Ep 01: Do you have enough to retire?

Episode Transcript

Brian Graff: 0:31
Welcome, everyone, and thank you so much for tuning in to episode number one of our Real Talk Retirement Show. My name is Brian Graff and I’m here with my co-host, tracy Burke. Tracy, how are you doing today? Are you ready to jump into this podcast thing with me?

Tracy Burke: 0:43
Absolutely Super excited to be with you, Brian.

Brian Graff: 0:46
Yeah, well, and as you might have guessed by the title of our show, this podcast is really about retirement. But if we’re being honest, you know we don’t know a lot about podcasting. This is, I think, a first go around for both Tracy and I, so please bear with us as we kind of get our footing here and work through the process, but we’re super excited about the opportunity. But one thing we do know quite a bit about, I think it’s safe to say, tracy, is retirement. I’ve been in the industry for about 25 years now talking about retirement to people every day. And to put that into perspective, 25 years if a child was born the day I started talking about retirement, they would qualify for discounted rates on auto insurance. So I think maybe that ages me a little bit, but yeah, this has kind of been my passion for the last two decades and a half. Tracy, tell us a little bit about what you do here at Conrad Siegel.

Tracy Burke: 1:39
Yeah, thanks, brian, and again, I’m thrilled to be doing this with you and seeing how we can help everybody that’s listening, both that are in retirement and also preparing for retirement. So I’ve been an advisor working with investors and families for, I guess, about 20 years now and really look forward to sharing some of what I’ve seen over those years. Our wealth management team here at Conrad Siegel is really fantastic. We spend most of our time working with, or, I guess, on behalf of, our clients to help them be successful, and we try to have this down-to-earth approach and giving them the peace of mind as we help them navigate the financial world together, together.

Tracy Burke: 2:21
And, brian, I would say you know I’m super excited about this podcast because I think you know, as you know, those who view it just as another outlet to help people, and of course, that’s our goal. But really we want to help simplify these financial topics, want to help to provide clarity when it comes to everybody’s retirement. So we want to help, you know, these folks that are listening be confident, and sometimes these topics can seem complicated and we just want to unpack it in a simple to understand way. So I think, with all that in mind, brian, I would say let’s just jump right into our first topic today, and this is a question that we get a lot, which is why we wanted to start with this topic. But the question really is how do we know if we have enough money saved for retirement?

Brian Graff: 3:08
Right, it’s that million-dollar question, right, Tracy? I mean as a retirement educator and, by the way, I work predominantly with employees in their workplace retirement plans. So everybody some people I talk to have a zero balance in their retirement plan. Some people have a million dollars or more. So it really does run the full gamut there. And that question comes up by everybody what is that magic number? What do I need to save? And it’s a stress point for so many of us, right? So I think it’s important that we address it. But, Tracy, in your opinion, why is it so important for us to figure this out, this magic number?

Tracy Burke: 3:42
Yeah. So of course everybody wants to have enough money to live through retirement, and that’s the ultimate goal for both those in retirement that they don’t want to run out of money at some point in the future, or for those pre-retiring and again trying to figure out what’s that number. I need to be able to walk away. And of course nobody wants to run out of money, even you know some people say, oh, you know, I would love to bounce that last check that I write, you know, way down the pike. I think that’s that’s, you know, very unlikely to do.

Tracy Burke: 4:13
But you know, as I think back through, you know, in 20 years I’ve been doing this, I don’t think I’ve ever heard somebody say I wish I didn’t save so much, didn’t save so much, and you know so. Obviously we want to get people to be able to get to that spot really to retire on their own terms. And you know, whatever age that is, as people think through into the future of when they might want to retire, for those who are currently pre-retirement, you know, trying to think, you know I want to get to this point where I can retire on my terms.

Brian Graff: 4:45
Yeah, tracy is almost kind of like you know, waking up every day and saying, hey, I can kind of do whatever I want today, right Within reason and certainly within the law. But I mean really just having the independence and the freedom to do that.

Tracy Burke: 4:56
Yeah, absolutely, and that’s exactly what it is. So you know, brian, as we think about what, what all kinds of information is out there and what key pieces of information we want to share with the listeners here today, there’s tons of statistics out there, right, everything in life. You see tons of statistics and you know many ask that question well, what should I have, or what’s the normal? What sort of rules of thumb? So, brian, what are some of those numbers that we use?

Brian Graff: 5:24
Yeah, and I’ll start off by saying and I say this in a lot of the education I do is that magic number is different for everybody, right? So it’s not a one size fits all. So much of it depends on your income level that you’re used to living at what your retirement vision looks like. Do you want to travel the world or do you just want to make sure your debt’s paid off and go fishing on the weekends or play with the grandkids? Those are two extremes, right, most of us fall somewhere in between.

Brian Graff: 5:47
But, as Tracy alluded to, you know, there are some really popular benchmarks used in our industry to kind of help you along as you plan for retirement. And, for example, our friends at T Rowe Price recommend that you have about seven and a half to 13 and a half times your final year’s salary saved for retirement by the age of 65. To simplify that even a little bit more, fidelity uses a number that says by age 67, which is considered full retirement age for most of us by Social Security these days, you should have about 10 times your final year’s salary saved for retirement, again for that comfortable retirement. So to put an actual number to that, let’s say your final year’s salary is $100,000. Using Fidelity’s model, you should have about 10 times that, or $1 million, saved for retirement. So just some benchmarks to think about. Everybody likes to have some goals or numbers to kind of ponder. Those are ones that we would recommend you consider.

Tracy Burke: 6:45
Yeah, and Brian, as you said earlier, it’s not a one size fits all approach, right?

Tracy Burke: 6:49
So certain factors that will make the difference, the amount that you’re planning on spending and we’re going to talk about that in a little bit here when you’re going to retire those metrics that you just gave were retirement age perhaps, and some people want to retire earlier, Some people want to retire later, so that all affects.

Tracy Burke: 7:08
Obviously you need more if you’re going to retire earlier and less maybe if you retire later. You know how aggressive you are investing, right, If you’re looking for, if you’re putting your money into bank CDs and getting, maybe, over the longer term, two or 3%, your number’s going to have to be higher as well, versus if you’re getting, you know, rolling the dice and getting some maybe higher expected returns. And then the last thing that comes to mind is how long you’re going to live. You know and I don’t know, Brian, if you figured that out yet I don’t think I have, you know, but trying to figure out how long you’re going to live, and we’ve heard people say well, I have longevity in my family, or everybody in my family, my heritage, you know they pass away by a certain age, an earlier age, but nobody knows that answer.

Brian Graff: 7:56
Yeah, that’s true, Tracy, and hopefully we all live a long, long prosperous life and get to enjoy our retirement. But again, you just never know. But let’s kind of get into the meat of today’s podcast, Tracy, if you will. And what are some of the ways that you recommend individuals figure out if they do have enough money saved for retirement? Maybe that’s just a little bit more in-depth than those benchmarks we talked about earlier. What are you telling people out there, Tracy?

Tracy Burke: 8:23
Yeah for sure, and there’s really three different, pretty common methods here and we’ll try to go through them briefly as we do it. So I’m going to geek out a little bit here. The good news is we do have a resource, or really a worksheet, to help everybody through this. We’re going to put that out in the show notes, so visit the show note page and you’ll be able to download that PDF and help you through it. But so the first one mentioned. There’s three.

Tracy Burke: 8:49
The very first one, it’s what we call the income replacement ratio method and what that means is sort of what it sounds like You’re going to take your final income that you’re making pre-retirement and taking a ratio of that to replace your income pre-retirement into retirement. So a broad example Brian mentioned maybe $100,000 of an income before retirement. So what we do is we take that number, then we back out any expenses that will likely be eliminated, that were there during our working careers. Now some of this is some of those pesky payroll taxes, the F, the FICA. Sometimes you know state and local taxes and it depends on what state you live, locality you live, all those type of things, work-related expenses. You know even savings that you’re saving for retirement.

Tracy Burke: 9:40
We back those out, because in retirement you’re no longer saving, right? So any of those outflows that have been happening during retirement, we back those out. Outflows that have been happening during retirement, we back those out. Then we add some expenses that typically will show in retirement or come up. So maybe that’s additional healthcare expenses, maybe it’s leisure expenses Golfing I know, brian, you’re a big golfer, so a lot of folks go in and have these hobbies that take up a little bit more. So we back out some expenses, we add in some expenses that happen after retirement and then we sort of get to whatever that number is and generally the rule of thumb I think we’ve seen is generally 80% plus or minus.

Brian Graff: 10:22
Yeah, tracy, why don’t we use that number? By the way, real quick side note too, tracy said I’m a big golfer, but that does not mean I’m a good golfer, but anyway, just a quick aside there. But yeah, I hear that 80% number used a lot. Why is that so common? Because of some of those expenses that go away, and I know there’s some that get added. What’s the general rule of 80%?

Tracy Burke: 10:41
Yeah, absolutely, and a lot of folks we talk about this a lot with investors right, brian, that you should be saving 10% to 15% of your income for retirement. That’s one of those numbers that’s getting backed out. We think those expenses for those FICA taxes or other taxes FICA it’s Social Security, medicare taxes you pay while you’re working. Right there, that’s over 7.5%. That’s backed out Some of the other taxes that come in. So typically you could see 25%, maybe 30% of your pre-retirement earnings being backed out before what you add. Yeah, thanks for that.

Brian Graff: 11:23
That makes sense. And this number we use a lot. We throw it out there and I get that question sometimes why 80%, why don’t I need 100% of my income? I’m used to this lifestyle, but I think when you mention all those different figures and those takeaways or those subtractions, I think that it really starts to make sense to people. So yeah, thanks for expanding on that a little bit.

Tracy Burke: 11:40
Yeah for sure. So then that takes us to the second method I mentioned. Now, rather than ballparking it, which is the first method, it was really ballparking it right Now. The second method is really the detailed expense analysis component. So this is where you’re just doing sort of a line by line item. You’re figuring out what are my expenses going to be in retirement In this worksheet that we’re providing.

Tracy Burke: 12:07
It breaks it down into different areas, but housing is one that we’re providing. It breaks it down into different areas, but housing is one, and that includes utilities and everything property taxes, insurances, all those type of things that go into housing. Obviously that can be a big chunk, whether it’s transportation, other living expenses, certainly groceries, clothing, all kinds of stuff of that nature. Taxes, of course that’s part of what’s going to be going out the door and that’s going to change in retirement, but still, unfortunately still got paid taxes right In terms of insurances we talked about, and then sort of that all-encompassing other category. So more discretionary expenses, just personal care, cell phone, and probably most people say that’s not discretionary anymore. You know you need that cell phone, but dining out, entertainment, gifts, all those type of categories where again you’re going sort of line by line and trying to figure it out. So, brian, as you can imagine, that way can get a little tricky because you can there’s areas where you might forget about, right, you know that that can be something where you might go through and you just might forget about even major categories. So that can be a little bit, you know, a little bit tricky to go that way. So you know, before we go on to the third method, really for either those first two the next step then is to figure out what you need to take from your portfolio. And again we’re sort of backing into that ultimate question, right, how much do I need for retirement? So the next step is after you’re figuring out what you need for your retirement income number.

Tracy Burke: 13:46
Well, thankfully, almost everybody has social security coming through the door and some folks might have other income sources. Well, thankfully, you know, almost everybody has social security coming through the door and some folks might have other income sources. Maybe it’s rental properties, maybe they’re doing some part-time work in retirement, maybe they even have one of those old-fashioned pension plans, right? So you know, in that example we were talking about, brian, if we, you know, have 80% of replacement and say, you know, $80,000 is the number we need. Maybe that person has $20,000 coming in the door through social security, collectively, you know whether it’s, you know, just single or married. And then you know maybe there’s another 10,000 coming from a pension. So we back out 20 plus 10 from the 80. Now we’re down to 50,000. So in that first year of retirement that person would really need to withdraw from their savings of $50,000. And again, backing out what’s coming in the door and then sort of the final step to get to your number and sort of drum roll. Here we’re coming down to home stretch in terms of that.

Tracy Burke: 14:47
You know, finding what’s a safe withdrawal rate. So if I need to take up $50,000 from my portfolio, what’s you know what percentage can I take out that’s going to be sustainable throughout time? And there’s been many, many studies on this and sort of that 4% range. You know it can be three to 5%, probably a safe withdrawal range, but you know the most common one we’ve seen out there is 4%. So if I take $50,000 that I need to take out of my portfolio, divide it by 4% if you’re using Calculator, divide it by 0.04, and you get to the number and the math in that example comes out to $1.25 million. So if you need to take out $50,000 of your portfolio and you feel that 4% is that safe withdrawal rate, you need $1.25 million to take out. Does that make sense, brian?

Brian Graff: 15:37
Yeah, it does. I like the math element of it, and it’s something like Tracy said. Look at the show notes for some help with that, maybe for some guidelines. But for those of you that enjoy kind of nerding out like Tracy does on the math part, it’s really not that hard of a calculation, I promise, but that does make sense. And I think one of the key things, though, too, is and you’re right that 4% rule comes up all the time in my conversations. It’s something that’s tried and true, it’s been around for a long time, but also it’s not 100%, is it, tracy? I think it’s not 100% as a tracing. I think it’s really important to have that flexibility in retirement, right Knowing that these equations are not necessarily a one size fits all. So would you agree that that’s true too? 4% isn’t necessarily for everyone in every situation.

Tracy Burke: 16:21
Yeah, yeah, absolutely. And again, it depends on how you’re investing. If you’re super concerned, a 4% might be pushing the envelope. If you’re only getting 3% off of CDs or something like that, that might be inhibiting in the future or, on the other end, if you’re much more aggressive, like to see people use to figure out what their number is. This one, I think, is, in my mind, the easiest method and one that we use with many of our clients as well, and it’s just really called a 5% guardrails approach.

Tracy Burke: 16:59
So you know it’s a guardrail and if you think about you’re driving down the highway, you know of retirement, you’re driving down through there. Nobody wants to run off the cliff or off the edges, right, you want to stay on the road. So imagine you have guardrails both sort of on maybe the top and the bottom. So you’re taking your retirement income and what sometimes, brian, we’ve seen with a 4% number for folks that are moderate type of investors and maybe that’s anywhere between 40% and 60 percent of stock exposure in their portfolio, the allocation sort of moderate investors, what we’ve seen. You know the four percent number. You know their money continues to grow and grow and sometimes they might retire with a million bucks and when they pass away many years down the pike, they might have two or three million dollars. And I think for a lot of people that’s not the goal to have more money when you die than when you retire, right. The opposite, of course, isn’t the goal either, where you start in retirement with whatever you have and you go down to zero, right. That’s not the goal.

Tracy Burke: 17:59
So really, this guardrails is that nice middle-of-the-road approach. It sort of keeps you in that range. Your portfolio is not driving up, it’s not driving down, it’s sort of keeping you in there. And really what it does if you hit the top barrier, guess what you can spend more. If you hit the bottom barrier, you might have to cut back some from the withdrawals. So that mindset, it’s really about a 5% number give or take and it depends on how aggressive you are and that’s how we work with our clients and just trying to figure what that number is. Obviously there’s other ways to do it, but that’s a pretty good way that we like to see it. And again, just like the first two approaches, back out where you’re going to get from social security and other income as you get there. But again, that’s my favorite approach to guard girls. I think it’s probably pretty simple of figuring out how much you really need and how much you can spend in your retirement.

Brian Graff: 18:55
Yeah, tracy, a couple of times I know you mentioned sometimes you can be invested a little too conservatively, which may you may have a little bit of a hard time staying in line with your retirement objectives. Sometimes you’re a little too aggressive, which maybe kind of hurts your portfolio a little bit of a hard time staying in line with your retirement objectives. Sometimes you’re a little too aggressive, which maybe kind of hurts your portfolio a little bit in those early years. I’m curious I know future episodes of this podcast we’re going to take a little deeper dive to investing specifically but a number that we hear a lot, or a mix we hear a lot, is like that 60-40 portfolio and I’m just curious to see, like if you’re for a normal retiree, that maybe they’re right in line with their retirement goals you know they’ve done the planning, they feel like they’ve got just enough in their portfolio Is 60-40 still? Is that an appropriate number or does it really just depend on the situation and the goals of the investor?

Tracy Burke: 19:37
Yeah, I think it certainly depends, and mostly on risk tolerance. Right, you know 60-40 portfolios in retirement can take a nosedive and will. It’s not if it’s going to happen, it’s when it’s going to happen. You have to prepare for that and just have to be able to tolerate and ride it through. But the other factor is the 40 is, I think, in retirement, the most important number, and even some people are 70-30 or 80-20.

Tracy Burke: 20:01
You want to have enough in that fixed income bucket because when equities go down, most of the time fixed income goes up. And most of the time I emphasize that a little bit because in 2022, and probably many of our listeners are thinking, well, yeah, everything was down in 2022, and it was Generally that’s not the case. But when stocks go down, bonds normally hold their own and you don’t want to be forced to sell from stocks when you’re taking money out of your portfolio. Right, Successful investors sell high and buy low, so you don’t want to sell when the stocks are down. So, again, with that mentality, you have money in that 30, 40% bond exposure, 50%, whatever your comfort level is. Make sure you have enough in bonds so you can take money out, maybe for a couple of years in a row to allow the stocks to recover after that decline.

Brian Graff: 20:58
Okay, yeah, thanks, tracy, again, because that one comes up so often in my conversations. People hear that 60-40 all the time, so I appreciate your insight on that. All right, so you know our goal here at Conrad Siegel, through this podcast and pretty much everything we do, is really to simplify the complex, right? We don’t want this to be difficult for you. I know we threw out a lot of numbers at you, hopefully in pretty easy to understand terms, but maybe, if we kind of finish things out today, tracy, I think we need to get some action items right, because I don’t think these podcasts are going to help too many people if we don’t give them some clear, concise things that they can do now or in the near future to maybe be prepared for retirement. So do we want to go over some action items? Yeah, absolutely.

Tracy Burke: 21:39
And let’s start with pre-retirees. So again, we said that everything we’re going to talk about on all these shows apply to both people in retirement as well as people preparing for it. So let me start with the folks that are looking to retirement and obviously, the number one action items and these are pretty big picture items, but figure out what’s your number or have that plan, that retirement plan, in place so you know when you can retire, and, as we mentioned a couple times now, the resources out there in the show notes. So take advantage of that, reach out to us to help and we’re happy to help you walk through that. And then I would say the second action.

Tracy Burke: 22:15
I’m sure you start dreaming or thinking about what retirement’s going to look like for you. If that’s in horizon, whether it’s within a couple of years or five or 10 years or maybe even even longer term, start to formulate that. What do you want your retirement to look like? Because that can help you plan for it. You know, if I want to take a vacation to Hawaii every three months in retirement, I need to plan for that. I’m going to need to save a heck of a lot more than I’m saving right now, right? So so those are a couple of action items I’m thinking of for people leading into retirement or pre-retires. But, brian, what are you thinking of for those already in retirement?

Brian Graff: 22:53
Yeah, for sure. And I guess, tracy, one of the other expressions we use a lot here is retired to something, right, not from something. So I like to throw that in as well too. I think we all have those relatives or people we know that work so hard their whole lives and one day they’re retired and they’re like, oh my gosh, now, what am I going to do? And a lot of times they go back to work or they’re miserable or whatever.

Brian Graff: 23:13
So make sure, yeah, like Tracy said, you do have that retirement vision picked out. But for those folks that are already in retirement, I think one of the most important things you can do is simply confirm that you won’t run out of money, right, use some of those, like the 5% guardrails that Tracy was just talking about and, you know, just revisit are you living your ideal retirement? Do you need to make some changes, both, you know, personally and financially, to make sure you are doing everything you dreamed about doing and just kind of living a happy rest of your life, right? That should be the goal of all this again, financial and otherwise. So I think those are some key takeaways for both. Tracy, any closing thoughts before we wrap things up for today about everything we discussed.

Tracy Burke: 23:54
Yeah, and again, everybody’s situation is different. We’re here to help. We encourage our viewers to reach out to us. Podcast at conradsiegelcom is the email address to shoot us a note. Let us know what you think, any future topics that you might have, questions, comments, anything we can do to help. That’s what we’re here to do.

Brian Graff: 24:13
Yeah, for sure. And again, this has been a fun time. Again, episode number one. So bear with us. I think we’re going to get a lot better at this as we go by too, and I’m pretty sure we don’t have any sponsors. Like we can’t be canceled, can we, tracy? Is that a thing if we’re just kind of doing this on our own? I hope?

Tracy Burke: 24:26
not yes.

Brian Graff: 24:32
Well, we hope that everybody did enjoy it and, if you did, please tell a friend, a family member to tune in. The more people we have listening, the more people will be able to help, and that’s what we love to do at Conrad Siegel. We are fiduciaries and we love helping people. So, yeah, thanks everyone for taking time. Tracy, thanks for doing most of the heavy lifting today. I promise I’ll do my share in future podcasts, but had a great time everybody. Good luck and tune in next time for episode two of Real Talk Retirement.