episode 145 – transcript

Dave Cain:  Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie, while giving you meaningful modern solutions to help enhance your company’s growth. I’m your host, Dave Cain. We all know how important it is to save for retirement, and if you don’t already know that, go back and check some of our earlier podcasts. There’s some great stuff on there, but when you do finally make it to your golden years, how do you know if you’ve actually saved enough money? Or how do you know what you’re weekly, monthly or yearly budget should be to make sure that your retirement funds are going to last? Without actually knowing when you’re going to die, financial planning and retirement issues can get pretty tricky. Good thing Doug Feller, a principal and financial advisor with Investment Partners, is here to help us understand where the money for your retirement is going to come from, and how you should approach the withdrawal process of your funds, and how external factors might impact your financial wellness in retirement.

Dave:  Welcome to unsuitable, Doug.

Doug Feller:  It’s great to be with you again, Dave.

Dave:  Well first of all, I think we need to catch up on Investment Partners, maybe if you can give us a quick elevator speech on the company.

Doug:  Sure. Yeah. We have a lot of good things going on right now. For those listeners who don’t know, we’re a financial planning, wealth management consulting firm here in the state of Ohio with four locations. We began in 1996. So in the last 22 years, we’ve gone from a startup to, actually as of this month, a little over a billion dollars in either assets advised on or managed. Four locations here in Ohio with nine advisors, three CFPs, and quite a bit of experience. So yeah, we’re a … Things are going well.

Dave:  Great. Great. Sounds like you guys are rocking and rolling the last several months with asset under managements and expanding. So congrats to you guys. How ’bout a website or something our listeners can pop on and find out about you guys?

Doug:  Sure. Find us at www.INVP.com.

Dave:  Perfect. That’s pretty easy website to get to know, or just google Investment Partners. I’m sure they’ll find you.

Doug:  I think you can find us on LinkedIn as well.

Dave:  Sure. You know, you and I can never get together without having a little baseball conversation. So I think one’s in order. You know, obviously you played collegiately as a pitcher at Yale. The America’s pastime is struggling right now. The viewership is down, and younger people just aren’t getting into the game like they used to. They’re trying to speed up the game. What do you think the state of baseball is right now?

Doug:  Well, if you listen to the commissioner, it’s never been healthier, but you know, I think today we have so many competing sports and competing for children’s attention. Those just simply weren’t available to even myself in the 80’s and 90’s, as when I was coming through playing baseball, and you either played baseball, basketball or football. Football was America’s kind of love, and baseball was a historical game. Today, I don’t know. I don’t know where it’s gonna go because, you know, I’ll teach my kids, but I don’t think that’s as common anymore.

Dave:  Sure.

Doug:  So I worry about the game. I was just at the Triple-A All Star game here in Columbus, depending on when you’re listening to this, last evening, and I was just reminded what a calming experience it is to go to a baseball game and see the ball thrown around. Different than any other sport. I love it, will always love it, will teach my kids to love it, but I do worry about the future.

Dave:  Are you a fan of the sacrifice bunt?

Doug:  Oh, I am. Nobody is anymore. I was looking at the stats for some of these All Stars. There was one guy that had like 80 hits so far, half way through the season and 115 strike-outs. And that’s what the advanced analytics have done to baseball, is that runs are at such a premium that they’re teaching these guys to swing for the fences. So things like sacrifice bunts are no longer common.

Dave:  Yeah. You know if you see the production crew over there waving their hands, they’re pointing back to get back to the script. You and I could probably talk baseball for the next couple hours.

Doug:  Do we have to listen to them?

Dave:  We don’t. We don’t, but let’s talk about retirement a little bit. Big topic for a lot of folks that you touch on a regular basis, but where are the proceeds? Where are retirement dollars coming today? Are there any changes in that area? Where’s the money coming from?

Doug:  For those approaching retirement today, it’s a lot different than it was 20 years ago. Even 25 years ago. There’s been a monumental shift in whose responsibility it is to save for retirement, and it has shifted away from companies as they moved away from pensions onto the employee. So this is obviously is through things like 401(k)s and simple IRA plans, but the money today is coming really from one of two places or three places. Certainly social security plays a role and is a factor. Private savings through retirement or through retirement savings, and then work and retirement if someone’s able to. That’s where the money’s coming from. You just don’t see, as a financial planner, I just don’t see many pensions coming through anymore.

Doug:  So I try to educate 401(k) participants when we do this, and we do a lot of work for those companies, that the responsibility is yours. There is a test coming at some point, and that test is, whether or not you saved enough for retirement. And that’s a yes/no answer.

Dave:  Right.

Doug:  In order to live the lifestyle you want, you either did or you did not do that, but that is your choice and is your responsibility. It’s no longer the company’s.

Dave:  You know, I also want to point out to our listening audience here that you are a certified financial planner, as well as an investing advisor consultant. Your experience level is off the chart. I wanted to bring that to your resume.

Doug:  Well, I appreciate that, and I spend a lot of time, by function of demographics if nothing else, talking on just this subject of retirement because the baby boomers are retiring. I think I saw something that’s in the last 10 years, the number of baby boomers over 65 are still in the work force, has gone up by 16 million. It’s gone up by 50%, and by 2026, it will have doubled. So there will be something like 60 million baby boomers over age 65. So we’re just dealing with this on a day-to-day basis, and it’s a big question. It’s a complex area.

Doug:  So it’s one where I think we can provide a lot of advice because let’s be honest, this is a seminal financial decision in some of these lives. Outside of maybe starting a business, it might be the biggest financial decision of their lives. How do we go from converting all the savings we have over to an income when we have the technical skills to still be employed?

Dave:  Right.

Doug:  And then rely on passive sources of income to get us through retirement.

Dave:  Right. Right. You know, a good point, you hit on something that I wanna expand on with you is, is the fear of retirement. Let’s forget about the financial side of it. There’s the fear of certainly, what am I gonna do? And then there’s also the financial side. So how do you deal when you’re talking to one of your clients about getting over the fear bump?

Doug:    Sure. This is a topic that when clients walk in my office, even those that are most on top of their finances, are fraught with angst. They walk in with a lot of anxiety, and they’re worried, even if they’re financially set. So as a planner, I do what I can to help educate those clients. Put a plan together in place. A strategy in place. Help them execute that, and try to give them some peace of mind. But even if I can do all that, this is an emotional decision because a lot of, even the listeners, will ascribe a lot of their self worth to their work. So it’s a step back. What do they do with their time? I think those are questions that financial planners need to be prepared to address going forward, more than ever.

Dave:  You know, I’m gonna put you on the spot a little bit with, and you can give me an unofficial statistic here, if you talk to 10 people, out of those 10 people, how many people that you talk to out of those 10 are late to the party for having their retirement in order?

Doug:  That’s a great question, and like any great economist, I will qualify my answer.

Dave:  No, for sure. I thought you would.

Doug:  Of the folks that I talk to, I would say the majority are prepared.

Dave:  That’s encouraging.

Doug:  But let’s keep in mind that there are a lot of folks that are not. When somebody comes into my office, they’re on the verge of being able to answer that question or can answer that question. They want some certainties about that, but I also, again, do a lot of work with company 401(k)s. So I would say the true, almost test to your question is, when I look at 401(k) balances of participants at companies, I would say the next generation of retirees is ill prepared to retire. They are … The balances I see are shockingly low. People simply aren’t saving, and I’ll come back to that. That decision, it’s either save or don’t save. Again, that responsibility’s on them, and I would say nine and 10 of the 401(k) participants that we serve simply are not prepared.

Dave:  Right. And I know Investment Partners does a lot of education and training with your 401(k) clients about what you just said. The value of savings, the tax deferred compounding of interest. Doesn’t get any better than that.

Doug:  No. No. These are great plans for what they are, but the economic realities face families. And they have to make a choice between consuming now or saving for later, and I see a lot of folks just-

Dave:  Not ready.

Doug:  Not ready.

Dave:  Not ready. Need education, and like I said, there’s the fear. There’s the fear. You know, I wanna throw a question at you that we get all the time as CPAs and consultants, and we’re not certified planners. I’m not a CFP or investment advisor, so sometimes it’s kind of hard for me to answer this question, and it’s a generic question at best, our answer that I give, but I wanna throw it to you. As a retiree, you’re on the doorstep of retirement, should I pay off my mortgage, or continue with that mortgage?

Doug:  Well, like any great financial planner, I would say the answer depends. No-

Dave:  Oh boy. Next guest please.

Doug:  If you can have your liabilities taken care of, it just removes that question. At the same time, if you have the assets to simply support that debt payment and that interest rate that you’re paying is, well where we’re at today is historic lows, sure, we can build that into a cash flow. And so that’s some of the work that we do. We look at the details of where our retirement paycheck and what a budget looks like, and how can somebody retire. Where’s the money gonna come from? We certainly take into account any outstanding mortgages, whether or not to pay them off now, does it make sense, but I would save as a general principle for those that are looking at retirement sometime in the next 10 to 15 years, try to hit that retirement date without that on your balance sheet.

Dave:  But it’s a strategy.

Doug:  Sure.

Dave:  And it may be a strategy to pass away owning the residence or that vacation home, the mortgage on it. So it’s a strategy.

Doug:  It is.

Dave:  And you’re equipped to see it be with the tools you have and the knowledge you have. You know, you can help an individual through that process. You know, another curve ball I wanna throw you, since we’re using a little baseball language, let’s talk about social security. In all of the notes that you gave to me, do you advice folks on when to begin to draw social security? I’ll give you an example. Talking to an individual, said boy I’ve paying in social security my entire life. I’m gonna start drawing that social security as soon as I can. Age 62 or age 63? How would you respond to that question?

Doug:  Well the answer is, it depends on how long you’re gonna live. And I still haven’t found one client that’s able to tell me when that date is coming. If I have that piece of information, I can tell you exactly when to take social security. You know, if you take early at 62, instead of waiting until your normal retirement age of 66 or so, the break even is in your late 70’s, 76, 77. And if you’re gonna live beyond that, you should delay. Maybe this is a part of the bigger point is, I try to remind clients to control the controllables.

Doug:  This is a conversation I have a lot about social security, and there are a lot of listeners that are looking at that program saying I paid into it. I simply don’t think it’s gonna be there. I want to get this out as quickly as I can. My answer to that is, we simply have no idea. Social security, there are about five very simple fixes. Everybody’s worried about whether or not it’s gonna be there. I would tell you it is. Social security represents 53, 55% of Americans. That is the only source of retirement income they have. So the program itself simply cannot go away. We simply don’t have the political will to fix it, and until we do, we’re gonna continue to have these worries. But I would say, delay as long as you can.

Doug:  Again, it’s a case by case basis, and my advice might be different. I talked to a client here, not long ago, and it was clear his health wasn’t as strong. Based on his personal situation, it made a lot of sense, I think, and advised him to actually take it early. But for every year you wait, you increase your benefit by eight percent. So the longer you can do that, the better.

Dave:  You know, you bring up a wonderful point that it’s certainly a complex world and no two clients, no two families, no two situations exactly the same. What I may do for retirement might be entirely different than what you wanna do for retirement. Again, that’s where your expertise can come in to play because you have the tools to take a look at all of the angles on a retirement plan or retirement strategy.

Dave:  Let’s go back to this fear. We already identified social security as a fear. Outliving your assets is a fear. Medical coverage as someone retires or near retires is also a fear. And again, can you help put together a program that will fund medical coverage going forward?

Doug:  Well we can simply give the advice, certainly. To address the bigger question here, I see a lot of retirees, if they can get to 65 when they can get to Medicare, that’s the goal. And you ask the average American, 75% expect to work until 65. The reality is, about 25% actually get there, and there’s a lot of reasons for that. Some folks have to step out of the work force to take care of aging parents, company downsizes, but the average retirement, median retirement age right now is 62. So that is the big question. That’s probably one of the number one questions for the pre-retiree is, how do we cover that gap? How do we cover that three year gap over to Medicare?

Doug:  We’ll take a look at spousal coverage, trying to marry up those benefits if they need to obtain private insurance or simply go on their company’s retirement benefits to get over to Medicare. We do take a look and advise them on that. Certainly for anybody that has a health savings plan, a health savings account that’s listening, be sure to take full advantage of that and actually put a strategy in place for how you’re gonna use that, not only for next year’s medical expenses, but even in retirement because there’s a tremendous amount of benefits as health savings accounts. So yeah, that’s all part of the discussion.

Dave:    Let’s walk through a live example, one that you shared with me, and it’s … let’s say you’re … What we’re trying to do here is understand the withdrawal rates. How much income are we gonna have for the rest of our life when you retire? Let’s say an individual has a million dollars, and they come to you. What would the process look like when you sit down with them and develop a certified financial plan for them?

Doug:  Sure. The very first thing we’re taking a look at is how much income they’re gonna need. So back to your question on mortgage, or paying down a mortgage, does it make sense to have that. Well, they’re gonna need to be able to cover that liability, and so, this is one of the big concerns of the pre-retiree going through this transition is how much am I gonna spend in retirement?

Doug:  So we’ll take a look at their current income. We would encourage everybody to simply rough out a budget. Have some idea of what that is, but remember, you’re not gonna be saving into retirement plan. So you can back that down. Your expenses in retirement, on average, should be less than when you’re working. Your peak spending years on an inflation adjusted basis, are your mid 40’s. So your spenditure should go down. Your taxes, at a very general statement, should go down. So figure out how much money you’re gonna need. Whatever that number is, back off the social security, and that gap is what you need to provide. And that needs to come from either private employment or private savings. One of the two, and if you fully intend on not doing any work in retirement, no consulting work or anything, your assets have to support that.

Doug:  So that’s the process we start going through. How much income are you gonna need, and where’s it gonna come from? So to your question, on withdrawal rates, this is the primary number I looked at as a financial planner for a retiree, and that is, how much are you spending off of your asset base every year as a percentage? What is that number? Call it your burn rate, and all the studies we’re seeing, and there’s been quite a bit come out in the last 15 years, which suggest that if you can stay within a four to five percent withdrawal rate on your asset base, you should be able to sustain and have a successful retirement. There’s an awful lot of assumptions that go into that statement, of course, but on a million dollars, we’re looking at private assets being able to reliably produce 40 to 50 thousand, pre-tax.

Doug:  So that’s where we start to look at how do you build this? What does it look like? And if you need more than that 40 to 50 thousand, we need to have a very real conversation about working longer, saving more, investing more aggressively, or adjusting your spending expectation down in retirement.

Dave:  So you deliver a dose of reality? I would say.

Doug:  Yeah. Well you have to be-

Dave:  That’s your job. I mean, that’s what you do.

Doug:  We can’t be selectively honest with our clients. You have to level with them, and sometimes the advice is, you simply need to work longer. You need to save more, and so this is why I come back to what can we control? We can control the planning aspect of this. Don’t wait until you’re one to two years away from retirement, or you get that severance notice to actually start thinking about it. The sooner you start planning for this, the better, but choose. Don’t let retirement happen to you by accident. Don’t watch a TV commercial and cross your fingers and hope for the best. Actually put a plan in place and execute it.

Dave:  You know, one of the things as we’re sitting here talking, I’m thinking about the stories that you can tell about someone late to the party, or that gap that they need, or carrying on the mortgage, or lack of social security. We’ve got to tell our younger generation that is in the 401(k), our kids and fellow employees that haven’t really made savings a priority or 401(k) priority, the more you do it now, the better you’re gonna be when you get to be your age or my age.

Doug:  Yeah. I told somebody last week that the dollar you save in your 20’s should double something like four to five times by the time you get to retirement. So a dollar turns into eight or $16 by the time you’re 60. Again, very general rules of thumb here, but for every decade you wait, you lose a double. So that dollar you save when you’re 31 as compared to 21, will be worth half as much when you get to age 60. So there’s an old Chinese saying, the best time to plant a tree was 20 years ago. The next best time is today. If you haven’t started, get started because it matters.

Dave:  You know, we’re in extra innings here so we gotta bring this home. Can you briefly review for listeners a couple points you would … I guess your foundation for retirement. Give us a couple points.

Doug:  Yeah. The foundation is, I’ll say it again, control what you can control. So by review, what we cannot control. We don’t control market return. I don’t control what’s said on CNBC, and I don’t control tax policy in Washington. But we have an awful lot of lengthy discussions with our clients about that is the reason why they’re not gonna save, or some other version of that. We simply don’t control that. We have some control over how much we earn and how much we invest in ourselves and so forth. How long we’re gonna work. We don’t have complete control. How long we’re gonna live, if we avoid risky behavior. We have some control over that. What do we control? We control our behavior. We control how much we save. We control how we plan. We control our asset allocation. How we invest. So I would say make sure you, as a listener, are focused on what you can control, and then if you don’t know the answers to these questions, seek out professional help through a financial planner who can help map these things out for you.

Dave:  Good piece of advice. Our guest today has been Doug Feller, Investment Partners. Doug is located in Dublin, Ohio, but also travels throughout the state giving advice, seminars and meeting with 401(k) participants and employers, the best. So Doug’s a great guy. You’ll love talking to him about a number of things including baseball and financial planning. Doug, thanks a lot for joining us on today’s episode of unsuitable. Lot of information here for all ages.

Dave:  Listeners, if you want to learn more about how to build your retirement paycheck, send an email to contact us at ReaCPA.com, and we’ll be happy to put you in touch with Doug. You can talk investments and baseball. In the meantime, if you like this episode, let us know. Like it, comment, or share it, and don’t forget to check out videos of our podcast on YouTube. Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box.

Disclaimer:  Securities offered through Commonwealth Financial Network, registered trademark, number FINRASIPC, a registered investment advisor. Investment Partners LTD is a registered investment advisor. Advisory services offered by Investment Partners LTD are separate and unrelated to Commonwealth. Investment Partners LTD is located at 577 Perimeter Drive, Suite 110, Dublin, Ohio 43017, or you can call 614-761-9087.

The views expressed on unsuitable on Rea Radio are our own, and do not necessarily reflect the views of Rea & Associates. The podcast is for informational and educational purposes only, and is not intended to replace the professional advice you would receive elsewhere. Consult with a trusted advisor about your unique situation, so they can expertly guide you to the best solution for your specific circumstance.