Kersten Wealth Management Group - Money Sense 3-29-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirsten.
Happy to be with you today. We're not going to
talk very much on markets today, Brad, because we are
taping this show in advance of a couple of vacations here.
So we kind of sat down and talked about what
we wanted to focus on. We wanted to focus on
a little bit more bigger picture stuff retirement planning information,

(00:22):
and I think some of that goes into what's going
on in markets today a little bit as well, but
we wanted to focus a little bit more on that
bigger picture stuff as opposed to the day to day
of markets like we normally do. And you know, JP
Morgan has a great reference point called The Guide to Retirement,
and we're going to run through that, plus some additional

(00:43):
things talking about retirement in general. But one of the
things that JP Morgan puts out right away, which I
actually do think applies to markets right now, and that
is the types of things that you should focus on.
I was actually talking to one of my kids last
night who's off at college. She's the one that runs

(01:03):
and she's had on and off injuries and was feeling
some pain in her foot and was worried about all
these different things that could happen. And I actually saw
it come across my Instagram and it said a study
shows that eighty five percent of the of what we
worry about never happens, and the other fifteen percent is

(01:24):
never as bad as we think. And she always jokes
with me because she says, you're just making up numbers,
You're just making up numbers. I was like, no, I'll
look it up. I'll look it up. So I looked
it up and it was a study done funded by
the National Institute of Health, so NIH was is now
run by Robert F. Kennedy, and the scientists that did

(01:45):
the study were from Cordell University, which actually is the
school she's at. So I found that interesting. But it
was interesting because I was talking to her about worry
because she was saying things like, you know, what if this,
what if that? And I said, well, I just saw
this on my Instagram. Eighty five percent of what we
worry about never happens and fifteen percent is not as
bad as we think. Well, I would I would segue

(02:07):
that to the markets, eighty five percent of what you
worry about in the stock market does not happen, and
the other fifteen percent is not as bad as you think. Yeah,
the things that most people worry about are the things
that are completely out of their control. And when we're
around election times, and now we're talking about elections a
year and a half before, and we're still talking about

(02:28):
elections a year after, so it almost dominates the entire
news cycle. And both what happens with political new political things,
whether it's tax law or the cutting of government right now,
or even market returns, are things that are completely out
of our control. And yet it's probably eighty five percent

(02:50):
of what everybody worries about. That's right. I think most
people in investing and their worry are focusing on the
wrong things because they're focusing on things they can't control,
and they're not spending enough time on things they can control. So,
right out of the gate on the JP Morgan Guide
to Retirement, what do people worry about? What the market's
doing completely out of your control? What's going to happen

(03:12):
with taxes and government policy, and how's that going to
affect me? Completely out of your control? What do people
spend little time worrying about how much they're saving, how
much they're spending, and what their asset allocation and risk
profile is people. I think people worry about that as well,
But what is your asset location and your risk profile?
And then what is partially in your control? Well, your

(03:35):
employment earnings and how long you work is partially in
your control, and your longevity if you can exercise and
eat right, is partially in your control. But most people
spend most of their time worrying about markets. So moving on,
then Brad their next side on this goes into longevity,
and we talked about how this is, you know, partially

(03:57):
in your control. We talk a lot about longevity. We're
talking about pensions and also social security. I think people
underestimate this. Yeah. I think they see stats that say
life expectancy seventy seven for a woman, seventy six for
a man that's at birth. Once you get past year one,
it goes up, once you get past year five, it
goes up. And so I think you really need to

(04:19):
focus on are people that are in retirement once you've
gotten to sixty five. Your life expectancy is much longer
than people realize. And I would say too. The other
thing that I hear quite often, and this is usually
an excuse to take too much money out more than
is appropriate for your age, out of your retirement portfolio,
or retiring earlier than you should. Well, I'm not going

(04:41):
to live that long my parents, did you know this?
My dad died of this and my mom died of that,
and I don't really know, and that maybe that obviously
has some influence on the timing of your retirement or
the timing of your Social Security. But also keep in
mind medical advancements have improved. You will live longer more

(05:02):
than likely than your parents because of those medical advancements.
And also you have a better lifestyle more than likely
you than your parents. A lot more people smoked then,
you know when we talk about especially if you're going
back to generations and you're looking at grandparents most smoked.
So if you look at life expectancy for people who
smoked versus smoke versus don't smoke, if you're looking at

(05:23):
a couple where both are alive, at sixty five ninety
percent chance if you don't smoke, that one of you
is living to age eighty five, and a seventy three
percent chance that one of you is going to live
to ninety and a forty three percent chance that one
is going to live to ninety five. So we're talking
about it almost fifty almost a fifty to fifty coin
flip that one of you lives to ninety five. If

(05:43):
you're both currently sixty five today, that is amazing. Women
is seventy three percent eighty five, Men sixty four percent
age eighty five. So when you look at it and
you look at both living to age eighty five, it's
forty six percent. One living to eighty five goes all

(06:04):
the way up to ninety percent. So the bottom line is,
when you're doing your SOLI security calculations, if you plug
in ninety especially for your larger social security, there's no
calculator ever that would tell you not to wait till seventy.
I'm not saying you should, but I'm just saying if
you're factoring in, oh, I'm gonna die at seventy five,
the numbers don't bear that out unless you're currently sick. Yeah, yeah, yeah.

(06:29):
That's the one thing when you're when you're trying to
do the math there you know your own longevity or
what your current illnesses might be but if if you're
currently healthy, or you and your spouse are currently healthy
at sixty five, one of the larger social security should wait.
That's right, So you know, looking at all the various
things to go into it, certainly, I know that you know, people,
especially when you get into your late fifties early sixties,

(06:51):
you look at company downsizing and things like that, Oh
do I really want to get out there and get
another job. But the bottom line is have you saved
enough and you factor in your social security and pensions
to get to the point where you're gonna have enough
income to sustain your lifestyle. I mean, there's just no
really real way around it. I mean I had a
conversation with someone was fifty eight years old a couple

(07:12):
weeks ago. Brad, Oh, I just I don't want to
do this anymore. Oh, that's fine, it's okay. Oh. And
you know the argument always too that I hear. It's
it's not a great argument, I don't think, and that is,
we want to spend a bunch of money while we're younger,
and you know we're not going to spend a but
we're either not going to live very long, we're not
gonna spend any money when we're older, and that's that's fine,

(07:34):
but people take that to the extreme and you don't
want to be dusting off resumes when you're eighty two
years old. Okay, So don't forget that we've had a
nice fifteen year run in the markets, and obviously we
talked about what's in your control, what's out of your control.
That's great, we've had a nice fifteen year run in
the markets, But don't forget from two thousand to two

(07:56):
thy and thirteen that the SMP went sideways for thirteen years.
So if you go smack dab in the middle of
one of those periods of time and you're taking out
larger amounts because you want to enjoy your early years
of retirement, you could end up spiraling the drain pretty quickly.
So you have to be very careful. And in our experience,

(08:17):
most people underestimate their longevity, especially their joint longevity. Yeah, definitely,
And I think if it is a job that you
just don't like, then maybe we find something part time.
That is, when you look at the surveys of why
people continue to work, it's because they enjoy work or
they want to stay active and involved and not and

(08:39):
have something to do. But that also gives them the
freedom to spend that money or a little bit more
money while they're still working, especially if it's just part time.
So I get there are certain jobs that people come
to me when they're in their fifties and say, I
can't keep doing this. It's killing me. It's a physical
labor job or mentally it's killing me. I get it.

(09:00):
If it's not a job you don't love, you feel
like you have to get rid of it. But maybe
we got to find something else to do. And a
lot of people are electing, especially with more and more
people having the ability to retire and then work part
time from home. You're seeing fifty three percent of households
partially retire, including spouses that retire at different times. So

(09:23):
that's I think more and more of a phenomenon right now.
It's people partially retiring and maybe cutting off their savings
and letting their retirement portfolio grow, just spending the money
that they're working part time for And obviously there's a
lot of different things that can happen there. Of course,
your retire of portfolio can grow for more years, your
social security can accumulate to a higher level, and you

(09:46):
can wait till that's sixty seven or seventy when you're
doing that. So it doesn't necessarily mean if you're unhappy
to stay in the current job that you're in. Yeah,
and not both both spouses don't have to retire in
the same year. If one hates their job and the
other one doesn't, it's okay for one of them to
continue working. And we do see that a lot. And

(10:07):
then the last thing, too, is if you're going to retire,
what are you gonna do? I mean, that's the big
question for a lot of people. I think as well.
I mean, yes, people talk about travel and vacations, but
you can only do that so many weeks of the year.
What are you gonna do when you're home? Right, you're
gonna travel, Fine, you're gonna go on vacation. Fine, you're
gonna visit kids and family and everything like that. But
what are you gonna do when you home? You need

(10:28):
to have a purpose. You need to use time time
to work, help others, go to events and activities, socialized
with friends, and take care of your health and foster
healthy behavior. It's to your diet and exercise. I don't
think enough people do that as well. If the thought
is retire to the lazy boy chair. In our experience,
that's not very good for people. You probably won't have longevity.

(10:50):
You probably won't have longevity if you do that. So
what are the numbers tell you? Where are you? We
mentioned a couple of weeks ago having twenty five times
your your income as a sort of a bare minimum,
but it does vary greatly, Brad If you look with
people who say, make thirty thousand dollars a year at

(11:12):
the lower end, for those people, you talk about a
replacement rate of one hundred percent. If you're making thirty
thousand before you need to keep making thirty thousand. That's
what you need to live, right. We often hear the
rules of thumb seventy to eighty percent replacement rate because
many of those people are paying down debt, contributing big

(11:34):
numbers to their four oh one k's a lot of
that money. They're not spending money on kids. Their retirement
withdrawals won't be taxed at this at the city level
if they have a city tax, So there's some savings
there for a lot of people. And we talk about
that rule of thumb replace seventy to eighty percent of
your income. That really only applies for people who make
between eighty one eighty and a hundred, yeah eighty and

(11:58):
one hundred and twenty five thousand, one hundred and twenty
five thousand. When you get up there, to your pre
retirement income was two hundred and fifty three hundred thousand,
most people average about cutting that in half for retirement,
right on average at two hundred and fifty thousand. People
in retirement live on fifty six percent of that two
hundred and fifty thousand, with social Security making up eighteen

(12:22):
percent of that fifty six percent retirement savings. Interestingly enough,
retirement savings is consistent in terms of what percent of
income it makes up, whether you're thirty thousand or three
hundred thousand. Retirement savings makes up about forty percent of
the income needs for someone. So it's interesting to see

(12:45):
that social Security is a much bigger percentage for obviously
the lower end, and a much smaller percentage for the
higher end, and then you see a much more drastic
drop in spending for people who make more money before retirement.
Let's take our first pause. When we come back, let's
talk about kind of a retirement checklist. Where are you
today if you're at certain ages and have you saved enough?

(13:08):
And if not, if you're just starting savings, what does
that percentage need to be based on your income? And
so a little bit of a checklist for people to
see if you're on the right track ahead or behind.
We'll do that when we come back. You're listening to
the advisors of Kirsten Wealth Management Group. We'll be right back.
Welcome back to the show. You're listening to the advisors
of Kristen Wealth Manager Group, Kevin Kirsten and Brad Kirsten.

(13:28):
As a reminder, we are professional financial advisors and our
offices are in Perrysburg. Give us call throughout the week
if you want to set up a consultation review your
financial plan to make sure you're on track, whether you're
just getting started, well on your way, or already in retirement,
be happy to sit down four one nine eight seven
to two zero zero sixty seven or check us out
online at Kirstenwealth dot com. We're talking retirement on this show.

(13:50):
We're not really going to go into the current market
conditions that much because we have taped this a little
bit in advanced Brad but talk of retirement. Here we
mentioned a couple weeks ago, try to save twenty five
times your income needs. But how about a checkpoint. Let's
look at someone who does make eighty thousand dollars a year.
They're going to try to save enough to have so

(14:13):
it kind of goes off the prior chart if chart.
If you make eighty, then retirement savings needs. A retirement
income will be eighty one percent of your current income.
Just based on the averages. You'll need a lot of
what you make, but not all of what you make
when you're working. So if you're if it's eighty thousand
of income, they're going to factor in a sixty forty

(14:35):
portfolio before retirement, a forty sixty portfolio after, and so
at various ages there At age forty, retiring at sixty five,
retiring at sixty five. At age forty, you'll need uh,
just shy at two hundred thousand at age you should
have you should have to be on track to be
on Try a sixty five retirement. At age fifty you'll
need three hundred and thirty thousand to be on track

(14:57):
for a sixty five retirement. And at age sixty you'll
need five hundred and twenty thousand saved to be on
track for age sixty five retirement, assuming that your income
is going to go down a little bit higher incomes,
same thing. We're assuming the averages where at higher income
you only need a little bit more than fifty percent
of your income if we're looking at two hundred and

(15:17):
fifty or three hundred thousand. But let's take a look
at a couple different examples. One hundred and seventy five
thousand of current income. If you make that when you're forty,
you need to have quite a bit more saved. At
forty you need three hundred a little over three hundred
thousand saved to be on track for an age sixty
five retirement. If you're making one hundred and seventy five
when you're fifty, you need six hundred and sixty five thousand.

(15:40):
But most people, you're going to continue to make more throughout.
So I think the way to look at these charts
are you take a look at somebody that's making one
hundred and seventy five thousand household income at age forty.
That person at age fifty might be making more. They
might be making two hundred and fifty thousand, So I
think you need to kind of go over on the chart.
So say a lot of numbers here, but somebody needs

(16:02):
three hundred thousand to be on track. When they're forty,
their income's going to go up, so they likely need
to have what this chart shows at age fifty five
one point three million, and five years later, if they're
going to make more money, they probably need two point
two million. They need to have continually more money. And
you can't just look down the chart because your income
goes up. Well, and you could You could do it
the opposite way too. You could say to yourself, all right,

(16:25):
I'm fifty five years old today and I have a
million seven. Well, according to this chart, you're on the
right pace for someone who's making three hundred thousand. If
you're making less than you're ahead of the game, that's right.
So that's another way of looking at the same chart.
If you have a million seven, you're tracking for what
someone who makes three hundred thousand. Sure and having that

(16:45):
person because many people will call us and say how
am I doing? How am I doing? And this checkpoint
here is really a good thing. Here. If you make
three hundred thousand dollars a year, you should try to
be at two point seven million by age sixty five.
If you make two hundred fifty thousand dollars a year,
you try to be at two million. If you make
one hundred and fifty thousand dollars a year, you should
try to be at a million three by age sixty five.

(17:08):
So those charts are really helpful. And so if anybody
is listening, especially that chart right there, if somebody is
thinking to themselves, am I on track? Give us a
call and I'm gonna shoot this out to people, or
shoot me an email Brad dot Curson at LPL dot com,
and I will send you this page of this guide
to retirement, so you can kind of see am I
on track for an age sixty five retirement? Yeah. So

(17:32):
the other thing we talk about is save early, save often, Brad.
When you look at retirement, the benefits of saving early
are tremendous. For someone who has one hundred thousand dollars
of household income to get to those goals that we
talked about on the previous in the previous discussion, you

(17:53):
will if you start at age twenty five, you only
need to save nine percent of your income to get
to your goals if you make one hundred thousand, but
if you start at age forty five, you need to
save thirty one percent of your income to get to
your goal. If you make two hundred thousand a year,
not that far off. At twenty five, you save nine percent.
At forty five you need to save twenty nine percent.

(18:14):
So you go from ten to thirty percent of what
you need to save per year just by postponing your
beginning date of when you're going to start putting money
away by twenty years. Yeah. Yeah, when you look at it,
the younger you are, even if you're saving less, it

(18:34):
just compounds to be so much greater. And we do
see a lot of people that just wait and they're
spending money on kids and just neglect even doing the
minimum into their four to one K, which a lot
of people, the minimum is the maximum to the amount
to get the maximum out of the employer. That's the minimum,
that's the bare minimum, and most times that's five to

(18:54):
six percent of your pay. And if you're starting at
twenty five, that would still have you un or what
you need to save, but it at least doesn't mean
that when you get to be forty forty five you're
having to save twenty five thirty percent of your income
just to be on track. Yep, and uh you you
know the tremendous benefit. Of course, we talk about what

(19:15):
types of accounts as well that that can enhance how
much you would have in retirement. You want to save
into those wroth four oh one k's and wroth irays
early early, and you want to as your income increases,
you want to shift to the to the to the
pre tax type investments. You're always probably gonna have some
pre tax if your employer does something for you, but
you're gonna want to shift to some pretax type investments.

(19:37):
Probably no perfect age, but I would guess by the
time you're forty forty five years old, you you you phase,
you phase a little bit out of the wroth IRA
and start doing pre tax to get a tax savings. Yeah,
it's a little bit of how much you're making and
a little bit of how long you have to save
for the tax free withdrawal. So yeah, that ends up
being maybe when you get a raise when you're you're

(20:00):
late forties, or just when you get to that age
where you say I'm only gonna now I only have
fifteen years of savings and compounding to get the WROTH
to work. So yeah, i'd say first ten to fifteen
years definitely the WROTH, and then it starts to be
a little bit of what bracket are you in. There's
a lot of useful tools I'm seeing in four oh

(20:20):
one k's talked about the wroth, the wroth four o
one K now, and even when people are signing up,
I think there's a lot of useful tools. The one
that I'm seeing built in is the auto escalation of
your four oh one K, and I think that's a
great thing where people can get an increasing amount of
savings without having too much disruption to their everyday life. Yeah,

(20:42):
especially if you know that you're in a career where
you're gonna get regular raises anyway, building in an extra
percent or two of auto escalation of your four to
one K still will have you getting more net dollars
into your paycheck, but you have a forced increase to
the percentage that's going into the four to one K,
So you'll have more going into the four one K

(21:04):
because you're making more, but you also increase that percentage
until you get to the max. So if you're just
starting out or maybe you're talking to one of your
kids and they're a little bit hesitant. Look at the
difference here, Brad. Someone starts out with a fifty thousand
dollars salary at age twenty five, and they have two
and a roughly two and a half percent wage growth
and they're getting ah, they're getting a match up to
five percent as well. In this scenario, if they just

(21:25):
do a three percent contribution and just leave it by
age sixty five, they'd still get to a nice nest
egg of nine hundred thirty thousand. But if the person
increased it, because they're gonna get obviously a wage increase
of about two and a half percent every year. So
if they just for the first seven years escalate that
gradually and take some of their rays one percent and

(21:50):
put it into their four to one k until they
get to a ten percent contribution, their savings goes from
nine hundred thirty thousand to two point one million by
age sixty five, just by saying first year, I'll do
three percent, second year, I'll do four percent, third year,
I'll do five percent. Now keep in mind that person's
getting raises all along, so it's not there's not too

(22:10):
much disruption to their to their day to day and
then they stop at ten. Just from going to three
to ten in that first seven years adds another million
dollars to what they have to what they have saved. Yep.
So kind of touched on this a little bit. But
tax implications for retirement savings by account type, you got
to pay attention to this. We mentioned put it in

(22:31):
the after tax WROTH in the in your early years,
Brad think is very important. Then when you get to retirement,
or even close to retirement, maybe you're going to do
a partial retirement, you want to have a couple different
accounts that have different taxability because it gives you flexibility
when you want to start taking withdrawal, especially when you

(22:53):
if you're taking IRA withdrawals and you're consistently in a
bracket that you're comfortable with, and we have a year
where you have increased medical expenses, or you want to
buy a car, or you have a eight you're going
to take all the kids on a vacation, and any
one of those things can if we take it all
out of the IRA, can mean that that big that

(23:13):
bigger distribution you might have every now and then is
going to be taxed at a higher rate because it's
going to bump you upper bracket. What would be ideal
is that those one time distributions come out of a
WROTH or come out of a non retirement account, so
we don't bump ourselves up a bracket, or we're leveling
off that that those lower brackets by saying, let's have

(23:33):
a third of the income come out of the WROTH
and two thirds come out of the IRA, so that
we can we can get into that sweet spot where
the current brackets. The sweet spot is twelve or below.
If we're in the ten bracket or the twelve bracket
and we want to stay there, maybe you can do
it by having some ROTH distributions and some non retirement
distributions to achieve the income that you need in retirement.

(23:55):
That's right, So let's take our next pause. We'll get
back from the break. We'll continue to talk about out
retirement sources and where the money's gonna go. Very important
in terms of after tax pre tax type accounts, after
tax ROTH versus after tax accounts where you're paying capital
gains along the way. So look at all of that.

(24:17):
You're listening to money cents, Kevin and Brad Kirsten will
be right back. Welcome back to the show. You're listening
to the advisors of Kirsten Wealth Management Group, Kevin Kirsten
and Brad Kirsten. Happy to be with you today. We're
talking retirement. We mentioned before the break, Brad, what to
do you want to do those WROTH contributions early, whether
it be the four oh one k or roth IRA

(24:37):
you shift to the after tax contributions later. But there's
other things that come into play in terms of where
people start. A lot of people listen to Dave Ramsey
out there, some good, some bad. In terms of what
he recommends. I think people who have even a modest
amount of financial responsible behavior can do better. I think

(25:00):
he's definitely talking to the absolute lowest common Denominator's dumbing
it down because he's too much. He's assuming you are dumb, yes,
and it's it's it's not right. I don't think it's right.
There's a better way, and so we're going to talk
right now in terms of where to start, Where to
start for somebody, whether somebody's just getting started in there,

(25:20):
maybe not in the hole. Maybe someone's dug themselves a
little bit of a hole with debt, even if you
have dug yourself in a hole and started with that.
The Dave Ramsey debt at all costs payoff is not
the answer. Debt snowball it was, is what he calls it.
Paying off the lowest balance first, regardless of interest rate

(25:41):
one of the things we shake our head at every
time we hear it. I don't know why if you
had something that had a thousand dollars balance with a
two percent interest rate, you should pay that off before
something seventeen percent interest rate and a five thousand dollars balance.
That makes no sense whatsoever. So where should someone start.
I mean, you should build up an emergency reserve in
your bank account. Everybody should have that. Everybody's different in

(26:04):
terms of what they want. Some people talk about certain
number of months of expenses. I think the emergency reserve
is kind of you know it when you know it, right.
I mean I have one personally, and it's like, I
don't like to go below this level. You know it
when you know it, six months, three months. It depends
how consistent your income is. I mean, you might be
in a sales job where your income is not very

(26:25):
consistent at all, so it needs to be higher than
somebody that has a paycheck that's never going to change. Sure, yeah, sure,
Where does someone start after they they do the emergency reserve? Well,
the first thing Dave Ramsey would say is start paying
down debt and start with the lowest balance. Does that
make sense to you? It doesn't make sense at all.
You're potentially leaving money on the table. The first thing

(26:45):
you should be doing is looking at your own retirement plan,
where if you don't get the company max match, if
you don't open the retirement plan and put some money
into the retirement plan. For two reasons, that's the right
thing to do. Over time, you're going to earn money
on the money you put in. And if the only
way to get the company match is to put money in,

(27:07):
you're potentially leaving one hundred percent return on the table.
If I put a thousand in, they're going to give
me another thousand. That's one hundred percent return. There's no
debt out there that has a one hundred percent interest rate,
and so that's the first thing you need to be doing. So,
if you're making one hundred thousand dollars a year and
your company matches five percent, if you do at least
five percent. That's five grand a year of free money. Yeah,

(27:31):
you have to do that first, do that before you
pay off any debt. Well wait a minute, but I
have this debt. I don't want to put money. I
don't care how high the interest rate is. It's not
one hundred percent. And that's what you're leaving on the table.
Once you get that started, which you should get that
started right away early in your career. Once you get
that started and you have some debt, start looking at it.

(27:51):
Do you start with the smallest balance brand Absolutely not.
You start with the highest interest rate, no matter what
that is. And so the highest interest rate is typically
going to be a credit you'll pay off by the
way you'll pay off your debt a lot quicker. Yes,
if you start with that, I have a goal to
pay it on the debt quicker. And so the first
one needs to be the highest interest rate. It's generally

(28:12):
going to be a credit card. If you're doing monthly
payments on it, you want to increase those or start
paying it off entirely if you can. Student loans sometimes
could be a little bit high, especially after you've left school,
so that would be another thing. But anything over seven
percent get rid of it. Yeah, anything over seven percent interest.
I think that's a good rule of thumb because over
seven percent could potentially be cars. And that's okay because

(28:35):
if you're doing cars, you're every month you pay it
off early, you're actually saving interest. And it's generally not
going to be a first mortgage. And since the first
mortgage has reverse ambortization, the seven percent, if you're below
you're going to be below seven percent, even if you
got it in the last couple of years. And you
one get some interest deduction on the if you're itemizing

(28:57):
on your on your first mortgage. And two, unless it's
a brand new first mortgage, or even if it is
and you're gonna make the payment, or two, all you're
doing is paying off principle, not interest. And so it
doesn't make any sense to even look at the first
mortgage before you start prioritizing a few other things for savings.
If you're in the last five to seven years of
your thirty year mortgage, you're you basically have an interest

(29:19):
free loan. Yeah. Yeah, The way the amorgization works is
you pay more interest upfront, so you're just paying off
This is why banks have pre payment penalties because they
get more interest in the early years, so they have
an upfront cost that they need to recoup from you.
And that's why they have pre payment penalty and why
they'll encourage you to make extra payments. I mean even
sometimes they'll say, do you want to make a principal

(29:41):
only payment? Wow, doesn't that sound good? They don't advertise
it as do you want to make an interest free payment?
And that's what it is. The first extra payment you
make on the mortgage is essentially interest free. There's no
interest on it. It does you no good to pay
it off. You should be prioritizing other things with those dollars.
So you have an emergency fund right off, your credit
card and your student loans over seven percent or a

(30:03):
car loan if it's over seven percent. Next, max out
your four oh one k. And if you have an HSA,
max that out too, because you get a lot of
bang for your buck on your tax return on an HSA.
You don't have to itemize to get the HSA right off.
So if you have whatever bracket you're in, you're getting
that safe and you're getting that savings. Max out your
four oh one k. Now, this is a little bit
out of order with a lot of people, because I

(30:25):
still see people not maxing out their four oh one
k twenty three thousand, five hundred if you're under fifty,
thirty one thousand, if you're over fifty right now, I
believe those are the numbers, maybe maybe a little bit
higher than that. Max that out first before you move
on to your low interest rate student loans or your

(30:47):
low interest rate mortgage. Okay, yeah, we're twenty three five
and thirty one, twenty three five and thirty one, okay,
twenty three five and thirty one, so that would be emergency.
Start your four h one K to at least get
the match. Pay down the higher interest rate loans that
are over seven then up up to thirty one thousand.

(31:12):
If you're over fifty, okay, if you still have money
left over, then you start paying down your interest of
your mortgage or your student loans. Beyond that, I'm saying
you're always gonna have a payment. I'm not saying you're
not having a payment and you don't have a schedule
where you're gonna be paid off. I'm saying, but if you,
if you have only if you But the point is,

(31:32):
if you like, if you are not maxing out your
four to one K to the max IRS limits, you
should not be paying extra payments towards your mortgage. And
I would even make the argument if you're if your
mortgage is under five, you probably shouldn't be doing it
also because if you're actually investing dollars now, you should

(31:53):
be looking at doing just taxable accounts with those those
savings and just investing it month on a monthly and
building up non retirement accounts. That has been choosing between
a non retirement investment account and a mortgage. Yeah, it's
about a coin flip. But if it's more comfortable for
someone to get rid of their mortgage, fine, that's fine.
But you're prioritizing it at at number six or seven,

(32:15):
and Dave Ramsey would have you doing it at number
one right for paying off the with the the debt
snowball as he calls it. So when you're looking at
getting that order right, okay, I think that the investment
A lot of times investing takes a back seat the

(32:37):
four oh one K, even the taxable investment account or
the HSA. A lot of times those have taken a
back seat to debt. And I get it. The payoff debt.
But I mean there's a huge percentage of people out there, Brad,
who have between two and a half and three and
a half percent thirty year mortgages. Why on earth? I mean,

(32:59):
the bank's gonna incur you too. They're going to send
your marketing material about how it's smart, it's smart for
you to pay it off because they don't want it
on the books. That's right. So when we look at retirement, Brad,
and and changes in spending, you know, anything else you
want to add in terms of, you know, getting on
the right track for somebody in terms of what they're saving.

(33:21):
Before I move on, getting getting to the max four
one ks as at a youngest age possible, I think
is going to increase your chances of an early, earlier
and successful retirement. I would say, of all the things
we talked about on that list, that should be number
one on everybody's priority list. How quickly, and if there's
two working spouses, how quickly can both of us get

(33:43):
to a max four one K contribution. I think that's
the that should be the number one priority if we're
prioritizing everything that's on that list. So let's talk about
getting to retirement and having some fluctuation, some unknown. It's
difficult you get to retirement. We talk to people, Can
you sit down and do a budget, what do you

(34:03):
actually spend? If you factor out savings and things that
maybe you aren't going to spend in retirement that you
were spending in retirement, sometimes that changes, whether it whether
it be savings or money you're giving to children or
whatever it might be. But other things go up. You
spend more money on vacations. You're gonna have to buy
a few cars in retirement. Yeah, you're probably you know,

(34:25):
might have to replace your roof and redo your teeth.
There's a lot of unexpected expenses. You can't just bare
minimum your retirement withdrawals based on paying the utility bills,
and you know, you have to factor in these other
things that you you spent money on while you were working.
You know, while you were working, you were spending money

(34:46):
on the dentists and things that went wrong with your house,
fixing up your car. You were spending money on buying
a new car every certain amount of years, and yet
a lot of people don't build that into their retirement spending. Well,
if all of your dollars are in an IRA, and
for some people it is this way. If you're going

(35:07):
to end up with ninety percent of your of your
savings in an IRA, then things like a new car
every five years could could bump you up a bracket.
If you think you're going to pay cash for it,
you have to probably just get comfortable with either doing
a lease or a loan so that we don't have
this year where we go from the twelve bracket to
the twenty four bracket just because we need to buy

(35:29):
a car. But if you have non retirement dollars or
a roth IRA and you don't want to have a loan,
that's what we have to prioritize for those larger expenses
like that. So when you look at what's going to work,
you know we mentioned that twenty save twenty five times
at twenty five times rule. That's that's sort of the
sister to the four percent withdrawal rule in retirement. You

(35:51):
look at historical ending wealth. When you looked at sixty
eight rolling thirty year periods from nineteen twenty eight to
twenty twenty four, if you did the four percent withdrawal rule,
you're in pretty good shape. But the one big caveat
I will give Brad is that if you look at
the fine print on these allocations, you see a forty

(36:15):
sixty retirement portfolio with a pretty good average on your
return that would be hard to repeat. Right now. That's
the one thing that we were looking at that the
historical sixty forty and the historical forty sixty that goes
back beyond the last fifteen years is not possible. It
isn't possible even with the current higher bond rates that

(36:37):
we currently have, where we expect maybe the next five
years to give us in that three and a half
to four and a half range. You have the seventies
in the eighties where bond returns were double digits. We're
not going to have that, and if we do, it'll
be a one off year out of one out of
every ten. And so you have to have an expectation
that if you're going to have a balanced portfolio that

(36:59):
includes some bonds, that your return is going to be
less than it was in the seventies and eighties and nineties.
The US aggregate bond index for most you know this,
this forty sixty portfolio goes from nineteen twenty eight to
twenty twenty four, from nineteen twenty eight to two thousand.

(37:20):
I believe the aggregate bond index had a yield at
maybe seven percent or more for almost that entire time. Okay,
today we just looked at it. It was it four
four four four four four five. So it's not that
stocks can't perform. We don't know about stocks. Okay, stocks
have averaged nine or ten percent. So when you're talking

(37:41):
about a sixty forty stock to bond or forty sixty
stock stock to bond portfolio, the stock part is going
to be the stock part. It could do well, it's
gonna happen. Could you have a decade when you're underperform five,
it's that the following decade's gonna outperform. But the reason
why the expectations in these charts were looking at for
a forty sixty portfolio aren't realistic is not because we

(38:02):
anticipate stocks won't perform. It's that your return on bonds
is whatever your yield is. Yeah, and so the only
way to get to the return and to get to
some of these rules of thumb is it gonna work?
Can I take a five percent withdrawal? Can I take
a six percent withdrawal? Is to take a little bit
more risk and to dial up the stock portion. So

(38:23):
forty sixty returns aren't gonna give you what they used to,
but a sixty forty might give you what the old
forty sixty did. A eighty twenty might give you what
the old sixty forty would give you. So you have
to just be comfortable with a little bit more volatility
to achieve long term returns that were similar to past
very conservative portfolios. So here's why I like this chart. Okay,

(38:45):
we're looking at retirement and we're looking at thirty five years. Now,
people say, oh, it's too long. Well, we just we
talked about, you know, someone getting to ninety, especially if
you're married. One of you is gonna live the ninety
that's thirty five years. Thirty five years you retire, you know,
that's retiring at fifty five. Oh okay, okay, but this

(39:06):
is thirty five years. If you're tiring at sixty one
of you, give them to ninety five. I think it's
fine because I would rather someone plan for retirement and
plan for too long. When I say worst case scenario,
it is a worst case scenario because longevity can be
a problem for your retirement spend down. Okay, not a problem.
You want to live a long life, but not a

(39:26):
problem there. But here's what's interesting to me. Okay, people
will come to me and say, I just want to
have the Belton suspenders approach, Kevin. I don't want to
risk it. I don't want to have any risk whatsoever.
And they think that risk means how they allocate. But
actually in retirement, so risk when you're leading up to

(39:46):
retirement is how you allocate. In retirement, risk is partially
how you allocate. But more importantly, risk is your withdrawal
and the rate of your withdrawal. So here's what I'm
really interested in looking at this chart. When you do
a three percent withdrawal rate, so two million dollars, you're
taking out sixty thousand dollars a year, you have a

(40:07):
ninety five to one hundred percent chance of success of
a thirty five year retirement. But here's the other thing
that's amazing. You have that same ninety five to one
hundred percent chance of success, Brad, whether you're twenty eighty
stock to bond or whether you're one hundred percent stock.
It's the same. So two things. People ask me, what

(40:29):
do you want for retirement. What's your goals? My goal
is to afford to be conservative or not. I won't
afford to allocate my money anyway. I want to well,
when you take a three percent withdraw you can afford
to be conservative because it works, or you can afford
to be aggressive. So I'll see two different types of people.
I'll see people want to afford to be conservative, but
I'll also see people who say, you know what, I've
done really well with stocks. I don't know why i'd change.

(40:52):
And we talked about sequence of returns and how you
know that does change in retirement. And people will say,
but I've done really well with stocks that don't really
want to change, and that will work as long as
the percentage with you're taking out is low. Yeah. And
then you have this variability too, whereas you have two, three,
four good years in a row, you can take larger

(41:13):
chunks at that point in time. But what's interesting is
when you talk about being able to be afford to
be conservative. Let's say someone comes to you, Brad, and
they have a million dollars and they want to take
sixty grand a year out. Okay, six percent withdrawal. If
you're conservative and you're twenty eighty. I need to say, see,
this is where people put us between a rock and

(41:33):
a hard place. I want to take sixty thousand out
of my million. I don't want to take any risk.
If you take no risk twenty eighty stock to bond portfolio,
you have a ten percent chance of your retirement assets
lasting lasting. You only have a chance of fifty five
percent if you get all the way up to eighty
percent stocks in that scenario. So there is the perfect

(41:56):
example of someone who can't afford to be conservative because
if they're conservative, they're gonna run out, and if they're
too aggressive for someone their age, well at least they
have a little bit of a chance, but not much better.
So what are your thoughts on the withdrawal rates and
the expectations for people going into right I think that
one way an advisor can help when you get in

(42:16):
that scenario is to have the discipline to whether it's
one time withdraws when they come or the monthly expenses
when they come, to have the discipline to be selling
things that are doing well, and especially when they're stocks
on a run up, because if we don't do that,
then the portfolios get more aggressive at the wrong time

(42:37):
and more conservative at the wrong time. And so sometimes
I see that when I look at people who become
clients what their withdrawals have been. Maybe they've taken bonds
out when stocks are running and stocks out when bonds
are running, and it's the wrong approach and it hurts
returns over time. If we're selling stocks in twenty twenty

(42:57):
twenty twenty one, by the time we get to twenty twenty,
to guess what we ended up with less stocks because
our withdrawals took our stock allocation down, and then after
twenty two had the big down year. You have to
have the discipline to say, I'm gonna sell the thing
that's not down value, the dividend paying stocks, the bonds,
and the portfolio and vice versa. That over time can

(43:19):
help improve return because you're rebouncing the portfolio at the
right time. So there are some nuances to that allocation
and the percentage that you're holding that people miss if
left on their own to say, I can't sell that
it's doing well. I can't sell that it's whether it's
stocks or bonds, And so right now, what is it.
Bonds are doing well in the last three weeks, international's

(43:42):
doing well, in the last three weeks, if we needed
a one time withdrawal, are we going to be selling
the thing that has sold off the most or this
thing that's held up the most and that you do
have to have some discipline there and those one time
withdrawals have to be factored in to this withdrawalway. Well,
we're talking about the four percent rule or taking three
or taking five out of your retirement. Okay, a million

(44:03):
dollars two million dollars four percent is forty thousand on
a million. People say I saved a million. That's a
lot of money. Never think about your retirement savings as
the dollar mount that's in the account. Think about it
like this. Every million you save is forty thousand a year,
and you need to save enough forty thousands per year
to get to your income needs. If you save two million,

(44:26):
you haven't saved two million. You've saved eighty thousand a year.
If you say three million, you've save one hundred and
twenty thousand a year. But when you look at it,
that number has to include your one offs. You fixed
your roof, your furnace went out, your air conditioner went out.
What I would tell people to do is take your
four percent withdraw and you have to put some of
it in a savings account for those unexpected expenses. Some

(44:49):
you do. And so if it doesn't include if if
we're taking what four is fine. But if you're taking
five or six because you want to build something up
and we hear that, you know you've bumped your So
only if you're doing it out of the four does
it work. Let's take our last pause. We'll wrap up
this discussion on retirement and the amounts of withdrawals you
want to be taking in retirement. You're listening to Money Cents,

(45:12):
Kevin and Brad Kurston will be right back and welcome back.
You're listening to the advisors of Kristen Wealth Management Group. Brad
and Kevin here with you. Kevin, before the break, were
you were mentioning these rates of return or the rates
of withdrawal based on all these past performance numbers, and
I just wanted to touch on it a little bit
more so that people know when they're looking at some

(45:32):
of these rules of them chart to look at the
assumed rate of return and kind of know what is
a good assumed rate of return here going forward. So
the one we were looking at was nineteen sixty six
through two thousand, and the six forty percent stock sixty
percent bonds actual return if they had the aggregate bond

(45:52):
index and the S and P five hundred was nine
point five percent. So that's what that return was for
that thirty five year period, and so we can't assume
that now if we take the aggurate bond index at
let's just say four percent, it's for four point four
right now, but let's just say that the next ten
years are going to give us four percent return on that,

(46:14):
because that's what the yield is going to be. Well,
if it's a forty sixty portfolio, that's six times four,
that's two point four. If we assume the S and
P five hundred is going to do ten, that's an
extra four percent. That gives you a six point four
percent return on a forty sixty, And that gives you
a seven point six percent return on a sixty forty

(46:34):
assuming the stocks are going to do ten and the
bonds are going to do four. That's seven point six
percent best case scenario. So if you're if you're assuming
a balanced portfolio in retirement of a sixty forty stock
to bond allocation. You shouldn't be assuming more than say
seven and a half percent. That's the high end, and
I would say going a little bit below that would
keep you in a safe territory for your assumption. And

(46:56):
this goes back to the discussion in the previous segment, Brad.
So then the next logical thing that people will always
say to me is, well, just forget those bonds, I'll
just do stocks. And fine, I'm all for it. Yeah,
I am all for it. But if you're going to
do that, really, the four percent withdrawal rate is a

(47:17):
hard fast ceiling. Yeah, you cannot go over four percent.
About that? If we and more and more likely, three
percent is where you need to be with variable withdrawals.
After several up years, you could take a little bit more. Yeah,
And what that'll give you is the ability to increase
your withdrawals over time. Or stocks are up seven out

(47:37):
of ten years, you're going to have a lot of
times where we've had a two or three year run
where it's okay to take your one time withdrawals. But
let's plan on that for the one time withdrawals. Let's
not just take the one time withdrawals when we want
to take the one time withdraws, because it might come
if you're one hundred percent stock after a downturn. Even
if it's a down quarter or two, you still need

(47:57):
to pause and give the portfolio a chance to im
back and then take your withdrawal. If you're in that
five plus percent range, you are taking a lot more
risks than you realize. If you're sixty five years old
and you have a million dollars, you're taking out fifty
a year, you have two million dollars, you're taking out
one hundred a year, and I'm including your one times.
People will say, oh, I don't take out one hundred
a year. I only take out three thousand a month.

(48:19):
Oh wait, I didn't think about my one times. I
didn't think my tax withhold or my tax withholding. So
pay attention to that because these numbers are startling. And
these numbers are also based on a period of time
where bonds had a lot higher yields. So that's it.
We're gonna. We're gonna. We didn't even get halfway through
this brat, so we're probably gonna revisit this in fusure
weeks more on retirement. Some of the things we didn't

(48:41):
touch on social security and things like that. Well, we'll
get to that. We talk about social security a lot anyway,
but we'll get to that in future shows. Thanks thanks
for listening everyone. We'll talk to you next week. You've
been listening to Money since brought to you each week
by Kirsten Wealth Management Group. To contact to Dennis or
Kevin professionally called four one nine eight seven two zero

(49:04):
zero six seven or eight hundred eight seven five seventeen
eighty six. Their email address is Kirstenwealth at LPL dot
com and their website is Kirstenwealth dot com. Opinions voiced
in this show are for general information only and are
not intended to provide specific advice or recommendations for any individual.
To determine which investments may be appropriate for you, consult

(49:25):
with your financial advisor prior to investing. Securities are offered
through LPL Financial member FINRA SIPC