Can You Get An A+ On Our Retirement Planning Quiz?

Plan With The Tax Man

Don’t dread this as much as you hated hearing these words as a kid, but it’s time for a pop quiz! We’re putting retirement planning preparedness under the microscope with 5 critical questions to which you need to know the answers. So sharpen those pencils and let’s see how ready you are for retirement.

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Transcript Of Today's Show:

Marc Killian: Hey, everybody. Welcome to the podcast. It's time to plan with the tax man, with Tony Mauro and myself and it's pop quiz time. Can you get an A on our retirement planning quiz? Now don't panic. It's only five questions and it's multiple choice. We want you guys to play along with us, have some fun with this and see how well you do. Tony, what's going on my friend. How are you?

Tony Mauro: I'm doing well. Thank you.

Marc Killian: Yeah? Did you like pop quizzes in school?

Tony Mauro: No, I didn't like them, especially if I didn't know about them obviously, which I think everybody is like that. You don't want to be put on the spot.

Marc Killian: It's pretty universal answer, so far I haven't found one person that said, I love pop quizzes.

Tony Mauro: Yeah, I know.

Marc Killian: It seems to be a universal. And I could never hear pop quiz anymore without hearing Dennis Hopper in the movie Speed, back in the 90s' going, pop quiz, hot shot.

Tony Mauro: Yeah.

Marc Killian: That's all I can think of now whenever I hear the term pop quiz. But I've got, like I said, I've got five questions for you here, Tony. They're multiple choice. What we should do is you give the best answer from the selection and then just give us a quick work through as to why that might be, or if you completely disagree, then give us an answer for that too. Okay.

Tony Mauro: Okay.

Marc Killian: All right. Let's jump right in. Yeah. Number one. At what age, Tony, should people start saving for retirement? A, when they begin working. B, after they buy their first home. Or C, once they've paid off all their debt.

Tony Mauro: Well, and so I'm going to, as the normal accountant would preface all this by saying, this is my opinions. So somebody may disagree with this, but I will explain the other ones as well and then, obviously people can form their own opinions. But I believe it should be when you start working, because I don't think it's ever too early to start saving. I think it's going to give you the best roadmap to meet your goals or the best chance for success, come retirement. Now that's hard to do in theory, because when we're young, we're not thinking about retirement.

Marc Killian: Not making as much.

Tony Mauro: [crosstalk] we're not making any money and yeah, so that's hard to do, to get disciplined with that. But if you can do that, even if it's just, 50 bucks a month and then, start growing it from there, I think that's the best route.

Marc Killian: Yeah, it is the best route. And it makes a huge difference. B, after you buy your first home. Not the worst. Especially if you're younger and you get your first home in your late twenties, maybe early thirties, something like that. Of course now we could put the spin on it right now, Tony, that prices are so high.

Tony Mauro: Yeah.

Marc Killian: The housing prices are boom. It's still boom, it's still going on. And now loan rates are going up. So it could be challenging for young people.

Tony Mauro: I think it's really challenging. My son, who's 26, he's going through that right now. They're just getting married. They want to buy their first home. And then all of a sudden things start to tighten up. I think if you go with my answer, if you start disciplining yourself young, before you get all this, you're learning to live without the money already.

Marc Killian: Yeah. And you won't miss it. Right.

Tony Mauro: Yeah. And you won't miss it. And then you've got to factor that in. I would say maybe the second best would be after you buy your first home, but it's going to be harder for you to start that discipline.

Marc Killian: Yep.

Tony Mauro: After that and of course, usually that comes a little later and again, it cuts down on your time to save.

Marc Killian: It does. And when you paid off all your debts, look, when is that right? When does that happen? That's a never ending excuse that we could all make. Well, once I get the, well, once I get that. It's always something.

Tony Mauro: Exactly.

Marc Killian: Yeah.

Tony Mauro: And I think, even if you follow the Dave Ramsey strategy, which I think is a great strategy is, live without any debt. It's hard to get there. And that could take you till you're 40, 45 before you get to that point.

Marc Killian: Yep.

Tony Mauro: And by that time, well, if you waited that long to start, you're really at a disadvantage just due to time.

Marc Killian: And it's possible. It's still possible. We talk all the time about advisors all across the country, don't start seeing people until they're, maybe in their fifties, but a lot of times they've been saving in some form or fashion, but they haven't gotten serious about how it all works until after 50. But yeah. Not even starting at all. And I'm actually, I'll throw myself under the bus, I'm one of those that had barely started at all until after 40. And so, it's definitely a bigger heel to climb. And now that I do this for a living, it's certainly been eyeopening as to the things I missed out on. So I've taught my daughter the opposite way.

Tony Mauro: Yes.

Marc Killian: All right, so good stuff on number one there. Number two, Tony, on our pop quiz, which of these is the best estimate of how much income you might need in retirement. A, 50% of your income, current income. B, 85% of your current income. C, 100% of your current income. Or D, none of the above.

Tony Mauro: Well, in my opinion, I would say, I'm leaning towards B, 85% of your income.

Marc Killian: [crosstalk] That's kind of the standard answer, right?

Tony Mauro: Yeah.

Marc Killian: We hear that a lot.

Tony Mauro: Again, you could do it in retirement on 50% of your income. Again, everybody's different. Depends on what your plan is.

Marc Killian: But do you really want to cut your lifestyle?

Tony Mauro: But yeah, do you want to cut it down to 50%? Plus, some things are going to be a lot higher. Some will be lower. Health insurance being one higher. And so I think, the 85% for us, at least when we plan, that's what we try to shoot for, because we feel that like that's a sweet spot of, okay. you're going to be able to live and enjoy some things in your retirement and still not have to worry about not only paying your bills, but outliving your money.

Marc Killian: Now, that's a tried and true number, but do you think Tony, maybe playing devil's advocate here, in the modern era of the last even decade, not even considering the inflation we're dealing with now, but early on, is that an average across a whole retirement? Because it would seem like early on in those "Go-go years", you may need a hundred percent or more.

Tony Mauro: Right.

Marc Killian: You know?

Tony Mauro: Well, exactly. If your plan calls for say, a lot of travel or maybe a lot of charitable giving or whatever the case may be, maybe just buying things you've always wanted.

Marc Killian: Right.

Tony Mauro: But most people associate it with the younger part of retirement, with traveling, doing things you want before the body starts [crosstalk]

Marc Killian: So, kind of higher, then and then maybe a little lower as we move through.

Tony Mauro: Yeah. And then, it dwindles down to the 80, 85 and then.

Marc Killian: Okay.

Tony Mauro: You get up into your eighties, nineties, if you can make that far. You're not doing all those things anymore. 50% might make a lot of sense at that point.

Marc Killian: Okay. So maybe a sliding scale, so to speak. Okay.

Tony Mauro: Yeah.

Marc Killian: All right. Very interesting. But fundamentally 85 is the number that people tend to start from a planning standpoint, anyway.

Tony Mauro: Yeah.

Marc Killian: Okay. Number three, which of these do you find that retirees fear the most, this one's probably going to be pretty easy. A, not leaving enough money to the kids. B, running out of that money. Or C, needing some sort of nursing home care.

Tony Mauro: Yeah. This is an easy one. Hopefully everybody's that's listening is going to pick B, running out of money. Because that's all I hear from retirees, but followed by second, needing nursing home care.

Marc Killian: Of course if you have enough money.

Tony Mauro: Yeah. If you have enough money.

Marc Killian: Then you could take care of all three of those things.

Tony Mauro: Yeah. You really could. Most people don't, when I talk about leaving money for the kids, a lot of people tell me, no, that they're on their own or they'll be fine.

Marc Killian: We're getting that way more and more. Yeah. And I don't think that's necessarily an unhealthy viewpoint. Hey, if there's something left over Tony, once I've lived the way I want to and taken care of myself and my spouse, cool. They can have what's left kind of thing.

Tony Mauro: Right. Yeah. Yeah. It's that type of thing. But retirees are always concerned about running out of money. They're all living longer for the most part.

Marc Killian: Sure. Yeah.

Tony Mauro: They know that they've got a limited income now that they're not working and that's always a concern. That we go through it right now. My retirees as clients right now, they're definitely noticing the uptick in prices on everything.

Marc Killian: Oh, heck yeah.

Tony Mauro: And they're feeling it a little bit.

Marc Killian: Yeah. And it doesn't matter really what lens you want to look at inflation through, it's still there. It's still affecting us. So we still got to deal with it. And so running out of money, even somebody who with a good plan, that's been working with and an advisor such as yourself for years, you're going to have, if you've got 10 people that all have just great plans that they love them, they've been very happy with them, even during times like these though, one out of 10 calling and saying, hey, I'm nervous. Or two out of 10, is the plan still good? There's nothing wrong. It's just simply saying, hey, the nerves are getting to them. And I think that's the beauty of having a professional like yourself, Tony, because they can call up and go, Tony is the plan that we've been enjoying, is it still good? Are we still okay?

Tony Mauro: Is it still good. Yeah.

Marc Killian: Yeah. And you could tweak, and you run some numbers and, let's check, right?

Tony Mauro: Yeah. You got to run some numbers and most of our retirees' portfolios are so heavily income oriented, the prices of their portfolios don't fluctuate all that much, but they do in these types of times.

Marc Killian: Right. Because these are obviously extraordinary. Yeah.

Tony Mauro: Yeah. I mean, many are calling this a bear market and they always, you turn on the news every day and they're talking about how long it'll last and this and that. And then I have to mute it because I can't take it.

Marc Killian: And you've got the inflation and you get the terms like hyper inflation and it's a lot. I mean 9.1%, the last numbers that came out.

Tony Mauro: Yeah.

Marc Killian: So, pretty scary. Okay. So, well, speaking of that, speaking of the plan or speaking of the investment side of things, question number four, which of these examples best represents a diversified retirement plan, Tony? The traditional mix of 60-40 split? Excuse me, 60% stocks, 40% bonds. That's A. B, three rental homes along with a significant amount of cash. So basically having some rental income and a good emergency fund in the bank. Or C, 10 to 12 different kinds of mutual funds or D, none of the above.

Tony Mauro: So I'm calling this trick question. I'm going to explain all three because--

Marc Killian: Okay.

Tony Mauro: I think that there's--

Marc Killian: You spotted it.

Tony Mauro: Yeah. Some goods and bads in all of it. The traditional just blanket response, if you ask most advisors, probably going to be A.

Marc Killian: Yeah, 60-40.

Tony Mauro: 60-40, but if you break it down a little bit, that could be a little deceiving [crosstalk]

Marc Killian: Exactly. Well, 40% bonds right now is, bonds are kooky.

Tony Mauro: Yeah. They're very, very much, I don't know if I would be that heavily weighted in bonds right now.

Marc Killian: Right.

Tony Mauro: It depends on where you're at, of course, in the spectrum and your tolerance for risk and all that. So I think that's, without really knowing, but that's the easy answer there. B, with rental homes, I've owned them for years and along with, other things as well. I think that the flaw in that is one, a significant amount of cash in the bank's not going to earn you anything.

Marc Killian: Right.

Tony Mauro: Rental homes are a good for capital appreciation over the long haul. However, you got to work them, you got to collect rents. You got to keep them up and cash flow wise they're not tremendous along the way. They might be at the end if you sell them, and have some nice gains. But I think that would be a part and then see 10 to 12 mutual funds again, if they were diversified along many sectors, I'd say, yeah, that's pretty good. If they were all in tech companies.

Marc Killian: They often are though, right? Tony they're often in large cap.

Tony Mauro: Yeah. They're all, all over the place. That might be an answer. My answer would be, I think over time, need to work with your advisor and do a little of all of it. Maybe not the rentals if you're not, entrepreneurial.

Marc Killian: Right.

Tony Mauro: But if you are, that's not a bad diversifier.

Marc Killian: Yeah. You put them all together and that could be a more diversified. So it's probably D, none of the above, because there's better ways to go than all three of these. Okay.

Tony Mauro: I think so.

Marc Killian: Okay.

Tony Mauro: But at least gives people a little bit of insight on just some of that blanket stuff.

Marc Killian: And we do hear that, because it is easy to go. How many times have we seen people come in, hey, I've got 10 mutual funds I bought them from five different companies, five different brokerage houses or whatever. And I'm super diversified, and okay, let's dive in. And it's like, no, you've got 10 mutual funds, you've got eight versions of Microsoft, for example.

Tony Mauro: Yes.

Marc Killian: Whatever the case might be. And of course, that goes back to the 60-40. It gets a little skewed there as well. So that's the standard number we hear, but it's just really not always the fit anymore. So I'd say D, none of the above, is a good choice on that one. And that's why you got to get this customized strategy. That's why you got to work with somebody. Again, you can do lots of rules of thumb Tony, and this next one is going to point this out. But at the end of the day, your specific strategy's probably going to differ a little bit from general rules of thumb. It's a sliding scale gets you started, but not really probably where you want to stick to this point. Question number five, final one, to make sure you do not run out of money in retirement, Tony, only withdraw blank percent from your portfolio each year. A, 1%. B, 4%. C, 6%. Or D, just find a different strategy altogether.

Tony Mauro: Yeah. And this is going to pertain really to, well, I would think everybody, but any retirees for sure. Because they're always asking this as well. And of course the general rule of thumb, most advisors are going to give you without really delving in is B, 4%.

Marc Killian: Yep.

Tony Mauro: That could be a sustainable amount for most people, depending on what you're invested in. But I think 1% is [crosstalk]

Marc Killian: It seems crazy, right?

Tony Mauro: Why do it?

Marc Killian: Right. Yeah. If you got a million bucks, if we use that as a number, and you say, yeah, I can pull 1% per year. Okay. That's $10,000. Can you live on 10,000? Maybe if you had a pension, right.

Tony Mauro: If you have a pension, [crosstalk] pull all you wanted.

Marc Killian: Right. Pulling from your retirement accounts, but probably not. But Tony, we've heard so much that it's really not even 4 anymore. It's like 2.9 or 3.1 or something like that.

Tony Mauro: Yeah. And again, it depends on the person, what they have and what they're willing to do with the money. But these days you still can get, if you're willing to have some of your portfolio in retirement in higher dividend yielding stocks, it's not uncommon, we do it, to get 4, 4.5, Even 5%. The dividend, the yield is going to be there. The prices are going to fluctuate along the way. That's what you have to learn to live with, but they don't fluctuate all that much, but in bear markets, your portfolio's going to be down. But again, you've got a million, $2,000,000 and if your portfolio's down 8%, you're still getting your 5% yield, especially over the last 10 years where it's run up so much. It really is [crosstalk]

Marc Killian: And that's a misnomer though, right? Because people are seeing that now. It was easy the last couple years we got a little spoiled. When we go, hey, I'm making 8 or 9% or 10 or 12 or whatever, year over year for three years in a row. We think, hey, we're going to keep that forever. So no.

Tony Mauro: No, it's an average and you got to be willing to look at that. But this would go back to the same thing you were just talking about is, you really need to work with your advisor to come up with that strategy. That's going to be pertinent to you and your situation. Because that's real personal.

Marc Killian: Yeah. And pension and social security. There's other factors that can dictate how much you're pulling from set retirement accounts to live on, to make up the difference. Right?

Tony Mauro: Right.

Marc Killian: So it's all part of that strategy that go together. So how'd you do folks with our little pop quiz? Obviously it was designed to just say that there's rules of thumb out there, these types of things that we all hear, and it may or may not be the right fit. Oftentimes it's not, it gets you started, but you want to really dive in specifically to what you need to do with your specific situation and lifestyle needs. Because what Tony might need, where he's at, is different than what I need, where I'm at, and so on, and so forth. So plan with the tax man. That's how you get it done. You get on Tony's calendar, if you're not already working with him and the team at Tax Doctor, Inc. Just stop by the website. Find it at yourplanningpros.com. That's yourplanningpros.com. Don't forget to subscribe to the podcast on Apple, Google, Spotify, iHeart, Stitcher, all that good stuff. You can find it all there at the website. Tony's been helping families for 20 plus years get to and through retirement. So reach out to them at Tax Doctor, Inc. Online again yourplanningpros.com. Thanks for playing the game. My friend, appreciate your time as always.

Tony Mauro: All right, sounds good. We'll talk to you next time.

Marc Killian: Yeah, we'll see you next time here on the podcast. This has been Playing With The Tax Man with Tony Mauro.

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