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The Smart Take:
Hear Kevin describe a conversation he recently had with a podcast listener aged 57. He’s planning on working for several more years and was wondering if now is too soon to get serious about planning for retirement.
Kevin discussed the qualitative and quantitative benefits clients often get from the Retire Smarter Solution as well as some time-sensitive issues you need to address well before you retire.
While it’s never too early to start, as your time becomes more valuable, your assets accumulate, and the cost of a mistake becomes larger, it tends to make sense to hire an expert. This way you can make sure you’re making the most of what you have.
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The Host:
Kevin Kroskey – About – Contact
Intro: Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to Retire Smarter.
Walter Storholt: It’s time for another edition of Retire Smarter. Walter Storholt here alongside Kevin Kroskey, President and Wealth Advisor at True Wealth Design, serving you in Northeast Ohio, Southwest Florida, and the greater Pittsburgh area. But we welcome all listeners and folks from across the country and even the world. Kevin, I know I’ve looked at the stats before. We’ve got a good amount of Canadian listeners here and there occasionally and in other countries across the world. Welcome to all. You are a global brand, my friend. How’s that feel?
Kevin Kroskey: If you say so, Walter.
Walter Storholt: I’ll pull up the stats during the show today, and I’ll look and see where our furthest listener has occurred from. We’ll see just how global you are. If you have any questions for Kevin, you can always reach out and find out more about him and the podcast and the True Wealth team at truewealthdesign.com. Kevin, we’ve had a good couple of shows recently, walking through some listener questions that have sparked good topics and conversation. We’ve got another good one on today’s show that’s going to lead us down an interesting conversation path.
Kevin Kroskey: Yeah, we do. If you go to our website, there’s a little button there that says, “Are we right for you?” You can request a 15-minute call with a Certified Financial Planner on our team. And that’s where this question came from. I had a call with Ray. Ray actually shared he’s been listening to the podcasts for a couple of years, and I was appreciative of that. He reached out now. He’s 57, plans on working another five to 10 years, is what he’s saying. He was just wondering, “I’m 57. I’m still working. Do I need to hire somebody now?” I thought that was a good question to explore a little bit more. So Walter, my favorite millennial, are you planning for retirement? Is it too soon to start?
Walter Storholt: I am definitely planning for retirement. I started planning for retirement at, I guess, 18 as a high school graduation gift. My grandmother opened a Roth IRA and put $1,000 in it for me. I’ve been contributing to some sort of retirement account ever since.
Kevin Kroskey: Yeah, the saving and investing, you can never start too soon. If you can start for your kids and get that compound interest going sooner, that’s great. Most clients, when do they tend to hire us? They tend to be mid-fifties, late-fifties, just like Ray when they get really serious about their retirement and becoming financially independent. And making sure that they’re just not making mistakes and that they’re making the most out of what they have. You can never start too soon. But pragmatically, most people are going to just start saving in their 401k, and they’re just going to keep plugging along, and then they get down the road, and they’re worried about kids, and life is busy, and sports on the weekends for the kids and they’ve got work, and hopefully, they have a little bit of time for themselves and the relationship with their spouse.
And then they get up there a certain degree, and they’re like, “Hey, we’re getting pretty close to this retirement thing. Or at least I think I am. Maybe it’s time I actually pull all this stuff together and talk to somebody that knows what they’re doing. So 100% agree, you can never start too early for saving. Things change so much as you go through your adult life. We talked about in the last episode how spending tends to reach its peak when you’re 45, at least according to Chase Credit card and checking account spending data. And then it changes after that. So as you’re on your ascent up before 45, if you will, at least according to the averages, things are probably going to change a lot from the time that maybe you’re coming out of school and starting your career and then having kids. You’ve got all these life transitions.
I don’t think it’s too soon to start there, but nonetheless, for whatever it says, most clients tend to hire us when they get into their fifties and really get serious about this and really have built up a good nest egg and want to make sure that they’re not making mistakes. So when I think through some of the benefits or some of the reasons why somebody would hire us and rave and plan on working a few more years, one is definitely qualitative. I’ll just start qualitative, and then maybe we can go more quantitative or concrete. So the first is clarity. Just really pulling everything together, your spending, your investments, your savings, considering some taxes as well. If you have any pension income or social security is pulling it all together into a cohesive, aligned financial life plan, getting clear on where you’re at and where you stand in terms of your financial independence. Are you working because you have to, or are you working because you want to? If you are working because you have to, when are you likely to reach that point of financial independence?
That clarity, I think, particularly for a lot of people. It’s just good to have for everyone, but Ray still enjoys his work. So, he’s good. I’ve had other clients where really their work has become more of a means to an end, and there’s no passion there, and they just need to get to that point of financial independence. Then as soon as they do, feel comfortable with that, they’re gone, and they’re going to the grass is greener on retirement. So everybody’s different. Some people place a lot of value on that clarity. I think it is good to see how all of these pieces and parts fit together. And so you can see how they impact your lifestyle. That is what planning is, but different people will value that differently. It is a qualitative; it is a subjective thing.
So that’s one, and that’s just the overarching planning approach in general. One of the things that we mentioned in the last episode was spending, and we talked about not a budget, Walter. We talked about a spending plan or spending goals. So you need to have good inputs to the plan. So one of the things I mentioned in the last episode was it’s one of the most difficult things for a lot of clients. They haven’t had a budget. They don’t have to worry about money anymore. They’ve climbed the ladder and doing well and living below their means. And so they stop tracking what they’re spending. And when you’re doing this financial life plan, when you’re trying to get this clarity that we mentioned, you need to make sure that you have good inputs for your spending and for measuring what the cost to run your lifestyle and do the things that you enjoy doing.
So it’s good to start there because a lot of times, that’s bending data. We can say we start working with a new client this year. We’re going to go through and do some different things to get a good measurement of what their lifestyle is going to be or currently is, I should say. And then, we would make some age-related spending modifications to their spending goals in that retirement plan. But then importantly, we’re really going to repeat that process over the next couple of years. So, Ray’s 57, he’s planning on working another, several years, but we get a measurement of what he’s spending now, and then we trust but verify and repeat the process. And so we’re either going to find in the next couple years that, hey, the spending goals that we have as we continue to measure this are in alignment with what you’re spending, with what you’re making, with what you’re paying in taxes.
We reconcile all this out, take out any one-time expenses. You’re not going to be putting a new deck on the house every year, whatever it may be, but we’re really confirming our assumptions on spending. And if we find a variance there, then we got to understand that, and maybe we need to increase or even decrease the spending goal. But if you do that over a couple of years, the inputs that you’re going to have to the plan, I have much more confidence in them after we’ve measured it and remeasured it and remeasured it over a few years and confirmed our assumptions and initial measurements. So I think that’s incredibly valuable because if you wait until right when you’re ready to retire, and maybe we don’t have good data, again, we can still make good assumptions, but I’m not going to have as much confidence in those assumptions as I am versus working with a client for the last few or several years leading into retirement and already confirming the spending assumptions.
So, from my professional standpoint, I’m probably going to need to be a little bit more cautious, build in a little bit more margin of safety, if you will, if we’re just working with a client who is getting ready to retire in a couple of months, and maybe we don’t have as good of a spending data and that remeasuring that I mentioned. So that’s incredibly important. I mean, even if you have an Excel spreadsheet and you have some of your spending information, again, inevitably, there’re things that happen in our lives that may be in there but maybe haven’t been adjusted. Again, there’s one time things may be needed to help out your child or something like that. Maybe you were more generous with your gifting last year because we were going through a pandemic, maybe you did a one-time home improvement or whatever, but you need to get an idea of what those recurring lifestyle expenses are, and inevitably, even if you have a good job, tracking your spending, there’s some massaging of the data, if you will.
So two big things there. The next several, I’ll just get into saying more concrete things that are pretty common when we’re working with somebody and just getting through all their stuff and making sure that they’re making smart decisions, your investment allocation. The analogy that I always use here, you want to make sure that you’re picking good investments. Those are the ingredients, but you also want to make sure that you have a good investment recipe or your allocation. So both of those are really, really important. And inevitably, we’re usually adjusting or pruning the portfolio a little bit in the hopes of improving our investment outcome moving forward.
So, if you put round numbers on something like this… let’s just say, hypothetically, somebody has a half a million dollars, and maybe we can make some improvements where we can increase our expected return by a half a percent per year. So, something like that, hey, it’s 2,500 bucks per year, so that we’re hoping to realize from some better investment planning. Again, all that is expected. None of it’s guaranteed or anything like that, but you need to have a good principal and good process and use that science-based process to go ahead and hopefully result in better outcomes over time. So that could be something that’s pretty concrete.
Taxes, for sure. We talked a couple of episodes ago about all these different stimulus payments, and while that is somewhat fleeting and short-term, that’s something that is very material to many people, maybe even something like changing your contributions, say from a pre-tax portion of your 401k to a Roth or vice versa, depending on what the difference we expect in your current versus your future tax rate. Pretty common that we find people aren’t taking full advantage of the retirement plans.
There’s something called a backdoor Roth IRA where maybe you’re ineligible for a Roth IRA contribution, but we can actually make a traditional IRA contribution and convert it from your traditional IRA to a Roth IRA; ergo, there’s your backdoor Roth IRA. So these are, I don’t know, just a little hit list so far of different things that are fairly common when we’re sitting down with a new client and sorting through whether they’re 57 like Ray or a little bit earlier.
Walter Storholt: A lot of different little variables to, I don’t know, adjust and tweak and look at. And I imagine those variables then change the closer and closer you get to that retirement age. How much better off if somebody is starting the process in that age range of 57, 58 versus waiting until only a year or two out from retirement? I mean, is it pretty much across the board? People are in way better shape if they’re coming in a few years sooner than that last-minute visit?
Kevin Kroskey: Everybody’s situation is different. As I said, I think from just a pure financial planning standpoint, measuring the spending over the course of a couple of years is really important. I mean, if somebody has lived so far below their means it’s maybe it’s a non-issue, but if you’re not that person and maybe you’ve saved a good bit, but you need a good bit to go ahead and replicate your lifestyle over 30, 40 years in retirement, whatever it may be, you really need to have good spending data. So that’s incredibly important. It’s very common that the taxes sometimes there’s a very immediate benefit. I mean, I could give examples where literally, I mean, there’s more than $20,000 of tax savings that we could get for a client in year one, just because they were missing some things maybe with their employer plans and not taking full advantage of them, whatever it may be, mortgages something else.
I mean, with interest rates declining a lot over the last couple of years, they’ve been inching back up over the last few months, but we’ve helped so many people refinance over the last several years. We don’t get paid to do mortgage refinances or anything like that, but we do the analysis. We will shop the market. We write the prescription and make it easy for our clients to get that stuff done. That’s something that’s pretty common. Sometimes we’ll even want to pay a mortgage off. If you have bonds that are seating and earning a very low interest rate and the mortgage rate is higher than that, it’s like a guaranteed bond return that you’re getting. Let’s just pay off the debt. We’ll eliminate the monthly payment, improve our cash flow, and we will avoid maybe a 3% interest rate doesn’t sound like much, but if the bonds that you own are yielding less than that, then that still could be a good trade-off.
So there’s been a lot of that mortgage management, if you will, over the last several years for current as well as new clients. People tend to just accumulate a lot of stuff over time. Maybe they were sold a life insurance policy. They just keep putting money into it. They don’t know if they should keep doing it. They don’t know if they need it or if they should do something different. So we can clean that up, analyze it, figure out what they need, figure out what to do with it. Sometimes people have old pensions. Maybe they have a lump sum option that they can consider.
We’ve talked about that a few different times, how this year is a really good year for lump-sum options with low interest rates. You have a little bit of a hit list from things that I went over, but you never really know what you’re going to find. Some of these things are very concrete, like I mentioned, whether it’s taxes, mortgage, savings, cleaning up the life insurance policy, but the planning part is a little bit more qualitative and subjective. They’re both valuable, but you never know what you’re going to find. You have this like checklist approach, but for me anyway, you always have to go in and just do some critical thinking, really understand the person, really get through what they got.
Certainly do this for a while, and you see some patterns, but every now and then, you’re going to have some oddball thing that you just got to think through and figure out. And so it’s not just putting data into a software program, and this magic box spits out an answer on the other side. If you’re doing that approach, which many do, unfortunately, I would just be a little reticent about retiring with a plan constructed in that fashion.
Walter Storholt: Retiring, no matter when it is.
Kevin Kroskey: Retiring dumber? You don’t want to retire dumber. You want to retire smarter.
Walter Storholt: Let’s launch a second podcast called Retire Dumber, and we’ll just take a different approach to all of these questions. That’ll be, how not to retire. We’ll cover all of those topics.
Kevin Kroskey: You might be on to something here. That could be a future series, Retiring Dumber, Retiring Dumb, and Dumber. One of my favorite movies.
Walter Storholt: Yeah. A little comedy thrown in. It’d be like a comedic financial planning podcast. That certainly doesn’t exist out there, so.
Kevin Kroskey: Maybe a fine line. Comedy, too, could be some quick sadness.
Walter Storholt: That’s true.
Kevin Kroskey: If you don’t do it right.
Walter Storholt: We all wonder if we’re living in a comedy or a tragedy, right? So it can be the merging of those two podcasts. Maybe we can do a series, Retire Dumber. Maybe instead of launching a new show we’ll, we can come up with an idea for a little mini-series that we can do as part of this show. We should’ve thought of that for April. We could’ve done an April fools episode called Retire Dumber instead of Retire Smarter. The ideas are flowing now. So we’ll come up with something. But it sounds to me just like the earlier, obviously never too early to start saving for retirement. But when it comes to planning for retirement, like true planning, we still want to do that as soon as we can because it buys us options, buys us time, which buys us options and helps you avoid more mistakes, it sounds like. You’re just able to catch things, better analysis. So many things can go into it.
So it just seems like one of those gut things, Kevin. If you start to feel it in your gut, like yeah. Is it time for us to start thinking about this and more in-depth and to maybe meet with somebody, listen to that gut? Because the answer is probably, yeah, time to start talking about these kinds of things and going more in-depth to them. So it sounds like your message is, don’t be hesitant if you’re still some years away from retirement. Don’t hesitate to ask, to call, to get in touch, and start going over some things.
Kevin Kroskey: No. And candidly, what I told Ray was it definitely was not too soon in his case, in my opinion, just speaking from first-person experience here. I mean, there have been many situations. I’ve met with people for an initial consultation, and I’m like, “Just do this, do that. And then, come back and see me in a couple of years or when this happens.” And so it’s having some clarity, having the idea when you’re going to be financially independent. Sometimes people want that, and they still want to go through the process. There is definite value to that clarity.
I mean, we have some clients where, candidly as they’ve been clients for a long time and made it through like some of the higher risk years, and I suggested like, “Hey, maybe we just rather than do our full-blown service model. Maybe we just don’t do the financial planning anymore. We’ll just take care of your investments for you and still get together, and you pay us a little bit less for that, but what do you think?” And I’ve been surprised that several people have politely declined. They appreciated it that we said, “Hey, pay us less money,” but they declined it because they still wanted that clarity. They placed a lot of value on that clarity and just having things pulled together and seeing the big picture and how all the pieces and parts fit together financially and are aligned with their lifestyle.
So that’s what I mean about that part is so subjective for people, but you can’t get back time. You don’t know if you have an issue if you have an opportunity until you really talk to somebody, but if you’re talking with a good competent advisor that’s not money motivated, I mean, there’ll be able to point you in the right direction. And as candidly, if it’s not a big problem today, and the value is going to be less than what it costs to solve the perceived problem, then you shouldn’t hire an advisor. But if you place a bigger value on that clarity and it’s still worth it to you, I have much more clarity on somebody’s financial situation than they do.
This is what I do every day. I’ve been doing it for decades now. They don’t have that kind of clarity. They may value that, and it still may be worthwhile to them, but maybe a basic principle, maybe this will help put a little bow tie on it, Walter, but as your time becomes more valuable, you’re making more money, you have more money and the cost of a mistake increases, that’s really when it probably tends to hire an expert to make sure that you’re making the most out of what you have.
If you’re just starting out, even if you screw up, the mistake isn’t going to cost you that much then. I mean, maybe it doesn’t make sense to pay an expert to deal with it, but like Ray is, you’re only a few years from retirement. You’ve saved a good chunk already. You’re going to keep saving more, and you want to make sure you’re making the most out of what you have. Probably a good time to hire somebody that’s competent and trustworthy.
Walter Storholt: I love it, Kevin. And it’s just a great reminder that there’s help available to you if you need it. And the longer you wait, the longer you procrastinate, the fewer options that you have. So take advantage of things while you’re thinking about it now. And when the time is right to react to all these moving parts, if you want to reach out to Kevin, you can do so at truewealthdesign.com. There’s an “Are We Right For You?” button where you can schedule your 15-minute call with an experienced advisor on the team. Again, that’s truewealthdesign.com, or you can call (855) TWDPLAN, (855) TWDPLAN. And there’s contact info in the description of today’s show. All right, Kevin, you ready for it? One of the more obscure places where you have some podcasts listeners coming from?
Kevin Kroskey: Sure.
Walter Storholt: I eliminated everything that only was showing one download in the history of your show as those are obviously very random, and the list is pretty long for just the true one-offs. So I pegged this one as maybe the most obscure place. Now keep in mind, this doesn’t necessarily mean that the person lives there. If you have someone who listens to the show and they travel, it can ping in different countries, depending on where they’re traveling and listening. But you have a good little handful of listens from the country of Mauritius.
Kevin Kroskey: Where’s that?
Walter Storholt: I was going to wait and see if you actually knew where Mauritius was. It is off the coast of Madagascar. A little island country in the Indian ocean of all places. I only know about it because one of the people that edit’s this show actually has visited there before. Went on vacation there and actually got hit by a hurricane while they were there, believe it or not. Or I don’t know if they call it typhoons in the Indian Ocean. What do they call in the Indian ocean? Cyclone, maybe?
Kevin Kroskey: I think it’s a typhoon.
Walter Storholt: Typhoon, maybe. Okay. Yeah. I know in the Pacific, and it’s different. I can’t remember what it is in the Indian ocean, but there you go. So you’ve had someone listening to this show in Mauritius of all places.
Kevin Kroskey: We are going to have to do an on-location recording, Walter.
Walter Storholt: I think you would like it because the pictures of Mauritius are pretty beautiful. So it looks like a great spot to check out if you ever have the ability to fly all the way out there. I remember his flight out there was quite crazy. All the different countries he had to fly to just to make it there, because obviously not a spot where you get a lot of direct routes to, but.
Kevin Kroskey: Right. Shout out to our people in Mauritius. Thank you very much for tuning in.
Walter Storholt: You got it. Absolutely. Well, Kevin, thank you so much. We appreciate it. And we’ll talk with you again soon. All right.
Kevin Kroskey: Thanks, Walter.
Walter Storholt: All right. That’s Kevin Kroskey. I’m Walter Storholt. Talk to you soon right back here on Retire Smarter.
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