085: Monetary Moments – Your 60s

Full Transcript

Intro:

Welcome to the Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson. 

Austin Wilson: 

All right. Hey, hey, hey. Welcome back to the Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be talking about a continuation, a continuation of the series, monetary moments with Josh and Austin. And today we are going to be talking about the next phase of life, following the 20s and 30s, then the 40s and 50s, two episodes prior. 

Josh Robb: 

Yep. 

Austin Wilson: 

This is all about we’re honing in on the decade of your 60s today. 

Josh Robb: 

Yes. 

Austin Wilson: 

So we’re talking about that, and that’s a big transition decade for a lot of people. 

Josh Robb: 

Yep. So we’re talking about the 60s, let’s get out our bell bottoms and some disco music. 

Austin Wilson: 

The disco was not in the 60s. 

Josh Robb: 

I don’t know. I wasn’t alive in the 60s. 

Austin Wilson: 

That was in the 70s. 

Josh Robb: 

Yeah. Whatever. 

Austin Wilson: 

Come on, man. 

Josh Robb: 

I don’t know. 

Austin Wilson: 

So yeah, the 60s. So it’s kind of funny all of those clothing trends though. 

Josh Robb: 

Yeah, they’re coming back around. 

Austin Wilson: 

Well, no, it was like the 60s clothes were like a thing when I was in like high school and then the 70s thing kind of came through, the 80s and 90s things back now. 

Josh Robb: 

Big hair? 

Austin Wilson: 

Big hair, like the big baggy parachute pants and yeah, it’s scrunchies. 

Josh Robb: 

Wait till the 90s show up. 

Austin Wilson: 

That’s my jam. 

Josh Robb: 

Well. 

Austin Wilson: 

Give me some of that. So be like those big jeans. 

Josh Robb: 

Oh yeah. 

Austin Wilson: 

The straight, huge baggy jeans, 

Josh Robb: 

Straight jeans. 

Austin Wilson: 

A belt wallet or a wallet thing with the chain. 

Josh Robb: 

The chain, you need a chain so no one steals it. 

Austin Wilson: 

It’s coming so, yeah. You watch out Josh it’s coming back. 

Josh Robb: 

I hope not. 

Austin Wilson: 

So no, not the 1960s, but we are talking about specifically ages 60 to 69 and what financial issues are most important. 

Josh Robb: 

Wait. 

Austin Wilson: 

So as normal, we’d like to start with numbers. 

Josh Robb: 

Statistics. 

Austin Wilson: 

I like numbers. I’m a numbers guy. You know that Josh? 

Josh Robb: 

I do know. 

Austin Wilson: 

So let’s start with some statistics and this is from 2019 in Fidelity. The average balance in your 50s.  

Josh Robb: 

So this is recap. 

Austin Wilson: 

Recap of where we’re coming out of and going into. Average balance and your 401(k) in your 50s is 174,000. So we’ve talked about that last week, average balance flash forward to the next decade in your 60s, isn’t that much more.  

Josh Robb: 

No. 

Austin Wilson: 

It’s actually only 182,000. 

Josh Robb: 

Yep. 

Austin Wilson: 

And that contribution rate moves from 10.1% in your 50s to 11% in your 60s. Again, not a big increase. 

Josh Robb: 

Yep. 

Austin Wilson: 

Those numbers are shockingly low. 

Josh Robb: 

Yeah. And we’re going to talk about that in a minute, why that is. 

Austin Wilson: 

Yes, yep. 

Josh Robb: 

But the other thing you gave us is kind of a reference point to how much someone should have saved as a percent of their salary. 

Austin Wilson: 

Right. 

Josh Robb: 

And we talked about the 60s, because that’s the ending point last week, kind of what you’re talking about to end is. 

Austin Wilson: 

Yes, right. So we started with where we ended the last episode saying that your goal should be roughly eight times your salary- 

Josh Robb: 

When you hit 60. 

Austin Wilson: 

… When you hit 60. So then full retirement age about 67, right. 

Josh Robb: 

Yep. 

Austin Wilson: 

That should then be about 10 times. And I think you mentioned that last episode too. 

Josh Robb: 

Yeah. 

Austin Wilson: 

So looking at it in multiples of your salary, like we’ve always said is a little bit easier to look at there. So if you make, when you’re in your 60s or whatever, $50,000 a year in salary, you should have $500,000 saved, dedicated for retirement. And that’s not just in your 401(k), these numbers that we just talked about, this is just 401(k), but that’s an all of your retirement accounts put together. 

Josh Robb: 

Yep. And the reason for that again, and this all comes from Fidelity is their concept is they have some assumptions in there, but they assumed you’re going to then only spend 80% of what you’re making. And they were looking at that sustainable withdrawal rate saying that 10 times your salary at that point would be sustainable to take a withdrawal out if you were living on 80% of what that salary was. So that’s kind of what their underlying basis work. Right. 

Austin Wilson: 

Absolutely. So, yeah, like we had just kind of talked about, that’s not a big change year over year. So we’re talking $8,000, but we’re talking two times your salary over really almost a decade or so. So why is that not such a big change, Josh. 

Josh Robb: 

Yeah. The best way of seeing that as a, the Gallup poll in 2018, that’s the most recent one I could find, but they did a survey and they had this results and they looked at, they surveyed a bunch of people said, okay, what are your plans for retirement? What age are you planning on retiring? The average age people were planning on retiring at 66. 

Austin Wilson: 

Okay. 

Josh Robb: 

Which it’s, again, it’s average. So there’s some up and downs in there, but the full retirement age has slowly been working up it’s to 67 for our social security. 

Austin Wilson: 

Right. 

Josh Robb: 

We’ll talk about what that is in a minute, but it’s started early on. It was, well, 62 was the original one, but it’s worked its way up and over time they’ve been increasing that full retirement age number. And so this average has been trying to track along right, slightly behind that. But what’s interesting about this poll is when they actually surveyed the retired people. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

And asked them, when did you retire? The survey found that the actual retirement age was 61. 

Austin Wilson: 

So that’s really about five years. People are actually retiring about five years before they think they’re going to retire. This is what you’re saying. 

Josh Robb: 

Yes. Yep. And there was multiple reasons for that one. The positive end is your investments did better. Your savings did better so you could retire sooner than you had originally thought. 

Austin Wilson: 

Yeah. 

Josh Robb: 

Great. That’s awesome. The other side is that there was some unknown event, maybe it was a health issue. Maybe there was a family issue. Maybe you got laid off. Maybe there was a downturn in the economy. 

Austin Wilson: 

Mm-hmm (affirmative) 

Josh Robb: 

Something that forced you to retire sooner than you wanted to. 

Austin Wilson: 

Or alternatively, maybe people retired before they should have. 

Josh Robb: 

Yes, yeah. 

Austin Wilson: 

So if they’re not working with someone who’s helping them kind of along the process, maybe they’re just like, yeah, I have $500,000. That’s good enough. Right? But they don’t really think about the impact. 

Josh Robb: 

So if we go back to the average balance, part of the reason why it’s not such a big jump, like we’d seen 20s, 30s, 40s, 50s, big jumps. 

Austin Wilson: 

Yeah.  

Josh Robb: 

We saw movement. 

Austin Wilson: 

Yep. 

Josh Robb: 

This has really increased, but not quite as much as you would expect, especially considering coming out of your prime earning years. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

Part of that is because for a portion of that timeframe, people are withdrawing from that portfolio. 

Austin Wilson: 

Mm-hmm (affirmative).

Josh Robb: 

So the average balance is going to actually be lower because, if the average person retires at 61, then for eight of those nine remaining years, you’re taking money out. 

Austin Wilson: 

And a couple of other factors that go into that is that you’re probably not invested as aggressively. So you’re probably not getting as much growth and you’re not contributing like you had just mentioned. 

Josh Robb: 

Yeah. A good portion of that. 

Austin Wilson: 

A good portion of that. So there’s a couple of things going that kind of make that number a little convoluted, I think. 

Josh Robb: 

So just keep that in mind. But that 10% is again, that benchmark, it’s not the right number for everyone. Depends on what your goals are, but it’s a good reference point as you work your way up towards those ages. 

[6:37] – Dad Joke of the Week 

Austin Wilson: 

Right. So Josh, before we go any further. 

Josh Robb: 

Yes. 

Austin Wilson: 

I’d like to get us going on this Thursday episode with a dad joke of the week. 

Josh Robb: 

I’m ready. 

Austin Wilson: 

And this is one that you and I, we battle about sometimes. 

Josh Robb: 

Okay. I’m ready. 

Austin Wilson: 

Josh. If apple made a car. 

Josh Robb: 

Mm-hmm (affirmative). 

 Austin Wilson: 

What would it be missing? 

Josh Robb: 

Functionality. 

Austin Wilson: 

That’s a joke. Yeah. Good one, good one Josh. But no, actually it’d be missing.  

Josh Robb: 

Customization.  

Austin Wilson: 

Windows. 

Josh Robb: 

Oh, windows. 

Austin Wilson: 

It’d be missing windows. 

Josh Robb: 

I got you. 

Austin Wilson: 

See what I said there? 

Josh Robb: 

Yeah. Got it. 

Austin Wilson: 

So, anyway, speaking of that, Apple’s working on reportedly a car that they’re going to be partnering with, potentially someone like Hyundai, who knows on the production of it. I think it’s going to be pretty cool. It’s probably going to be pretty expensive. 

Josh Robb: 

It’s going to be an iCar. 

Austin Wilson: 

It’s going to be iCar. 

Josh Robb: 

It’s the way you name it. 

Austin Wilson: 

They have named it that. They’ve actually really moved away from other than you have iPhone, iPad, iMac. 

Josh Robb: 

iWatch. 

Austin Wilson: 

But like, no, there’s no iWatch. 

Josh Robb: 

Yeah. 

Austin Wilson: 

It’s the Apple watch. 

Josh Robb: 

Yeah. What do you do when you watch Apple TV. 

Austin Wilson: 

AirPods, Apple TV? 

Josh Robb: 

No, but that’s I watch, 

Austin Wilson: 

I watch. 

Josh Robb: 

Apple TV. 

Austin Wilson: 

I see you. 

Josh Robb: 

See what I did there? 

Austin Wilson: 

You’re on a roll today, Josh,  

Josh Robb: 

I’m in a mood. 

Austin Wilson: 

You’re in a mood. So let’s take that mood. 

Josh Robb: 

Okay. 

Austin Wilson: 

And hone it in a little bit because this is really where you spend a lot of your time and effort in real life. 

Josh Robb: 

Yeah. 

Austin Wilson: 

People in their 60s, people getting into retirement, transitioning into retirement. So this is why it’s good to have the expert here. I’m just here to be a funny guy. 

Josh Robb: 

So let’s first put this out, disclaimer, right? Not everybody retires in their 60s or some are able to retire earlier. 

Austin Wilson: 

Yeah. 

Josh Robb: 

Some retire later. So when we’re talking about this, this is again, the average. We’re looking at a lot of people, the majority of people are planning on retiring somewhere in their 60s. So that’s kind of why we’re focusing on this based on your plan, you may love your job and say, you know what? I’m going to keep working- 

Austin Wilson: 

Until they make me leave. 

Josh Robb: 

… Until I’m forced out there. But just keep that in mind. So some of this will just apply to you whenever these transitions are happening, but we’re talking about it here in the 60s timeframe because a lot of people that’s kind of their window. 

[8:32] – Preparing for Retirement 

Austin Wilson: 

Yeah. So let’s start with the leading up to retirement, right? 

Josh Robb: 

Yes. 

Austin Wilson: 

So let’s start with, how do you prepare for taking that step? 

Josh Robb: 

Yep. So this late 50s, early 60s preparing for retirement, you kind of in that final stage, you can see the light at the end of the tunnel, you got to do a couple of things, right? You got to get ready. And so the first thing you got to do is review all of your company benefits and what is available for you. So some companies offer continuation of either discounts or incentives for even their retirees. So if you leave your company and retire, they may still offer an insurance for you at a discount than you could find elsewhere. 

Austin Wilson: 

It’s actually ideal. 

Josh Robb: 

Yes, that’d be great. Not all companies do, but those are the things. So be aware before you retire, which things are available. So you know which things you got to go out and get on your own. 

Austin Wilson: 

Right. 

Josh Robb: 

But work through all those look at all, that’s available. Also, make sure that you’re taking advantage of everything while you’re working. Because again, you’re in your prime earning years. If you have some extra cashflow, if they allow a health savings account, if they allow all the different things within your company. Make sure you’re taking advantage of all those, get your hands in there while you’re working, because there are certain things are only available to you while you have earned income. And some of those things you’d want to do before you retire. 

Austin Wilson: 

Even additional savings, if you can. 

Josh Robb: 

Oh yeah. 

Austin Wilson: 

So you can only contribute to a Roth IRA if you have earned income. 

Josh Robb: 

Earned income. 

Austin Wilson: 

So while you have it and you have the extra money laying around, potentially Chuck it in there, tax-free. Tax-free growth, right? 

Josh Robb: 

Mm-hmm (affirmative). 

Austin Wilson: 

Same with your 401(k). You can only have a company 401(k) plan if you’re getting paid by the company. And if you don’t need the money right now, you could pay less tax now also by putting that money into your 401(k). 

[10:01] – Post Retirement Budget 

Josh Robb: 

Yep. So the next one, and this is important. You may have budgeted your whole life, but what we suggest and what I think is a great idea is, one track your spending so you get a good idea of what you’re spending, but prepare a post retirement budget and try it out. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

See what that looks like. Give it a trial run for a month or two, just to see how that feels. You may be surprised where you thought, you know what, I’m only going to spend X amount than you thought. You know what? It’s actually a little more than that. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

Or if I have that free time, these things are going to cost a little more. So try out that budget, give it a little test run there for a couple months just to see what that’s like. And then along with that early in retirement, especially if you’re leaving an employment, there is a transition period where you may not have access to some of your funds as it’s being moved into the retirement phase. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

So let’s say you work at a company that offers a pension depending on when you file and how that works. It may be a month delayed or two before you actually see that start hitting. 

Austin Wilson: 

Right. 

Josh Robb: 

So prepare for that beginning period when withdrawals may not start yet. And so what you do, you boost up your emergency fund, make sure you have extra cash. Cash is very, very important in the early parts of retirement. 

Austin Wilson: 

Absolutely. 

Josh Robb: 

Because one, when you retire, depending on again, your company and how it’s structured, but you may have additional pay for unearned vacation, sick days, all those things, you may get cash, but you also may be delayed in getting your other retirement contribution. So holding emergency fund, building that up is huge. And so preparing for retirement, just thinking through what are those first couple months going to be like, that’s huge to consider my cashflow.  

[11:47] – Pensions, Lump Sums, and Survivorships 

Austin Wilson: 

Yeah. And you mentioned it and we should probably elaborate a little bit more, but a lot of people, especially a lot of people in their 60s now probably had a pension of some sort. And that is something that is a great thing for that generation. It’s not so common now. 

Josh Robb: 

Right. 

Austin Wilson: 

But you need to look at your options with that. 

Josh Robb: 

Mm-hmm (affirmative). 

Austin Wilson: 

These are things you do as you’re preparing for retirement, not necessarily waiting until the end. 

Josh Robb: 

Right. 

Austin Wilson: 

So a lot of people take the pension, leave it as a pension. You get paychecks from that essentially is how it works forever. 

Josh Robb: 

Mm-hmm (affirmative), yep. 

Austin Wilson: 

Or a lot of people take lump sums. Knowing what your policy, your plan on both of those options is very good because those can have very different impacts on your overall total financial picture over time. 

Josh Robb: 

Yeah. Taking a monthly payout from a pension plan is usually where they’ll say, okay, you can choose your survivor benefit so well. So if you have a spouse, you can get more money right now if you say if something happens to me, nothing else happens so 0% survivorship, meaning all the money goes to me. I get higher monthly payout, but there’s no obligation if something happens to the person who earned it, who worked. 

Austin Wilson: 

Right. 

Josh Robb: 

You can have a 50% survivorship. So I get paid a certain amount. If something happens to me half of that amount, then it goes to my spouse for the rest of their life. Or you could have 100% where if something happens to me, the same amount continues on for my spouse. 

Austin Wilson: 

And your payout goes down. 

Josh Robb: 

The more you choose the survivor, the less you’re going to get monthly because that helps cover their liabilities. Then there’s the lump sum where you just say, okay, if I use some sort of table factored up, how long the life expectancy for an average person to be, they’ll give me an upfront lump sum and they have no more obligation. 

Austin Wilson: 

Correct. 

Josh Robb: 

Yeah. It’s analysis to say what makes most sense for my lifestyle, for my needs? What other assets do I have? And so it’s not one straight answer for everybody. 

Austin Wilson: 

Yep. 

Josh Robb: 

The other factor is, is there an adjustment to that payout amount? Am I going to get the same amount every month? Because if I get $100 a month now, in 30 years, $100, it’s not going to buy the exact same thing. 

Austin Wilson: 

Absolutely. 

Josh Robb: 

And so factor all that in make that decision, but you’re right, with pensions there’s those decisions. With 401(k)s, and we’re going to talk about that as you transition what you need to do with retirement counselors, a lot of decisions there, but one other thing before we get there, well, actually two things, but they kind of go hand in hand pay any large expenses that you have while you have it. 

Austin Wilson: 

Oh yeah. 

Josh Robb: 

So if your car’s getting older, and you know you’re going to be replacing it. 

Austin Wilson: 

Probably do that while you have a job. 

Josh Robb: 

Plan to do it while you have income, so budgeting and planning for that. And then on the other side, use some of that income, try to get debt free. 

Austin Wilson: 

Right. 

Josh Robb: 

Try to pay down that debt. So that as you transition to that retirement, you don’t have those obligations. 

Austin Wilson: 

And we would say obviously first and foremost debt-free, as it relates to any high interest debt, credit cards, obviously we don’t want to be carrying those into retirement. We don’t want to really ever be carrying those if you can, but car loans, things like that, but in a perfect world, even get to the point where you don’t have a mortgage. 

Josh Robb: 

You don’t have a mortgage. 

Austin Wilson: 

Right? That is ideal because then that’s one expense that you don’t have to worry about covering with. However, you’re pulling together, all of your different buckets of retirement income. You don’t have to cover it anymore. And then you can just focus on your needs month to month, which is, insurance and taxes and food and healthcare and yada yada yada. So yeah. Good points there. 

[14:45] – Tax Considerations 

Josh Robb: 

Yep. So that transition period, you turn in your two weeks notice or whatever it is that your company and going to make that transition. There’s things you need to think about. There’s tax considerations. So if I saved at my company retirement plan, let’s say it’s a 401(k), 403(b), kind of the normal thing you see at most retirement plans. I have options. I can leave it there, I can move it to Rollover IRA. I can move it into a Roth IRA. If it’s not already Roth 401(k) money, I can take it in cash. There’s a lot of things and you’ve got to understand what those long-term tax consequences will be for each of those decisions. 

Austin Wilson: 

Right. 

Josh Robb: 

Again, everybody’s situation is different, but understand what those different things are, leaving it at your 401(k) keeps that tax deferred status, but there’s certain limitations there. Moving to a Rollover IRA still keeps it tax deferred status, but there’s ramifications for that. There’s maybe additional cost involved. So you just understand what those are, make the best decision for you, but consider taxes because there’s a lot going on. Do I retire on 12/31 or do I retire on 1/1? 

Austin Wilson: 

Well, and- 

Josh Robb: 

That makes a big difference. 

Austin Wilson: 

And another thing is when you’re looking at setting that end date, right? Something to consider as a lot of people have, depending on where you work, you could have some time off accrued and you may have earned that all the way up front and you can cash it in or take it out. Or you can only use what you’ve accrued throughout the year. Different companies have different policies, but understand the policy for one, but know that if you do cash it out, it’s taxable income as well. And whenever that occurs, whether that be in the new year or the current year, that’s going to be additional taxable income to consider. 

Josh Robb: 

Yeah. And so there’s a lot going on there. Sometimes you may even be able to have retirement date, but then based on their pay carries over into the next year, who knows, just keep in mind, you got to be aware of those things. 

Austin Wilson: 

Yeah. 

Josh Robb: 

As you transition though, one of the things I strongly recommend take some time to decompress. Chances are you’ve been working for 40 years. If you’re retiring in your 60s, chances are you’ve been working for 40 years. Take some time, figure out what you want to do. What’s the next phase of your life going to be like. 

Austin Wilson: 

Mm-hmm (affirmative). 

Josh Robb: 

You don’t have to have all the answers. In fact, I’ve gone through some training on this and the average person retires three times. 

Austin Wilson: 

Right. 

Josh Robb: 

Not meaning that they have to go back to work, but they change what retirement is three times as they figure out what makes the most sense for you? What makes me the happiest? 

Austin Wilson: 

Yeah. 

Josh Robb: 

And I always say retirement is really just having enough money to go to sleep at night and enough purpose to want to get up in the morning. Those are the two things that make retirement successful. 

Austin Wilson: 

Right. 

Josh Robb: 

And so take some time and figure that out. You don’t have to have all the answers right away. And you may try something and be like, this is not as much fun as I thought it was going to be. 

Austin Wilson: 

Yeah. 

Josh Robb: 

Go do something else. 

Austin Wilson: 

Exactly. 

Josh Robb: 

That’s the cool part of this. You’re financially free to make those decisions at this point. 

Austin Wilson: 

Yeah. That’s just it, the flexibility that you’ve earned. So you’ve worked all of these years and maybe you want something less pressure. You want to work part time doing something, whatever that may be. You just want to do something different that has no pressure to get up in the middle of the night or whatever to go kill it at work or whatever. So that is something that is maybe, it’s just a mind release where you’re just like, ah, I can relax. I can enjoy it, I don’t have this high pressure job anymore. I’m still doing a little ,because I like it. Or it’s nice to have a couple extra bucks or whatever, but it’s not the same. 

Josh Robb: 

Yep. And by the way, two thirds of people surveyed planned on working in retirement. 

Austin Wilson: 

Yeah. 

Josh Robb: 

So working could be part of retirement. 

Austin Wilson: 

For sure. 

Josh Robb: 

And that’s not a bad thing. So just to understand that there will be adjustments as you make this transition, you’ve spent again a good chunk of your life in one routine that you’re going to disrupt. It’s going to disrupt you, if you have a spouse, it’s going to disrupt your relationship with them. If there’s kids still around, it’s going to disrupt that. That’s fine. Just make sure everybody’s on the same page. 

Austin Wilson: 

Right. 

Josh Robb: 

Communicate and understand that there’ll be a trial and error where no, we’ve not gone through this before. We’re going to have to figure it out. 

Austin Wilson: 

For sure. So Josh kind of break it down with some just real high level, good things you need to have in your head as you’re in your 60s or getting towards your 60s to retire, some key ages, some key thoughts that you just need to keep at the top of your mind. 

Josh Robb: 

Here’s just some important things just to have in your mind. So in between 60 and 69, there are a couple of things that happen. So the first one, roughly nine years. 

Austin Wilson: 

Yes. 

Josh Robb: 

10, if you have the zero. 

Austin Wilson: 

Okay so. 

[18:57] – Medicare 

Josh Robb: 

Either way, so 65. Age 65 is when Medicare is available. So if you’ve worked in have enough earn credits and social security, you are eligible for Medicare. Medicare is the government insurance program for elderly people. There are certain parts that are free, certain parts that you pay for. And then there’s supplemental to that. Lots of decisions in there as well. But it’s available at 65. So keep that in mind. You can’t get it before. There’s other things you can get before, but Medicare for just retirees starts at 65. 

Austin Wilson: 

And that’s why one of the key things we talked about earlier is knowing your options with your current employer plan. If there are any, just understanding them, because if you don’t have them, you’re going to have to find them in-between. 

[19:41] – Social Security 

Josh Robb: 

Yes. Yep. So another age 62. So that’s the starting or early stage you can claim retirement, social security benefits. Now there’s disability, social security benefits that you can get before, if you’re disabled, I’m not talking about that, but for retirement benefits, 62 starts it. Now it’s a reduced rate. 

Austin Wilson: 

Mm-hmm (affirmative).  

Josh Robb: 

So at 62 you can start getting a monthly amount, but it’s going to be reduced. 67 is your full retirement. So now that is for current people working based on your age and your birthday, there’s actually, you could be 66 in 10 months, but we’re getting to the point now for most people that are not yet in their 60s, it’s going to be 67, your full retirement age, and maybe even later, depending on future loss, but the reason why that matters full retirement age in social securities language means that’s your full benefit you’ve earned through everything you put in, it’s not reduced. 

Austin Wilson: 

Mm-hmm (affirmative).  

[20:54] – Roth Conversion 

Josh Robb: 

From every month on, you can get a higher amount from 67 all the way up to 70 you can actually get increased benefits from social security. And so choosing from 62 to 70, there’s a decision to be made on when do I want to start claiming social security? So just keep that in mind, but 62 67, those are kind of the two in our timeframe we’re looking at. Another thing to keep in mind is if you are retiring, a Roth conversion may be a good strategy to employ. Roth conversion is just moving money from an IRA bucket of pre-tax into a Roth IRA of post-tax. And so when you move that money, you pay tax on that transfer, it’s a distribution. And so it’s moved from a pre-tax to post tax. So it’s tax. So if you move $10,000 on your tax return, you’ll show $10,000 of income that needs to be taxed on that move. 

Austin Wilson: 

Right.  

Josh Robb: 

The reason why that may be worth considering is once you retire your income, it’s going to go down. 

Austin Wilson: 

Therefore your tax bracket drops. 

Josh Robb: 

Yes. So therefore you’re in a lower tax bracket. The reason most people do that, well, there’s a couple, but the main reason is if I can move money and pay tax at my designated rate, when my required distribution start, which we’ll talk about that in our 70 plus episode, required distributions may be more than I want, and I may be forced to pay a higher tax on those. 

Austin Wilson: 

Right. 

Josh Robb: 

So I can control my tax brackets by choosing when and how much I convert or move over to a Roth. 

Austin Wilson: 

Yeah, for sure.  

[21:56] – Considering Long-Term Care 

Josh Robb: 

So that’s something to consider also the ideal age to start shopping for longterm care is in your early 60s because that’s when you’ll get a good price. And also you’re kind of in that window of starting to be eligible for those types of things. So long-term care can be expensive really again, determines on your plan where you’re at, if it’s the right thing for you, but now’s a good time to start thinking about it, if you’re in your early 60s. 

Austin Wilson: 

Yep. 

[22:19] – Estate Documents 

Josh Robb: 

A couple of other things to do especially as you’re transitioning, review your estate documents. All right? So let’s say you’re going to retire and move down to Florida where it’s all warm like a lot of retirees do. Okay. Who is my power of attorney? Who is my healthcare provider? Are they still located in the same state as me? 

Austin Wilson: 

Right. 

Josh Robb: 

Or is it my kid, who’s still up north. So reveal your state documents. Do they still make sense for where my current life situation is?  

Austin Wilson: 

Right. 

Josh Robb: 

Review within the estate, my will or trust. Now that I have assets that have probably moved around, maybe I’d rolled out 401(k) money. May be I have a pension that started, do all my documents match what I’m currently doing, what my will is. Do I have new family members? If you’re in your 60s, chances are, if you had kids, they’re grownups or getting to that phase in life that maybe they’re going to be getting married and having grandkids for you. So check your estate documents, make sure they work out. And then the big one, and we can talk about this is asset allocation. 

Austin Wilson: 

Right. 

[23:09] – Asset Allocation 

Josh Robb: 

You mentioned it earlier. Maybe you’re not quite as aggressive as you were in your 20s and 30s when you had a lot of timeframe to let it go. But there’s two sides to this and we’re going to talk about it together. The first one that I’m going to spend some time on, is being prepared to protect against what I call bad timing, which is choosing to retire right before the market drops, which again, with foresight, everybody knows when the market’s good. 

Austin Wilson: 

Of course. 

Josh Robb: 

So you shouldn’t ever have to worry about it. 

Austin Wilson: 

Just time your retirement appropriately. 

Josh Robb: 

Yeah. But statistically speaking, if you look at retirement testing, having bad market returns early in retirement, the first handful of years you retire is bad on your portfolio. 

Austin Wilson: 

Oh yeah.  

Josh Robb: 

In fact, it’s more impactful than if you have those same bad returns in the middle or the end of your retirement plan.  

Austin Wilson: 

Right.  

Josh Robb: 

So choosing an asset allocation that can help protect against that is a very, very important thing. We talk about, we refer to as a bear market fund, as in some sort of very conservative investment that you can turn to if the market does drop early on in retirement, that way you don’t have to draw that portfolio that’s down to value when you need the money to live on. 

Austin Wilson: 

That’s the key, pulling from things that are not down. So if you are pulling from stocks, when stocks are way down, we’ve seen this recently, but if you had to pull from stocks last spring in when you were down 30% people did it, people had to do it. Yeah, but that gives those stocks that you’re selling, not the opportunity to have the great rally that we’ve had up to today and then you were just selling when you’re down. Where if you’re having something, like you said something super conservative, it could be cash. It could be bonds. It could be whatever, super conservative to pull from when those things happen because they do, we know they happen, but we also know they recover. 

Josh Robb: 

Yeah. Historically they always recover. 

Austin Wilson: 

They’ve always recovered. 

Josh Robb: 

Yep. 

Austin Wilson: 

So having that on the side is key, especially during those first handful of years, because as you get older, those downturns are less important for the long-term plan. 

Josh Robb: 

Right. 

Austin Wilson: 

But early on, they can really have a big impact. 

Josh Robb: 

Yep. Now the reverse of that is there’s an old adage that said, Hey, do you want to know how much used to be invested in the stock market? Take 100 minus your age. And that’s how much should be in the stock market. That was an old adage people used to use. 

Austin Wilson: 

Was it? 

Josh Robb: 

Yeah. And so let’s say you are 65 years old. You should have 35% of your portfolio in stocks.  

Austin Wilson: 

Right.  

Josh Robb: 

And the rest would be in fixed in cold cash. 

Austin Wilson: 

I can see why this was old because interest rates used to be much higher. 

Josh Robb: 

Yes, so that was an old adage. Now again, I bring it up to point out so as you get older, you have less than the stock market. Now the problem with that is people are living longer.  

Austin Wilson: 

Yeah. 

Josh Robb: 

And so this is not a very good representation anymore of a good asset allocation. While you do want to protect for those early years, you also want to make sure you’re invested in a way that makes sure you’re growing and keeping up with inflation and allowing you or money to last for hopefully beyond your lifetime. 

Austin Wilson: 

Yes. 

Josh Robb: 

Which is a goal. So it’s kind of a double edged sword where I don’t want to be too aggressive with all my money where I could miss out on protecting my assets if it goes down. But I also don’t want to be too conservative where, oh no, I missed out on growth and now I’m struggling later on in my 80s and 90s or whatever. And so it’s kind of a balance asset location with which a good financial advisor can help you plan for that and determine how much it needs to be in which bucket. 

Austin Wilson: 

The buckets are the key. 

Josh Robb: 

For you there, right? 

Austin Wilson: 

You can have buckets that have different uses and it’s great. It is okay. And that’s what it’s for to take money out of your stocks when it’s doing well. 

Josh Robb: 

Yeah. 

Austin Wilson: 

That’s what it’s for. 

[26:47] – Spend Down Policy 

Josh Robb: 

Yeah. So just high level. A spend down policy in retirement should be I’m drawing first from stocks if they’re up. 

Austin Wilson: 

Yep.  

Josh Robb: 

Second I’ll draw from fixed income if it’s up. Third, I’ll draw from cash. That’s kind of the level. Then if I run out of all those, I’ll start drawing from my fixed income if it’s down and then finally my stocks, if they’re down. 

Austin Wilson: 

Yeah. 

Josh Robb: 

So that’s the order because of volatility. So things are up the thing that are most volatile, you can draw from stocks because they have the most volatile, but also the most likely to be up. Bonds next, as long as you’re positive. Now both of those are negative you draw out of your cash until that’s gone. And then once your cash is gone, fixed income, because we’re probably less down. 

Austin Wilson: 

Right. It doesn’t end with stocks. 

Josh Robb: 

It goes down less than stocks. So anyway, that’s a good order of withdrawal, but you’re right in that you need to give yourself permission to spend in retirement. 

Austin Wilson: 

It’s okay. That’s what you worked so hard for. 

Josh Robb: 

People can be very frugal and have a hard time switching from saving to spending mode. 

Austin Wilson: 

Right. 

Josh Robb: 

And we do, I mean, I remember sitting across from clients and they’re still in savings mode and it’s hard to save when you have no income. And so they get very stressed about making expenditures- 

Austin Wilson: 

Right.  

Josh Robb: 

…That they planned 40 years to do. And you have to in a sense give yourself permission to enjoy that retirement. 

Austin Wilson: 

You can buy a car. 

Josh Robb: 

It’s okay. 

Austin Wilson: 

It’s okay, or whatever. 

Josh Robb: 

So having a good plan matters. And that’s the key. 

Austin Wilson: 

Absolutely. 

Josh Robb: 

So as you wrap up the 60 to 69 age, frame planning is key. Having a plan heading into there, sticking to it and implementing through there and being flexible to adjust it. Let’s say you were thinking of retiring last year, market’s down 34, maybe I push it out a little bit. 

Austin Wilson: 

Waiting a year would have worked out quite well. 

Josh Robb: 

So being a little flexible with your plan is always important. 

Austin Wilson: 

Absolutely. So that everyone is your 60s. We’re talking a really important period for a lot of people, not everyone, but for a lot of people. Next week, we are going to be wrapping up this series by talking about what to do in your 70s and beyond. 

Josh Robb: 

Yep. 70s plus. 

Austin Wilson: 

So 70s really through, through the end of life, right? 

Josh Robb: 

Through 300. 

Austin Wilson: 

Yeah because that’s where we’re headed. Right? Medical advances are wonderful. So stay tuned next week. We’re going to be talking about that. But as always, check out our free gift to you, it’s a brief list of eight principles of timeless investing. They will help you with. The things we’ve talked about today, their overarching investment themes something to keep you on track, to meet your long term goals, which these long term goals are exactly what we’re talking about as you’re approaching retirement. Josh, how can people help us grow this podcast? 

Josh Robb: 

Yep. Make sure you subscribe, that way every Thursday you get our episodes. And then if you like to please leave a review on apple podcast. That’s always great for us. And if you have any thoughts, questions, if you’re in your 60s and are thinking through some problems, shoot us an email@helloattheinvesteddads.com. We’d love to talk with you. And then finally, you know what? Still time.  

Austin Wilson: 

Still time. 

Josh Robb: 

Join us in the Invested Dads Podcast. First, second, annual. Oh man. That’s such a long one. 

Austin Wilson: 

Its like stock draft, right? 

Josh Robb: 

Oh man. The 2021 Invested Dads second annual Stock Draft. 

Austin Wilson: 

That’s right. 

Josh Robb: 

Second half of the year second annual Stock Draft. Oh man. It’s got to be shorter then. Either way, sign up. It’s on Investopedia. 

Austin Wilson: 

You can do it all the way through the end of the year. 

Josh Robb: 

You can stop at any point in time. Maybe I know right now I’m down. So you can beat me just by joining in it’s free time. It’s not real money. So it’s just a fun time. 

Austin Wilson: 

We’ve got how to do that on all of our social media and on our website. 

Josh Robb: 

Yeah. Check it out. 

Austin Wilson: 

Check it out. All right. Well until next Thursday have a great week. 

Josh Robb: 

All right. 

Austin Wilson: 

Bye. 

Josh Robb: 

Talk to you later. 

Outro: 

Thank You for listening to the Invested Dads Podcast. This episode has ended, but your journey towards a better financial future, doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.