Joe DiSalvo: Episode 281

Transcript

[0:00:24] RW: Hi, everyone. It’s Rae Williams, host of Author Hour where I interview authors about their new books. The most important thing you can do as a retiree or if you’re thinking about retirement is develop a well-educated retirement and income plan. Our next guests are coauthors of Income For Life: A Guide to Converting Your Retirement Savings to Income. Joe DiSalvo and Marie Madarasz are here to give us some tips on everything from setting goals and budgets to mitigating risk, ensuring steady and predictable income and how to best seek professional help and so much more. Here’s our conversation with Joe and Anne Marie.

[0:01:06] JDS: I guess it started about five or six years ago on a stage in front of about 700 people. Arguably, I did not belong on that stage but I was on that stage. There were a lot of other people there that could have delivered that same keynote speech. It was a huge success in the end and it wasn’t so much because I was a great speaker, it was more, the message resonated with the people in the room that night. Of that 700 people, I would say, 400 of them were experienced, solid practitioners. They do what we do for a living and they do it well. The message that night was a simple one, the industry owed the consumer something more. The industry is overly focused on products and performance and they tend to miss and dumb down the importance and the value of planning. You know, real financial planning and Marie and I feel that there’s a big opportunity because this is an unprecedented time in history. Never before have you had people retiring as early as they’re retiring, they’re living longer , more healthy lives ideally and they’re a lot more active and the consume doesn’t fully grasp and the industry fails to convey that growing an income over upwards of a 30 year period really requires planning. If you kind of think about the numbers, if somebody needs to take $50,000 of income in addition to their social security, maybe they have a pension or not, that $50,000 income that they start in their early 60s, over the next 30 years has to grow to about $125,000 a year. That’s just adjusting for inflation. The only way that’s going to reasonably happen is with a plan. Now, we meet with lots of perspective clients in any given year and the one thing we know for sure is they lack a plan. Typically, they come to us and they’re very confused about how they’re going to grow that income. They’re concerned about the stock market, they don’t know what a market downturn means to them. They really have no idea how to take that income out of those accounts when markets are down and in the back of their mind, they understand that their IRA and 401(k) has been a great way to save for the future. But at the same time, they've never paid taxes on any of that money and they understand on some level that that’s a tax time bomb. That really was the motivation behind writing the book, it was about changing the conversation in the industry.

[0:03:49] RW: All right. If you had to choose the one unique idea or story from the book, something that listeners are going to remember and can take action on this week, what would that be?

[0:04:02] MM: In that book, we tell the story of a wonderful client of ours who was closing in on the age of 70. She was still working at what was a stressful job. A job that encroached a lot on her free time, evenings and weekends. It kept her from living the life she really wanted to live in this next stage. She had a lot of questions, "Is what she saved enough? Will she run out of money in retirement?" She had questions around, "How do I do this? How do I take my savings and convert it into a growing stream of income?" Because she didn’t have the answers and not having those answer caused her a lot of anxiety and concern, she just kept working and working. Never feeling that she was ready to retire. When she came into us, we walked her through our planning process. We helped her clarify the goals, her main goals in life that if she didn’t achieve them, she would feel like something was really left on the table and we helped her realize that everything she had spent a lifetime savings, was enough, she could retire tomorrow if we wanted to. Then, we provided her with a process to convert those savings to income. We gave her that roadmap to retirement. In the end, this is what she needed. Someone to help her get her ducks in a row. Now, she is retired, maybe we would say semi-retired. I still think she does work a little bit but she has so much more free time. She’s truly enjoying her retirement. Now, she and her partner have a new home down south and we love having them call out and telling us what a great time they’re having. For this client, those clarified goals and that roadmap forward was what she needed to un-stall her and progress her towards retirement. That would be our success story, that’s my favorite one.

[0:06:06] RW: All right. What happens when people don’t take action on this. What happens when we don’t do anything with this information, when we’re not planning for our retirement, we’re not looking at that income, what happens?

[0:06:19] JDS: I think people have a certain degree of uncertainty. I think there’s always uncertainties surrounding retirement when you get right down to it. I think the more people procrastinating and its human nature to procrastinate, we all procrastinate. The more they have that uncertainty and that uncertainty creates anxiety. The whole value to planning is really peace of mind, it’s confidence, it’s clarity in a plan and it’s confidence in the future.

[0:06:46] RW: All right. Give me — and going back to kind of the previous question a little bit, what is an action item? How do we begin to start to prepare for retirement and make sure that our income is working and our income from our savings is correct.

[0:07:02] MM: You know, we have a lot of worksheets that we’ve included in the book. One of the first one is about really understanding what your goals are, you need to understand what you’re actually going to be spending in retirement. It’s getting a handle on your overall budget. Your everyday living expenses then, it’s starting to understand your savings, what you own, how you own them and what they can be able to provide you as an income. All those worksheets, we put in the book. In the end, we’ve provided people with what we call the retirement income estimator and it helps people bring everything together so that they can kind of estimate what their retirement income will look like.

[0:07:48] JDS: Yeah, I think it’s safe to say that if you just do the exercises in the order that we suggest doing the exercises. When you’re done with these exercises, you’re going to have a reliable but rough sketch for time and income plan.

[0:08:04] RW: Okay, what do you guys think are some of the biggest misconceptions about retirement and saving for retirement that affect people that prevent people from actually your example that you gave actually just retiring. They just keep working because they can’t do it, what are some of those misconceptions?

[0:08:23] JDS: I think before the misconception is really the general fear of actually retiring and it is not all economic either. There is a lot of things that go into that decision. I mean ultimately we all have to retire. But I think that when you get to the money piece, if I think about a misconception is they’re confused about how to really think through risk and the only risk that they are thinking of is market risk. They are not necessarily thinking about the risk of taxes. The risk of inflation, the risk of healthcare costs and the book helps the reader look at the five different risks associated with every retirement so that they are able to make an informed decision from every vantage point that you need to make that decision from.

[0:09:07] RW: So give me another example of someone who has gotten – I mean that success story was great but that has gotten the most out of your ideas, that has done this successfully that has manages to retire and use their income wisely?

[0:09:19] MM: We have taught educational workshops for decades and the one piece of information that attendees and clients to remember through the years and they always come back and speak to us about is the process called buckets of money and buckets of money is a withdrawal strategy that help to mitigate those five main risks that Joe just mentioned, market, withdrawal, longevity, inflation and tax and we have successfully used this bucket strategy for decades. Very successfully with our own clients and one couple in particular comes to mind and this couple they’ve retired on the younger side. She was in her late 50s, he was in his early 60s. They had some nice savings, a small pension, eventually social security came online and the important thing was they had sound fundamentals present in their investment portfolio and that’s an important piece of the book and what we’ve realized is that personal financial education is really lacking for most people. And it becomes very important that these fundamentals are present in your investment portfolio in order to run your portfolio in the way that an create a growing stream of income for life and this couple they experience in active, wonderful retirement. They have been retired for almost 20 years now. They have travelled, they’ve had plenty of adventures. They visited national parks. Through those almost 20 years, they have spent hundreds of thousands of dollars. And today, they have more money than when they started with. The beauty of buckets is the concept is simple yet the problems they solve for can be complex and that resonates with people.

[0:11:07] JDS: Yeah and I think just to clarify one point that Marie just made I think they’ve been taking out income from that portfolio each and every year so they had taken out literally hundreds of thousands of dollars over that 20 – it is actually more than 20 year period and they have probably a little bit more money today than when they actually started and that is really the power of the fundamentals that Marie was eluding to combined with that bucket strategy for managing the various risks of retirement.

[0:11:36] RW: All right, so you guys have a chapter in the book that’s called “Getting Help - Don’t DIY Your Future.” and I think a question that a lot of people have is who do they go to, how do they chose that person and how can that person help them in terms of a financial adviser or something like that? So in that chapter, what are you guy’s guidelines and what do you think is best for getting help and for choosing a financial adviser to help you with retirement?

[0:12:04] JDS: I think first and foremost, they need to demonstrate a commitment to their craft, right? They should have a CFP, a CHFC. They should have some sort of a professional designation that says A, they’ve studied and B, they’ve got to study on a regular and ongoing basis in order to give advice as next to medical advice is probably the most important advice you are ever going to give somebody. I think then you want to be talking to somebody that really specializes in your type of situation. You know retirement income planning is very different than preparing to save for retirement or personal financial planning for a couple in their 30s that are young family and college in front of them and all of these other various things. So I think it is having some degree of specialization in the field at least of what we are talking about in the book and then I think it comes down to sitting in front of or sitting with that advisor and I would honestly make the decision based upon the quality of the questions that they ask. That would be I think the easiest most straight forward, what are your thoughts Marie?

[0:13:11] MM: I agree with that.

[0:13:13] JDS: Yeah.

[0:13:13] RW: All right, so if you guys have to issue a challenge to your readers, our listeners, what would that challenge be that can change their lives?

[0:13:23] JDS: A challenge, I like challenges too so that is an interesting question.

[0:13:27] MM: I think it might be getting financially organized. Starting to pull all their different documents together, putting that budget together, doing that work that a lot of people can procrastinate on. Don’t be afraid to start looking at your numbers.

[0:13:43] JDS: Yeah, that is probably the best challenge and the budget in particular. When you think about budget people think about judgment I think a little bit and definitely they shouldn’t think about that because retirement ultimately is a cash flow challenge. You are trying to figure out how to solve for creating cash flow income. So that is really the best start point. What is even better about that as a start point is its probably the hardest start point for people I think because who wants to think about a budget and what we spend money on but it is probably the most valuable start point.

[0:14:16] RW: All right, so are there any other touch points that you think that people either don’t know very much about or need to know or things that are important to consider when you are planning for your retirement?

[0:14:26] JDS: I don’t think anything remotely comes to mind. I mean we can trow on for hours about touch points, the things that people should be doing but I think from a high level, we have covered it fairly effectively today.

[0:14:38] RW: All right, perfect. I just want to make sure. So how can people contact you?

[0:14:42] JDS: I guess the best way to contact us really is you know ideally we prefer it by phone. You do want to get a sense of what’s on people’s minds because then you can at least point them in the right direction. You know it is great to go on the internet and do research but if that research and that information lacks any context I think people stay stuck in place. So it’s picking up the phone and whether you call us or you call somebody that is relevant in this field that is a good first step.

[0:15:14] RW: All right, thank you guys so much.

[0:15:16] MM: Thank you, Rae.

[0:15:18] RW: So you heard it, learn to plan for your income and retirement today and be prepared for whatever tomorrow brings. You can learn more by picking up a copy of Joe and Marie’s book, Income for Life, available on Amazon.com. Thank you for listening to Author Hour and stay tuned for our next episode.