Even if you’re about to retire, it isn’t too late to start planning. In fact, according to Sam Marrella, author of Your Retirement Game Plan, the best time to consult a financial professional is just before you retire.
Most Americans don’t have a retirement game plan. And because pensions will soon be a thing of the past, we are all going to need additional income streams to supplement our social security.
Check out this episode of Author Hour to learn how to retire with confidence, no matter how soon you plan on leaving the world of work.
Listen in to Sam Marrella to learn:
- Why it’s never too late to start planning your retirement
- How to retire comfortably, even if you don’t have a pension
- Why inflation is the biggest threat to your retirement fund (and how you can beat it)
What does it mean to retire with confidence?
If you don’t have a plan for your retirement, you tend not to be confident in what you’re doing, in the decisions you’re making. The result of that is that you don’t make nearly as good financial decisions when you don’t have a high level of confidence.
I help people create retirement plans that account for the big risks, the unknowns, that they’re about to face in retirement.
What I find is when clients embark on a journey of retirement with confidence in the plan that they have, they enjoy the journey a lot more than those that don’t. So that’s what it means to retire with confidence.
What does a typical client of yours look like?
A lot of times clients ask me the wrong question and that is, “Do I have enough money to retire? I’ve accumulated this much in assets and this much in my different retirement vehicles. Is it going to be enough?”
But that’s entirely the wrong question.
“The more appropriate question is, “How much income do I need and where is it going to come from?”
It’s not about how much money you need to retire. All roads lead to income, and when you’re retired, you need to convert assets into predictable long-term income streams.
When you retire, you’re basically saying that you no longer want a paycheck and that you’re going to live off of any income streams that you’ve accumulated over the years. That could be social security, a pension, or any other retirement savings.
“So, how can you create income streams from your portfolio that are (a) going to last the rest of your life, and (b) outpace inflation?”
First, people need to understand that we’re living much longer lives now than even a generation ago. Even though my clients may have parents in their late 80s, they may not think that they’re going to live to their late 80s or 90s.
Second, people are pretty good about having enough income today to do the things that they want to do, but many people who come to me just don’t understand the impacts of inflation.
“Inflation is kind of like ether. It kills you slowly. It doesn’t smack you in the head like a ton of bricks, it takes you out little by little.”
A lot of times I’ll ask my clients, “How long have you lived in your house?” They’ll say, “Thirty years.”
Then I’ll ask them, “Do you remember what your property tax bill was thirty years ago? And do know what your last property tax bill was a few months ago.” They immediately go, “Oh.”
Yeah, that’s inflation.
The government, over the last few years, has told us there’s no inflation and retirees have gotten almost no increase the last four years in their social security payments. That’s just crazy.
How does inflation affect the quality of our retirement?
I don’t know if you food shop, but my wife complains almost every week about how she can’t touch anything in the grocery store under four bucks. That creates a two part problem for retirees because what’s one of that segment of society’s favorite past times? Going out to eat.
Eating out has never been more expensive, which makes sense because the underlying food costs are always increasing. But inflation doesn’t stop there.
Healthcare costs also consume a lot of my client’s financial outflow. There won’t be one person listening today that will argue with me that healthcare costs haven’t risen dramatically.
By definition, that’s inflation.
From one year to the next most people can absorb those small increases, but it’s a huge problem for retirees because they have to absorb these costs over a decade or two.
Here’s how I explain it to my clients: When you retire on a fixed income, you have two types of expenses: “not fun expenses” and whatever is left over, or “fun expenses.”
Every year, those “not fun expenses” increase because of inflation. Since you’re on a fixed income those increases have to come out of your “fun expenses.” Eventually, you’re going to reach the point where all your income is going to your “not fun expenses.”
Well, it’s now too late to get back in the work force, so you may do something like go to Walmart and put smiley stickers on kids just to generate some income just so you have some extra cash to do fun things with.
It’s really sad, and it’s happening more and more because people are living into their 90s.
“If you retire at 65, that’s 25+ years of inflation that you have to factor into your retirement planning, but people just aren’t doing that, and it’s a real problem.”
How ill prepared are your clients for their retirement journey?
Some people don’t have the education on investing and investments themselves and other people, most people, are very unprepared for what I would call the infrastructure of retirement planning.
They don’t understand the math, they don’t even understand what the risks are and what the hurdles are that exist.
“The world is so complicated today. It’s very difficult to be an expert on more than what your vocation is. But I tell clients all the time, the uninformed in this world get shafted. The informed get ahead.”
It’s really hard to be informed of all aspects of your retirement planning and your overall financial situation. There are simply too many moving parts. But that’s what I help people understand.
What advice does Sam Marrella have for someone who’s right on the cusp of retirement?
The first thing I do when someone walks into my office is give them a homework assignment.
I simply ask them, “How much income do you need for yourself when you’re retired?”
The answer to that question then guides the rest of their retirement game plan.
Next, we have to define income sources. For example, social security benefits and pension payout, although what I’m seeing more and more is that my clients don’t have a pension in today’s world.
So we start with that core amount of income which is typically less than what they’ve determined to be their minimum amount needed to retire.
In the book, I go through a case study that goes through this process step-by-step but let’s just say somebody needs $5,000 a month and maybe they have $2,500 a month in social security. That’s a gap of $2,500 a month.
The real science behind this is not only filling that gap in year one but making sure that gap is zero for the next 30 years. Like I said, most people have no concept of how that all works and how to do that.
“If your desired income when you retire is $5,000 per month, that can turn into $10,000 per month 20 years from now because of inflation. Well, that gap of $2,500 is now a gap of $7,500.”
How do you close that gap and make sure it stays closed? We use investment tools to create other income streams that will last your lifetime.
How much influence do our emotions have on our financial health?
One of the big risks of retirement is controlling our emotions because we’re emotionally wired to do things that work against our financial stability.
Even the fact that as soon as you retire that paycheck that you’ve been getting for the last 30 or 40 years stops can be incredibly unnerving because now you’re living off of social security and your portfolio.
So you don’t want to make the decision to retire on a whim, you’ve got to really think long and hard about it. I always tell my clients that timing is everything when it comes to retirement.
If you happen to time your retirement poorly and the economy tanks, well whatever your portfolio was before you retired it’s now dropping in value much faster than you anticipated. You may have once viewed your portfolio as an indestructible rock that could weather any storm, but a bit of economic distress can really do some damage.
So the fact that you’re no longer getting a paycheck and your portfolio just lost a quarter of its value can really mess with your emotions.
When we experience economic distress, the one message we all hear from the media, whether TV, radio, Internet or print, is that the world is going to end.
So what do people do?
They panic and sell out. But I’ve got to tell you, it’s almost impossible to get back to where you were after selling out, and it all stems from not having confidence in your plan and allowing your emotions to overwhelm you. I see it time and time again.
Can you tell us some of your client success stories?
I’ll give you two.
One was quite early in my career when a prospective client came to me wanting to invest money that he was going to roll over from his 401(k) plan. But before any of that happened I said to him, “Before we do that, I need to know a lot more about you.” I asked a lot of questions and I listened.
I always tell people that God gave us two ears and one mouth for a reason, use them proportionately.
So as I went through a battery of questions, I started to realize that it really didn’t make sense for this guy to retire. I asked him when he was planning on retiring and he responded, “I just did. We just had my retirement party last Saturday”.
He had a couple of weeks vacation and then left. So then I asked him why he wanted to retire. He told me that all of his friends had retired.
“Every day was a Saturday for them and he wanted to be like them.
“I said, ‘Yeah, but they don’t have a junior in high school that needs to be educated, nor do they have a home equity loan that needs to be paid off, and nor do they have a wife who’s only 58 years old.'”
I encouraged him to tuck his tail between his legs and ask for his job back and to his credit, he really listened and years later when he finally did retire we both agreed that he did exactly the right thing.
Here’s a second story.
I once had a client come in who had already gone to her HR department and told them she was going to retire three separate times. Each time something happened. We had some economic disruption, the markets got crazy, and the negative noise got loud with the media, so she got spooked and decided not to retire.
Well, after I looked over her financials and asked her my usual barrage of questions to formulate a game plan with her, I discovered she was in great shape to retire.
And this is the best part, I can’t even tell you the difference between when she walked in and when she walked out. It was like she was a whole other person. The confidence she had walking out of my office was unbelievable.
She called HR the next morning and retired at the end of the month. This was only a year or so ago and so far, she’s loving retirement.
What advice would you give to aspiring authors?
Not to steal the tagline from Nike, but Just Do It.
You can make all the excuses that you want ahead of time about how you can’t do it, how you don’t have the skills or the time, but if you really feel that way, call Scribe Writing and get help.
That’s exactly what I did and what I got in return was a really neat experience. It was very rewarding, it was very fulfilling, and it was exciting.
So, Just Do It. Don’t procrastinate or make excuses or why it won’t work. Find a way.
**Raymond James is not affiliated with and does not endorse the book, The Retirement Game Plan. Opinions expressed in the book are those of the author and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Marrella Financial Group is not a registered broker/dealer, and is independent of Raymond James Financial Services.**