September 16, 2021 • 9 mins
Arvind Ven, the host and CEO of Capital V Group answers questions and talks about the Top 5 Mistakes made before and during retirement. While Financial Planning and Retirement Planning are closely related, planning for retirement has some areas that need a different approach. Your life and career at 35 looks a lot different from that at age 65.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Introduction (00:04):
Hello, and welcome to the 15 minutes to financial
freedom educational podcastseries hosted by Arvind Ven
these 15 minute or so.
Podcasts are meant to educateand empower listeners about key
financial topics towards theroad to financial independence
and plain English.
And without financial jargon,Arvind Ven is independent
financial advisor, founder andCEO of Capital V Group in
(00:27):
Cupertino, California.
He is regularly featured inleading national financial
publications, such as Forbes andmany others.
And now for our host Arvind Ven.
Arvind Ven (00:39):
Hello everyone.
This is Arvind Ven, CEO andfounder of Capital V Group.
And I want to welcome you to our15 minutes to financial freedom
podcast, where we answer yourquestions from real listeners
about their financial situationand provide advice that may help
them on their road to financialfreedom, helping people with
issues like this is something wehave been doing for many years,
(01:00):
and now I'm bringing to theworld of podcasting for today.
I'm going to talk about the topmistakes made before and during
retirement.
Any mountain climber will tellyou that it created a number of
accidents and fatalities happenon the way down then on the
ascent to the summit.
Similarly, during our workinglives, we are busy working hard,
(01:22):
providing and saving forretirement without too much
thought on having a solid planand how to make those funds last
longer than our lifetimes inshort people are very focused on
the accumulation phase and notbeing enough attention to the
distribution phase or the comingdown phase.
That starts right at the momentthey stopped receiving a regular
(01:44):
paycheck.
Question (01:45):
Can you give us some examples of some mistakes that
people make during theirpre-retirement and retirement
phases?
Five Mistakes (01:52):
Sure.
Here are the five mistakes.
The first one is drawing socialsecurity too early without
understanding the implicationsand here's why social security
is a complex important, butmisunderstood retirement income
source.
Choosing incorrect strategieswithout calculating the impact
(02:14):
of waiting longer to collecttaxation and other factors can
potentially have a negativeimpact of hundreds of thousands
of dollars over the retirementlifetimes of a married couple
social security can start at age62.
And the benefit goes up annuallyabout 8% every year that you
wait until age 70, there is nobenefit to waiting after age 70,
(02:34):
you get an 8% bump up everyyear.
Risk-free guaranteed by thegovernment no less.
So that's definitely somethingto calculate very carefully.
Ask your financial advisor torun a social security income
analysis with multiple waterscenarios of drawing income at
different ages, or come talk tous and we will be happy to run a
(02:55):
complimentary analysis for you.
It
Question (02:57):
Sounds like the second mistake is accounting for RMD.
So what exactly is RMD and whyis it important?
Can you explain that a littlebit more?
RMD (03:07):
Right.
So RMDs required, minimumdistribution must start at age
72, according to IRS guidelinesat that age age 72, roughly
about 3.8% of the totalqualified assets, the assets as
an new 401k, your IRAsretirement accounts, not the rod
(03:28):
, but it must be withdrawn.
And the IRS schedule prescribedand the percentage increases
over the years.
This is due to the fact that allof this money has been growing
tax deferred for many years.
And now the government says theywant the taxes that they waited
long enough, according to them.
So these withdrawal amounts aretaxed at ordinary income levels,
(03:49):
and you must be drawing theminimum amounts regardless of
your need, whether it needed ornot.
If you choose not to or forgetto the penalties are steep and
we have to withdrawal to notmade on the schedule mandated,
but this can be almost about50%.
Long Term Care (04:03):
They're pretty steep.
So you gotta be very careful andbe aware of your schedule.
The third one is ignoring theimpact of long-term care in
retirement planning with 10,000baby boomers retiring every day
for the next 15 years long-termcare costs are forecast to
increase is already fairly high.
The bay area is an expensiveplace to live and long-term
(04:26):
care, but we know differentcalculating say at around$ 150
,000 per year for a three-yearperiod, for example, puts a cost
of long-term care for someone intheir eighties at$450,000 for a
total of three years.
Remember that this is after taxmoney.
So if you're using your IRA topay for that, a relative out of
(04:48):
long-term care policy, wellbefore surely needed, could come
in very handy investigating andevaluate a long-term care
insurance costs and optionsearly on.
And before it is too late, itwould be a wise thing to do.
Question (05:00):
The fourth mistake is sequence of return risks.
What kind of risk is this?
This is something we don'ttypically hear about every day.
So can you explain that a littlebit more Arvind?
Sequence of Returns Risk (05:11):
Right.
I know that's a mouthful.
So I know when I used this term,I sometimes hear That's right.
Crickets.
It's a term like you said, notvery commonly heard.
So let's demystify this and talkabout why it is important and
why we should know what exactlythis is many advisers talk about
(05:31):
the 4% withdrawal that is aslong as it draw, no more than 4%
of your assets annually duringretirement, you could mean good
shape.
For example, if you're a milliondollars in assets and you take
$40,000 every year for the restof your life or 4% of
retirement, it is a push to beokay.
I don't quite agree with thatbecause of various reasons.
(05:55):
While the number could be toooptimistic into this low
interest rate environment, thisalso does not consider the
sequence of returns risk.
So what is that?
So consider someone who retiredin 2007, if the great financial
recession had not done to theassets from the time that a
tired and while they withdrew afixed amount from their
portfolio, there may run therisk of their money running out
(06:18):
during the lifetime.
That's a pretty tough thing.
And how that happens is that themillion dollar portfolio fell by
50% began only five find athousand.
They still need to draw$40,000 ayear.
So from a 4% withdrawal, thatbecomes an 8% withdrawal, and
that's not allowed the money torecover in time during the
lifespans.
However, for someone who retiredin 2012, that person caught the
(06:40):
market on an upswing and theirmoney may last longer.
So as we all know, market timingis generally not a good payment
strategy.
Neither is luck planning isalways good.
So the best options are to havea good time tested and
individually tailoredstrategies, what fully
diversification and riskmitigation.
So what do you think Lauren didthey do an okay job at
explaining this one?
I do think I have confusedpeople even more.
Question (07:04):
No, no, no.
I think you did a great job.
I think I get the concept nowand I think others definitely
will.
Also, you explained it great.
The fifth and final example isunderestimating the importance
of fixed income in retirement.
Can you go into that a littlebit for us?
Importance of Fixed (07:24):
Absolutely fixed income streams.
As in social security income,pensions, annuities, bonds, and
similar income streams should beconsidered pre-generated
retirement income base or floor.
Of course you need to also lookat equities, but this at least
gives you an income base becausefixed as the word suggests, you
know what you're getting everyyear, while if you're lucky once
(07:48):
had pensions.
In most cases, social securityis the only guaranteed
retirement income for mostpeople.
So one way to create your ownquote unquote pension in
retirement would be to fund youdon't have fixed annuity fixed
anybody's.
These are bond-like instruments.
They can offer portfoliodiversification and risk
mitigation.
However, many of them havelonger lock-in periods and have
(08:10):
sizable surrender fees.
So you should discuss with thefinancial advisor and educate
yourself on the pros and consand whether these instruments
fit your overall retirementincome needs.
So that's it for this episode.
Thank you so much for listeningand make sure to watch the space
for more upcoming podcast.
Let us know if you have anytopics that you'd like us to
discuss.
(08:30):
We have a lot of content on ourwebsite, www.capitalbgroup.com.
Call us at(408) 725-7122 oremail us.
If we have questions we wouldlove to hear from you until the
next time stay well and staysafe.
Disclaimer (08:50):
Arvind Ven is a registered representative with
advisory services and securitiesoffered through LPL financial, a
registered investment advisormember FINRA.
And SIPC the opinions voiced inthis material are for general
information only and are notintended to provide specific
advice or recommendations forany individual.
(09:10):
All performance reference ishistorical and is no guarantee
of future results.
The information is not intendedto be a substitute for specific
individualized tax advice.
We suggest that you discuss yourspecific tax issues with a
qualified tax advisor.
Financial planning offeredthrough Capital V Group, a
registered investment advisor,and a separate entity from LPL
(09:33):
financial.
Hello, and welcome to the 15 minutes to financial
freedom educational podcastseries hosted by Arvind Ven
these 15 minute or so.
Podcasts are meant to educateand empower listeners about key
financial topics towards theroad to financial independence
and plain English.
And without financial jargon,Arvind Ven is independent
financial advisor, founder andCEO of Capital V Group in
(00:27):
Cupertino, California.
He is regularly featured inleading national financial
publications, such as Forbes andmany others.
And now for our host Arvind Ven.
Arvind Ven (00:39):
Hello everyone.
This is Arvind Ven, CEO andfounder of Capital V Group.
And I want to welcome you to our15 minutes to financial freedom
podcast, where we answer yourquestions from real listeners
about their financial situationand provide advice that may help
them on their road to financialfreedom, helping people with
issues like this is something wehave been doing for many years,
(01:00):
and now I'm bringing to theworld of podcasting for today.
I'm going to talk about the topmistakes made before and during
retirement.
Any mountain climber will tellyou that it created a number of
accidents and fatalities happenon the way down then on the
ascent to the summit.
Similarly, during our workinglives, we are busy working hard,
(01:22):
providing and saving forretirement without too much
thought on having a solid planand how to make those funds last
longer than our lifetimes inshort people are very focused on
the accumulation phase and notbeing enough attention to the
distribution phase or the comingdown phase.
That starts right at the momentthey stopped receiving a regular
(01:44):
paycheck.
Question (01:45):
Can you give us some examples of some mistakes that
people make during theirpre-retirement and retirement
phases?
Five Mistakes (01:52):
Sure.
Here are the five mistakes.
The first one is drawing socialsecurity too early without
understanding the implicationsand here's why social security
is a complex important, butmisunderstood retirement income
source.
Choosing incorrect strategieswithout calculating the impact
(02:14):
of waiting longer to collecttaxation and other factors can
potentially have a negativeimpact of hundreds of thousands
of dollars over the retirementlifetimes of a married couple
social security can start at age62.
And the benefit goes up annuallyabout 8% every year that you
wait until age 70, there is nobenefit to waiting after age 70,
(02:34):
you get an 8% bump up everyyear.
Risk-free guaranteed by thegovernment no less.
So that's definitely somethingto calculate very carefully.
Ask your financial advisor torun a social security income
analysis with multiple waterscenarios of drawing income at
different ages, or come talk tous and we will be happy to run a
(02:55):
complimentary analysis for you.
It
Question (02:57):
Sounds like the second mistake is accounting for RMD.
So what exactly is RMD and whyis it important?
Can you explain that a littlebit more?
RMD (03:07):
Right.
So RMDs required, minimumdistribution must start at age
72, according to IRS guidelinesat that age age 72, roughly
about 3.8% of the totalqualified assets, the assets as
an new 401k, your IRAsretirement accounts, not the rod
(03:28):
, but it must be withdrawn.
And the IRS schedule prescribedand the percentage increases
over the years.
This is due to the fact that allof this money has been growing
tax deferred for many years.
And now the government says theywant the taxes that they waited
long enough, according to them.
So these withdrawal amounts aretaxed at ordinary income levels,
(03:49):
and you must be drawing theminimum amounts regardless of
your need, whether it needed ornot.
If you choose not to or forgetto the penalties are steep and
we have to withdrawal to notmade on the schedule mandated,
but this can be almost about50%.
Long Term Care (04:03):
They're pretty steep.
So you gotta be very careful andbe aware of your schedule.
The third one is ignoring theimpact of long-term care in
retirement planning with 10,000baby boomers retiring every day
for the next 15 years long-termcare costs are forecast to
increase is already fairly high.
The bay area is an expensiveplace to live and long-term
(04:26):
care, but we know differentcalculating say at around$ 150
,000 per year for a three-yearperiod, for example, puts a cost
of long-term care for someone intheir eighties at$450,000 for a
total of three years.
Remember that this is after taxmoney.
So if you're using your IRA topay for that, a relative out of
(04:48):
long-term care policy, wellbefore surely needed, could come
in very handy investigating andevaluate a long-term care
insurance costs and optionsearly on.
And before it is too late, itwould be a wise thing to do.
Question (05:00):
The fourth mistake is sequence of return risks.
What kind of risk is this?
This is something we don'ttypically hear about every day.
So can you explain that a littlebit more Arvind?
Sequence of Returns Risk (05:11):
Right.
I know that's a mouthful.
So I know when I used this term,I sometimes hear That's right.
Crickets.
It's a term like you said, notvery commonly heard.
So let's demystify this and talkabout why it is important and
why we should know what exactlythis is many advisers talk about
(05:31):
the 4% withdrawal that is aslong as it draw, no more than 4%
of your assets annually duringretirement, you could mean good
shape.
For example, if you're a milliondollars in assets and you take
$40,000 every year for the restof your life or 4% of
retirement, it is a push to beokay.
I don't quite agree with thatbecause of various reasons.
(05:55):
While the number could be toooptimistic into this low
interest rate environment, thisalso does not consider the
sequence of returns risk.
So what is that?
So consider someone who retiredin 2007, if the great financial
recession had not done to theassets from the time that a
tired and while they withdrew afixed amount from their
portfolio, there may run therisk of their money running out
(06:18):
during the lifetime.
That's a pretty tough thing.
And how that happens is that themillion dollar portfolio fell by
50% began only five find athousand.
They still need to draw$40,000 ayear.
So from a 4% withdrawal, thatbecomes an 8% withdrawal, and
that's not allowed the money torecover in time during the
lifespans.
However, for someone who retiredin 2012, that person caught the
(06:40):
market on an upswing and theirmoney may last longer.
So as we all know, market timingis generally not a good payment
strategy.
Neither is luck planning isalways good.
So the best options are to havea good time tested and
individually tailoredstrategies, what fully
diversification and riskmitigation.
So what do you think Lauren didthey do an okay job at
explaining this one?
I do think I have confusedpeople even more.
Question (07:04):
No, no, no.
I think you did a great job.
I think I get the concept nowand I think others definitely
will.
Also, you explained it great.
The fifth and final example isunderestimating the importance
of fixed income in retirement.
Can you go into that a littlebit for us?
Importance of Fixed (07:24):
Absolutely fixed income streams.
As in social security income,pensions, annuities, bonds, and
similar income streams should beconsidered pre-generated
retirement income base or floor.
Of course you need to also lookat equities, but this at least
gives you an income base becausefixed as the word suggests, you
know what you're getting everyyear, while if you're lucky once
(07:48):
had pensions.
In most cases, social securityis the only guaranteed
retirement income for mostpeople.
So one way to create your ownquote unquote pension in
retirement would be to fund youdon't have fixed annuity fixed
anybody's.
These are bond-like instruments.
They can offer portfoliodiversification and risk
mitigation.
However, many of them havelonger lock-in periods and have
(08:10):
sizable surrender fees.
So you should discuss with thefinancial advisor and educate
yourself on the pros and consand whether these instruments
fit your overall retirementincome needs.
So that's it for this episode.
Thank you so much for listeningand make sure to watch the space
for more upcoming podcast.
Let us know if you have anytopics that you'd like us to
discuss.
(08:30):
We have a lot of content on ourwebsite, www.capitalbgroup.com.
Call us at(408) 725-7122 oremail us.
If we have questions we wouldlove to hear from you until the
next time stay well and staysafe.
Disclaimer (08:50):
Arvind Ven is a registered representative with
advisory services and securitiesoffered through LPL financial, a
registered investment advisormember FINRA.
And SIPC the opinions voiced inthis material are for general
information only and are notintended to provide specific
advice or recommendations forany individual.
(09:10):
All performance reference ishistorical and is no guarantee
of future results.
The information is not intendedto be a substitute for specific
individualized tax advice.
We suggest that you discuss yourspecific tax issues with a
qualified tax advisor.
Financial planning offeredthrough Capital V Group, a
registered investment advisor,and a separate entity from LPL
(09:33):
financial.
Popular Podcasts
1. Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
2. The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
3. Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.