doing oftentimes need to be revisited because, again, they are better suited for accumulation than distribution. And one of the things that it's it just I I I wish you all could see me at home here, but uh it just it makes me so uh for lack of a better term uh irritated because we have to address volatility. And people oftentimes, I I've said this, I had a a lady who came into the office uh one time and I said to her, um, she says, Well what if I just keep it in the S P 500 and and uh you know the S P 500 averages a 10% rate of return, so what if I just do that? And I said to her, and we'll just call her Jan for sake of brevity, I said, Jan, uh if 2000 to 2002 the SP 500 lost 48 percent, and then 2007 to 2009 uh the SP was down 57 percent. If you were indexing at that time, your stomach isn't going to let you stay the course. So um volatility is something that we have to address. Myth number two, Social Security will cover most of what I need.
SPEAKER_02Well, we hear that. Social Security will cover most of what I need. Well, while it's incredibly important, and for many retirees, it's you know a big piece of their income puzzle. But there's a lot of issues that go into it. The timing of when you claim your benefits, whether a spouse is involved, and how much other income you have can change that strategy. Plus, as you know, Social Security's in the news with the with the fear of it running out of money. But there is some legislation changes coming. We wanna we wanna say that, but let's keep going, Aaron. Myth number three, I will spend a lot less in retirement.
SPEAKER_00That could be true, it could be false. This is why you have to look at your own specific situation. Are you gonna be traveling a lot? Is your house paid for? Do you want to leave money for your kids, for your grandkids, to a charity? What type of lifestyle do you want to have? Then we can answer that question if you will spend more. Myth number four, retirement income planning is something I can figure out after I retire.
SPEAKER_02Well, ideally we start that conversation several years before you get to retirement. So you have time to coordinate. Coordinate Social Security, review any pension options you may have, build your cash reserves, evaluate certain tax strategies that we can implement, and decide whether guaranteed income tools, like annuities, may have a role in the plan.
SPEAKER_00Yeah, I I think the other thing is that income, when it comes to income, we want to really emphasize that over net worth. Net worth is great for your beneficiaries. Uh, it's great if you're getting a loan, but when it comes to retirement income planning, we need to concentrate specifically on what is showing up in my bank account each month, how is it getting there? What is the safety factor of that? Is it going to keep pace with inflation? Just because you have a pile of money, the only person who really, really cared about the pile of money more than anybody I've ever seen was Scrooge McDuck. Remember how he would swim through his vault and spit the coins in the air? Well, that that's not going to really help somebody. They need income.
SPEAKER_02Well, Aaron, for our listeners, I want to give them a few questions to think about as they hear this conversation. And those are, if your paycheck stopped tomorrow, where would your retirement paycheck come from? Which income sources do you have are guaranteed? And which are dependent upon the underlying market performance, how your investments perform. And do you know how much monthly income your current savings could realistically produce? These are the questions we need to talk about.
SPEAKER_00I think these questions are powerful because they move from the discussion of I have a retirement account to I have an income strategy. Those are two very, very big questions or big different differing points. So if you're approaching retirement or you're already retired and you want to help determining where your retirement paycheck is going to come from, we'd love to help. Call us today at 314-548-4866 or visit us at www.chesterfieldfinancialgroup.com to schedule a complimentary retirement income analysis.
SPEAKER_02All right, Aaron, when we come back, we're going to show you how to calculate the amount of retirement income you'll actually need and discuss why many retirees underestimate their spending habits in retirement. You are listening to the Strategic Wealth Hour on the Big 550 KTRS.
SPEAKER_01And now back to the Strategic Wealth Hour with Tom Haddequin, Charlie Satariva, and Erin Buckland from Synergy Wealth Solutions on the Big 550 KTRS.
SPEAKER_02All right, welcome back. Aaron, today we've been discussing retirement income planning. We've covered where retirement income comes from. Now let's address a critical question. How much income do you actually need? You know, and most people they begin with their assets. How much do they need to save? But we like to start with expenses, right? That cash flow analysis. Retirement planning starts by understanding what your life will cost. What does it cost now? What does it cost in retirement? That includes your housing. You know, do you still have a mortgage? Do you still have rent to pay? Your health care costs in retirement. Food. Are we eating out? Are we you know? Travel. Are we gonna do more travel? Transportation, you know, you still need a car, you might need to buy a new car. You know, whether that lease or that car payment goes away, we don't know. Insurance, you have a different insurance cost that will rise. Taxes, what will they look like? Entertainment, entertainment cost, and of course, gifts and charitable giving.
SPEAKER_00I think one of the biggest mistakes that people make, as you just said, is assuming that they will spend dramatically less in retirement. And uh as I referenced earlier, your vacation versus retirement. People will budget, they'll say, Oh, I'm gonna spend this much money on entertainment for my um for my vacation. They'll say, This is how much money I'm gonna spend on transportation, uh, this is how much money uh I've I've allocated for food. And they will do that for their vacation. They'll look at what is the best rental place for my vacation. But then when you say, Well, what do you think retirement's gonna look like? Uh usually they'll they'll give you a a blank look. And so it's very, very, very important to realize that some of your expenses, and this is gonna sound so intuitive, but people often don't think about it, is that some of your expenses will go up, some of them will go down. So healthcare often rises. Travel will usually rise and then kind of peter out. Um so travel time with your your grandchildren will often result in you spending maybe a lot more money than you had uh anticipated.
SPEAKER_02Especially if those grandchildren are in different cities. Correct. So you have to travel and go see them.
SPEAKER_00Correct. So you've got multiple factors there. We also uh separate our retirement spending into different categories. So there's essential living expenses such as housing, food, utilities, insurance, health care, and there's lifestyle expense, lifestyle expenses like travel, hobbies, dining out, entertainment. We've got several clients who, when it comes to hobbies, all of a sudden they go, I've never been able to do the woodworking that I thought that I was going to do. So they go out and they get a wood lathe and they get all the best tools, and then all of a sudden now they're going to the craft shows on Saturday and they're selling their wares, if you will. And so they uh they go, Yeah, I lose money on this, but uh I love doing it. And so they don't factor in something like that. So we need to understand that your legacy goals, your generosity goals, what do you want to leave, your charitable giving, those are all something, things that need to be factored in.
SPEAKER_02So Aaron, let's look at the the formula that you use. We call it like the income gap formula. How do we determine our gap? What needs to be covered? Well, we have our need, right? What is our need monthly in retirement minus any guaranteed income sources we have, like Social Security, like a pension? And that equals our portfolio withdrawal need, right? What is that gap? What we need to withdraw from our assets to create income. So suppose a couple needs eight thousand dollars a month, right? It's about a hundred thousand a year. They need eight thousand dollars a month, and Social Security between them provides four thousand dollars monthly. That leaves, if my math is right, Aaron, a four thousand dollar monthly gap. So the portfolio needs to generate forty-eight thousand dollars a year. Aaron, that's four thousand times twelve.
SPEAKER_00Good math.
SPEAKER_02Okay.
SPEAKER_00Good math. That's where they pay the big bucks. Yeah. This example shows why the income gap is an important discussion. Uh if the gap it was forty-eight thousand dollars a year, we have to ask ourselves, and this is again so um intuitive, um, but where's forty-eight, thousand dollars gonna come from? And I think that again, we just keep uh talking about this over and over and over and over again. And if I said it once, I'm gonna say it a thousand times. The same investing style that gets you to retirement is not the same thing that gets you through retirement. So we have to ask ourselves, is this going to be an IRA withdrawal? Is this going to be a Roth conversion, then a withdrawal? Is this gonna be a taxable brokerage account? Should I have an annuity with income? Each answer to those questions has different tax implications because I noticed, Tom, that you said $96,000 a year is almost $100,000. That is correct. But what the thing that we didn't say is is that $96,000 pre-tax, post-tax? And that's a very, very important question. So I we've got a listener email that fits perfectly here, uh, which is why we're putting it in this section of the show. Uh my wife and I are five years from retirement. We have social security estimates and we have a 401k, but we have no idea how to know whether it'll be enough. Should we start with our account balance or our monthly expenses?
SPEAKER_02Well, that is a great question, Aaron. But we like to start with those monthly expenses, right? The account balance matters, but the income need will drive the plan. Once you know what you spend, then we can subtract the guaranteed income sources like Social Security and pensions, and that tells us the gap your portfolio has to fill. That is when the conversation becomes much more specific. And we like to start with what are you spending? What is it going to take every month to live in retirement?
SPEAKER_00I think one of the other questions that is has to be addressed, and really it wasn't one that people really paid too much attention to until directly after COVID. And that is inflation. So, how is inflation going to impact me? Because you know, for for people who have a pension, there's two different types of pensions, and that's a broad statement that I've just made there, but we're going to go with it for today. And the first type of pension is one that's just fixed. So I'm getting $2,000 a month for the rest of my life. My grandfather, who retired from Kraft in 1986, who is still alive, gets the same paycheck from Kraft that he Did in 1986. Then you have some people who and think uh teachers oftentimes fall into this category where they have a pension that goes up every single year. We have to uh measure, or or not measure, but we have to think about inflation. This is going to be very, very, very important. And a story that I'll give you here is about groceries. So I saw something online here recently where there was a lady who had a receipt from 2006 from Walmart Groceries, the grocery store in Walmart, and it was roughly like $156. And the groceries, the person in the comment section said, these groceries today would cost $300. And my immediate response was yes, that's that's true, because 3% inflation, 3.5% inflation is going to bring you to a doubling effect over that 20% period of time. And so healthcare oftentimes gonna go up. You've got your prescription cost, long-term care. What about supplemental coverage? What about dental? What about vision? So healthcare planning must be addressed in here. So no two different incomes are going, no income strategies are going to look alike. Some people need $5,000 a month, some people need $15,000 a month. And oftentimes what happens is you will start off higher. We call that the go, go, go, go, the go-go phase. Then we call it the slow go phase. Maybe we've got to the point where you're like, you know what, my my my knees don't work the way that they used to, so I'm just not going to travel as much. And then you become like my aforementioned grandfather, who's 99 years old, and uh he just gave up his driver's license uh last year. But uh he he's not really going a lot of places, even though he lives by himself at home still, he's not really doing a lot of vacationing. So his expenses have actually gone down over time.
SPEAKER_02I have a go, go, go client, Aaron. They've been retired for, I would say, ten years now. And every year it's about a new cruise, a new trip, a new journey, whether it's an Alaskan cruise, uh uh Eastern European river cruise, or spending a month in Hawaii in the different islands, and they come into the office, they bring the book of all the stuff they've done, and they've decided that while they're young and healthy, they want to see the things they couldn't see while they were working. And then they know when they slow down, those expenses will drop off. So we've seen that. But we've also seen the other side, those people that retire and they're maybe afraid to spend in retirement, they're they're they're afraid of spending too much. But we need to balance out that need to enjoy and to experience your retirement, what you wanted in retirement versus just what are the costs. And we need to plan for those costs. And luckily, you know, we we can do that with the right planning.
SPEAKER_00And I think clients look to an advisor, to a financial planner, in some cases, they also look to their accountant, and this is gonna sound so silly, but you've been in the business now for uh just under 30 years, and I think that you would find this statement to be true. Oftentimes clients will look to us for here it comes permission to spend their money. Can I can I take a little extra out this month? That's what I what I hear. Yep. And um this is why having a documented written plan that's gonna say why the answer to that question is yes, and here's why, or Bob, Susan, y y you probably shouldn't, and here's the reason why.
SPEAKER_02It's also by having that trusted financial advisor in your corner, someone you can ask those questions to to make sure that yes, we've done the planning. The plan has been stress tested to account for these things, but it will give you the reassurance and the confidence in retirement as you make those decisions because we know they're gonna come up because the best laid plans will change.
SPEAKER_00Yeah, and I often will tell people, whether it's with me or somebody else like me, make sure that you have a plan that is written down. Not just, oh, I think this is what I'm gonna do back at the vacation. Very few people, and we know them, but very few people just say, I'm gonna get on a plane, and when I get to Destin, I will then find my hotel. I'll then figure out what I'm gonna do. People don't do that, but people do that oftentimes in retirement. So if you'd like help calculating the income you are actually going to need in retirement, call our office at 314-548-4866 or visit Chesterfield WWW dot chesterfieldfinancial group.com. We'll help you build a retirement income plan designed around your goals.
SPEAKER_02All right. In the next segment, Aaron, we're gonna dive into one of those discussed topics of retirement planning, and it's one that's got a lot of publication over the last twenty-five or thirty years, and that's the famous four percent rule, right? Many people have heard of it. They might be Googling it right now, but we want to answer the questions. Does it still work? Is it outdated? And what should retirees know today? So stay tuned. You're listening to the Strategic Wealth Hour on the Big 550 KTRS.
SPEAKER_01You're listening to the Strategic Wealth Hour on the Big 550 KTRS.
SPEAKER_02Welcome back. Aaron, covered a lot today. Now we're going to talk about one of those common questions we hear all the time, and that is what withdrawal rate is safe in retirement? And that's where this 4% rule enters the conversation. You've heard of the 4% rule, I assume.
SPEAKER_00I have heard of it.
SPEAKER_02You have, huh? It's one of those things that was studied many years ago, I think 30 years ago. I forget the company who initiated the study, but it emerged from this research that suggested that retirees could withdraw approximately 4% of the retirement portfolio annually, adjusted for inflation, without running out of money over a 30-year retirement. Well, there's some assumptions made in there, right? First of all, that 4% is of a moderately asset allocated portfolio. And if you do this, you have about a 90% degree of certainty the money will last for 25 plus years.
SPEAKER_00It's important when you say the money will last, what you're saying is that you will die with one dollar in your pocket.
SPEAKER_02That's right.
SPEAKER_00You're not saying I'm not going to touch my principal, and that's a very big distinction.
SPEAKER_02So in simple terms, if I have a million dollars in my nested, right, the four percent rule equals about $40,000 a year of annual income. Or around $3,333 a month.
SPEAKER_00Can I take out 4%? There's also studies that say sometimes it ends up being 3 percent, sometimes it ends up being 5 percent. But we're again we're taking the average, and I love this saying. And if I've got if a guy's got one foot in boiling water and one foot in ice water on average, he feels fine. But it's not an accurate representation. So the other thing that we have to look at is with this 4 percent rule, is when you're saying 6040, there are other allocations that people will look at. And that is, what if I am 100 percent stocks? What if I'm 100 percent bonds? And there's this thought that people think that being 100 percent fixed income is actually safer than being 100 percent stocks. And that's actually not true, because over time your principal is going to be eroded, where you have a ton of risk potentially with 100 percent stocks. But one of the things I think is interesting about that study is that a person who is 100 percent bonds would actually be well served and actually more conservative by being 20 percent stocks, 80 percent bonds, than 100 percent uh 100 percent stocks. So it is very, very, very important that we realize that this is simply a starting point. That 4% rule starting point, and I'm gonna read this. I just Googled it. The 4% rule is a retirement guideline suggesting you withdraw 4% of your savings in a year to it and adjust for inflation to last 30 years. You do not strictly need 6040, but the rules historical safety tests assume a mix of both stocks and bonds.
SPEAKER_02Straight from the World Wide Web?
SPEAKER_00Yes.
SPEAKER_02There you go.
SPEAKER_00So, for example, if somebody says they need $60,000 a year from their portfolio, the 4% rule says that they're gonna need roughly $1.5 million to support that. That does not mean that $1.5 million is automatically enough. It just simply gives us a framework for a very healthy discussion.
SPEAKER_02Yeah, it's a starting point, right? To start that conversation. But there's limitations. You know, the original studies didn't account for every market environment, right? And there's other variations that come into play. Number one, I mean, longer life expectancies. We touched on this. People are living longer. The advances in medicine, people are living longer than they did 30 years ago. Variable interest rates, rates move up and down. We went through a period of very, very low interest rates, and we just saw them uh increase recently is 2022, and they've they've held pretty good here. The 10-year treasury has held pretty strong. How about inflation uncertainty? Another thing that was muted for a number of years until recently, and has really come back into the our vocabulary we have to talk about every day. And of course, market volatility. What if when you retire the market goes down? What if the market goes up? What type of volatility will you experience throughout your retirement life cycle? I mean, we've talked about retiring in the 70s versus retiring in the 90s and what those markets look like. So market volatility is important. The rule is a guideline, it's not a guarantee, it's a place where we can begin the conversation.
SPEAKER_00Right. I think the one of the biggest things that is overlooked is sequence of returns risk. And I'd love for everybody listening at home or in your car uh try this when you're not driving, but go to your uh your search engine and type in sequence of returns risk. And if you do an image search, you're gonna find many publications by some of the great investment firms that are out there. And one of my favorites is where they take a series of numbers and it'll say something like 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, and then 10, 9, 8, 7, 6, 5, 4, 3, 2, 1. And you get the same average rate of return, but when we start taking money out, it skews those no those sequence, uh, that sequence by simply removing or taking money out. And the reason why this is very, very, very important is that from 2000 to present day, I believe in the S P 500, I believe it is, we've had seven negative markets. So I said to, if you said to a client or just a random person on the street, how often do you think the stock market's down? They're probably going to give you a number like half the time, or they're gonna give you a number like 40 percent. It's not even close to that. But the issue is that when the market's been down, it's been a real gut punch. And that gut punch, if it happens early in retirement, it is very, very, very difficult to recover from, which is why the sequence of returns risk is something that has to be uh addressed. And what we will often do is we'll say to somebody, you need to have quote unquote a side pot of money, whether that's going to be cash, CDs, real estate, cash value life insurance, a fixed annuity, something that's not correlated to the market that's going to allow you to put the pause button on taking money out of your account and allow you that to heal. Because here's something that cannot be argued. Cannot be argued. When, Tom Haddecken, when is the absolute worst time to take money out of the market?
SPEAKER_02When the market is down.
SPEAKER_00Cannot argue that. No, can't argue it. It is it is fact. So next we're going to talk about uh let's go back, Aaron.
SPEAKER_02Think about that real quick.
SPEAKER_00Yeah, go ahead.
SPEAKER_02If the market is down fifteen percent this year.
SPEAKER_00Yes.
SPEAKER_02And let's say my overall portfolio with diversification is down ten percent, but then I've withdrawn four percent, now I have a fourteen percent drag on my nest egg in that one year. To get that back takes a really good year just to come back even. So those withdrawals in times of distribu the withdrawals in times of market volatility really harm or s the life expectancy of our portfolio. And we have to fight against that.
SPEAKER_00What I think also you bring up a very valid point because if a person is down 14-15 percent, typically in retirement, they are not going to be invested aggressively enough to make that money back up while simultaneously, because next year their bills don't stop just because their portfolio is down.
SPEAKER_02And their psychology might not let them. Correct. So one way we manage this sequence of returns risk is through maybe what we call flexible withdrawal strategies, right? That's being able to pivot when we need to pivot. Uh, what does that mean? That means like, well, sometimes we might reduce the withdrawal. Maybe this year you might say, hey, uh, and I've had this conversation with many clients. Say you're spending $3,000 a month in your portfolio, given the market pullback. Like, can is there a way we can reduce that in the retirement income budget to slow down that drawdown and let the market have a chance to recover? Other times we might flip where we're taking the money from. We might switch to take it from the cash reserves or another bucket of money that isn't market correlated and not dependent on market performance to allow the market to recover. Or even another place we'll even use is uh maybe taking from totally non-market correlated asset classes, such as maybe a fixed annuity or a life insurance strategy. But there's different ways we plan those flexible withdrawals because sometimes these guaranteed income sources uh will help reduce pressure on the investment portfolios.
SPEAKER_00Yeah, I I think I I love telling this story. So this happened seven years ago. I'm sitting in my uh in the back room of my house with my dad, and my dad um was just about ready to retire. And uh dad's a very smart guy. He was an engineer, worked at Boeing, he worked at uh Phantom Works, which is their top secret division, so I have no clue what he did. But um, what'd you do? He won't tell me. Yeah, and and even and even if I try to like throw out some bait, I like look for eye movement, and he's like dead, dead stare. I I I get nothing. I don't know what my dad did for a living. But um I said, Dad, I can prove to you that you don't care about the rate of return on your investments. And so this very smart man looks at me with like squinted eyes, and then I said, No, I can prove it. And he rolls his eyes in his head simultaneously big, and he goes, Okay, prove it. And I said, Let's pretend that I was the best money manager that you ever met. And every single year, without fail, we beat the market by 3%. That'd make me pretty good, right? And he said, Yeah. And I said, actually, it'd make me one of the best ever. I said, but imagine we got to 65 when you said that you wanted to retire and you didn't have enough money. Would you care that we beat the market? And he says, no. And I said, let's flip it. Let's pretend every single year without fail we underperformed the market. But when we got to 65, when you all the boxes were checked, everything you said that you wanted to have accomplished uh when you got to retirement had been accomplished and accounted for. Would you bring him your statement in hand and say, why didn't we beat the market? Literally, Tom, he thought about it for half a second and he goes, Well, not if I got what I wanted. And I see, I said, see, you've been misled. And my profession, we're misled. We are told every single day that our goal is to beat something that goes up and down and up and down and up and down. And I said, the reality is the goal is the goal, not beating the market. If your answer is more, then you're never going to be satisfied, and eventually that's going to come crashing down on you, more than likely. And so the question that we start with is this most important question. What do you want? And when we ask that question, then we can start to come up with an income stream, then we can start talking about the alternatives, we can talk about non-correlating assets, but we have to get that first. So uh we also need to really pay attention to tax law changes. We had a big uh tax law change July 4th of last year, and guess what? It's gonna happen again. There's gonna be more tax law changes. So whatever you're doing today needs to be readdressed, probably at least on an annualized basis, and the goal should be to build flexibility into the strategy. So, Tom, I know that we've got some listener questions. I'm gonna go ahead and let you take it from here.
SPEAKER_02Well, these are questions, Aaron, I want to ask the listeners, right? I want them to ask themselves this. If the market dropped early in your retirement, would your income plan still work? Have you accounted for that? Do you have enough cash reserves available? Have you built up some safety, some liquidity on the side? Could you, if this happened, temporarily reduce your withdrawals? Or are you depending on one account to do all the heavy lifting? So we want to address those questions, Aaron.
SPEAKER_00Yeah, I'd say this is where stress testing the plan that you've again got written down, it matters. A retirement income plan shouldn't only look for just income in perfect markets, it needs to ask the question what happens if things go sideways? What happens if they go down? What am I going to be done? What am I going to do? This should be reviewed under ideal conditions, great conditions, and not so great conditions. And we also have to test the assumption of how long a person is going to live. So before relying solely on a rule of thumb like the 4% rule, let's determine what makes the most sense for your unique situation. Go ahead and call us at 314-548-486. Sorry, 314-548-4866, or visit us at Chesterfield Financial Group.com to schedule a complimentary session.
SPEAKER_02Easy for you to say, huh?
SPEAKER_00Apparently not.
SPEAKER_02All right, in our next segment, we'll discuss annuities. And we touched on them a little bit in another show, and of course, and we're going to talk about guaranteed lifetime income. We're going to just explain how what they are, how they work, and why some retirees might use them as part of a comprehensive retirement income strategy. You are listening to the Strategic Wealth Hour on the Big 550 KTRS.
SPEAKER_01This is the Strategic Wealth Hour with Tom Haddequin, Charlie Stanareva, and Aaron Bocklet from Synergy Wealth Solutions on the Big 550 KTRS.
SPEAKER_02Welcome back to our final segment. Aaron, today we've talked about income sources, calculating retirement income needs, and the infamous 4% rule. Well, now let's discuss guaranteed income and the use of annuities in a retirement income plan. Right? I mean, many retirees tell us they don't worry about market volatility as much as they worry about income certainty, right? They want to know will my paycheck continue regardless of the market performance? Right? I mean, that's a big thing when we see that market volatility. That's where these guaranteed income strategies often enter the conversation.
SPEAKER_00Yeah, at its core, an annuity is an agreement with an insurance company. And certain annuities can provide income that you can't outlive. Some offer that uh income immediately, some delay it, and some are flexible. And when when people hear the word annuity, it often sets off inside of them some uh reaction. And if you Google, are annuities good, you're gonna find half the people who say, Oh, they're absolutely evil. Then you're gonna find half the people who say, everybody should own one of these, and they're they're they're both wrong. At the end of the day, an annuity is an agreement between you and an insurance company to provide you income. You have to ask yourself, is this what I want? Some of them have high fees, some of them have no fees, some of them have low fees. It's like saying, Is transportation good? Is transportation bad? Well, what what do you what do we want to do too? What do we want to do? If I'm gonna go to uh to Boston, certainly wouldn't want to do it on a skateboard. Just throwing that out there. I'd like to take a plane. So there are some benefits uh uh of annuities. They don't all work the same. Some of them are fixed, some of them are variable, some of There are some potential great uh traits, I guess you would say, uh features of annuities. And again, there are some that uh have high fees, but again, a fee is only an issue in the absence of value. So, Tom, what are some of the benefits of income guarantees?
SPEAKER_02There are many benefits there, but back to that, are annuities bad? I like to tell people that annuities aren't bad. Typically, sometimes they can be misused. They can be misused by both clients and advisors alike, right? I mean, when used appropriately, they can provide you that guaranteed monthly income that you cannot outlive. And that's the important. Sometimes that's what people are seeking. So their benefits are they provide guaranteed lifetime income. That's the agreement or contract between you and the insurance company. That is protection from longevity risk. If you know that check is gonna keep coming, if you're 104, that's a that's that's peace of mind. It's predictable cash flow. That check is gonna come in direct deposited the same day every month. And this reduces the pressure on your other investment withdrawals, right? This gives you greater retirement confidence. If I know I have X dollars from Social Security, Y dollars from a pension, and I can add to that guarantee by implementing a part of my nesting into an annuity, it gives me greater retirement confidence, knowing that my essential and core expenses are taken care of by those guaranteed income sources.
SPEAKER_00It also gives you, we talked about that permission earlier, it gives you permission to spend. So if you know where your money's coming from, it gives you permission to spend more if you would like to. So the key understanding of annuities, it's often a tool, but it should not be the entire solution. You should have, you should in your plan, you should look at Social Security. You should look at your investment portfolio, your cash reserve. We need to address taxes. What about insurance strategies? And again, with the annuities, what about guaranteed income solutions? So one of the planning approaches is to match guaranteed income to essential expenses. So for example, if Social Security covers a part of the monthly necessities, an annuity could bridge the gap to bring all of the essential needs, and then we have flexibility with our brokerage account or with an IRA or with a Roth IRA. So you've got some real life analogies here, Tom. I know that uh we're wrapping it up here soon, but why don't you go ahead and give us some of these real life analogies and then we'll bring it on home.
SPEAKER_02I mean, think of retirement income like building a house, right? Flipping that pyramid, you know, that bet-based level, that foundation. That's your guaranteed income sources, that's your social security, that's your pension. That could be an additional annuity. And then as you go up that pyramid, those other needs, those wants, those flexible spending options, investments can provide those or those greater growth potential of those. Together, we use both uh the variable and the guaranteed to create balance and stability, Aaron. I mean, we're looking to create a retirement planning goal.
SPEAKER_00Yeah, I think ultimately the objective is not, I repeat, it's not to maximize returns in retirement. The objective is to maximize confidence and predictability. That is what people want in retirement. Yes, it would be great if we could have the highest rates of return and leave the biggest Scrooge McDuck vault of money that we could leave to people, but at the end of the day, people will trade that for knowing that they are not gonna run out of money, that they are going to have safety, that they're gonna have predictability, and that they are going to live their life with dignity, and that they're gonna be able to live the life that they had said to themselves, this is the type of life that I'd like to live. And of course, all uh course, when it comes to annuities, they're based on the claims paying ability of the insurance company. So you really need to know who it is that you're doing business with. If you'd like a personal retirement income analysis, including a review of social security strategies, withdrawal planning, and whether guaranteed income solutions may be appropriate for your situation, contact us today. You can contact us at 314-548-4866, 314-548-4866, or at Chesterfield Financial Group.com. There is no cost and no obligation for our initial consultations.
SPEAKER_02Well, Aaron, let's wrap this one up. Thank you all for joining us today on the strategic wealth hour. I'm Tom Hadikin here with Aaron Bachman.
SPEAKER_00Missing Charlie Sagarib.
SPEAKER_02We'll get him back next week. Remember, retirement success is not determined solely by what you've accumulated, Aaron. We've talked about that. It's determined by turning those assets into a retirement a reliable income that supports your life the way you want to live. And remember, until next time, the right hand, the right plan. Step on me again, Aaron, right? The right plan doesn't happen by accident. It happens by design. Thank you for listening to the Strategic Wealth Hour on the Big 550 KTRS. Have a great week.
SPEAKER_01This has been the Strategic Wealth Hour with Tom Hadickett, Charlie Stanarifa, and Aaron Buckman from Tenerty Wealth Solutions. Join us every Sunday morning at 10 right here on the dock of St. Louis, the Big 550 K R S. Securities Investment Advisory and Financial Planning Services are offered through MML Investor Services LLC, a member of SIPC, and a subsidiary of NASDAQ on this program or just making purposes only investment five or a recommendation to buyers sell any security. Investing involves risks, including the potential loss of principal, and tax performance does not guarantee future results. The strategies discussed may not be appropriate for all individuals and depends on each person's financial situation, objectives, and risk tolerance. Listeners should consult with their own financial advisor, tax professional and listening to before making any financial assistance. This program is not offered to buy or sell any security.