Before you "take off" into your retirement years, it's wise to go through a retirement "preflight checklist" — as SMI executive editor Mark Biller explained yesterday on Moody Radio's MoneyWise Live. Mark also answered caller questions.
To listen, click the play button below — or, if you prefer, scroll down for a transcript. (And for more radio appearances by members of the SMI team, visit our Resources page.)
MoneyWise Live, with Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT.
To ask a question on a future program, call 1-800-525-7000 and mention you have a question for either Mark Biller or Matt Bell of Sound Mind Investing.
Steve Moore: If you were a pilot when you take off before completing a preflight checklist? Well, of course not! so why take off into retirement without first checking all the boxes, but you don't really have to because we have your retirement preflight checklist right here. Financial Planner and teacher Rob West goes over it with Mark Biller of Sound Mind Investing. I'm Steve Moore. Please put your seats in their full upright position because Moneywise Live is coming up next.
Well, Rob, it's always lots of fun and educational. Having Mark Biller with us on the program. I know today will be no exception. I think we have him with us online.
Rob West: We sure do. Mark is the executive editor at Sound Mind Investing — and always a treat to have him with us. Mark, welcome back to Moneywise Live, my friend.
Mark Biller: Thanks, guys. Good to be here.
Rob West: You know, we can't take credit for the idea of the retirement preflight checklist because, uh, that's the gist of the recent article in your newsletter. And so why don't we dive in — perhaps before we look at the list itself, frame-up this idea of retirement first from a biblical perspective,
Mark Biller: it's definitely important to start there with a reminder that the American retirement dream isn't really a biblical idea. The Bible doesn't endorse the idea of us stopping being productive as we get older in order to pursue a life of leisure. So hopefully, in this discussion that we're going to have today, when listeners are hearing us talk about retirement, they're already thinking more in terms of a transition from maybe their paid vocation, the job they've been doing, towards maybe a different emphasis of ministry and impact but not just, you know, hitting the golf course and the beach.
Rob West: Yes, exactly. So when should someone start to look at this list? Is there a certain age? Is it a number of years out from retirement to what's the opportune time?
Mark Biller: It's never too early really, but I think that for most people as they get to within about 10 years of that anticipated retirement age, that's when this stuff really becomes become serious. You want to look at it early enough that you have a chance to make some adjustments if you're not on track.
Rob West: All right, well let's dive in. We'll get as far as we can and we'll move through all of these items throughout the program today. Not surprisingly, Mark, the first item on the list is "Setting Your Intended Retirement Age." Tell us about that.
Mark Biller: That's the natural starting point is choosing that retirement date and then you work through trying to determine if that date is realistic. And I think it's really important to point out there's a big disconnect between the age that current workers think they will work until and the age when today's retirees actually retired. So you've got a situation where according to surveys, at least almost half of today's current workers are expecting they're going to retire after age 65. But only about 20 percent of current retirees waited that long.
So the takeaway from that, Rob, is that you probably want to build an earlier retirement age into your planning, so maybe if you're thinking you can work until 70, just be conservative and set up your plan around maybe an age 67 retirement date — because it's always easier to earn money longer than to plan on earning money longer and, all of a sudden, have to retire sooner because of a health issue or some other factor.
Rob West: Yeah, perhaps we have all these expectations about how long will continue to work and then as we near that age, all the sudden that doesn't sound like such a good idea. We want to begin slowing down earlier. That clearly has financial implications.
We want to talk next about the "Retirement Budget." We've got just about a minute left here — we'll unpack this even after the break — but let's start with this idea of what is the estimated percentage of your current expenses that you should be thinking about?
Mark Biller: Some estimates say you really ought to be figuring 100 percent of your current income. I think that's maybe a little high because you should have some. Some expenses disappear, you know, and he's saving. You're doing right now for retirement. Of course, you wouldn't have to do that. Commuting costs, things like that. But the counterpoint is other categories like entertainment or travel could be going up. So you want to take a good stab at it and then adjust as the years go along.
Steve Moore: Mark Biller with us today from Sound Mind Investing — taking your calls: 800-525-7000.
Rob West: Mark, we left off talking about the "Retirement Budget" — and uh, you know, this is one I think that's really important, whether you're planning on 80 percent of your preretirement income or even 100 percent because maybe you're going to up the travel category. The key is you have to actually put it down on paper and have a plan well before you get there, don't you?
Mark Biller: Yeah, absolutely. And even the best estimate going into retirement, you gotta retain some flexibility and probably reevaluate this every year going forward. And part of that is because, as experts will are quick to point out, you're spending tends to change as your retirement moves along.
One framework that I've seen that is kind of catchy is, you know, they refer to the initial "go-go" years. These are the early retirement years. We like to think about as we anticipate retirement, when our entertainment and travel-related expenses are likely to be at their highest and that eventually gives way to the "slow-go" years when health may begin to slow us down a little bit or spending less on entertainment and travel and eventually we end up in the "no-go" years when our traveling days are over and the healthcare spending tends to be picking up.
Y'know, it doesn't unfold the same way for every person, but that's just a good mental model to drive home that point. You have to be flexible and you have to keep up with these, this budget as your retirement unfolds.
Rob West: Absolutely so critical to think about. We'll get to your questions in just a moment. We'll have time to take a couple of them while Mark is with us, whether it's how much you need for retirement or even the right investment mix during retirement. Mark, let's continue to move through the retirement checklist. This next one is huge, or at least it should be, and that is "A Plan to Become Completely Debt Free."
Mark Biller: Yeah. If you can be totally out of debt, including your mortgage, by the time you retire, that's not only going to help your cash flow, but it's really going to help your flexibility. Now, I know a lot of people hearing that — if you've got a lot of debt, it can be overwhelming to think about trying to pay all of that down at once. So you want to start where you can and just be working towards that goal of bringing as little debt with you into retirement as possible.
Rob West: So very important. Next, we have "Determining Your Living Arrangements." What do we need to think about there?
Mark Biller: Fundamentally, where are you planning to live when you retire and do you know what the cost of taxes, insurance, utilities, maintenance, those types of expenses are going to be. That's a little easier if you're planning on retiring in place — you probably have a decent handle on that from already living in your current home. But if you're thinking about a change, maybe, uh, considering if you've got adult children nearby who might be able to assist you at some point if you need help or an assisted living facility is an option for some people that they're considering. You want to consider these things early, even if you're in good health now. Just have those on your radar. Maybe run some numbers and see what those changes might look like.
Rob West: I was at lunch today with a Certified Kingdom Advisor, a good friend. He was saying, "I'm recommending just about every client now — as long as they can afford it — get some type of long-term-care insurance either as a rider to a life insurance policy or just a straight long-term-care insurance policy because this is one of the primary things that will erode your life savings during that season of life. Do you agree?
Mark Biller: Yeah, I think I do in most cases. And I think that, you know, it's ironic that you think of "longevity risk." That's one of the terms that gets thrown around and the financial planning world. You know, all of us would like to live a nice long life. We don't really think of that as a risk, but in terms of the financial side, that can be a risk. So a policy, a or like that can really help protect us.
Rob West: Next up, Mark, you said we need to "Estimate Our Guaranteed Income." What do you mean there?
Mark Biller: Yeah, it sounds like an oxymoron, right? Estimating your guaranteed income. But, y'know, the reality is that some of these things like Social Security, you have to estimate because it's hard to know exactly how much you're gonna you're gonna get — it's based on your age when you begin receiving it. If you're fortunate enough to have a pension, a playing a role in that guaranteed income — that's probably an estimate as well because it will be based on how much you're earning in your last years of employment. But as, as best you can, you want to get a handle on what those numbers are going to look like because we're trying to start building out the budget. We have the expense budget and now we're working on the income side of the budget.
Rob West: Yeah, exactly. And we got to understand what that looks like and knowing what those income sources are and having a plan for them and particularly any gap that may exist with your ongoing expenses is very, very important.
All right. Just a couple more now. Next up, Mark, is "Estimating Healthcare Needs." We touched on long-term-care insurance, but what other considerations there in the healthcare area?
Mark Biller: Yeah. If you're thinking about taking Medicare when you qualify at age 65 or if you're planning to work a little past that age and maybe stay on your employer's plan — that's going to have an impact. You want to estimate how much you'll be paying in premiums than if you are going with Medicare. Then you have to think about filling those coverage gaps, either with a Medigap plan or going with a Medicare Advantage plan. You just want to try and get a handle on your healthcare costs as best you can.
Rob West: All right, very good. Again, we'll take your questions for Mark Biller here in just a moment — in particular, if you have a retirement question, either saving for retirement or investments, whatever that might be. 800525-7000. We'll get to your questions here in just a moment.
Mark, as we begin to wrap up, this last item was a biggie and that is, "Calculating or Estimating Your Investment Income." What do we need to think about there?
Mark Biller: So at this point, Rob, we've built out the budget side what we think our expenses are going to be. We've looked at sources of guaranteed income, whether that's social security, a pension, anything like that.
And now the final piece of the puzzle is trying to estimate what type of nest egg we're likely to have an and just as importantly how much income those investments will be able to provide for us. Those are the pieces of the puzzle so that we can see if we are meeting the expense load that we have in our budget, our retirement projections. And if there's a gap there, this is why we want to start looking at this maybe 10 years before we retire, in case we need to fill in a shortfall on the investing side. That gives us a little bit of time to adjust our current working budget to get a little bit more put aside for retirement — if we can see there's going to be a shortfall between our income and our expenses.
Steve Moore: We're looking at a preflight checklist today, a preflight checklist when it comes to your retirement. If you have any questions that relate to your retirement — financially oriented, obviously — now's a great time to call 800-525-7,000. We'll be right back.
Steve Moore: Let's take some calls guys, if we can to Wadsworth, Illinois — and Lisa, how can we help you?
Lisa: My husband and I both — we were older when we had children. And now my husband's 60, I'm 53 — and he, he's at the age of wanting to retire in the next few years. But we have a 16- and a 14-year old that still have to go to college. And while we have some college money, um, and we do have some savings — seems like people living a lot longer. We're trying to figure out how much do we actually need and like how do we prepare for that? Teenagers are costing more money and we're using a lot more of our savings. So we're getting a little nervous.
Rob West: Yeah. Give us a quick rundown, Lisa, of what you have saved. Are you saving through a traditional, uh, 401(k) or an IRA? What do you have currently?
Lisa: Yes. We both have IRAs —Roth IRAs. We have, I guess, a considerable amount of savings —I would say about, $600,000 or $700,000. And we have our house and we don't — we only have the mortgage on the house. We have one car that we're just happened to lease. And that's about it. We pay off our bills every month. My husband is very adamant about that.
Rob West: Okay. And how long do you have left on the mortgage on the home?
Rob West: Okay. Mark, what are your thoughts? Six or seven or $800,000, uh, about, uh, nine years away from paying off the house, but a couple of kids about to go to college here in the next few years.
Mark Biller: Yeah. I think that Lisa, you know, the conversation probably needs to start with some of the points that we went through a little bit earlier —and that includes estimating your expenses when you get to retirement. Because, y'know, if you estimate your retirement budget and it's a $100,000 a year, obviously that six or $700,000 in savings is going to last less time than if you estimate your retirement budget and you come in at, say, $70,000 a year. So having an idea — a better idea, a more a tangible, having-run-the-numbers idea — of those numbers will really help you quite a bit.
Now, I will say that — big picture wise — and this is really hard for a lot of parents, but they, they, they really need to know that your retirement savings needs to come before college savings for your kids. And the reason for that is if you get to retirement age and you have to retire, nobody's going to lend you money to live on in retirement. There are other options for your kids as far as funding school, whether that involves scholarships, work, even loans, although we'd like to avoid those if we can. There will be people lining up to lend money to your kids for college unlike for your retirement. So you do have to prioritize the retirement savings. And of course we could probably do a whole show on trying to find the college financing and the options that are available for your kids there.
But I would really encourage you, at the age that you're at to dig into some of these numbers and really try to get serious about what will we need for that retirement budget —because that's really the only way to translate those savings numbers into something useful.
Rob West: Perhaps you want to even take it a step further, Lisa, and engage a financial planner to actually do a plan for you, so that you have all the details. You take out the guesswork and you can see, based on what we have today, here's where we're going to be in five years, here's where we're going to be in seven years. This is what Social Security may bring. Here's what it's gonna cost to fund college. And then once you have the information, perhaps it will be easier for you and your husband to make a decision moving forward about what the next steps are. So if you don't have an advisor, go to our website, MoneywiseLive.org. You can search for a Certified Kingdom Advisor there.
Steve Moore: Thanks Lisa. We appreciate that. Greg in Bennett, Iowa. What's your question today for Rob West and Mark Biller?
Greg: I have a question about my 401(k). I'm 54 and my wife's 47, and in 10 years I'll have 40 years into my employment and I figure that's probably enough for me. And I'll be retiring at that time. But we're completely out of debt. We own several houses. My parents live with me right now. So in 10 years they're probably be gone. They're in their late 80s. I've got a nine year old, she'll be 19 in 10 years. So we kind of have that 10-year plan: me retiring, house being empty, selling everything that we've got, and living in the camper life — that's what we want to do.
I've got a little under $300,000 in my 401(k) — and many years back I lost a lot of that when the bottom went out of the market. And I'm like, boy, what if that happens again? Do I need to take some of that out now, put it into a CD and make it guaranteed?
Rob West: Mark, what are your thoughts?
Mark Biller: Yeah, that's a tough issue, Greg, because a lot of people did live through that in 2008 and lost quite a bit. Now, I would say that with a 10-year plan that it, even if something were to happen here — another bear market here in the next few years — thankfully you are looking at a timeframe where you've got quite a bit of time to recover. So the worst-case scenario here really isn't that you go through a bear market and lose a bunch of money and that's the end of the story. The worst-case scenario here is that you go through the bear market and sell at the bottom of the bear market and miss the recovery. So I think you want to be thinking in terms of this 10-year window, you know, having a defensive enough allocation and investing plan that you're able to stick with it if we do have a bear market and be able to ride out the recovery.
In 2008, the people who are able to stay in recovered their losses relatively quickly. It took about five years total from before the market peak, through the end of the recovery was about a five-year span for people to get back to even — which surprises a lot of people that it happened that quickly. So I would encourage you to think defensively. If you're not really sure what that means, maybe go to our Sound Mind Investing website and look at some of the defensive investing type articles. And that can help you.
Steve Moore: And the article we've been discussing today is the "Retirement Preflight Checklist." You'll find it when you visit SoundMindInvesting.org. Mark Biller, always a great blessing to have you with us. Thanks very, very much. And we'll be right back with more, right after this.