Ep. 09 – How Financial Planning ‘Should’ Work

Brighter Wealth Retirement


>>Devin Peterson (00:00):

Hello and welcome back to another episode of Brighter Retirement Radio. I’m your host Devin Peterson, and in today’s episode we’re going to be discussing how financial planning should work. Now I emphasize the word should because today’s episode is all about what your experience might have been when it comes to financial planning and what it should be when it comes to financial planning. So my intention here today in this episode is together, consider what your experience of financial planning has been and then also compare that to what we feel like it should be. Towards the end of this episode, I’ll just want to share with you a case study of students that went through our Brighter 360 Retirement planning process and what they really saw and found within the retirement plan. But as we start off this conversation, I want to ask you, as our listener, do you know the success probability of your retirement plan?

>>Devin Peterson (00:59):

Do you know that if you keep doing what you’re doing today, meaning spending what you’re spending and earning what you’re earning and have the same risk that you’re taking, do you know the success of not running out of money before you pass away? Ultimately that’s what all of our goals are. Correct.

Ultimately, we do not want to run out of money. We want to be able to enjoy our retirement lifestyle and our retirement experience with the peace of mind of not running out of money. So it really illustrates the point I want to share with you.

>>Devin Peterson (01:29):

Kind of a silly but very dramatic example or story. If you and your spouse or you and your family got on a plane from your city and you went to Honolulu. You went to the airport, sat down on the plane and as you were getting ready to depart, the pilot came on the intercom and said, well, welcome to Delta flight 123 from Salt Lake City to Honolulu. It’s a beautiful day in sunny downtown Honolulu. And the duration of this flight is a short 5 hours and 19 minutes after reviewing your flight schedule and variable weather pattern, we have determined that we have a 52% chance of arriving safely at our destination. We appreciate you flying with Delta. Buckle up and enjoy the flight. If you heard that from the intercom, what would you do? You would get off the plane, right? Well, why would you get off the plane? Because the failure in this situation is not an option. Failure is an unacceptable outcome. And so it is with running out of money in retirement, failure is not an acceptable outcome, not a comfortable outcome, not a desired outcome whatsoever. And so for all of us, just hoping that things will work out is not an effective strategy and will likely lead massive failure.

>>Devin Peterson (02:55):

So later on in this episode, we’ll come back to that Hawaii flight example, but I do want to continue the traveled terminology for a minute and say that retirement planning is just like taking a trip. So when you take a trip, you begin knowing where you are and where you want to go. Then you map out how to successfully get there with the flexibility, of course, to make course corrections as you go as well.

However, the reality has been for most of us that are working towards retirement that some of us have simply not invested the time to think about what they would like in their retirement, what they would like it to look like, what they anticipate their expenses are, and others are so overwhelmed by the process and simply do not feel like they know where to begin so they don’t even start.

>>Devin Peterson (03:55):

And then there are those of us who have sought out an advisor to complete a retirement plan but found it somewhat cumbersome and quite frankly, an unpleasant experience. Many of us, this might have been a referral from a friend to a financial advisor. You might’ve gone to a dinner, some seminar you might’ve met with someone that you heard about on the radio. And in that experience you might have went through that planning experience. And realized that at the end of the day, you just have a confusing stack of papers that they’re really hard to understand unless you have a doctorate in finance or you realize after that whole experience, it was really just a sales pitch for you to buy some costly financial product, whether it’s an investment or expensive annuity that didn’t really fit your plan. Or as you went through that experience, the advisor said that you needed to cancel everything and change everything inside of your plan, your retirement plan, sell it all and buy all new things through them.

>>Devin Peterson (05:05):

Or you might’ve experienced that at the end of the day, that plan was really expensive to complete and really expensive to implement as well. And so that’s an experience as I share those that I want you to consider. Has that been your experience? Do you feel somewhat jaded or frustrated from that experience? And I will tell you this, that’s very common. You’re not alone. And so for some, they feel like the planning process is outright broken. So what we feel, in contrast to that, what we feel like a retirement plan should be is it should be simple yet holistic and objective in analysis and diagnosis. It should be simple, should be comprehensive. A plan should be personalized to you. It should be goal- based approach focused on processes, not products. So if your retirement plan is really centered around you owning this annuity and that’s the most important thing or owning these investments, and that’s the most important thing, if it’s centered around products, it’s probably not the best plan.

>>Devin Peterson (06:18):

At the end of the day, a quality plan looks first at what the goals are for the plan, and then of course picks products and services that fit that plan, but it’s not focused on the products. Anytime you sit down with advisor or a seminar that they’re talking about all the benefits of X, Y, and Z product, and this is why you should buy this product, before they really seek to understand what your goals are, that’s a big red flag. And then a retirement plan should also recognize the strengths and weaknesses of your current plan. Meaning, I know all of you out there have strengths of your plan, and there most likely is not a need to sell everything because a lot of times you do have good aspects of your plan. There might be just a few areas that you could improve. As well as your plan should be easy to understand and it should be actionable.

>>Devin Peterson (07:14):

I personally, and you know this, I’m personally a big advocate for personal education inside of your finances, educating yourself. That’s how you gain your peace of mind, not by handing off all the keys to the kingdom, proverbially to your advisor, but really understanding it for yourself as well. So it should be understandable. It should be also actionable inside of your retirement plan. You should be able to see with clarity that it on this timeline, on this date and this date and this date. I’m going to take my social security here. I’m going to do some Roth conversions for this period of time. This is where my RMV starts. I’m going to change a couple of things in my taxes here. And so it should be very simple, laid out and actionable. Also inside of your retirement planning, it should be reviewed and updated at least annually.

>>Devin Peterson (08:07):

So as you sit down with your advisor there, it should be laid out in a way that you can update the numbers, rerun the plan and tell you what your success of not running out of money should be. So that’s kind of what we feel like it should be. And so what we’ve done is taken a pro, a broken process that we see and hear from listeners just like you all the time and we fixed it. And this is a results in advance type of plan that at Brighter Wealth we call it the Brighter 360 plan. Because really you understanding all 360 degrees of your retirement finances and your retirement experience is how you come to that peace of mind. And so let me ask you this. What would it feel like, or what would you feel like in an environment that you sat down with an advisor and you co-created with that advisor, a comprehensive, powerful and actual retirement plan? Would that not be the ideal? Would that not be the goal?

>>Devin Peterson (09:10):

Well, I’m telling you, it actually is very, very possible. So the elements in this comprehensive plan that we call a Brighter 360 plan should look like you sitting down with your advisor and you co-creating. I use that word specifically, co-creating. You should feel like it’s your plan leading out. The advisor is helping you put those pieces together and help to see if they’re the best for you. So in that environment, you should understand that your tax environment’s going to change or have many chapters over the course of your retirement. So creating a, what we call a Tax Story Analysis, understanding your tax situation is important. Part of that, is it should be able to get a social security timing report and know exactly why you should file at different times between you and your spouse.

>>Devin Peterson (10:00):

You should be able to have multiple scenarios, meaning without changing anything. You should be able to sit down and say, Mr. or Mrs. Advisor, what is my success percent chance of not running out of money if I change nothing at all? And so that plan would look like your same expenses, your same income, your same investment portfolio, the same timing of your retirement and plotted that out, ran the numbers all the way to the day you die. And they should be able to come back and say, you have X percent of chance of not running out of money. Now you use that as your baseline in that Brighter 360 plan that says, okay, that’s where I know I’m headed. If I manage on my own investments at Vanguard, what would that look like? Or what if I took five years, the next five years and did Roth conversions to get out of my tax deferred accounts? Well, that’s what that looked like. Or what if I improve my investments by reducing some of my risk and adding some return. That might be adjusting your portfolio. That might be getting an annuity, that might be getting bonds, that might be getting real estate.

>>Devin Peterson (11:08):

You should be able to see multiple situations or scenarios inside of your retirement plan so you can make an educated decision on which one makes sense for you. Is that fair enough? But on top of all of that, you should also be able to look at the whole retirement experience and in that same environment, get some estate planning recommendations, some Medicare Supplement planning recommendations, maybe a CPA recommendation that works specifically for retirees, recommendations for unplanned and unexpected healthcare expenses, and some investment portfolio analysis and recommendations. All of that should be a part of your comprehensive simple, powerful results in advance Brighter 360.

>>Devin Peterson (11:56):

Now before we end this podcast, I did want to share with you a simple case study of a student that came through our course a few years ago. And of course I’ll change their names, but I want to kind of simplify and give you a good idea of what this, what opportunities this might look like as you go through a true comprehensive plan. So in this example, this is Mr. or Mrs. Smith, of course I’ve changed their names, but as we put their plan together, we looked at three different scenarios for them. In the retirement plan, we looked at their current strategy, which was all buying hold and that they had been implementing that strategy for the previous 20 years. We looked at their current risk versus reward, reward or return inside of their current investments. And what we did is we did a stress test or a Monte Carlo analysis that we did a thousand different iterations of what the market could do and create a cashflow analysis and gave them a good idea of if they change nothing, this is what that would look like.

>>Devin Peterson (13:00):

So as we sat down with Mr. or Mrs. Smith, we said, okay, after running this plan, Mr. and Mrs. Smith, you have a 52% chance of not running out of money by the end of both of your lives. Now you can imagine what Mrs. Smith said, she was not happy. Just like what you would feel if you’re on that airplane to Hawaii. Like I mentioned at the beginning of this episode, you wouldn’t really stand for that, right?

You’d get off the plane, you’d get out of that plan. So of course they wanted to see something different. And so what we did is we ran two different versions. We ran a version where we reduced some of the risks, kind of improved their investments and then we ran a version where we did some tax planning.

Now before I tell you that, let me tell you what Mr. and Mrs. Smith’s retirement vision was for them because it might relate or resignate with you.

>>Devin Peterson (13:58):

So for mr Mrs. Smith, their vision was to “live a worry free retirement that provides us the freedom to travel, volunteer for our church and enjoy time with our three grandchildren.” They had a retirement income goal of $75,000 per year after tax dollars and they had about a million dollars of investible assets. So with those three goals and moving forward with what they were doing, that’s a 52% chance of success, which is a 48% chance of not success, which is not comfortable for them. The second scenario that we ran keeping the returns the same, just reducing the risk inside of their portfolio, came back with a 92% chance of not running out of money. Ms. Smith was elated. She was so relieved that there was a better out there that they could explore.

>>Devin Peterson (14:54):

So this was a very secure probability of not running out of money. Now for the third option, we did that same smart money plan where we reduced some of the risks inside of their portfolio. And then we just did some tax planning on top of that, doing some Roth conversions over a series of years to shift them from there. Tax deferred accounts into their tax free accounts or Roth IRA accounts. Now after we ran all those same numbers, did that same Monte Carlo simulation, it came back as a 100% chance of not running out of money. Now at this point, obviously Mrs. Smith was excited and enlightened and wanted to know more about what those recommendations look like and how they could be actionable inside of their plan. So for Mrs. Smith, walking away with what a plan should be and as we kind of summarize this up from this episode, again for Mrs. Smith, and it should be for you, your retirement plan should be simple. It should be personalized, it should be easy to understand, it should be actionable and it should be reviewed and updated annually at minimum.

>>Devin Peterson (16:11):

So I hope this helps for you as you move forward in putting together your retirement plan and understanding what you’ve done in the past and how that could be. And should be different from what it would look like in the future. So as we end, I want to share with you two thoughts. One is from an author named Bill Bacharach which says, “the future will come whether you plan for it or not. Will you have the future you want or the future that happens to you by default?” If you don’t have a plan, the future just happens by default. And then the last one by Mark Cain says, “there are those who travel, and then those who are going somewhere, they’re different and yet they are the same. Successful people have this over their rivals, they know where they’re going.”

>>Devin Peterson (17:01):

So I challenge you to find where you are going. Consider the elements inside of your retirement plan and what you’re doing right and what elements that you can improve. So I appreciate you joining us on today’s podcast. Again, I’m Devin Peterson. Feel free to subscribe to our podcast so you can get many of the bonus contents, the bonus episodes that we will release here in the future. And always a reminder of when these episodes are released. So feel free to subscribe to us or go onto Brighter Wealth Academy and follow us there and we will see you next week. Thank you so much.