Protect & Grow - 5 Critical Planning Mistakes
For a more confident retirement, there are 5 critical planning mistakes to avoid…
Peter Richon: Welcome into the program. This is Protect and Grow Chicagoland Retirement with Chicagoland's Certified Financial Planner, CFP Tim Stearns, President and Founder of TJ Stearns, Inc. Chicagoland, your resource for a commonsense approach to planning. Tim, we always appreciate your guidance and perspective that you provide here on the program about the complex decisions we have to make with our money.
Tim Stearns: Peter, thanks for having me.
Peter Richon: Always a pleasure, Tim. We do appreciate the time, and the knowledge, and the information. Tim, let's start the program just with a question here. Do you see a lot of people making mistakes with their money? Do you help them identify those mistakes?
Tim Stearns: Peter, I see that a lot. I see people who have retirement ready to go in their nines, but they need a little tweaking. A 59 1/2 loophole is a nice thing to point out to people that if you're over 59 1/2, most if not all companies allow you to take an in-service distribution into an IRA, which opened up the whole world to you to what you can invest in, give you a little more control over your own retirement. God forbid the market takes a hit where you could have done a stop-loss and gotten out. That's something I think is out there.
Then you have people who have done the ostrich. They're burying their head in the sand and hoping things are going to be fine. We tell people all the time on this show, in my retirement classes, we don't work in the hope. We work in the knowing that you're going to be okay. That comes with an income allocation plan.
Peter Richon: Tim, it sounds like it runs the gamut, all shapes and sizes. Some just small, minor tweaks or course corrections, and then some pretty large oversights that need to be identified as early as possible to make sure that we achieve the goals that are important to us financially.
Tim Stearns: I agree. You need to. If you don't have a plan, by failing to have a plan you certainly have one already, whether you like it or not. I wouldn't wing it in retirement. The analogy we use ad nauseum on the show is if your builder comes see you without a blueprint, you would never sign up with that builder, correct? If you're working with your retirement, I mean, you should have a plan there that is full proof.
Thirty years from now, if you run out of money, what now? Do you go back to work in your 80's? No one's going to hire you. Do you go live with your family? Are you going to be a ward of the state? No one wants that. Make sure you know what you're doing, and what you're getting yourself into, and what that looks like.
Peter Richon: Have Plan A be one of financial security, stability, and confidence. Those are the plans that Tim Stearns does help his clients and Chicagoland area savers and investors put together, ladies and gentlemen. If you'd like such a plan, pick up the phone. Give Tim Stearns a call. He's happy to hear from you, happy to sit down with you, help you identify and really home in on your financial goals for the future, and then help you make a plan that will give you an optimal opportunity and reasonable expectation of achieving those goals.
All you need to do is pick up the phone and give a call, 800-640-2256, that's 800-640-2256 for a complimentary protect and grow strategy session. Those are the goals of that strategy session to help you protect your assets, and grow your assets, and make sure that you've got goals, and a goal-oriented plan in writing to help you achieve them. Again, 800-640-2256, that's 800-640-2256. Tim, what are some of the most common oversights or mistakes that you see as you are conducting those reviews?
Tim Stearns: One of the things I see a lot of times is people – we use the analogy, GRIP, guaranteed retirement income plan. What does that look like? What we tell people to do is give us a budget that we need to work with per month. Minus out your guaranteed sources, whether that might be social security or pension. That's your gap. Then you know what you need to make up for each month to pay the bills. When are you taking that Social Security? Are you taking it as early as you can, age 62? Do you wait until age 66, 67? In some cases, people are waiting until 70.
A lot of that is addressed in our book, Income Allocation, which is an excellent book that we'll give out to the first 10 callers with over $500,000 worth of assets. We get that book into people's hands. They give it a good read. It is an excellent how-to to your retirement. It talks about stop losses. It talks about doing institutional investing instead of just your run of the mill mutual funds that they go up when the market goes up, and they certainly go down when the market goes down. Everything's included in there. Getting a grip on your – not having a grip on your retirement is one of the first things.
Peter Richon: It is an eye-opening book, ladies and gentlemen. If you would like to get that book in your hands, just be one of the first 10 callers with at least 500,000 saved for your retirement. Many Chicagoland area savers and investors have already read and benefitted from the information in Income Allocation. Many more need to read this book and understand the risks that we face in our modern retirement. All you need to do to get your hands on a copy is pick up the phone and give a call now, 800-640-2256, that's 800-640-2256.
Tim, you mentioned the word, budget. You said in order to have that guaranteed retirement income plan that you ask folks to give you their budget. Is that a mistake in and of itself that not enough of us actually keep a budget or pay attention to our budget. I have to imagine – and this is speaking personally from my own experience. When I have made a comfortable living and enough money to meet all of my expenses, I may have slacked a little bit on actually really controlling and understanding where every dollar was going and what all made my budget work.
Tim Stearns: My answer is two-fold. Most people have a budget, and they understand what's going on. They think that in retirement that budget's going to go down. They won't be using as much money. At the end of the day, the gas company doesn't call you. The water company, your electricity, Con Ed, whatever, they don't call you and say well, now that you're retired your fees go down. That's not a thing. You have people who don't really understand what goes into the mix there. Then you also have people who just don't even have a budget. They live vicariously through how their checkbook looks. Either way, you need to get on point and understand exactly how you're going to pay your bills as well as make it through a 30-plus year retirement for you and your wife.
Peter Richon: You mentioned guaranteed retirement income plan. Those sources that are guaranteed, Social Security and pensions, typically with those there are many different choices, and options, and strategies for which option to select and how to time them. A lot of us aren't as educated as we should be in how to make the most of all of those options that are available to us. We really want to spend some time just on that first step of formulating the optimal way that we should formulate the GRIP, the guaranteed retirement income plan.
Tim Stearns: I agree with you. I mean, basically that is the starting point. Get a grip on your own budget. I mean, if you don't know what you're spending, that's scary. Then you have people downsizing, or people taking the next step and going to warmer climates and that type of thing, but they're not keeping a place here in Chicagoland. These are all things that we can help people plan ahead for. I mean, you want to get ahead of it. The last thing you want to do is be retired a couple years and go, oh my Lord, I don't have enough money to make this all – I'll keep all the plates in there, if you will.
Peter Richon: If you can get a little bit more juice out of Social Security, if you can make a better decision with a pension that you may have available or create your own that can make for a more sustainable, secure, and confident retirement. That's why it's one of the items in the protect and grow retirement planning, review, and strategy session.
If you would like to take advantage of that time and opportunity, if you would like to get that grip on your retirement, get that plan put together, or if you'd like to read the book, Income Allocation: The Essentially Retirement Planning Strategy Guidebook, pick up the phone now. Give Certified Financial Planner, CFP Tim Stearns a call at 800-640-2256. That's 800-640-2256. Tim, any other big mistakes that you see being too common in your opinion?
Tim Stearns: What I've seen the last 13 years with a bull market is people taking inappropriate risks. You see there where the stocks were supposed to be, let's say, a 60-40 split, 60% bonds, 40% stocks. At the end of the day, those roles have flipped. Bonds haven't done much but hold water, right, the last years with the interest rates being so low. Yet the market's gone on a holy terror. You see that they're taking a lot more risk and maybe not understanding it. We call that style drift.
If you're style drifting and you don't realize it, you need to take a good look at what you have in your portfolio right now. If you're 60% in stocks when you're meant to be 40%, someone needs to be rebalancing for that. Whether it's yourself, or your advisor, someone needs to be doing that. What we're seeing a lot of is people that come in here with different advisors. They're just riding the wave as you will, the wave of a good stock market. Those things can come to an end real quick. Like we've talked about, the bear market takes the elevator. The bull market takes the stairs to get back. The last thing you want to do in those years leading up to retirement, and the years right after retirement, what we call the red zone, is take undue risk and then lose your money so that you're recalculating going can I stay retired? Can I even retire right now?
Peter Richon: In your analogy there of the stairs and the elevator, just to illuminate that, shed some light on it a little bit more. Some stats and statistics that we've talked about on this program before, Tim, is that the average bear market, some of them happen very quickly. Seems like they happen almost overnight. On average, it takes about a year and a half to get from the top of the previous bull market to the bottom of the bear market, wherever the market ultimately bottoms out. Then the recovery, on average, when we've seen these bear markets in the past takes about five to six years to recover.
It takes a long time to get back to that break-even point. The bear takes the elevator. The bull takes the stairs back up. It takes a lot more work and time. I did notice that you didn't say people taking too much risk. You didn't say people taking too little risk. You simply put it as inappropriate. Could inappropriate actually be on either end of the spectrum? Could that actually go either way, it could be too much, or it could be too little?
Tim Stearns: It's inappropriate in the sense that if you are getting ready to retire you shouldn't have all your eggs in one basket being stocks. We've had so many people come in here. My advisor's done really great. I gladly tell him that a moron has made money in the stock market. Let's cut the BS.
Peter Richon: I remember back in the 90's during the build-up to the tech bubble bursting where they had monkeys throwing darts at the stock board. They were picking winners. They were doing very well in investing that way. It seems like that's what we've seen a little bit of a repeat of over the last 10 years or so.
Tim Stearns: That being said is true. Then you also have the fed propping this market up by doing – printing money. That's something. Then you also have the ability that this year – they're saying they've written it down in pencil, of course – but they're going to do three raises of the interest rates in 2022. That's something you need to be cognizant of. If you have bond portfolios, your bond portfolio is going to get hurt. It's not an if, it's a when, when the interest rates rise.
Peter Richon: We know the direction of the fed, what they intend to do is raise those interest rates over the year to come. Not only the bond portfolio there, Tim, but also, I think that the housing market, in particular, could suffer because of a rising interest rate environment. We've seen so many refinances and people moving into bigger houses because they could do so with these low, low interest rates and maintain the same payment that they had previously. That could be coming near an end if interest rates start creeping up and moving in a different direction. I don't know what that precludes and what that indicates the market, the stock market might do next.
Tim Stearns: Speaking of over-bought, the housing market is crazy. Many soothsayers are saying that we're looking at another bubble. That's something to be careful of. The third thing that we always talk about with people, five planning mistakes to avoid, is a gross planning mistake. What do I mean by that is people say, well, we need to live on $100,000. I'll ask them, well, do you take into effect the taxes? Oh, no, that's what I need to have.
Then we need to juice the pot, right, and make it a little bit bigger the amount of money that you're going to be taking in. The IRS has a plan for your dollar just like you do. At the end of the day, you have to be careful that you take into effect your biggest fee. If you have a 401k, and all these IRAs, and that type of thing is they've never been hit by taxes. Your biggest fee in retirement will be taxes and then medical costs. We need to make sure that that's put into the ingredients into your retirement plan. We make sure that we do that.
Peter Richon: If you're going to need $8,000 a month, pretty close to that $100,000 a year mark, if you need $8,000 a month, and you've got tax deferred retirement assets like 401ks or IRAs, that probably means you're going to have to withdraw 10, 11, $12,000 a month in order to net the 8,000 that you need to spend. Tim, you call it the gross planning mistake. I like the play on words there. A lot of people plan on the gross numbers. They don't factor in those taxes. That can be an expensive oversight, if we have not identified it and planned specifically for it, that can impact the longevity and the outlook of our retirement.
Tim Stearns: Exactly, and most people – everyone in my retirement classes, any seminars we've given throughout the United States, people say the taxes are going up. That is something you need to budget for and then some.
Peter Richon: What do you think the likelihood is of taxes going up into the future, Tim?
Tim Stearns: I think they're very good because we've printed a lot of money. We've said that we're going to build America better and all that good stuff out there. With that, someone's going to need to pay the bill. The hockey stick of deficit that just keeps getting bigger and longer, it's going to come home to roost at some point. It's going to come to the American people that we're going to need to pay it.
Peter Richon: Again, if you would like to make sure that your plan specifically addresses these issues – in fact, Tim's got a great report here. He mentioned it earlier, "The Five Planning Mistakes to Avoid for Financial Security Throughout Retirement." These are only the top five, but there are many other oversights. There are places where people just need to complete their plan. They've done a good job in phase one in working, and building, and accumulating and saving, and investing. In order to be successful in phase two retirement, they need to make a couple tweaks, make a couple adjustments.
If you'd like to avoid these five critical mistakes when doing so, pick up the phone. Give Certified Financial Planner, CFP Tim Stearns a call. You can request this list. It's a great one-page resource that goes through these top planning mistakes that people make, unfortunately. You can request the book, Income Allocation, which actually goes into some great detail on how to address these five common mistakes. You can request a time to sit down, no cost, no obligation, with Certified Financial Planner Tim Stearns for a review, a strategy session, and a plan design. You can get a written retirement income plan, a plan in writing, that can help you to address these common financial issues that some of us face, unfortunately, without that plan.
To take advantage of any of those offers, pick up the phone, give a call, 800-640-2256, that's 800-640-2256, 800-640-2256. If you'd like to attend one of the upcoming classes, they are holding the Rethink Retirement classes pretty frequently here throughout 2022. There's probably one in a location nearby and convenient for you. If you'd like to attend one of those classes, just give a call. Find out when and where the next ones are. Sign up for one that is convenient for you. Even take them online, they're available virtually, 800-640-2256. Tim, any other mistakes that you want to highlight on this list, "The Five Planning Mistakes to Avoid."
Tim Stearns: Yes, another big one is not caring enough to plan for long-term care. I've had people say, well, we'll just insure for it ourselves by having enough assets. When people realize that seven out of ten Americans are going to need long-term care, and nine out of ten of us have done nothing to address it, it gets a little scary. You need to realize you need this insurance.
What I've run into quite a bit is Baby Boomers have their parents that have paid into these stand-alone long-term care policies for years and years. They say something like, oh, well, my dad died of a heart attack. He never even used it. It was use it or lose it. I agree with that. We don't sell, and we don't give a solution of a long-term care standalone to people. What we do is we give them a hybrid life insurance policy that would have long-term care components to go with it, which is excellent. If you can't do two of your activities of daily living, you can take down money from the death benefit to use for that. You're insuring something that can happen to you. If you don't end up using it, there's a death benefit.
Let's say the Smith family does this. At the end of the day, they're going to have – someone in the Smith family will get the money back that was put in there. Plus a lot of times most of these policies have a cash value. Let's go through that again. You have long-term care benefits, living benefits in a life insurance policy. You have a death benefit that would pay out tax-free to people. Lastly, you have the ability to actually put some money in an indices that mirrors the market, that does not have risk, and it builds a cash value tax free, much like a Roth does.
Peter Richon: Would be a mistake in your guidance to just not address this issue at all. You cited some scary stats. The Department of Health and Human Services, though, agrees with you. They say just at 70%, as close as you can get, 69.8% of the American public will before the end of our life at some point need some assistance with those activities of daily living will require some level of care. Seven in ten of us, and we don't know which the lucky three are. Really, Tim, all of us need to do something about this question. As you've just told us about, there are ways to do something about it where it's not use it or lose it. If we are one of the lucky three, we haven't just wasted our time, money, and effort.
Tim Stearns: Right. We have a client, an older client that has some issues with physically and mentally. They’re paying $200 a day for a person to come in just during the day. Times five, that’s $1,000 a week. Times 52 weeks a year, she’s costing them $52,000 that they have to pay out of pocket because they never did long-term care back when they could’ve. Now they certainly can’t get it. Get ahead of it, America. I mean, we need this stuff.
Peter Richon: Again, if you would like to learn about these choices, about these options, about the tools and strategies that can help you to build for a more confident and secure financial future, avoid some of the largest planning oversights and mistakes, pick up the phone. Give Tim Stearns a call. He can sit down with you for a complementary review. You can get the time and the opinion and the guidance of a certified financial planner, of a CFP. That time and the planning that goes along with it can easily be valued, similar reviews can go upwards of $1,000 to several thousands of dollars, but Tim weighs all costs and fees associated with that initial planning review, that strategy session time for radio show listeners. If you’d like to take advantage, pick up the phone. Give a call, 800-640-2256. That’s 800-640-2256.
Still probably a few copies of that book left as well if you would like the book Income Allocation, which is being used across the country by advisors looking to help clients better understand the modern challenges with retirement and how to specifically address them. Tim Stearns wrote the forwards to this book. It’s a fantastic book. It’s actually a pretty easy read. You could sit down and probably get through it in maybe just a couple to a few hours and have a much better understanding of what you need to do with your money in order to feel more confident in your retirement. Pick up the phone. Give a call. Tim is making ten copies of that book available on today’s program for the first ten callers with at least $500,000 saved for retirement, 800-640-2256. That’s 800-640-2256.
Tim, on your list of these five planning mistakes to avoid, not using Social Security to provide effective financial security, so sort of going full circle here back to that GRIP, that guaranteed retirement income plan, but specifically Social Security is a very important tool for all of us.
Tim Stearns: Exactly, and I ask people all the time, “Have you done a Social Security optimization report?” I’d say 95% look at me like a deer in headlights. We say to them, “Has your advisor not offered to do that?” “Oh, he doesn’t really handle Social Security.” If you’re going in for retirement, that is a big part of what you’re going to need to know and to understand when you should be turning it on. We literally will do the Social Security optimization report that will tell you where you leave money on the table versus where you optimize it.
If you go to the Social Security office, there’s one right by our office. We’re in Arlington Heights. They’re in Mount Prospect. They will not answer questions for you. They just check the boxes and you dictate what you want to do. You want to make sure that you don’t go in there on your own without understanding what exactly turning on your Social Security is going to do to you and your spouse, because it does affect both parties. At the end of the day, Social Security will not help you. I would tell anyone out there, give us a call. We’ll help you to take a look at your situation and make sure that you’re checking the right boxes.
Tim Stearns: In all fairness, they don’t know the rest of your financial situation. That’s not their job, therefore, they don’t take on the liability of providing any recommendations. Their job is to help you file the paperwork on the day that you show up or make the request, not tell you if that’s the best day for you to fill out that paperwork or make that request. Not only is this decision important because of the amount that you can potentially get from Social Security, it’s a big increase from 62 to full retirement age to 70. There’s a big increase in the amount, but also, the more money you have coming from Social Security, it has an impact on the level of risk that would be appropriate with your personal assets and the expectations for a realistic rate of return that you should have then and the amount that you will depend on that investment account to create the rest of the income that you’ll need.
Tim, just multifactor here, a lot goes into the planning and preparing. I think you’re right. You said it very well that, if this is a conversation that has not been had, if the advisor, if the financial advice that we have been receiving has not included strategizing on optimizing Social Security, has not included taxation, has not included long-term care, then we may be really missing the boat. Cumulatively, that’s a large oversight in several big mistakes that can really impact our retirement.
Tim Stearns: Right, you want to make sure that you understand all the moving parts and how they go together. That’s what you just summarized but it’s very true. I wish I had a Swiss army knife to fix all this but there’s no such thing out there. When you do an income allocation plan, all these components go into the ingredients to make it for a good retirement and one that you don’t look back on 30 years from now and go, “Oh, shoot, I wish I had done this.” You don’t want to have an “oh, shoot” moment in retirement ever.
Peter Richon: No, and smart people learn from their own mistakes. We don’t have that time or luxury in retirement. We’ve got to be geniuses and learn from the mistakes or the knowledge of others. In this case, Tim Stearns is a certified financial planner. He has that knowledge, ladies and gentlemen. Pick up the phone. Give him a call for that complimentary review, that retirement planning strategy session, and that plan design, the written retirement income plan, or if you’d like to start by reading the book Income Allocation, 800-640-2256 is the number to call. That’s 800-640-2256 to get in touch with Chicagoland’s certified financial planner, CFP, Tim Stearns. Tim, we always appreciate your time and guidance here on the program. Thank you for being our resource.