How To Really Prepare for Retirement – Episode 091

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, along with bestselling financial author, Kim Butler. And we’re going to be having some fun today talking about an article we ran across called the Turning 40 Checklist in Planning for Retirement. So this is something that I found and just started to laugh about because first of all, a checklist is not a bad idea, you know, let’s go over the positive things first. And I suppose the idea of retirement planning is certainly better than sticking your head

[00:56] in the sand and doing nothing. But when you take a look at this from our viewpoint, it is laughable how accurate they, whoever wrote this, we won’t say, think that they can be in this idea of planning. So let’s just tackle, there’s what, six, seven items here and I’ll let you read one and then we’ll poke fun at it. That’s an okay thing to do if we’re laughing with them, right? I think so. Number one is review your retirement plan. What took a lot of common sense for that one? So let’s look into this. So it says, make sure you’re saving enough to retire when you want to. Okay, we’re talking about a 40 year old person here. I am 10 years older than that. When I was 40, when I was 30, when I’m almost going to be 50 here soon, who

[01:52] irrelevant to me, I didn’t have a clue, still don’t have a clue and probably will never have a clue when I want to retire. Now I’ll admit, when you get out there in your 70s and 80s and you can start to think ahead, you know, maybe five years or so and think about a date. But when you’re 40, give me a break, you have absolutely no idea when you want to retire. And the challenge with this societal thing about retirement is that people think that they really can’t do things in their lives until they, quote, retire. That’s ludicrous. If you have something that you want to do in the future, why don’t you just do it today instead or tomorrow or take a little baby step and actually involve it in your life today?

[02:36] But then when you think about trying to actually put some numbers around this and that you are saving enough, how do you possibly know how much money you’re going to need in the future when you don’t even know when the future begins or ends? It’s an insane thought that we can actually plan for this thing called retirement. But I think, interestingly enough, we can take that same question, restructure it a little bit and just simply ask, what is your cash flow look like and make it a legitimate question? I love it. And that’s the thing that we should be focused on, isn’t it? Our cash flow, not are we saving enough, but are we saving and are we saving the most that we can? That should be the only question is, are you saving the most that we can?

[03:32] Now, if you really, really want to have a number and you really, really want to have a goal, then put 15 to 20 percent out there. OK, is it gross or of net? Well, both, you know, whichever is 15 percent of your gross income, 20 percent of your gross income. That’s awesome. If you can save that, that’s what you should be shooting for. If you can’t, then shoot for 15 to 20 percent of your net income. But just make sure that you are saving and that enough will do the job because it’s the act of saving that will contribute towards financial peace of mind in the future. Now, the typical financial plan at this point is going to focus on asset allocation, and at this point, they’re probably going to tell you

[04:16] to be heavily into equities. What’s your opinion? Well, that’s fine if you like the roller coaster ride and getting your money cut in half and sleepless nights. And I could go on and on about the challenges with the stock market or equities as you termed them today. And so, as our listeners know, we like to focus on things that grow or things that create cash flow. But neither of those two things, I should call them products because that’s what they are, cause a reduction in principle. And so that should be people’s primary goal. Somebody said it to me yesterday. Oh, so I should be more concerned about the return of my money than the return on my money. And my response was, yeah, kind of. I mean, your primary concern should be the return of your money,

[05:08] but it should come with a very close secondary concern of return on your money, but not at the expense of the return of your money. And that’s the challenge with equities is they can have a decent return on, but they don’t always do the return of part. This always seems to shock our listeners. But if you were in a mutual fund or you are investing in equities, what’s the most amount you can… Well, I think the proper answer is 100%. Pretty frightening, isn’t it? I mean, this is the saddest part to me is that, you know, even if you were invested in GM, which I happened to have done at the time, if you were invested in Fannie Mae and Freddie Mac, which I also happened to do those, these are supposedly government-sponsored enterprises,

[06:03] and they’re absolutely worthless. So a lot of people think they’re risking their future interest when in reality, you’re risking literally everything. Yes, very true. Scary deal. OK, how about protect yourself and your loved ones? Maybe I might agree. I think we might agree on this one. I think so, too. So protecting yourself is the number one thing that people should be conscious of as soon as they start to earn an income, possibly even sooner. But it’s talking here more about making sure your beneficiaries on your retirement accounts are current. So I’ll absolutely agree with that. Making sure you have created or updated your will, general, durable power of attorney, medical power of attorney and living will.

[06:51] Totally agree with that. So that’s four things. Your regular will, your durable power of attorney, your medical power of attorney and your living will. And then it says, determine if you have appropriate levels of life, homeowners and other insurance to protect your family from the unexpected. So here, once again, life insurance gets lumped in with all the other kinds of insurances. That’s somewhat understandable. I mean, it is insurance, but life insurance has a guaranteed event attached to it called death that makes it necessary to look at life insurance differently from all the other types of insurance. So homeowners, car insurance, liability insurance, etc. You could actually do what would be called a needs analysis

[07:37] and you could say, OK, my car is worth X dollars and so I need to insure it for X dollars. Not only what would get me to work, but the actual value of my car with the life insurance, you don’t ever want to do a needs analysis. It’s the most misunderstood and inappropriate way to look at life insurance. Instead, what you want to do is something called human life value, which is 15 to 20 times your income, maybe even 25 or 30 times if you own a business. And if you don’t work, it’s typically half of your spouse’s amount. And if you don’t work at all, you’re single, no kids, whatever, then you basically can just pick a number that’s equal to approximately one times your gross worth. In other words, gross worth is just your assets, not minus your liabilities.

[08:33] So those are all some approximate human life value numbers. That’s what you should have life insurance equal to. Yeah, I would say that you don’t have to worry about those numbers too much because the life insurance companies are very smart at determining your human life value, and they won’t sell you more life insurance than what your life is worth. So you should really be buying anything that they will sell you. Absolutely. And I want to alert our listeners that we have what I would call a cheap term insurance shopping service. So the word cheap has connotations with it. I mean them. And this is term insurance. It’s cheap. C-H-E-A-P. And it’s a shopping service. So it goes all 50 states, as like 20 different companies, as many companies as you could possibly want,

[09:26] shops them for you, uses your own medical information, taken over the phone and gets you a policy fairly quickly with a physical exam still, but it is cheap term insurance. And so if you have chatted with us about using a whole life insurance and the value of storing cash there, that’s awesome. That’s a great first step. But every single person should have life insurance, death benefit equal to 15 to 20 times their income. And you fill that difference with term insurance. Now, we’ve got other podcasts that talk about convertibility issues, et cetera, et cetera. But right now, let’s just get you the coverage. So let us know if you have an interest in our cheap term shopping service. You try saying that a few times. That’s not easy.

[10:14] We’ll just call it our term shopping service. Then please send us an email, reply to one of our Prosperity on Purpose designs or our newsletter, whatever you want to call it. And we’re happy to give you that link. There’s a special code. There’s no charge to have the shopping service. Check it out for you. And you can email either one of us, Kim at partnersforprosperity.com or Todd S. for Strobel at partnersforprosperity.com with the subject line term shopping service. And we’ll get you that information. Of course, every time we have this conversation, of course, getting a text in already stating, are you stating that you are pro-life or are you pro-term insurance? And the answer is both. We want your human life value with protected.

[11:02] The number one function of life insurance is to protect your ability to earn an income, particularly for those who have families that are going to depend upon that life insurance. But eventually, we want to see you fill up those whole life policies because it’s the whole life policies that are going to have the guaranteed death benefit at the end of them, not the term. Did I say that properly? Absolutely. Perfectly well said. Thanks for elaborating on that. Super. Well, what’s the next one? If changing jobs, manage your employer sponsored retirement plan. So it says taking cash out of your retirement plan can carry not only high taxes but early withdrawal penalties and significantly set back your retirement savings.

[11:50] Absolutely agree with that. Explore options for savings that you might still have in a previous employer’s retirement plan. Don’t agree with that, such as rolling over into your current employer’s retirement plan or an IRA. It’s the IRA that we want to seek. Now, I will readily admit that there is some thought out there that IRAs are not as safe from creditors as 401K plans or 403B plans. So I suppose you could do some discussion around the area of rolling one 401K into another one in order to protect against a creditor issue. But for most people, they’re going to be way better off rolling a former employer’s retirement plan into an IRA because then they can have access to some of our alternative investments

[12:37] that we refer people to that will not be in the stock market. And obviously, most 401Ks, in fact, I don’t think I’ve ever seen one that isn’t, are all about the stock market. So you want to have an opportunity to access other investments that are not stock market oriented. And you can do that by having an IRA. In fact, technically, it’ll be a self-directed IRA and have access at that point to alternative investments. About to say that’s a term I want to make sure that you hit on because walking down to your bank and converting to an IRA does not get you what we’re looking for here. We’re specifically looking for a self-directed IRA. And again, encourage anybody who’s in that situation to have that conversation with us.

[13:25] You don’t have to invest the money with us, but we can still show you how to take control of that money while it’s still inside that IRA. And that IRA shelter does keep you from having to pay taxes on that money right now. Absolutely. The self-directed IRAs, however, are best chosen after you pick your investment because each alternative investment has its own self-directed IRA company that it works well with. And so I would encourage people to have the discussion with us first. And whether or not they want to use our investments or not is irrelevant. But you’re better off picking your investment first and then going to the self-directed IRA company that that investment already works with. Got it.

[14:12] Well said. All right. How about this prioritized saving for retirement? Well, this is interesting. It says take full advantage of the tax benefits your retirement plan offers. So I would agree with that up to the match level only. MATCH. And we’ve had lots of conversations around this. So we’ll just move on to the second one, which is laughable. Find out how long your savings will last and determine if you need to save more with our easy-to-use retirement quick view calculator. So this retirement quick view calculator, you do not need to look at because I guarantee you, you will not have enough money. You will want to, need to, must save more money for this thing called retirement. And frankly, if you just move the thing

[14:59] and just focus on the save more money, you will get good results. And please, please plan on working as long as you possibly can because people today that are alive and healthy today are easily going to live until they’re 100, 110, 120, possibly even later years. And you want to have the ability to keep working while you are younger so that you don’t have to work potentially when you’re out there over age 100. Although there are some fabulous people that are still working close to age 100. There’s a wonderful website. I can’t remember if we’ve shared it on the podcast before, but it’s called growingbolder.com, B-O-L-D-E-R. And I just love it. It has some great examples of people that are over 100 and still working.

[15:49] But the point here is please keep saving and please keep working. Well, and I think the most important concept of anything is some of people are thinking, oh my gosh, am I going to continue to do this thing I hate to do every day till I’m 100 years old? It’s finding those things that you want to do. And these people who are working to over 100, it’s because they’re still as passionate today as the mission that they’re on and the change they want to make in this world. So anyway, this is No BS Money Guy Todd Strobel for the Prosperity Podcast saying, take care everybody. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com.

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