Retirement Planning - Redefined

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Ep 45: Planning For Things We Can’t Predict

March 21, 2022

There are certain things in life we just can’t predict. If we knew the answers to some of these questions, planning for retirement would sure be a lot easier. So let’s see how you go about constructing a plan that addresses the kinds of questions to which you can’t possibly know the answers.

Helpful Information:

PFG Website: https://www.pfgprivatewealth.com/

Contact: 813-286-7776

Email: info@pfgprivatewealth.com

Disclaimer:

PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.

Transcript of Today's Show:

For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/

Speaker 1: Hey everybody. Welcome into another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com. That's p-f-g-private wealth.com, where you can check out a lot of good tools, tips, and resources, schedule some time with the team or subscribe to the podcast on whatever platform you like to use. And on the podcast us this week, we're going to talk about planning for things that we cannot predict. There's many things in life that are just out of our control, and we can't predict. Yet, we somehow have to figure out a way to bring these things into the fold when it comes to our retirement strategies. And if we knew the answers, these things would be a lot easier to do, right? Just like saying, if we knew when we were going to pass away, you guys could build the greatest plan anybody's ever seen, but we don't come with a timestamp on us. So we have to figure out a way around some of these complicated questions and construct a plan that handles these, but also works with the unknown. So we'll get into that in just a second, but what's going on, Nick? How are you doing?

 

Nick: Doing pretty good. Thanks.

 

Speaker 1: Yeah, how's the old puppy doing? I've got mine next to me right now while we're taping.

 

Nick: Unfortunately she passed like a month ago.

 

Speaker 1: Oh, I'm sorry, buddy. I didn't mean to do that.

 

Nick: It's all right. Oh yeah, no, I don't take it like that. I was going to say something earlier and then I just kinda left it, but yeah, it's been a bit of a crazy month.

 

Speaker 1: I gotcha. I'm sorry to hear about that. It's always rough when we lose our little furry friends there as well, but hopefully things will get better for you. And we'll talk about something, you can't predict that kind of stuff. Right? We'll get into that kind of conversation here in a second. John, what's going on with you?

 

John: Today's topic is pretty fitting. I couldn't predict that the house I bought had a loose AC drain and currently all the floors in my master bedroom and hallway ripped up. It's going well, as well as can be. So we're adapting to the renovations in our house currently. I just send Nick some pictures of it and he's like, whoa.

 

Speaker 1: Oh, wow. Well, I put my foot in my mouth already to start the show, so we'll get into it. But I guess that fits really well though with the over conversation is, because there's a lot of things. I mean, life is unpredictable, right? Murphy's law, whatever you want to subscribe to. And so we still have to somehow plan for some things, look at the state of the world, right? Who would've predicted 7.9% inflation rate, who would've predicted. What we're seeing in the Ukraine and so on and so forth. So it all affects the financial side. So we'll turn our attention there as we typically do. And a lot of times guys with what you do for a living, I imagine, and I talk to advisors all across the country when they meet people that do what you guys do for the first time, almost inevitably somebody goes, Hey, so when's the next market crash, right? They kind of like you guys, somehow some know this magical information that when the next it crash is going to be, well, you can't predict for that, John, but you still got to plan for being able to retire in any economy regardless of what the market's doing.

 

John: Yeah. And this point I'm going to say, probably goes for all of these things we're discussing today. Is you really want the flexibility to adapt for any, I don't say any, a lot of situations that come up in retirement and one of those are, a market pullback or a crash, so things to put yourself in a pretty good position is, we kind of stress this, is having a decent cash savings. So if the market is crashing, you can rely on your cash savings for income during that period of time. So you don't sell any of your losers and realize those losses. So there's a lot of things you can, you can't predict it, but you could definitely set yourself up in a situation where you can adapt to it, to put yourself in a good situation moving forward.

 

Speaker 1: Yeah. And as I mentioned on the last podcast, we were talking about the fact that we were dealing with overconfidence as one of the money biases. And the last several years, it's been easy to get confident in the market, but when we start to see these downturns or corrections, like we're going through right now, people get nervous and they tend to do the wrong thing. So you can't predict when it's going to happen, but you want to make sure that you're setting yourself up in a way to work through that. And Nick, similarly, we could talk about healthcare costs, right? I mean, who knows what they're going to look like in 20 years? Now a good bet is probably that they're going up more than likely, right? Unlike the market crash, where there is some historical data, I mean, healthcare costs, the reality is we're living longer. So more than likely these costs are going up, but how can you plan for that? If you don't really know, you just have to start, kind of chipping away at this. Maybe.

 

Nick: Yeah. It's interesting because this is one thing that we can probably lock in that it will go up and will continue to go up. But from a practical sense, in a practical standpoint, the things that we can do are from a planning perspective, make sure that when we're planning for them, for these healthcare related expenses that we understand what's involved. So as an example, a lot of people think about, well, Hey, I know that my healthcare expenses are going to get higher later on down the road, but many times they don't understand. And when we see this all the time that even their cost for Medicare, when they switch to Medicare in retirement, there's a decent chance it's going to cost more than what they're currently paying for their health benefits through their work.

 

Nick: And because a lot of people have that concept that it goes down versus most likely going up from a premium perspective for a lot of people. Using a higher inflation number for those healthcare premiums and healthcare related expenses, which is something that we make sure that we do with clients where we'll use a three and a half to 4% inflation number on healthcare related expenses in the plan, which tends to be, one to two points higher than the rest of the categories in for inflation.

 

Nick: So, things like that where we can't predict it, but at least from a modeling standpoint, we can kind of, use a prudent person rule of, making sure that we at least model those things to be a little bit higher and faster, increasing costs, especially when we look at how those plans are being financed by the government, which is not great.

 

Speaker 1: Yeah. And that's a great point because even in normal inflationary times, right? What is it the two industries that outpace even regular inflation on the regular is college tuition, right? And healthcare. So while college tuition may not be affecting as many of retirees or as maybe pre-retirees the healthcare certainly is going to affect them. So you got to take that into account and definitely start strategizing for those healthcare costs. Putting your head in the sand is not going to help you out 20 years later when you need it. And John, you could kind of make that same argument really about the tax rates. Right? The Smart bet, the money is probably on the fact that yeah, they're going up, but God willing, you're going to live through multiple administrations in retirement. So, to say, well, what are tax rates going to look like three presidents from now who knows, right? Administrations are going to do what they got to do.

 

John: Yeah. And that's where, again, it's important to flexibility to adapt to the situation and how you get flexible is diversifying your assets from a tax standpoint. So, and you might want to look at, increasing your Roth contributions, if you have a Roth 401k at work or eligible to contribute to a Roth IRA. So that could be a really good strategy. So that way, if tax rates are up, when you're taking your income, you could say, Hey, you know what, I'm going to take some of my tax free income this year or for these next couple of years. And you can really adjust to that situation. And not just only with Roths, but you could go outside of retirement accounts and kind of deal with capital gains. But then you got the same issue there with what are the rates going to be?

 

John: What Nick and I have been seeing quite a bit lately is clients really over funding their HSAs and not using them, just letting them build up for retirement. Cause that would be a nice tax free distribution, if qualified for healthcare costs, which also piggybacks what Nick was talking about. About healthcare costs, not knowing what they're going to be. So there are definitely different things you can do to allow yourself some flexibility. And one thing that we typically do when we're doing planning is we do stress test these things for certain clients. Where we'll look at some kind of market pull backs. How does your plan look like if there's a 20% pull back? What if healthcare costs go up? What if inflation goes up? So there's definitely things you can do to prepare.

 

Speaker 1: Now. Those are some great points right there because we, again, we don't know what's going to happen. The smart money is taxes are probably going up, we've got 30 trillion dollars in debt. There's almost 40 plus trillion dollars in retirement money sitting out there, the taxes haven't been collected on. So if that doesn't have a bullseye on it, you're probably kidding yourself. So trying to be as tax efficient as we can today could be beneficial. Because again, we have no idea what it would look like three presidencies from now.

 

Speaker 1: So these are, again, things we cannot predict, but we certainly got to still plan for some of the options that are out there. And Nick, I joked earlier that if we had an expiration date stamped on us, like a gallon of milk, you guys could build the greatest, retirement plan for each individual that they've ever seen, but we have no idea how long we're going to live. And I could use my own self as an example for the listeners. My brother died at 50, I'm 50. My brother died at 57, my father at 63, my grandfather at 60, be easy for me to say, Hey, I'm going to spend all my money between now and the age of 65, because I'm not going to be here. So I'm going to party. But yet that's not responsible, because what if I'm wrong? Technology has changed. And of course, what am I doing to my spouse?

 

Nick: Yeah, this is always an interesting one. It's probably the source of the most quote unquote jokes from people. Whether it's clients or people that attend our classes, that sort of thing. And really from a practical sense where this comes in is, how long do we plan for? So when we're building a plan 99% of the time, we plan to age 100. And when we plan to age 100 for clients, we can see what, how much money's there at age 85 and age 90 and all those sorts of things. And the thought process is that if the plan works until age 100, then the probability of it being successful up into, 80, 85, etcetera, is much higher. And the plan, what it will also help us do is for those people that do want to make sure that they spend their time early on in retirement, really doing the things that they want to do, no matter how much bluster there can be about, because again, usually it's some sort of internal insecurity or internal bias that has them talking about passing away early.

 

Nick: But sometimes what we found is that, really they're just saying that because they don't want to deal with the concern of running out of money. It's almost in a weird sense, comforting that, Hey, if I pass away early, then I don't have to worry about money. This planning thing isn't important. I don't have to stress about it. No big deal. So in actuality, when you go through the planning process and you do see where you sit and you do see, Hey, maybe I can do the things that I want to do and I can still, make sure that there's money down the road for a spouse, all these sorts of things. It actually really kind of tick up the confidence and they will enjoy those things much more than having that uncertainty because, and I've seen it across the board because what ends up happening. I mean, and again, just seeing it being in this business, people that had that thought process 60 today, used to feel like 50 70 today feels like it. when people were 60, 15 years ago, nobody realizes how old they are, or they have this perception of that they're going to feel a certain way. And usually that's not the case. So, planning for all scenarios is really important.

 

Speaker 1: No, definitely. I mean, my mom's always joking. She's 80 and she's forever saying, I don't feel it. when I, if I'm not moving or if I'm not doing anything, I don't feel like I'm 80. She's like in my mind I still feel like I'm 30 or 40. She's like until I look in the mirror or I try to move a certain way.

 

Nick: Yeah. And unfortunately I had to go up to New York for a funeral this past month and my dad and I flew up and we walked into the room with some family members and stuff like that. And after the initial reminder that we're no longer in the south due to how loud it was and all of the swearing. Somebody said something about because that side of the family, I was always one of the younger and I'm like, how old are you going to be? And I was like, I'm going to be 40 this year. And everyone looked and they're like, and I was like, you know what? That means you guys are really old now. So, again, it's that whole concept of people just don't realize it. And the concept when you're younger of what you're going to feel like or what it's going to feel like when you're older, it never tends to be that way. So it's important to really plan.

 

Speaker 1: Yeah. It definitely. So you got to plan for these things, even though we can't predict them, how long we're going to be around tax rates, healthcare costs, market crashes, whatever the case is, these things are again, probably going to happen throughout your retirement. And if you have a nice long retirement, which you certainly hope that you do, you might be retired 20, 25, 30 years. You're going to experience multiple things with some of this stuff that you can't necessarily predict for, but you still have to strategize to hopefully have the retirement that you want in any economy and any circumstance. So that's where planning comes into place. And that's what you got to reach out to the guys for here on Retirement Planning, Redefined with John and Nick at pfgprivatewealth.com. That's where you can find them online, pfgprivatewealth.com. Don't forget to subscribe to us on whatever platform you like to use. Apple, Google, Spotify, so on and so forth. And we'll be back with more episodes coming up in a couple of weeks. Nick, thanks for hanging out as always. John Good luck with those floors, man.

 

John: Thanks. I definitely need and appreciate it.

 

Speaker 1: Absolutely. Nick, we'll see you next time here on the podcast. This has been Retirement Planning Redefined with John and Nick from PFG Private Wealth.