Ep # 49: Our Bread & Butter - Retirement Planning 101

Benjamin Haas |


  • Common retirement questions - 1:17
  • Retirement variables - 3:08
  • Figuring out together if retirement is possible - 4:10
  • Our approach to making retirement assumptions - 6:28
  • Looking at variables that we can control - 10:21
  • Using projections to generate conversations - 11:16
  • What retirement variables are the biggest concerns for clients? - 13:14
  • Why the planning conversations are important to the decision process - 16:10



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Full Transcript:

Benjamin Haas  00:03

Hi everyone and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! You know that intro music kind of reminds me of?


Adam Werner  00:31

No, what?


Benjamin Haas  00:32

When Jimmy Fallon has The Roots, like playing a kid instrumental. It's got a little bit of that pep.


Adam Werner  00:39

Yeah, I buy that.


Benjamin Haas  00:41

It's a great way to start a podcast.


Adam Werner  00:43

Yes, it's very catchy. We've heard from many people that said it gets stuck in their head. It's hard not to whistle it after you hear it.


Benjamin Haas  00:54

That's right. That's right and it gets you pumped up to talk about things like retirement planning.


Adam Werner  01:01

Sure. Let's say that that's the case. So on that note, yeah, let's talk about retirement today as the crux of the conversation.


Benjamin Haas  01:14

Our bread and butter, we're back into our bread and butter.


Adam Werner  01:18

This is our sweet spot. So yeah, beyond like, I think we've talked a lot recently on just where do we even start with people. The whole behavioral side of just getting to know somebody, getting to know their way that they approach things and all their preferences. But I feel like that has led a lot lately into many variations of what essentially is the same question when somebody is pondering retirement. Which is: can I retire when I want to? And that often leads to, do I have enough saved? Am I going to outlive what I've saved up to this point?


Benjamin Haas  01:59

Yeah, I think that's well said because if people do come in with that one question, can I afford it? Am I going to run out of money? How much money can I actually spend? It really is a variation of all that same question and that's why when we start to break down the conversation within the planning model itself, there really are only five variables. How much time do you have? What's the income you need? Therefore, what do you have to have saved? What's the rate of return? And if you're still accumulating, what do you need to save on a regular basis to ultimately get to that end goal? So, I think the point for us to drive home in this conversation is, let's figure out how you're viewing things, like what's the one thing you really want to not compromise on?  For some people, it's got to be this age, or for some people, it's got to be this lifestyle. But then once we figure out what that one variable is for you, let's give you the education to know, well then, here's what the other variables need to be to make this plan work and that's sometimes where there's a little bit of a disconnect, that we have to walk people through that.


Adam Werner  03:08

Yeah, and we often say part of planning is just putting these puzzle pieces together and that is truly reflected in this part of the conversation where there literally are, to your point, five main variables that we look at and you can adjust any of those. Hearing from a client or prospect, here's the variable that they want to kind of isolate. Whether that's a certain lifestyle, meaning income that they want to be able to generate or just I want to retire at age 64. Not a day later, like I'm retiring on my birthday. As long as we know that and they can prioritize for us, then it really is putting the other puzzle pieces together, those other four variables to at least be able to determine is that something that's going to work. And if not, then what tradeoffs need to happen to at least get it in a much better spot that feels comfortable.


Benjamin Haas  04:10

What I liked hearing you say there was: is this going to work? Because that actually leads, I think, to maybe a second step in the process where once you have some sort of initial review on, I think the things that you want to do can work or maybe they're not. It's to figure out and this is where we really need to play a big role, figure out, well, maybe it works on the front end but it may not work if you really live a long life. Or maybe that calculation feels good today but inflation is going to be a problem later if all your income is coming from something that's really not going to keep up with inflation over time so I think there are degrees of will it work. And if there's one more thing I'd say to that building in buffers, making sure that we're not just saying can it work yes or no. It's well, if we stress test this with something that pops up in your life, does this thing crumble or is it resilient?


Adam Werner  05:08

And that's oftentimes what we see factored in the least, those additional expenses. Everyone knows once they hit age 65, they can jump on Medicare but I think part of the disconnect is, well, Medicare isn't free. Even though it's typically cheaper than most employer provided coverage. That's assuming you're just paying the premiums that don't ever need the coverage. So there are deductibles that we assume, into our projections, but that's certainly one area where it doesn't always factor in, like you said the inflation side of things. We know costs are going up but when you now try to compare that or at least put that up against social security, pension income, those fixed income sources that may or may not be keeping up with inflation, that gap does continue to grow into the future. We just want to make sure like you said, poke some holes in this, let's throw some buffers in there. Say we spend a little bit more in any given year in retirement just to make sure that there is some margin of error because it isn't exactly a black and white, yes or no answer. Oftentimes, when it comes to retirement, there really is a sliding scale.


Benjamin Haas  06:28

Yeah, that's really well said because I think if there's maybe one disconnect on what our role is, it is to push back on you, on what inputs you're really giving us to put into a plan. That's where our experience and having gone through this a couple different times, wanting to make sure we're conservative in the assumptions we're using. Wanting to actually double check your math. One of the biggest inputs to this is what kind of income do you really need? We get that question a lot on the front end, like do I need a million dollars to retire? Or does it have to be a lot more? Do people my age have this much saved or not? It really comes down to what you're going to need to spend and I think more often than not, people have no stinking clue what they actually spend on a month-to-month basis. But if you ask them to go through some sort of cash flow, think about it, track it for a month or two, I spend five grand a month, six grand a month. Meanwhile, you're making 150 grand a year and we're going: then where is the other money going? And I think it's human nature to maybe understate what you think your need will be.


Adam Werner  07:35

Oh, yeah.


Benjamin Haas  07:36

And that can be a problem.


Adam Werner  07:37

Yes, I agree with everything you just said but that's an important first step in the process, just number one, confirming whether the variables are or our assumptions together, are actually reasonable. And then if they are not, let's at least try to figure out something that is realistic so that we're at least dealing in some world of reality, when it comes to these projections and then making this big decision on whether retirement is going to happen sooner or later for many people. We would hate to have somebody make that decision based on some faulty data or at least pie in the sky expense levels. And now you're six, seven years into retirement and it's well, this isn't looking great, I'm taking out more money than I think I expected. It looks like I'm going to run out sooner than later and now I'm going to have to go back to work or at least really start to pull some of those parachute cords that I wasn't ready to pull this early.


Benjamin Haas  08:40

And I think that happens, too, with some sort of assumption on what kind of rate of return or what is my savings going to generate for me. I get a little bit concerned that there may be a lot of plans or whether they're formalized or not. People that are in retirement have gotten some sort of false sense of security when you've had stock market returns last three years that are like pushing 20 plus percent a year. That masks a lot of excess spending that you may have gotten used to that will not be able to occur in the future if we're betting to some more normalized 5, 6, 7, 8 who knows rate of return. So I think part of the point that we're trying to make today, there definitely are a lot more variables that go into planning than I think that one burning question that people have. But how those dominoes play out certainly need to change over time and we need to make sure that the assumptions that were made on the front end, either are coming true within the plan or can be adjusted and you have the built-in buffers to survive those adjustments later.


Adam Werner  09:51

Yeah, and I think just to build on that a little bit more. We've talked about all these variables, all these assumptions but they do fall into two camps, some that you can control and then many others that you can't. So even from that aspect, if the market is, like I said, right now it has masked maybe some excess withdrawals or expenses, whatever that may look like.


Benjamin Haas  10:19

Yeah, some shortcoming.


Adam Werner  10:21

Yeah, so let's take the opposite of that, at some point we're going to have, I don't want to say normal, but some sort of extended recessionary period, that is not a 30-day COVID, shut off the economy, turn it back on type of downturn. Something that is going to be a little bit more prolonged and then that's where if the market returns are not enough to make up for the withdrawals that are coming out, then let's look at these other variables that clients can control whether they want to or not. It's earning more, spending less, you know, maybe adjusting investment risk, all of those things that, again, I think it's just the difference between the things we can control and the things that we can't. And knowing that if we need to make adjustments, it has to happen over here under the list of things that we can control.


Benjamin Haas  11:15

And so much better to think about those things and actually project those things out on the front end before somebody does retire and I think that's part of our job. As much as we are the practitioners here that have to like build the plan and understand the financial dynamics of it. I'm hoping you would agree, I mean, we work together on this stuff. I hope you would agree that the conversations on the front end to that plan are far more important than whatever projection we're going to put together because that projection is still a lot of assumptions that could change over time. It's using the projections to generate the conversations on if these things happen, if these bad things happen, what are we willing to compromise? And if there aren't some things that we want to compromise, then that helps us on the front end go: Yeah, let's focus on what you can control. Are we working longer to earn more? Or we're going to spend less? Are we going to find a way to try to generate more return? What are the things that you will do on the front end that help that plan when those bad things happen? I mean, that is planning; planning should not be for best case scenarios. It should be: we've got a lifeboat; we're going to be comfortable with it. When these things happen, we know what levers we're pulling, that's on the front end.


Adam Werner  12:36

Yeah, and that ultimately comes back for us to just flexibility, the ability to adapt and being proactive with those conversations and not reactive to the point where we mentioned earlier. For clients to be able to prioritize what levers they want to pull should that scenario develop. It's much easier to essentially go through your checklist that you've created in advance than it is to now be staring at a blank sheet of paper and going. Okay, well, where do we start now that things aren't working out?


Benjamin Haas  13:14

Yeah. I mean, I'll put you on the spot. What would be, you love when I do this. What would be your biggest concerns for clients long-term? What are those variables that you think will come back to bite people?


Adam Werner  13:33

Oh, man. I think the biggest one, I think I mentioned it earlier, it's cost of health care. Everyone has an idea of what they spend while they're working and you hope to really not use a whole lot of that health insurance coverage, I think we all acknowledge that, once we age, the odds of us needing to spend more on our healthcare go up. But even with that said, we usually don't hear from clients that they've mentally accounted for a portion of their savings that are going to go towards some increased health care costs in retirement.


Benjamin Haas  14:19

So mine was going to be piggybacking right off of that. So that's one concern and I think studies show that is the number one concern for retirees that do they have enough saved to cover those expenses? But we're also seeing people live longer. So, isn't that compounding that problem? Here we are, not that we're trying to play God here but we're drawing these plans that say and you will pass away at age 90 or you will pass away at age 95. What the heck do we know about 25-30 years from now? I think it's all the more reason that you have to build in some of these parachute cords to your point and make sure that a plan that seems like it's going to work today at 65 years old, still feels like it has the potential to withstand some of those hiccups. If it's going to be living till age 95. If the norm is going to be our parents live to age 100.


Adam Werner  15:18

The phrase that popped into my head and I don't know where this came to me. It's better to have it and not need it, than to need it and not have it. So when it comes to longevity, right, and being conservative with assumptions, whether that's expenses, investment returns, all of the things that go into that long-term projection and to your point, we're projecting out 25-30 years into the future. They are guesses. It's our best guess but they're still educated guesses that we don't know what that reality is going to be so, better to be conservative with our guesses and have at least for our clients, more flexibility than less later in life.


Benjamin Haas  16:13

Yes, very much so, agree with all of that. I think maybe the point that we're trying to hit home is when it comes to retirement planning, sometimes, what drives that first question is, okay, I've got the savings. Now, what am I going to do with it? When I hope we've articulated that is one variable here. How you're going to invest, three bucket theory, completely separate podcast, how you're going to invest is one input, when all these other heavy conversations around assumptions, income need, taxes, health care, what buffers do we have built in? This is the reason why I hope anybody that's going to retire seeks out some sort of retirement consultant to have those conversations that pays for that kind of consultation. Completely independent or maybe they do both like we do, but completely independent of just what I'm going to do with my 401k when I retire.


Adam Werner  17:11



Benjamin Haas  17:13

So your point, there are things we can control and we better have those conversations before we retire and there's certainly things we can't. But if we have the conversations on the front end on what we can't control, hopefully, we're building in the backup plans before those things would occur later in life.


Adam Werner  17:30

Yes. Perfectly said.


Benjamin Haas  17:34

Then let's leave it there. Put a pin in it.


Adam Werner  17:38



Benjamin Haas  17:40

Thank you. Doesn't it feel good, like we're back in a comfort zone. Not that I'm uncomfortable talking about some of our other recent podcasts but like, this is the training we had. This is the way that we've been built to most help the biggest crowd out there, the baby boomers retiring. So if you have questions, we're here. We're the team you want to call.


Adam Werner  18:03

Don't be shy.


Benjamin Haas  18:05

Thank you, sir.


Adam Werner  18:07

All right, thank you.


Benjamin Haas  18:18

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your accountant, your accountant and financial advisor of tax advisor prior to making any decisions or investing. Thanks for listening!

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