Category: Financial Planning / Podcast

Tim Baker, CFP® tackles 10 questions for those considering early retirement from sources of income, handling market volatility, health insurance options and more.

Episode Summary

This week, Tim Baker, CFP®, RLP®, RICP® and Tim Ulbrich, PharmD tackle 10 questions for those considering early retirement. They discuss sources of income in retirement, handling market volatility when no longer working, health insurance coverage options, timing to draw on Social Security, and much more.

About Today’s Guest

Tim Baker is the Co-Founder and Director of Financial Planning at Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 12,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. 

Tim attended the United States Military Academy majoring in International Relations and branching Armor. After his military career, he worked as a logistician with a major retailer and a construction company. After much deliberation, Tim decided to make a pivot in his career and joined a small independent financial planning firm in 2012. In 2016, he launched his own financial planning firm Script Financial and in 2019 merged with Your Financial Pharmacist. Tim now lives in Columbus, Ohio with his wife (Shay), three kids (Olivia, Liam and Zoe), and dog (Benji).

Key Points from the Episode

• Early Retirement Goals and Challenges [0:00]
• Defining Early Retirement [6:02]
• Questions to Consider for Early Retirement [8:42]
• Replacing Pharmacist Paychecks [17:41]
• Health Insurance Coverage [24:17]
• Dependents and Social Security Timing [31:08]
• Inflation and Tax Planning [34:57]
• Partner and Spouse Alignment [37:20]
• Long-Term Care Planning [39:56]
• Conclusion and Resources [44:58]

Episode Highlights

“I think there’s this misconception, or this illusion of control that we have over our retirement age. I think around 40% of people retire earlier than expected. It’s usually due to a medical issue with themselves or a family member, or could be something like a layoff. There is this illusion of control. Now, there are things that you can do to help with that. But a lot of the time we don’t have that.” – Tim Baker [4:59]

“Define retirement. I think for a variety of reasons this question is important, because for a lot of people, we think that retirement is the destination, but it’s really just the next chapter in the journey, right?” -Tim Baker [10:32]

“I think it is really important when we talk about this question: are we accounting for inflation? I think the best way to do that in a retirement setting is, as much of your dollars can come from Social Security as possible is great. But then also taking intelligent risk in the market, where the market is kind of performing in a way that kind of keeps pace or outpaces inflation is what we want.” – Tim Baker [36:25]

Links Mentioned in Today’s Episode

• Register for YFP webinar on October 7th at 9pm EST: Aliquot Investing: Small Investments in Big Real Estate Investing
• YFP Free Guide: Retirement Roadblocks: Identifying and Managing 10 Common Risks
• YFP Episode 291:Redefining Retirement with Professor Emeritus David Zgarrick, PhD
• YFP Episode 296: 5 Key Decisions for Long Term Care Insurance
• YFP Episode 321: Navigating Financial Conversations with Aging Parents
• Social Security 
• YFP Book a Discovery Call
• YFP Disclaimer
• Subscribe to the YFP Newsletter
• Tim Ulbrich on LinkedIn
• Tim Baker on LinkedIn
• YFP on Instagram
• YFP Facebook Group

Episode Transcript

Tim Ulbrich  00:00

Hey everybody. Tim Ulbrich here and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker and I are tackling 10 questions regarding early retirement. We discuss sources of income in retirement, handling market volatility when no longer working, health insurance coverage options, timing to draw on Social Security and much more. And to supplement this week’s episode, we have a free resource for you to download: Retirement Roadblocks: Identifying and Managing 10 Common Risks. Because here’s the reality, when planning for retirement or early retirement, as we’ll discuss on today’s show, so so much attention is given to the accumulation phase, growing your assets. But what doesn’t get a lot of press is how to turn those assets into a retirement paycheck. And when building a plan to deploy your assets during retirement, it’s important to consider various risks to either mitigate or avoid altogether, and that’s what this free resource and guide is all about. It’s available for you to download at yourfinancialpharmacist.com/retirement risks. Again, yourfinancialpharmacist.com/retirementrisks.

Tim Ulbrich  01:11

 Now, before we get started with the show, I want to let you know about our next YFP webinar coming up on October 7, at 9pm Eastern: Aliquot Investing: Small investments in Big Real Estate Investing. This free webinar led by YFP Real Estate Investing podcast co-hosts Nate Hedrick and David Bright explores how syndications fit into a well rounded real estate investment strategy, especially for busy pharmacists who don’t have time to source, vet and manage real estate investments. In this webinar, David and Nate will be joined by Alex Cartwright, PhD, and economist who has also led syndication projects, including one in which both David and Nate have invested themselves. You learn more about this webinar and register at yourfinancialpharmacist.com/syndication. Again, yourfinancialpharmacist.com/syndication. 

Tim Ulbrich  01:59

All right, let’s get started with today’s show. Tim Baker, welcome back to the show.

Tim Baker  02:06

Yeah, good to be back. How’s it going, Tim?

Tim Ulbrich  02:07

It is going well. I’m excited. This week we’re talking about early retirement, which is something that I keep hearing more and more pharmacists expressing as a goal. And so Tim, I’m curious to hear from you before we get into the details of our discussion, is that something you’re hearing a lot of as you talk with pharmacists that are engaging with us to learn more about our services? Is early retirement coming up as a frequent goal? And what do you suppose might be driving some of that?

Tim Baker  02:37

Yeah, I think, I think for a lot of people, there’s a there’s this notion of, like, I’ll never be able to retire, you know, and a lot of it’s because of the student debt burden. I do hear on, you know, refrain of, I want to get to a point where I work because I want to, not because I need to. I only, I hear that almost verbatim a couple times a month from a prospective client. So the the notion of early retirement, I don’t, I don’t want to say it’s kind of in the forefront. Obviously, we do, you know, work with a lot of people that are interested in kind of the FIRE movement and what that looks like. But I think that there’s this shroud, maybe, of student debt, that it’s like, how do I even overcome this? And, you know, in a way that puts me in a place to retire, let alone retire early. So I think those that don’t have that, or have kind of navigated a plan for the loans. I think there’s a little bit more of like, sunny skies, but I wouldn’t say there’s a lot of people that are saying, like, I need to retire by, you know, this age. I think that that’s kind of few and far between. 

Tim Ulbrich  03:50

And for those that aren’t familiar with the FIRE term, we’ve talked about it on the show before, financial independence, retire early. Lots of resources out there that folks can learn more more about that. But I’m glad you mentioned, Tim the work because I want to not have to. That’s something I hear a lot as well. And, you know, I think for some people, they love the work that they do, and it brings them a ton of value. It brings them a sense of purpose and meaning. Perhaps others, you know, maybe early retirement is, hey, I want to get out of the stressful environment that I’m working in, and I don’t necessarily love the work that I do, but regardless of those desires, that work because I want to not have to is a thread that I think often comes out and within that I typically will hear, hey, I want to have flexibility. I want to have options. So, you know, maybe I get to a point that, hey, I’d like to work part time, or maybe something happens, you know, health wise, or with a family member, or something unexpected, or pursuing a passion project or hobby, whatever would be, the reason that their financial plan is in a position that, whether it’s something they can see or not see at this moment, that they have options if they need those options in the future.

Tim Baker  04:59

Yeah, I think there’s this, this misconception, or, like, this illusion of control that we have over our retirement age, which is, and I think it’s something like 40% I don’t have that stat in front of me, but I think it’s like 40% of people retire earlier than expected. It’s usually due to a medical issue with themselves or a family member, or could be something like a layoff, that type of thing. So there is this illusion of, like, I have control now, there are things that you can do to help with that, and to, you know, to build, you know, whether there’s something like really to consult in that you have that flexibility, or things like that that gives you a little bit more control. But a lot of the time we don’t have that. And that’s kind of an illusion that we think we have.

Tim Ulbrich  05:44

Since we’re going to use the term early retirement throughout the episode that that implies that there’s an accepted norm, maybe, of what retirement means. So when you hear early retirement, that term and throughout the discussion today, what? What are we referring to? What assumptions are we making? What defines early retirement?

Tim Baker  06:01

Yeah, to your point, Tim, I don’t know if there is an accepted, like, when we say early retirement, this is the age that we’re talking about. Yeah, if you look at it from like, Social Security, early retirement, as defined by Social Security as 62. So there’s really, there’s really a couple ages related to Social Security. It’s your early retirements at 62, your full retirement age, which is different for a lot of people. Most people, it’s going to be 67 and then you have delayed retirement a that’s typically 70. So early retirement in the Social Security system is 62 and you can’t collect the benefit before that. The age that I think of like if you were to say, hey, I want to retire early. The age that I think of is 59 and a half years old. So why do I think of 59 and a half years old? The reason for that is all those retirement accounts, a 401K, an IRA or Roth IRA, they they’ll have basically guidelines to say if you take money out before 59 and a half years old, you’ll be, you know, penalized. Unless there’s, there’s exceptions to that, but you’ll be penalized by 10%. So that’s typically the the age that I’ll use. So like, if you were to say, Hey Tim, I want, you know, I want to retire early, and I would say, Well, what is that? If you say 55 then between 55 and 59 and a half years old, we have to figure out an income stream that’s probably not going to come out of your 401K or, you know your other retirement accounts. So that’s what I typically will use in my brain. I think you know, if you talk to people in the fire community and you say 50-59 and a half? That’s probably not early retirement for them. So those are kind of the few, the few dates, or the few ages that jump out to me when we have this discussion. But I think for all intents and purposes, it’s 59 and a half for me. 

Tim Ulbrich  07:55

I think the same thing. And I agree. I think some of the FIRE enthusiasts, although there’s many different flavors of FIRE, right? But the FIRE enthusiasts, a lot of people might think a early retirement, you know, late 30s, early 40s, right? Type of ages that you typically see. But I think 59 and a half, for the reason you mentioned is, is what often comes up. The other one 62. You mentioned social security. When could I draw Social Security? 65 Medicare, that often comes up. You know, we’ll talk about health insurance. So the point being is, as we say all the time on the show, we’ve got to have intentionality on like, what’s the goal? What’s the purpose? Why is this a goal? If it’s a goal for you, and then we can start to plan around that, like, what does that mean to you? You know, is it 59? Is it 54 and for what reason? And then what does that mean in terms of various savings accounts? So let’s jump in. We’re going to talk about 10 questions that we think are important questions to consider for folks that are thinking about early retirement. And that could be someone listening and says, Hey, I know I want to early retire and I’ve set that date. Or it could be folks that are just thinking about this as something that they’re they’re curious about and want to learn more. As we go through these 10 questions, the intent is not that we’re going to cover each one of these areas in a significant amount of depth. We’ll reference other resources that we have on each one of these topics as we go throughout but really to introduce the question and get you thinking about these different areas as it relates to early retirement. So Tim, the first question that I think is important for folks to consider is, Will I work at all during retirement? Right? And as obvious as that sounds, I think if, if people are thinking of very traditional retirement, it’s, hey, we work for 30, 40, years, and then we don’t work at all. But for others, it may be that we work part time. And pharmacists, I think, are in a unique position where they have more of the opportunity to work part time, work as a contractor, versus other professions out there. So why is this question, will I work at all during retirement so important?

Tim Baker  09:52

And I think, like, if we’re defining early retirement, I think you can even define like retirement. I think so many people, in a traditional sense, they. Think of retirement as, you know, you punch the clock the last time, and then the next day, you’re sitting on a beach or you’re up somewhere, and that’s it, right? And, you know, a lot of people, especially in the fire movement, when they talk about, you know, financially independent, retire early, I think the retire, I think that’s what rubs people the wrong way, is because they overlay that traditional picture of retirement into that paradigm. And a lot of people are saying like, Well, we are still working, we’re just working our on our own terms, right? So I think for, I think for a variety of reasons, like this question is important, because I think for a lot of people, we think that retirement is the destination, but it’s really just the next chapter in the journey, right? And so much of our, for a lot of people, so much of our identity is wrapped up into our role as a pharmacist or whatever we’re doing, and once that like is gone, that can be jarring for a lot of people. So it’s not just a monetary thing. So to me, I think this is where some life planning really gets in, gets you know, it would be really important is, you know, okay, if we don’t have to work, we truly don’t have to work. What are we doing? You know, are we volunteering? Are we taking care of grandkids? Are we getting into hobbies? Are we traveling? You know, there’s a lot of stats that say, if you work, the longer that you work, the more you know, the better your retirement will be. In terms of, like, the financial planning part of it, because you’re just delaying a lot of the things that work, you know, for you, whether that’s health insurance or whether that’s income, things like that. But it’s also like, you know, your social circles are often connected to your work in a lot of ways, like if that goes away. So to me, this is really important to kind of, I think, look at it both from a dollars and cents perspective, Tim, but also like the social aspect of who are you post, you know, full time pharmacist, you know, and looking in the mirror and doing some deep digging of, like, what does what does this actually look like? So I think it’s an important question to ask. 

Tim Ulbrich  12:14

I agree, and I’m glad you mentioned, you know, what does this look like? But how I be spending my time? It’s actually not one of the other questions we had. So we’ll kind of knock both of those out, knock both of those out together. But this is one of those things that we, myself included, we have this idea of what retirement might look like. That could be how our parents have gone through that phase, or grandparents, maybe what we see on commercials, whatever. But taking it to the next step of, what does a day look like? I’ve heard people go through this exercise. You mentioned the life plan, which I thought was great, and having some clarity there, but going through the exercise of actually, like mapping out for a month, like, what would I be doing on a Monday at 11 o’clock, right? On a Tuesday at four o’clock? And you know, not that you have to get that granular per se, but the idea is a good one, that right now you think about the percentage of your schedule that is occupied by work, and especially, I think about folks, Tim, in our phase of life where it’s work, and young kids like, that’s a big chunk of our time, right? And if you fast forward to a date and time where we’re not working, and the kids out of the house, Whoa, that is a big gap of time. So what are we doing with that time? What are the goals you mentioned? You know, is it travel? Is it volunteering? Is it spending time with with the grandkids? Like, what does that rich life look like in retirement? And the second layer I would add to that, Tim, is, if there’s a partner, spouse, significant other involved, like, what does that look like for the individual and then for the we. You know, Jess and I were joking recently that, like we love spending time together, but we also have individual things that we love to do. And I very much see in retirement that we’ll have things that we want to do together, whether that be volunteering or traveling or other things, and then we’ll have other things where it’s like, she’s doing her thing, I’m doing my thing. So, yeah, I think that discussion of, what does this look like for I and what does this look like for we as well?

Tim Baker  14:06

Well, especially in retirement, as you age, like, one of the things that you know, often doesn’t get talked about, and it’s a risk in retirement is loss of spouse, and a lot of it’s it comes from the perspective of, like, loss of a social security check and things like that. But what about like, you know, I look at my parents, love my parents, but my dad doesn’t have his own interest, like, he just kind of does what my mom wants to do. So like, if he were to lose my mom, like, like, what happens, you know? And so I think, like, that’s, that’s a big thing. And, yeah, in the, in the life planning, we go through an exercise called ideal schedule. So you go through and you say, Okay, what’s the ideal day, from the moment you wake up, from the moment that you, you know, put your head on the pillow, then what’s the ideal week? So Monday through Sunday, like, what are we doing? And then it goes out to the ideal year. Like, are you spending, you know, the summertime up North, or are you, you know, are you visiting family, those types of things? And I think that for a lot of people, you know, they realize how much of their day is tied into work, and then once, once that’s gone, like, what happens? So, yeah, those are the exercises. I mean, we’ve talked about, like, the three questions, and I think those are all, you know, important things to kind of reference back to and revisit, especially as you’re going through the next, like, phase of your life. But I think really put pen to paper and I’ve talked about this, I think with you. I don’t know if I’ve ever talked about on the podcast, but like, when I did my sabbatical, I had a month off where I did not touch work, and I kind of had a little bit of like, what am I doing? Like, like, how am I gonna, like, fill the day, which sounds crazy, but like it was a struggle for me, and like I wanted to make the best use of the time, but I also felt like I had some constraints here and there, but like that, that little window was, like, important for me to kind of put myself in someone’s shoes who’s kind of going through that transition. And it sounds silly, but it’s it’s not.

Tim Ulbrich  14:34

That’s a good point, though. I’ve actually heard people talk about, I’m thinking back to the interview that I did on episode 291 with Dave Zgarrick, who is has made that transition in retirement. And he talked about redefining retirement, really thinking about as like a half time to kind of reassess where are we going. Why are we going here? What does this look like? But I think some of those break periods, you know, you mentioned the sabbatical, other people talk about mini retirements. I think it’d be really helpful to having some of these experiences where we get a feel for what this might look like. And you know what? What are some of the ahas of how I do want to spend my time, or what the gaps are in time? I mean, joking aside, we’re just in a phase of life, both of us right now, we’re really sun up to sundown. You know, it’s work, kids, that’s the schedule. 

Tim Baker  16:08

I made the comment like, hey, we haven’t, like, Shay and our kids haven’t really hung out with you and Jess and your boys in a while. And I think I would just look at our schedule and it’s like, soccer, football, swim, soccer, football, swim. Like, it’s just, it’s just so many things that are going on, but eventually that’s going to go away, right to your point, like, that’s, that’s going to be in our rearview mirror. And that’s why, I think, like, even, even couples, sometimes, because they’re so in their, you know, in their kids, you know, activities in their lives that they almost forget about each other. You know, spouses and that can be, you know, I think there is a pretty high level of, you know, divorce and things like that as you, as you age, because you kind of lose that connection with your spouse. And I think that’s important to make sure that you’re continuing to kindle so all these things kind of play into it.

Tim Ulbrich  17:38

So that’s our first two questions, will I work at all during retirement? How I be spending my time? The third question, Tim is, how will I replace my pharmacist paycheck? Again, seems like an obvious question, but for decades, we have a an employer that’s paying us on a monthly basis. And if we were to stop work altogether, again, that may or may not happen, but if we’re to stop working, we’ve got to make our own paycheck at this point. So we’ve talked about this on the show show before. We’ll link to that in the show notes. But thoughts on this question of, how will I replace my pharmacist paycheck?

Tim Baker  18:10

Yeah, I don’t really think, I don’t really think a lot changes here. I think what, what is, what does change in terms of, like, the sources, I think what does change is kind of like, where in early retirement? Where do they come like, where does the money come from? So, you know, if we’re retiring at 55 the the sources of your income is probably going to be from part time employment. It could be from your traditional portfolio, but from, like, a brokerage account that doesn’t have the 59 and a half, you know, 10% penalty, which you have to build, right? So lot of people, they’re really set on, you know, they’re 401, K and their Roth IRA and things like that, which is really important. But the third bucket, so that we have the pre, pre tax after tax. The third bucket is the taxable, which is going to be in an early retirement bucket. So I would say probably those are the two big things for most people. Would be part time employment, and then, like a brokerage account, or like traditional savings. If you’re in the real estate, it could be rental income or liquidation of like a rental property. But then as you age, you know, the things that kind of get the green light are Social Security. You know, if you decide to collect that at 62 or you wait to 67 or even later to 70, and then getting into, once you’re past 59 and a half, you know, the traditional portfolio where you don’t get that 10% haircut, you know, you can start, you know, distributing from a 401K, IRA, etc. There are other things out there, like annuities. It could be, it could be a pension. You know, if you have a company or government pension, which we know aren’t necessarily, you know, a thing that a lot of people have, but that’s typically based on an age that you can, you know, get to that. It could be, you know, tapping into the value of your home, things like reverse mortgages, which get a nasty reputation, or selling a business, or could be cash value life insurance. But I would say the heavy hitters here, especially early on, it’s going to be part time employment. It’s going to be things like a brokerage account savings, and then, you know, potentially, you know, real estate, things like that. 

Tim Ulbrich  20:08

And as you mentioned, especially with the brokerage account, especially with real estate, there’s planning that has to be done there, right, for us to be able to accrue those savings, to tap into those in early retirement. So, you know, early planning, of course, really important here, and when we talk about priority of investing, this is always the one asterisk, right? Hey, if you’re if you’re thinking about early retirement, you know this sequence changes when we think about more the traditional buckets, like the 401K, 403B’s, IRAs, etc, because of that 59 and a half restraint that you mentioned earlier. Tim, number four on our list is, hey, what if there’s a market downturn early on in my early retirement? So I’ve decided to retire early. You know, let’s say there’s a market downturn and we experience some of that volatility, that that can be disruptive to the nest egg. Always a problem, but maybe more of a problem here if we’ve got a longer runway of years that we need those funds in retirement.

Tim Baker  21:06

Yeah. So what we’re talking about here is sequence risk, or sequence of returns risk, which, which is the potential negative impact that the order of your returns, your investment returns, on your portfolio due to the market, is heightened, especially in the withdrawal phase. So if you take and I’ll run through this, I know we don’t have a ton of time, but I wanted to kind of, I feel like we’ve talked about sequence risk, but I haven’t really talked through, like a scenario. So I actually did a scenario where we have one where it’s favorable returns, so like double digit returns, like the second that you retire. And then one that is like negative returns. So, and then what does the, what does the outcome look like at the end of I did it for like a 10 year period. So if you look at, if we start with a million dollars, and you have an annual withdrawal of 50,000, which is 5% and we have a, you know, we’re doing this over 10 years. If we go into the first year of favorable the favorable scenario, the first year, we get a 15% return, 12% return, 8% return, even taking out 50, you know, and over the 10 years, it’s like 4.7% in aggregate, a return. At the end of the 10 years, you’re gonna have $1.2 million. So early on we’ve got, you know, the first, you know, three years, you know, 30 some odd percent. If we look at the same thing, instead of getting positive 15, we get negative, you know, negative 15, negative 12. That same portfolio, even over the 10 years, which is going to get a 4.7% return, is going to end with 361,000. So it’s almost a million dollar swing. So it’s the same aggregate, you know, 10 year, you know, return. But after the first year, for the favorable, you end with 1.085 million. After the first year, you end with $800,000. So you’ve taken off 15% because that’s your that’s basically the market downturn, but you’ve also withdrawn $50,000. So that’s what we’re talking about here with sequence of return risk is that the timing of when you retire is probably one of the most important things related to the market. So what we’ve always said is like flexibility here. So if the market is tanking, it might be worth to, like, work another year, and most of the time, like, you know, in this scenario, we have, you know, four years minus 15, minus 12, minus eight, minus five. Typically, the market doesn’t do that. You know, we don’t have, you know, consecutive years, maybe two, maybe three of year. But like, this is where, you know, pushing that out and having flexibility of like, okay, maybe I’m not going to retire at, you know, 53 I’m going to retire at 56. I’m going to retire at 57. That type of thing. So that, to me, is really important, and that, and that speaks to the the timing of the investment returns that you’re getting. Now, the ways to combat this is, which is really hard, is, is really to kind of be more conservative, take your money from, you know, equities to bonds or even cash. But the problem with that is, you know, nobody has, like, a, you know, a crystal ball to say, like, when’s the best time to do that? So that’s, that’s kind of sequence, risk at play.

Tim Ulbrich  24:20

Number five on our list, Tim, I alluded to this a little bit earlier, is what will I do for health insurance coverage? We’re not yet at the age of 65 we can’t necessarily put Medicare into play. We no longer have employer coverage if, if we’re working part time or not working at all. You know what options are we thinking about here and and obviously we’ve got to factor this in as a cost as well.

Tim Baker  24:42

Yeah. So I mean, unfortunately, and we’ve kind of bemoaned this fact being business owners, there’s not a great option here. You know, I think you know, looking at employer sponsored COBRA coverage, but that only typically lasts 18 months, and that’s really expensive because you’re paying the full premium. If you have a spouse that you can ride his or her coattails, that’s one way to do it. It could be private health insurance. So looking, you know, at the exchanges, things like healthcare sharing ministries like that, that might be something. I know you looked at those in the past. It could be, you know, there are some, and I don’t know if Starbucks still does this, but I remember a lot of people. I think my sister worked for Starbucks, you know, when she was in college, just to get in, you know, insurance through them, she was working part time. It could be Medicaid if you don’t have assets, like, if, you know, I would say that you probably shouldn’t be retiring if that’s the case. Or just, like, short term plans that provide, like, temporary coverage. So probably, for most people, it’s going to be looking at the exchanges and trying to trying to find the best, you know, probably catastrophic plan that they can. But unfortunately, there isn’t really a great, you know, a great solution here to kind of bridge you before you get to 65 to get to Medicare, you know, yeah, it’s, it’s kind of, you know, pick your poison, so to speak.

Tim Ulbrich  26:00

You know that you mentioned the Starbucks, there’s actually a FIRE pathway, barista fire that’s named after that, that play, right? Which is, you know, working part time at a place like Starbucks or a place that has those benefits to be able to get access to those. You know, the other other comment I’d make here, Tim is, I think while these costs are very real, like, we have to put them as objectively in play as possible. What I mean by that is, like, if you’ve done a good job and the dollars are there, like, even if this feels scary or you don’t want to spend money on it, like, if the math supports it, like you just factored into the plan, right? I’ve seen some people, I think, talk about this as like, Oh, I’ve had employer coverage my whole life. I’m three years away from Medicare. I’m done working. I’m over it. Don’t need it, you know. Don’t want to be working anymore, but I’m gonna wait till I get to 65. And maybe that’s the play. But if the nest egg is there, like, we just need to factor this in as an expense and consider it. I mean, the other note and comment I’d make here, back to our discussion of early planning with something like a brokerage account. This would be another play of early planning with something like HSA contributions, where, you know, can we be accruing and saving money in HSA throughout our career, such that one of these instances here, we’re talking about early retirement. We’ve got some dollars that are earmarked specifically for that, that we don’t have to have to necessarily draw separately from our portfolio.

Tim Baker  27:21

That’s right, yeah. HSA would be a great bucket for this, because it has the triple tax benefit, but the flexibility to be able to use for you know, now and later. So yeah, that’s a great bucket for that.

Tim Ulbrich  27:34

Number six is, are my dependents independent? And if not, have I factored that into my planning and assumptions? Tim lots to think about here, kids and elderly parents, but looking at dependence and cost of dependence.

Tim Baker  27:48

Yeah, this is, um, this is, this is kind of hard too, because, you know, I always joke with my with my kids, that, you know, they they need to move out so I can, you know, turn their room into a a whiskey room. And, you know, my kids are 10 and five or whatever. Obviously, Zoe’s always younger, but I think this is hard, because I think we are all trying to prepare our kids to kind of launch, right? But, you know, oftentimes they come back. And you know, we have to kind of figure out what that looks like. So that could be, you know, it could be for kids managing, like, their college and expenses related to that. But then after, like, if they don’t get a job, or if they’re not, you know, able to support themselves. Like, what are the, what are the rules around rent and things like that, and just, how does that affect your overall financial plan? And then elderly parents, there’s a lot of, you know, pharmacists that we work with that they say, I am my parent’s retirement plan. Like, that’s the thing, right? And, and I respect that, you know, a lot of it’s like, Hey, I’m a first generation immigrant. You know, they’re you know, they’re sacrificed to get over here. And my sacrifice is kind of making sure that they’re okay, you know, in retirement. So, you know, we have this term called the sandwich generation. It typically is, you know, people in their 40s and 50s that are taking care of, like adult children, but they’re also taking care of, like elderly parents. That’s a big thing. And again, like, I would say, it kind of goes back to when we talk about, like, education planning, like you have to put your mask on first and then put on the mask of your child. I don’t think that ever goes away. So I think that, you know, this can be an unexpected thing for a lot of parents, but you know it can, really, especially like elderly plant parents, if you’re the one that’s kind of, you know, caring for them, and these are often the things that kind of force can force a retirement early for you is that you’re taking care of other people, right? So I think having these conversations with, you know, your kids, with your elderly parents and and come up with a plan and kind of ground rules. I think is really important. So we can kind of include this in the plan and know, you know, when does zig and zag?

Tim Ulbrich  30:06

Yeah, Tim, anytime we talk about this topic, always comes to mind conversation we had with Cameron Huddleston on the show a couple times, who wrote the book, Mom and Dad, We Need to Talk. And, you know, in the context of elderly parents, this is where those conversations are so important, as uncomfortable as they may be, right? Because, you know, I’m thinking about even discussions I’ve had with my parents about, you know, what does their financial position look like? What are their retirement goals? What are their desires for, you know, staying in the home versus other living arrangements. What is their long term care insurance policy look like? And, you know, part of those conversations, obviously, is focused in a genuine care and desire of what, what do my parents want? But there’s also a reality of like that may impact our financial plan, and that’s not being selfish, like we’re just trying to be responsible. And I think you know, if we can get into those open conversations, we can start to plan around that a little bit, to understand what the impact may or may not be of that situation with parents on our financial plan. 

Tim Baker  31:05

That’s right.

Tim Ulbrich  31:06

Number seven, we touch on this a little bit. Tim, but when will I draw on Social Security? We talked before in episode 294 about common Social Security mistakes to avoid, and a big part of that discussion was around when we opt into starting Social Security benefits. For someone who’s saying about early retirement, you know, and building that retirement paycheck, a Social Security benefit might, might be an important part of that, and the temptation, perhaps could be there to start those benefits early and just understanding what the impact of that could be versus a delayed benefit selection. So thoughts here on this question of, when will I draw? 

Tim Baker  31:41

I think a lot of financial planners are, you know, coming around to the fact that, like, if you can delay your Social Security benefit as long as possible, the better knows for the the overall plan. And I know this, to your point, it can be if you’re, if you’re working for or if you’re, if you’re retired for, you know, 10 years or whatever it is, and your funds are dwindling in some of those, you know, brokerage accounts or savings. I think it can be tempting to to draw earlier, right? But I think if you look at the math, and I have, you know, I think I pulled, I think this is from my Social Security statement. If you look at my Social Security statement. If I were to retire at 62 my monthly benefit would be $1,826. if I were to retire at not full Social Security age, but 65 it would be $2290. If I then go to 67 which is my full retirement age, it goes to $2662. If I delay it till age 70 so I’m getting those deferment credits, it goes to $3,306. So the spectrum of early at 62 is $1826, to delayed is $3307.  But the big thing here, Tim, that doesn’t get enough press, is that it’s inflation protected, which there’s no other pension or annuity out there that you can get that does that. So one of the big hang ups for for retirees is like, I’m working on a fixed income. I’m working on a fixed income. But once you know inflation takes over, as we’ve seen in recent years, that really, like, you know, provides pressure on, okay, how am I going to let you know, how I’m going to make this, you know, these dollars last. So that would be the thing that I would implore, you know, people, when they’re looking at their, you know, their, their benefit for Social Security is, you know, if we’re planning this, can we plan to at least get the full retirement age, or, you know, can we delay it from 62 to 67 at least, to get from, you know, an $1,800 benefit to a almost $2,700 benefit because this will pay you out for the rest of your life, which we don’t know what that is, inflation protected. And that’s where you see that exponential benefit versus, you know, if you, if you, if you peg it at $1,800. So it’s still inflation protected, but I think you want that, that percent of your paycheck to be as high as possible that is covered by, you know, the Social Security and Inflation. So it’s really, it’s a really important discussion to have. 

Tim Ulbrich  34:21

Tim, it’s a good plug and a reminder for folks, if they’re not already doing this, to check out their My Social Security account ssa.gov just to dig into that report, what are the expected benefits? Always a good thing to build into. I typically try to check it in just once a year, kind of see what’s going on. So since you mentioned inflation, Tim, let’s jump down to that one, and that question being, have I accounted for inflation? You mentioned social security being inflation protected, but really nothing else beyond that. So, you know if we think of inflation as of late, which has been higher than historically, although that’s come down, you know, more recently, but even the historical rate of inflation, if we’re retiring, let’s say, in our early 50s and were afforded the opportunity to live into our 90s, like costs are going up right significantly over that time period. So the question here is, have I accounted for inflation when I’m looking at these early retirement numbers?

Tim Baker  35:13

Yeah, and one of the best ways to account for inflation as retire is to be in a you know, is, have some of your your assets in equities, right? Which gets scary, because then we talk about, you know, the sequence of return risk. But I think, really, for a portfolio to endure 30, 40, 50, 60, years is, is to make sure that you’re taking, you know, intelligent risk in the market. So you know, we just got news of the rate cut yesterday, and immediately, you know, you’re seeing like our cash account at our custodian went from 5.1% which is really solid, to 4.6%. So savers, and often, you know, people that have reached you know that are in retirement have a good amount of cash, or they should, because, you know they’re they’re basically taking slugs of cash out to basically build their paycheck. That’s going to affect them potentially negatively. Now, you know interest rates, you know in inflation, sometimes, you know we’ll see interest rates go go down, but we won’t see like the cost of goods go down because they’re pegged that we talked about that in previous episodes, they’re kind of pegged at that high watermark. So I think is really important, you know, when we talk about this question is, you know, are we accounting for inflation? I think the best way to do that in a retirement, you know, setting is, again, as much as your dollars can come from Social Security as possible is great. But then also taking, you know, intelligent risk in the market, where, you know, the market is kind of, you know, performing in a way that kind of, you know, keeps pace or outpaces inflation, you know, is what we want. So, you know, on the so that’s, that’s kind of on the asset side, but then on the debt side, you know, just making sure that, you know, we’re, we’re efficient, you know, there with with rates and where inflation is as well. So I think it’s important to, you know, for retirees that are potentially living on a fixed income to account for, and a lot of people this, and really, taxes. Tim, it’s kind of like, can be a second, you know, an afterthought.

Tim Ulbrich  37:20

Good point on the taxes, probably a whole separate episode, yeah, around like, tax planning and early retirement. Um, number nine on our list is, is my partner spouse significantly now they’re on the same page. We already talked about this in the context of, hey, what does that, you know, schedule look like? What does that ideal life, that rich life, look like in retirement? And, you know, what’s the I? What’s the we? But I think it’s also just a bigger question of, like, are we on the same page with this concept of early retirement, and maybe, if one spouse wants to work longer than another and one’s having to draw down from their assets, like, are we good with that? You know, does that jive? 

Tim Baker  37:55

And I think, I think this kind of starts with, you know, where are we at and where are we going? So you know, when we do this with clients, we we call the first meeting, Get Organized where, you know, we’ve plugged everything into our client portal, checking, savings, credit cards, student loans, investment accounts, value, the house, the mortgage, all the things, right? And for a lot of people, it’s the first time they’ve seen their stuff all in one spot, right? Because we bank over here, we have debt over here, we have investments over here, and then for spouses, that’s also true, right? Because I don’t necessarily see everything that Shay has, you know, if I’m not tuned in. So if we plug that all into one platform, we can kind of see the landscape of where we’re at, and then I think from there, once we establish where we’re at, we talk about where we where we’re going. And then I think this is some of these questions that come up is like, okay, Shay, if I retire and you’re still working for 10 years, like, Are you cool with that? Probably not, right. So I think those that’s the space to have the conversation again. I’m biased, Tim, right? Because, you know, we’re planners, but sometimes these are hard to have with your spouse. So having that third party, like the independent third party that has your best interest, that can ask questions, is, I think, a safe place so to speak, to have these conversations. Because, you know, if Shay says I’m going to retire early and you can keep working. I’m going to say, Yeah, that’s cool, whatever. But maybe I have some resentment about that, you know, and I think if you’re in a in a place where, you know, it’s safe, and we can kind of talk these out and get on the same page, it’s really important because, you know, we’re trying to row this boat in the same direction. And if, you know, if we’re just, you know, having these service conversations and not really getting, you know, into depth, then we’re just kind of spinning in a circle. So I think it’s really important to to make sure you know, and this goes back to life planning, to make sure that you know your vision of early retirement, you know, overlaps. It doesn’t have to be the same, yeah, but it overlaps with your spouse or with your partner to make sure that you know your needs are taken care of, but also your spouse’s needs are taken care of. 

Tim Ulbrich  40:08

What came to mind, Tim, as you’re talking about, is my I think my parents, to their credit, have done a really good job of this. My mom’s been retired now for a few years, and my dad has no plans in the near future retire. He just loves his work. It’s energizing, and he acknowledges maybe that will change at some point in the future when it does, and maybe it looks part time or consulting or whatever, but they have kind of figured out like for them individually. My mom, you know, has a ton of joy that she gets from just the daily rhythms and routines that she has, and it doesn’t mean my dad has to be doing the same thing. So I don’t think there’s a right or wrong here. It’s more about what works for you as a couple. And as you mentioned, having some of those conversations to avoid, or try to avoid, as much as you can, some of the resentment or other feelings that might come up along the way. All right, our last question, number 10 on this list of 10 questions to consider for early retirement is, am I prepared for potential long term care expenses? Tim, we talked about Medicare already briefly, but here we’re talking about some of the significant expenses that can come beyond what Medicare may cover, and specifically here thinking about long term care insurance, we talked about this on episode 296, we’ll link to that in the show notes. Your thoughts here on, am I prepared for potential long term care expenses?

Tim Baker  41:25

Yeah. So I think the stat is, is that you know, a person that’s age 65 is going to spend $157,500 on health care and medical expenses, you know, throughout the course of their life, a couple of $315,000. So you know, and this doesn’t necessarily include the cost of, like, long term care. So when we talk about long term care, this is really, you know, help with kind of the the daily living thing. So like being able to get out of bed, you know, move around your house, use the bathroom, dress, feed yourself, but also kind of more like, you know, cognitive things like being able to pay bills, or, you know, shop so, you know, oftentimes, and actually one of the biggest, the biggest cause for, like, you know, a long term care policy to get triggered, is Alzheimer’s. But the second one is, the second biggest is arthritis, Tim, believe it or not. So, you know, a lot this is one of those things. It’s like, Ah, this will never happen to me, or I don’t got to worry about that, or I’ll figure this out later. But you know, it’s, it’s one of those biases that we have that, you know, it often can come and bite us in the rear end. So what we talk about with long term care is, there’s, there’s really two ways to prepare for this. One is to self insure. So just like we’re talking about being able to, like, pay our own health care and things like that, this is kind of, this is not that. This is where we’re basically saying we’re going to forego a policy. We’re basically going to, you know, if this comes up, we’re going to reach into our own pocket, reach into our own portfolio, and pay for the care that we need. The alternative, and what I would recommend, is purchasing a long term care insurance policy where it really affords you access to benefits that allow you, at a minimum, to age in place. So these, you know, there’s studies that show that, you know, couples are willing to spend, you know, $2500 to $3,000 a year on a long term care policy. And you can get a policy that you know can kind of get you a basic, a basic policy that will have, you know, someone come in the home, or things like that. I think a lot of people, when they think of long term care, they think of like, of like a nursing home and things like that. This is really trying to, you know, get, get a policy that provides benefits that can bring people into your home to assist you as you age. So, you know, there’s typically a Goldilocks zone. Is that you should start, you know? So we talk about early retirement, you should start discussing this, probably in your 40s and 50s, start really assessing it in your 50s. And the kind of, the sweet spot the purchase of policy is, like, early 60s, yeah. So this is really important, because, again, like the once you once you kind of go into, like, a facility, if that, if that’s the case, like, that’s where expenses can get really astronomical. So the longer that you can stay in place and have the help that you need, the better, I think it is for you from a psychological perspective, but also from a financial perspective. And again, this is one of the ones. It’s like, like, not going to happen to me, Tim. I think important to look at. And I think we look at these policies as almost as like a a coupon for future care. So, like, hey, you know, if I get a benefit, that’s $3,000 a month, but you know what I need is $4000 then I’m only reaching in my pocket $1000 bucks to kind of cover down on the difference.

Tim Ulbrich  44:54

Again, episode 296, five key decisions for long term care insurance recovered that topic in depth. We’ll link to that in the show notes. Tim, great stuff. And one thing I would say to our listeners, early retirement or not, we touch on a lot of areas of the financial plan. We talked about the importance of having a life plan, having the vision for where we’re going, why we’re going there. We talked about building a retirement paycheck. We touched on insurance, Social Security, investing priorities and decisions to make around investing and how to prioritize different parts of the investing plan. And at YFP, this is what our team of certified financial planners and tax professionals do. We support pharmacists at every stage of their careers to take control their finances, reach their financial goals and build wealth through comprehensive – looking at all the different areas we discussed – fee only, financial planning and tax planning. And we’d love to have an opportunity to talk with you, to learn more about your situation, to learn more about our services. Determine if there’s a good fit. You can book a free discovery call with Tim by visiting yourfinancialpharmacist.com top of the page there, you’ll see an option to book a discovery call. Thanks so much everyone for listening. We’ll catch you again next week.

Tim Ulbrich  46:01

As we conclude this week’s podcast an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog posts and podcasts, is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyzes expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer, thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week. 

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Tim Baker, CFP and YFP Director of Planning answers questions from the YFP community on saving and preparing for retirement. This episode is brought to you by First Horizon.

Episode Summary

Planning and preparing for retirement can feel overwhelming. In this episode, Tim Baker, CFP®, RICP®, RLP®, makes the steps to planning for retirement more manageable. He answers three questions from the YFP community on retirement planning, including:

• How to determine the optimal amount to save for retirement
• Strategies for dealing with market downturns during retirement
• How different investment options impact retirement savings

This episode is brought to you by First Horizon.

About Today’s Guest

Tim Baker is the Co-Founder and Director of Financial Planning at Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 12,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. 

Tim attended the United States Military Academy majoring in International Relations and branching Armor. After his military career, he worked as a logistician with a major retailer and a construction company. After much deliberation, Tim decided to make a pivot in his career and joined a small independent financial planning firm in 2012. In 2016, he launched his own financial planning firm Script Financial and in 2019 merged with Your Financial Pharmacist. Tim now lives in Columbus, Ohio with his wife (Shay), three kids (Olivia, Liam and Zoe), and dog (Benji).

Key Points from the Episode

• Retirement planning, investment options, and home loans for pharmacists. [0:00]
• Retirement planning, including determining optimal savings amount and factors to consider. [2:24]
• Retirement planning, nest egg calculation, and potential deficits. [5:51]
• Retirement planning, including nest egg calculation and goal setting. [12:46]
• Strategies for dealing with market downturns during retirement. [19:33]
• Managing investment risk through asset allocation and flexibility. [24:25]
• Retirement planning, investment options, and their impact on savings. [28:42]
• Traditional portfolio allocation and retirement savings with emphasis on asset allocation and tax considerations. [32:49]
• Retirement planning for pharmacists, including asset allocation and tax strategies. [37:30]

Episode Highlights

“I think the big thing is how do you define optimal [savings for retirement]? And then the factors are so important. What type of lifestyle do you want? I think what most people want is to live a similar lifestyle to what they’re living as they’re working. So they don’t necessarily want to be more lavish. But they don’t necessarily want to give up things either.” – Tim Baker [4:27]

“The nest egg calculation, to me, that’s the best way to make that big number, the kind of unknown, a little bit more digestible.” – Tim Baker [9:37]

“I think a lot of people think that they have control over when they’ll retire and they don’t. There’s a stat that says 40% of people don’t work to their expected retirement age, either because of health issues, or they were eliminated from a job, etc.” -Tim Baker [11:12]

“I think the best time to plan for retirement is now and the sooner you can kind of look at where you’re at and be able to adjust where you need to go, the better.” – Tim Baker [11:44]

“When you talk about the nest egg calculation, that is where the value really lies. The short answer of how do you determine the amount of savings needed for retirement? Nest egg calculation, three words.” – Tim Ulbrich [13:39]

“So, you know, and again, the most successful retirees are the ones that are most flexible.” – Tim Baker [25:45]

“It’s being in the right asset allocation. It’s keeping your expenses low. And being consistent with that structure. I think we’ll get people through any of the seasons that you’ll see over the course of an investing career.” – Tim Baker [28:28]

Links Mentioned in Today’s Episode

• First Horizon’s Pharmacist Home Loan
• Die with Zero by Bill Perkins
• YFP Retirement Planning Series (Episodes 272-275)
  • YFP Episode 272: How Much is Enough? (Retirement Planning)
  • YFP Episode 273: Alphabet Soup of Retirement Accounts (Retirement Planning)
  • YFP Episode 274: Risk Tolerance vs Capacity (Retirement Planning)
  • YFP Episode 275: How to Build a Retirement Paycheck (Retirement Planning)
• YFP Episode 305: Understanding Annuities: A Primer for Pharmacists
• YFP Free Guide: Retirement Roadblocks: Identifying and Managing 10 Common Risks
• The Power of Working Longer (2018, Stanford Institute for Economic Policy Research) 
• YFP Book a Discovery Call
• YFP Disclaimer
• Subscribe to the YFP Newsletter
• Tim Ulbrich on LinkedIn
• YFP on Instagram
• YFP Facebook Group
• Tim Baker on LinkedIn

Episode Transcript

Tim Ulbrich  00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week we take questions from the YFP community on retirement planning, we discuss how to determine the optimal amount to save for retirement strategies for dealing with market downturns during retirement, and how different investment options such as stocks, bonds, and real estate can impact your retirement savings. Let’s hear from today’s sponsor First Horizon and then we’ll jump into the show.

Tim Ulbrich  00:31

Does saving 20% for a down payment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meaning that saving 20% for a down payment on a home may take years. For several years now we’ve been partnering with First Horizon who offers a professional home loan option AKA a doctor or pharmacist loan that requires a 3% downpayment for single family home or townhome for first time homebuyers, has no PMI, and offers a 30 year fixed rate mortgage on home loans up to $766,550 in most areas. The pharmacist home loan is available in all states except Alaska and Hawaii, and can be used to purchase condos as well, however, rates may be higher and a condo review has to be completed. While I’ve personally worked with First Horizon before and had a great experience with Tony and his team, don’t just take it from me. Here’s what Payton from Tyler, Texas had to say about his experience with First Horizon: “Aaron, Cindy, and Marilyn were very easy to work with. As a first time homebuyer, I shopped around for lenders at the onset of the process, Aaron was always very quick to reply and provide me with any details I requested in order to move forward and my decision to select a lender. Once I selected First Horizon, Marilyn and Cindy did a great job of keeping my wife and I informed of the process. Closing was a breeze yesterday at the title office. And I sincerely appreciate the team going above and beyond to keep my interest rate locked despite extending closing due to negotiations with the seller. I’ve already shared my positive experience with many pharmacists on the groups. And I look forward my brother, also a pharmacist, refinancing with you guys when he decides to.” So to check out the requirements for First Horizon’s pharmacists home loan and to start the pre-approval process, visit yourfinancialpharmacist.com/home-loan again, that’s yourfinancialpharmacist.com/home-loan. 

Tim Ulbrich  02:24

Tim Baker Good to have you back on the show.

Tim Baker  02:27

Good to be back. Tim, how’s it going?

Tim Ulbrich  02:29

It’s going well. I’m looking forward to this episode. We’re gonna be talking about retirement planning – a topic that we’re seeing a ton of interest in getting lots of questions about. You did a webinar recently around retirement planning. Lots of engagement that came from that. So we want to answer some of the most common questions we’re getting from the YFP community around retirement planning. And we’re gonna go through four different questions around how do we determine how much is enough? What are some of the strategies to deal with market downturns while you’re in retirement, I know something that you’ve talked about before of that important window before leading up to an after? And how we think about the investment strategies. We’ll talk about some of the different investment options that can impact retirement savings, and then we’ll wrap up by talking about some of the health care costs in retirement. So let’s start with the first question, Tim, which is how do you determine the optimal amount saving needed for retirement? And really, what are the factors that should be considered when setting what this number is what the goal is?

Tim Baker  03:24

Yeah, so huge question, Tim. I think, you know, I’m going to answer the question with with a question is, like, define optimal? Yeah. Right. So like, optimal? Well, we’ve talked about, you know, is, you know, should die with zero be the goal. And, you know, what am I mean by that is, there are a lot of people that, you know, they’ll save, save and save, and maybe the goal is to pass on some, you know, money to their heirs. You know, I always I think I’ve said it said this on the podcast before my parents have said to me, like, hey, we want to make sure that like when we die, like we we give, we give you and your siblings some money, and I’m like, I don’t expect that I don’t really need that. I’m not really banking on that at all. And maybe when I’m older, I would want the same thing for my you know, for my kids, but the die was zero concept is it’s kind of like, you know, you can’t take it with you type of thing. So you’re you’re kind of spending on your portfolio, you’re giving it away, etc, etc. And maybe there’s some, you know, maybe there’s some somewhere in between where you don’t want to be right on the on the needle there. You don’t want to be with zero. So you maybe you have a little bit more cushion. So, you know, I think I think that would be the big thing is like how do you define optimal? And then the factors I think are so important. So like, what type of lifestyle do you want? I think in a vacuum, what most people I think want is to kind of live a similar right lifestyle than what they’re living as they’re as they’re working. So they don’t necessarily want to be more lavish. They don’t necessarily want to give up things either. Unfortunately, some people have to give up things just because of you know, poor planning or they have to work longer. So you know, what, where do you want to live? What’s the geography? What’s your housing situation, that’s going to be the biggest fixed expense. The biggest expense in retirement typically is housing. You know, what are your hobbies? Activities? Are you taking care of grandkids? Are you? Are you jet setting? Are you working? Are you not working? Are you volunteering? Consulting? What does that look like? And, you know, I think from there is, you know, estimating, you know what your retirement expenses would look like? So I mentioned like, what are the fixed expenses? What are the variable expenses, which could be big trips, maybe you’re paying for kids’ weddings, maybe it’s a medical expense. And really kind of zeroing in on that. Unfortunately, Tim the B word doesn’t ever go away. Right. So understanding what your budget looks like, is, is I think an integral part of of retirement planning. There are there are rules of things and way that you can slice it, there’s some planners that will look at the tax return, and then assume like, whatever’s on last year’s tax return is what I need for this coming year. And that’s kind of a very top down approach. A bottom up approaches a budget, you can use, use a rule of thumb, like a replacement ratio. So hey, if I make $100,000 and 70, or 80% replacement ratio means that I need $70-$80,000, you know, in that in that year of retirement. Looking at accounting for inflation, so do you think inflation is going to go up? It’s going to go back down to kind of the 3% levels? The big question is, is like what’s the retirement duration? Nobody knows that, right? So, you know, some people are like, Oh, I’m gonna, you know, retire at 65. And I, maybe I have a good five or 10 years on me, most people, you know, live longer when they want, they think they’re gonna retire. And that’s probably the trickiest part about all this, unlike, you know, other types of planning that are similar to this, like education planning, we kind of know that, hey, our goal was to kind of get through four years, maybe eight years of, you know, education. Here, it could be five years, it could be 45 years. We just don’t know. And that’s kind of the the major wildcard, but then understanding like, what are your sources of retirement? Is it social security? Is it a pension? Is it a, is it an annuity that you buy? Is it your traditional portfolio? Is there other types of you know, is it real estate income, whether your cash flow in real estate, or it’s a liquidation event? Are you selling a business? Is there a part time work there? So I think all of these play into play a part in it, and then I kind of how you distribute the cash also plays and how you handle taxes. So from a distribution perspective, you know, are you looking at, you know, what we’ve talked about in the past, which is a floor and strategy, which is very conservative strategy. Is it a bucket? You know, where, you know, in this, this will be, you know, another question that we have, it’s like, how do we account for like volatility or, you know, in the market? You know, is it a bucket strategy? Or is it the systemic withdrawal strategy, where it’s, Hey, we’re distributing 4%, no matter what, or we’re being flexible, depending on what interest rates what the markets doing? So lots of different lots of different ways to kind of, you know, go about this, but I think defining like, what optimal is for you is going to be important. And again, that’s why a lot of people are like, I just want to, you know, die with zero, that plays.I think the best place to start in terms of the optimal amount of savings needed for retirement to answer that question is, I think starting with a nest egg calculation is the best the best way. It is the, it is the best way, in my estimation, to deconstruct a problem and problem is not the right word, but a scenario that is years in the future, that’s a big freakin number. So, and when I was talking about this, like when we would do retirement planning at my past firm, you’d be the client and we would say, Okay, now now’s the time to talk about your retirement. Based on our time value of money calculation, you need $3.65 million to retire. Alright, let’s talk about your insurance, onto the next thing. And we could see kind of like, maybe the color come out of your face, maybe that little glossy, you know, glassy eyed look, and just, it didn’t connect with people. So, you know, it got me thinking, how can I make this number impactful to you today in 2024? So a nest egg calculation, which says, Okay, this is the number $3.65 million, but then what does that mean to me today? And we compare it to what’s currently in your retirement portfolio? What’s your contribution rate? How was it allocated? And then how does it compare, you know, to what you potentially need. So where are we running a deficit, meaning we’re behind on that $3.65 million? Or are we ahead meaning that we’re, you know, we’re overfunded? So to me, that’s, that’s the starting place. And again, it’s not a perfect, it’s not a perfect calculation, there’s a lot of assumptions in there in terms of investment returns and inflation and actually, when you’re going to retire and when you’re potentially going to die, we’re estimating all that which you would do anyway, in any type of, you know, scenario analysis. But to me, that’s the best way I think, to make that big number that kind of unknown, a little bit more digestible. There’s other ways that you can look at it, where there’s Monte Carlo analysis where you’re looking at, you know, a randomize portfolio return or other things that are related to you know, economic variables that you can say, hey, we’re going to run 1000s of scenarios and what it shows you is, hey, you’re a 85% chance of success. And that one chance of success means is that there are assets left, at the end of the plan, whether you set that for age 90, 95, 100, or whatever that is, that kind of is the next level. The rule of thumb is, you know, what people have heard of is a 4% rule. So, you know, if you’re, if you’re looking at your optimal savings plan, and you have $500,000, in retirement, if you use 4%, that means you have $20,000, over a 25-30 year return. So you might say, Hey, that’s not enough. I need more. So obviously, the right way to reverse engineer that, Tim, is to say, Okay, what do you need, if it’s 40,000, use a 25x, ROI, you need a million dollars, and that’s just a 4% rule inverted. So to me in terms of practical things that I wish I would have a listener, you know, it’s like, okay, are you getting the match, get to that race to the 10%. So your employee contribution, again, this is a vacuum. You know, I’ve talked with prospective clients that had lots of credit card debt, and other things that are going on, I wouldn’t necessarily prescribe this for them, but you know, get to the 10% employee contribution, then eventually, you know, get to a phase where you’re maxing out, and then use IRAs or brokerage accounts to kind of supplement along the way as you can. So, but remember that this is a problem set, Tim, that I think a lot of people think that they have control over that they that they don’t. You know, there’s a there’s a stat that says 40% of people don’t work to their expected retirement age, either because of health issues, or they were eliminated from a job, etc. You know, those types of things, I think where in my mind, I’m like, probably work till I’m 70 and Shay is 65. But, you know, I could lose my marbles was between, you know, before that, like, who knows? So, you know, I think I think, the best time again, I’m a planner, so I’m biased, but I think the best time to plan is now and the sooner you can kind of look at where you’re at and kind of be able to adjust where you need to go, the better. You know, one of the things that I would always kind of lament working with at my last firm was that we only worked with like pre retirees and retirees. So people would come off the street, and they’d say, Hey, I’m 55 years old, I’d like to retire in the next five years, I have $50,000, to my name, I have credit card debt, but like, it was almost like doesn’t, it doesn’t add up the math is not mathing. And so those are yeah, those are all the kinds of things that go into this. And it’s, it’s a huge thing to kind of deconstruct but I think, you know, looking at this as in a vacuum is not necessary ideal. You want to look at all the different parts. We talked about this with our own plans, and kind of, you know, where we’re trending and things like, you know, but it’s, it’s a big question, I think, and there’s just a lot of ways that kind of, you know, look at it. Yeah,

Tim Ulbrich  12:46

The thoughts that are coming to mind, as you’re talking, Tim, is I think there’s risk here to oversimplify this and be overconfident in this. And what I mean by the over over simplification is like, you can run numbers in a calculator. But if you’re not having some of the important discussions and questions of the inputs into that calculator, then we’re not doing the work that needs to be done, right. You mentioned like what what do we mean by optimal? Like, what does that actually look like? What does it mean to be living a wealthy life and retirement? As you mentioned, some huge variables of are we working at all? Are we working part time? You know, is this 55? Is this 64? You know, might we be caring for elderly parents? What does travel look like? What are all these things? And then, you know, when we think about even that word, retirement, I think can carry meaning that you and I might look at that word and say it means two very different things, right. And so, you know, when you talk about the nest egg calculation, to me that that is where the value really lies, to me the short answer of how do you determine the amount of savings needed for retirement? Nest egg calculation, three words. But to do the nest egg calculation and put in all the inputs and variables, which again, as you mentioned, are assumptions and things might change and move. And there are things that we think we have control over that we don’t, but it’s the closest we can get, and we can modify or update that look at it over time. In order to put the numbers in the calculator, we got to have some really good conversations. And this, to me is really where the planning comes to base, we’re not just trying to shove money away into accounts that were, you know, like, somebody said, I should put money in a 401 K, or an IRA or an HSA or whatever. Or we’re looking at these big scary numbers in the future thinking, Am I ever gonna get there? Looking at the individual variables, having the discussion and the conversations, answering those questions, plugging those in. And then as you mentioned, bringing it back to today. So important. Especially for the people that you know, for someone who’s two, three years out from retirement, that may not be as critical as for someone who’s in the middle of their career, or even in the front half of their career where, you know, we got to come up with a number that I can actually put my arms around and do something with today because otherwise I’m gonna look at this number 30 years in the future 20 or 40 years in the future and say, the math just doesn’t even seem possible.

Tim Baker  14:58

Yeah, in one of the things that when we go through the Script Your Plan, which is our second second meeting, and the way that we kind of start building a financial plan, we go through what’s called a Get Organized meeting, which is we bring up the client portal. And we’re basically trying to get to like a clean snapshot of what the balance sheet looks like. So the assets, the things that you own, minus the liabilities, the things that you owe equals your net worth. And our job is to hope, you know, the idea is to kind of grow that quantifably to get your, you know, your net worth grow over time. The second piece of that is Script Your Plan, which is all about like goal setting, right? So it’s like, Okay, now that we know where we’re at, where are we going? And with those two things in place, that that answer of it depends that I always give, Tim transforms into this is given your balance sheet, given your goals, Tim, this is what I think you should do. So it’s no more It depends. Because like, we know, you, we know what your goals are, we know what your passion is, this is what your goals are. But part of that Script Your Plan exercise, when we would kind of talk about a timeline, you know, we I would ask the question of, hey, like, it’s July 2024, let’s fast forward a year, what is success? And you know, what does success look like? And then we go three years, five years, 10 years, 30 years. The further you get out, you know, the further away that you go, the harder it is for you to kind of imagine that self. So with retirement planning, you know, the way that you know, with the way that I would do this, it’s like, I kind of, you know, I would say, hey, let’s get into the DeLorean. Let’s go 88 miles per hour, rev it up, we get out in, let’s see, 2054. So it’s 30 years from now, what does success look like? And for a lot of people, it’s like, I don’t know. So I’m like, okay, like, how much? How would your dad, you know, if I’m, if I’m 40. My dad’s like, imagine yourself, as your dad, like, pitch yourself, as a seventy year old, what does success look like? So it’s just like, the next day where we’re trying to, like, equate the numbers in from a from a Script Your Plan from a lifestyle perspective is, the further that gets out, the harder it is for us to kind of relate to our 10 year older self,  20 year older self, 30 year older self. So if there is a group or a person that you know, very closely that you can say, okay, like, if I’m in their shoes, and you probably do that, anyway, I’m like, oh, like, when I’m retired, I’m not going to do what my parents are gonna are doing, or I am going to do what my parents would do. So you can kind of like, take that, but even 10 years out, Tim, if you look 10 years back, from, you know, if you look back to 2014, how much of your life has changed over those 10 years,. You know, like, like, things like time flies, but, you know, to me, it’s like, you look at, you know, time is so hard for us, as humans can conceptualize. And it’s no different in in something like this. So I think it’s like, really kind of going through those, like thought experiments and, you know, kind of assessing, because I think so much of this is really about the numbers. But when you deconstruct this, it’s really not. You know, I think, you know, if you’re working with a financial planner, again, shameless plug, I think the numbers are going to be fine. Especially if you have enough time, you know, the longer that you’re engaged with, with a plan, the more success, you know, you know, whatever version of success. It’s the people that don’t, I think is where you kind of run into problems. But to me, it’s really important to kind of deconstruct like, the answer that question is what is optimal, and then plan around that, you know, the nice thing about, you know, having decades so to speak in a financial planner, is that the micro things that you do today really steer that frigget to where you can have success, you know, in the long run, so. But it’s an interesting, you know, it’s an interesting problem set, because it is a huge number. And it’s far in the future for a lot of people, it just, it doesn’t seem real, you know, I have a lot of people that, you know, will work with us in their 20s and 30s. Like, I’ll never be able to retire. And when we show them how, you know, the math to get to that, like, I think that’s transformative. Now, I think the second piece of that is like, okay, like, what is a happy retirement? What’s a successful retirement and I think people are starting to figure that out, but it’s not necessarily a destination, right? It’s just the next chapter. And, you know, especially with sometimes pharmacists, or like highly, you know, people that are higher achievers, you know, their role and identity gets really tied up together. And it’s like, okay, if you step away from your career as a pharmacist, like, who are you? What do you do? Like you know, and that and that for some people can be really difficult to kind of again, unbolt.

Tim Ulbrich  15:42

Tim, one thing I want to say and separate topic for another day that we can dive deeper into, we’ve talked about in the show before, but when you talk about time, being hard to really, you know, wrap our mind around, especially for folks that are early in their career, you know, your 2014 examples, a really good one when I think back to 2014, like it’s a distant memory and and it feels like Yeah, we were doing some savings and things now, but if it weren’t for things like automation, you could see how a 10 year period slips by you without having the intention out. This is why we believe so firmly in automation is an important part of plan. Yes, we got to do the hard work up front. Yes, we got to check in periodically. But once we start to kind of remove ourselves from that equation, and we do that hard work, and then we turn it on, whether it’s automatic contributions, it could be automatic savings buckets or other things, that’s where we’re gonna start to really see the progress and prevent this scenario where we say, How did those 10 years go by? And I didn’t make much progress on my retirement planning?

Tim Baker  19:32

Yeah. Yeah, I think it’s so important, because we just get into this, like, autopilot and you wake up. It’s like, where did that? Where did it go? 

Tim Ulbrich  19:56

Yeah. Alright, second question we have is, what are some strategies for dealing with market downturns during retirement? If we even zoom this out a little bit more? I’m guessing this person might be asking, you know, given the volatility, certainly the markets had a good run lately, but it’s been pretty volatile, right, you know, over the last couple of years. So for those that are, you know, in what you call that eye of the storm, around retirement, or coming up on, just got to retirement, or maybe they’ve been in retirement for a period of time? How do we address and deal with some of the market volatility?

Tim Baker  21:11

Yeah, so this is market risks, and you really don’t have any control over at all outside of like, taking all your money out, you know, take your investment ball home, and, you know, and go home, right? So like, this is where people get scared, they’ll go to cash, and they typically are selling low, but then they like, oh, the markets good now, and, you know, dip my toe back in, and they’re buying high. So you know, what you’re talking about a sequence risk where is where it’s basically, you know, when the timing of your retirement, and the distribution of your retirement accounts, matters a lot. Probably more so than most of the other investment or the retirement risks that are there. So to kind of zoom out of this first, Tim, this question is, you know, what are some so the question is, what are some strategies for dealing with market downturns during retirement. So what we’re assuming here is that you are no longer in that accumulation phase, you are in the deaccumulation, that withdrawal phase. But I think like the, the, my thoughts is, are consistent no matter where you’re at. You know, to me, the big things that I look at from a retirement portfolio is I want to make sure that you’re in the right allocation, and that you’re driving the expenses down as much as possible related to your portfolio. Now, what I’m taking, typically talking about here is like expense ratio. So the right allocation is probably the optimal, you know, the optimal term in and I think, if you look at the rule of thumb, that I don’t love is the rule of thumb in terms of like, how you should have your portfolio allocated is, you take 110, you subtract your age, and that’s the amount of stocks or equities you should be in your portfolio. So if I’m 40, you take 110, minus 40. And I should be in a 70%, stock portfolio and a and a 30%, bond portfolio, which I think and it’s very much a linear thing. So as you as you age, go, 60/40, 50/50, etc, etc. I think that that’s wrong. I don’t think that that’s a great rule of thumb. I think that, to me, I look at this almost as like a, my, my strategy or my thought process is more like a cliff. So my thought is like, you know, if I’m 40 years old, and I have 30% of my allocation in bonds, I think that’s a mistake. And if we, if we zoom out, you know, if you look at stocks, and again, not all stocks are created equal, but in broad strokes, stocks are typically there’s a higher potential for growth, with a lot more volatility. Bonds or fixed income, there’s less potential for growth, but less volatility. So there’s more of an exponential growth with stocks and more of a linear growth of bonds. So, to me, what you give up during the accumulation phase, if you’re in your 40s, is you give up a lot of the market, the market is still gonna go up, but I equate it to like, if you’re in mostly equities, it’s gonna be kind of Rocky Mountain in terms of ups and downs. If you put bonds and there’s more Appalachian Mountains, there’s a little bit more, you know, you know, there’s less ups less downs, but they’re still they’re still that. So to me, I think that, uh, mostly equity, you know, again, this is not investment advice, but I think like maybe mainly in equities in your accumulation phase. And then when you get to five to ten years before and after your retirement age, that’s when you’re going to, that’s when you’re really going to manage the sequence of return risks that you mentioned. So think of that as like the eye of the storm. So let’s assume that my retirement age is 65. And I’m being as conservative from a timeline perspective, at 55. That’s when I really am going to kind of that’s what that’s the cliff where I’m going to say, Okay, I’m now no longer going to be mostly in equities. That’s where I’m going to be the most conservative and go to bonds. So instead of this glide path, where I’m going from 100% equities to 80, 90, basically, I’m not doing that over a period of years, I’m doing that right when I hit 55, and that’s where I’m going into more of a balanced portfolio, which could be a 60/40, or 50/50. And then over those years in that either storm, so 55, to 75. And the most conservative sense, that’s when you’re gonna be the most conservative in terms of your balanced portfolio. And then when you come out of the eye of the storm, that’s when you start ramping up the equities, again, whether that’s 60/40, 70/30, 80/20, which is very different than kind of the, you know, most people, it’s like, oh, you’re in your 80s, you should be in a 20/80 portfolio or whatever. And a lot of people, it’s, it’s not sustainable. So the the eye of the storm is to kind of get through the sequence of return risk. So, you know, and again, the most successful retirees are the ones that are most flexible. So if you go through like the subprime mortgage crisis, or the.com crisis, and your portfolio goes from a million to 700,000, and then you’re drawing $50,000, you know, for the next couple years, the portfolio and a lot of cases are going to fail. If you were to delay your retirement and wait for the market to recover two years later, it’s completely different scenario. So that to me, is what we’re talking about here. So you know, the strategies for dealing that is, I think the best thing is the being the right allocation is to not do what you’re feeling. So I always talk about do the opposite of how you’re feeling. So if you get scared, a lot of people should go cash and a lot of ways you should be doubling down and investing. Another thing that we’ve talked about in the in the in this forum, Tim, is something like an annuity, which is hard to really wrap people’s minds around, but like if I can peel off $300,000 from my portfolio, to supplement Social Security to say, Okay, come hell or high water, I’m gonna have the steady check between social security in my annuity, regardless of what’s going on. For that, for a lot of people, that’s a peace of mind. So like the the market volatility is not as as big a concern, because I’m like, I don’t I have all my basic necessities, necessities handled. Right. So the mental thing of like an annuity might be might be a big thing. Being flexible, as I mentioned in, it could be a bucketing approach where you’re like, hey, my, my near term bucket, my zero to five year bucket is spoken for me and I have that in cash or tips, I’m good. So I don’t care what the market does, you know, as long as it’s recovered in the next five years for me to kind of replenish that bucket. And this is where we’re basically have a short term and medium term, and then a long term bucket. So short term, zero to five, medium term, six to 15, long term 15 plus, and then those buckets kind of replenish themselves as time goes. If there’s, if we’re in a time where the market crashes, but I still have $100-$200,000 in my cash bucket, I don’t really care, I’m hoping the market will return in that period of time to replenish that cash bucket. And typically, it should. A lot of the most, you know, the Great Depression in the Great Recession, you know, those recover those market recoveries aren’t decades. They are typically, you know, two to six years, two to seven years, that type of thing. So that could be that can be something as well. So, you know, the market, the market does what the market does. And I think those are that are best positioned like they they understand that. It’s not, you know, we’re not trying to like game the market, outside of very few people in the history of the market can can beat the market and kind of, you know, foreshadow what’s going to come. So it’s, it’s being in the right asset allocation. It’s keeping your expenses low. And being consistent with that structure. I think we’ll get people through any of the see any of the seasons that you’ll see over the course of an investing career.

Tim Ulbrich  28:42

Tim, let me mention a few resources for people that want to dig deeper, and this will link to these in the show notes. It’s been a while but we did a whole series on retirement planning, digging into the question of how much is enough, some of the alphabet soup of different accounts, building a retirement paycheck, things that you’ve been talking about that was episodes 272 through 275. Again, we’ll link to that in the show notes. And then 305, episode 305. We did a primer on annuities, a lot of myths, conceptions around annuities, we try to break those down, understanding what they are: fees, costs. That was a great episode. Again, we’ll link to it in the show notes. And then several of the risks that you’ve talked about, we put together a guide that’s all around understanding retirement risks. So it’s Retirement Roadblocks: Identifying and Managing 10 Common Risks. It’s a free guide that we have available. One of the most popular resources we have, again, that will be linked to in the show notes as well. Tim, one thing that struck me is you were talking you mentioned flexibility, right is a key. And this is a piece I think that pharmacists have a benefit of, right. Many pharmacists work in a position, whether that be hospital, whether that be community practice where they have an opportunity to do something like PRN shifts or work part time and make a good income. And so, you know, maybe the game game plan was a full retirement at 55, but because of some of the things that you talked about, maybe they either choose to work longer, full time or hey, if they want to pick up 15-20 hours, making $60-$65 bucks an hour, a lot of pharmacists have the opportunity to do that. And so I think that flexibility piece can be really important, specifically to our audiences as they’re thinking about retirement.

Tim Baker  30:12

Yeah. And what I This, to me, this stat still like is unbelievable to me. So this was these two stats were put out by a paper called The Power of Working Longer published in January 2018, by Stanford’s Institute for Economic Policy Research. And basically, it makes the case for working longer. That’s the best, you know, medicine for if you have a shortfall shortfall in income for retirement. But we talked about sequence risk Tim, so we know the market. So like, let’s say, you know, you know, 65, in, you know, 20 years from now, not quite there yet. But say the market is not going great. Deferring retirement by three to six months is like saving 1% more of salary for 30 years. Deferred retirement by one month is like saving 1% more of salary for the final 10 years. So, to me, there’s I know there’s a lot of pharmacists that are listening to this that I speak to, they’re like, I need to retire as quickly as possible. And I get it, I get it, I understand. But but to me, like the people that are most flexible from a lifestyle, from a timing, are going to be the most successful in terms of their retirement. So if you have a lever that you can pull that you can consult or you can do, you know, you can do a shift or medical, right, whatever that is, you know, whatever that that is like that’s going to benefit you and over and help the overall retirement picture. So those would be two stats, I would leave you with us on this question.

Tim Ulbrich  31:44

That’s great. And it’s a balance, right? We talked about this all the time, it’s a balance between, hey, you make enough of these concessions. And you could always argue, hey, I should keep working longer, right? So we’ve got to get back to like, what’s the why, what’s the purpose, but also be in tune with those numbers, which aren’t wild when you talk about one month of employment, and the impact that it has in terms of dollars that could have been saved. Our next question: how to different investment options such as stocks, bonds, real estate impact retirement savings? And I think, Tim, this is a really interesting question, because one of the things we lose sight of when we talk about nest egg calculations, retirement planning, we talked about these big numbers, 3 million, 4 million, 5 million, is that not all dollars are created equal? Right? Both in how are they invested, and the types of investments in which they’re in and then eventually, how they’re utilized to build the retirement paycheck. So what are your thoughts here in terms of how do different investment options impact retirement savings?

Tim Baker  32:37

Yeah, so this question is really about like asset classes. So when we talk about a traditional portfolio, you know, there’s a, we talked about a high level, you know, a 90/10 portfolio and it would be 90% in stocks or equities and 10% in bonds or fixed income. That 90% you can, you can draw even a finer line, you can have large cap, mid cap, small cap, you could have international funds, you could have emerging market, you could have commodities, you could have, you know, you could have sector funds that are just in biopharmaceuticals or whatever. You could have digital assets. So, the big news this year was that they released spot Bitcoin ETFs. Last week, Tim, they released nine, eight or nine spot theoreum ETFs, which have come on the market and started trading last Tuesday. So that can be part of your your asset allocation now, because they’re, they’re in ETFs. The bonds at 10%, you could buy a total market bond, or you could buy different types. You could buy munis, you could buy treasuries, you can buy a total market and international bond, like there’s lots of ways to kind of, you know, slice it. But you can also talk to, you know, real estate, you know, one of the things is like, you know, is it real? Is it real estate, you can hold real estate in a mutual fund or an ETF, or you can hold it directly. So, to me, this kind of goes back to the one of the earlier questions is, you know, the more stocks, there’s the potential for more growth, but more volatility and risk, the more bonds less potential for growth, but less volatility and risk. So I think, at a baseline, being in the right, asset allocation from a traditional portfolio is really important. And this is what I’m talking about is, you know, should you be in an all equity or, you know, a 9010, and then hit that cliff and then go to a 60/40 or 50/50. That’s what I’m going to talk about from a traditional, but the things that we have to overlay, Tim, and I was talking about this with you a couple of weeks ago, I was kind of lamenting the fact that we talked about like tax allocation with retirement with your, your investment assets. So we kind of talked about we went a little bit in column A, Column B, Column C. Column A would be pre you know, like traditional. So pre tax, so these are, you know, traditional 401 K traditional IRA, etc. Then you want a little bit in Roth, which is kind of tax free since you’ve already paid  the taxes. So this is like And when you pour out a Roth, if you have a million dollars, all that million is yours because you’ve already paid the tax man. And then the last one is a taxable account. So I was looking at my taxable account as a percentage of my portfolio, I’m like, oh, that’s exactly where I want. Now, I don’t have any designs on retirement before 59 and a half. So I don’t really need, that’s typically what you use a taxable account for the purpose of retirement. But I know like when I sell my real estate, that’s probably going to go into a taxable account. So like, like, right now, I know the plan is, it’s kind of unequal scales, though, they’ll be equaled out in the future, or when I sell my share of our business like that will probably go into partly a savings account, but partly a long term investment, you know, in the form of a taxable account. So to me, that plays a part of this as well. So I think the the idea is to be in the right asset allocation, as opposed to what I talked about, typically, the one that you’re it’s going to be more stock heavy is going to have more volatility. So the closer you are to retirement, or in retirement, the less you’re going to want to have, although it’s still needed for the kind of that longevity risk of like not live outliving your savings. Real estate, it’s going to be typically how you know how your whole net, whether you are a landlord, or if it’s in a fund. But the things that we haven’t really talked about this, as part of this is things like digital assets, things like commodities, cash – right now, Tim, you could, you know, with our cash accounts at YFP, it’s paying like 5.1%. So I’m looking at that, and like, if I’m a retiree, if I can park, my short term bucket there, I’m pretty happy with that return. Now, I know inflation has been ticking up higher. So maybe need a little bit more to offset that. But these are all the things that kind of construct the retirement, you know, savings and retirement assets. And I think, you know, doing it with a traditional portfolio, but then overlay in some of the other things that you have going on, you know, if you have a pension, that’s going to affect how you retire, you know, your allocation is, because if you have a if you have a pension plus social security, you might not have to be super conservative, because you might say like, Hey, my, most of my things are handled, or if I buy an annuity, I can be more aggressive, because I’m not going to have to withdrawal that as aggressively as if I didn’t have that annuity or that pension. So there’s lots of different things. But I think the rule of thumb is kind of looked at your stock to bond, you know, ratio, and understand that with stocks, again, more growth, more volatility. With bonds, less growth, less volatility.

Tim Ulbrich  37:30

And I think you just gave a great example there, why blanket asset allocation recommendations don’t work, right? Because, you know, if someone’s listening, and they have a pension, and they have social security, or maybe they have an annuity, like the floor that they’ve created, is completely different from someone else that maybe doesn’t have a pension or annuity, And therefore, they’re going to rely more on withdrawing from their investments. So how much risk they take with the remaining amount of whatever’s investable, and whatever buckets they have, could be very different based on you know, what those are? And I think this question gets at a couple different aspects of asset allocation, which you talked about nicely, but also a conversation. We don’t have enough, which is that d cumulation. Building that paycheck from what buckets are we taking from and how do we do that? And what order tax strategies all those things? And I think for people are listening that maybe have done the hard work, are nearing retirement, have two, three $4 million saved whatever the number is. That’s great. Now, hey, are we thinking about the decumulation side of this?

Tim Baker  38:30

Yeah, and that was one of the reasons, Tim, after going through the CFP coursework, you know, I decided to do the Ri CP, which is Retirement Income Certified Professional, because it really tackles that question that the CFP I don’t think does the best job. CFP is all about, okay, accumulation of accumulated assets and what that looks like. But once you get to that, that’s not the destination, then the next chapter, how do you take these buckets of money and build a sustainable, sustainable paycheck over time? Unknown, right. And actually, one of the open questions in in that is like, if you do build a floor for a client, and they’re, you know, they’re a 75 year old, but their allocation is something like 90/10 or 80/20. A lot of regulators will look at that and be like, that doesn’t look right. But you know, the justification, that’s why you can’t have a blanket, you know, yeah, one rule for everyone. The justification is like, we really don’t have to draw that much from that portfolio. Because, right, the floor is the floor, right? So I remember that being kind of like, oh, that’s odd. Because, you know, again, most, most planners, they kind of they go, they get social security in place. And then they say, Okay, what’s the total return? What’s the best optimal way to get the portfolio through the all the retirement years, but it’s much more nuanced than that. And I think, you know, it’s important to understand that.

Tim Ulbrich  39:54

And that’s why for the pharmacists that are listening, that are working for an employer, like the VA or whoever that still has a pension plan, be grateful for that. They’re not they’re not common, but it’s gonna play a huge role when it comes to building that floor  and creating that retirement paycheck. We’ve got lots more retirement questions. I’m gonna hit pause there. We’ll tackle more of those in future episodes, we’ve done a lot of information in a short period of time again, we got more resources. If you’re listening to this, and I want to learn more, make sure to check out the YFP podcast again, we’ll link to some of these older episodes in the show notes. You can go back and learn more, we’ve got more information on the YFP blog as well. We have more webinars that will be forthcoming related to retirement retirement planning that Tim and the rest of the team will be leading. So be on the lookout for those as well. For those that are listening and said, Hey, I really could use some one on one help with a qualified, certified financial planner, we’d love to have the opportunity to talk with you to learn more about your situation to see whether or not what we offer is a good fit in the form of fee only financial planning and or tax planning. If you’re interested in a discovery call with Tim Baker to learn more about the services, you can go to yourfinancialpharmacist.com you’ll see a link there to book a discovery call. Thanks so much for listening, Tim. Great stuff. We’ll catch you again next week.

Tim Baker  41:03

Sounds good.

Tim Ulbrich  41:06

Before we wrap up today’s show, I want to again thank this week’s sponsor of the Your Financial Pharmacist Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% downpayment for a single family home or townhome for first time homebuyers and has no PMI on a 30 year fixed rate mortgage. To learn more about the requirements for First Horizon’s Pharmacist Home Loan, and to get started with the pre approval process, you can visit yourfinancialpharmacists.com/home-loan again, that’s yourfinancialpharmacist.com/home-loan. 

Tim Ulbrich  41:51

[DISCLAIMER] As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward looking statements, which are not intended to be guaranteed of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

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