Created: June 16, 2020
Modified: December 12, 2022

Virtual Financial Workshop

Getting Back to The Basics of Financial Planning

I wanted to create a virtual financial workshop here to help get back to the basics of financial planning and to give you some basic concepts. If you like what you hear, you can request a FREE 15-Minute phone consultation just to get a second opinion. I like to tell people, “You should get a second opinion from somebody other than the person that gave you the first opinion.”

When I’m done here you’re going to find out that maybe you’re thinking about things the wrong way. And maybe even the people that you’re listening to for advice may be approaching things the wrong way. That doesn’t mean they’re bad people. It just means that I believe, Johnson Brunetti (and a few others in our business) has a different approach than what you’re used to. I think if you take this approach it’ll reduce the anxiety that’s going on right now. Let’s face it, there’s a lot of uncertainty in the market and in the world, so let’s go back to the basics.

Who Is Your Retirement Money Being Saved For?

I heard a great line when I started in this business, I had an old gentleman that was 40 years in the investment advice business. And he said, “Joel, you need to ask your clients this important question ‘Who’s the money for?’ Once you find out who the money is for then you can give great advice.”
Let me give you an example of that. My wife Wendy and I have a certain amount of money saved for retirement. I don’t think I’ll ever retire. I love what I’m doing, but we save for retirement anyway. We know that that amount of money will take us through the rest of our lives. Then we have additional money that we, hopefully, will pass on to our kids, or our grand kids. See, that money’s not for us, that money is for somebody else. So, we have money that’s for us and money that’s for somebody else. When you’re thinking about your different accounts or different investments, and so on… Think about who the money is for. Just a little tip there.

Why We Don’t Use Wall Street Jargon

Another thing I want to mention is that a lot of times on Wall Street there’s all this “jargon” you know and stockbrokers – because when I started,  I was a stockbroker – are taught by their managers and by their training programs. I’ll just explain things to clients in a certain way, and they’ll feel better. The way we’re taught as young stockbrokers to explain things to a client it’s all this investment jargon.
These stockbrokers are talking about negative correlation, standard deviation, beta, alpha, and all kinds of things like that. And it doesn’t make our typical client, who is probably just like you, feel any better. So, one of the things we want to do today is to keep it simple. Go back to the fundamentals. But this might be much more in-depth from a quality standpoint than what we’re used to.

The 2 Most Common Retirement Questions We Hear From Our Clients

There are two common retirement questions that most clients want to have answered. Typically, before they met with us, they were asking these questions, and they weren’t getting sufficient answers.

Question 1: Am I Going to be OK in Retirement?

One of the most common questions we hear in regards to retirement is, “Am I going to be OK? Am I going to be OK in retirement?”  And that can also mean “Is my money going to last as long as I will?” or, if you have more money, “Am I going to be able to maintain my standard of living?”

So, this is usually the first question people ask when they first talk to us “Am I going to be OK in Retirement?” By the way, even our existing clients have come in and they said, “Joel, I know we put together a financial plan I know we’re on track, but things have changed. Are we going to be OK?” And if they followed our advice, by the way, yes they are going to be OK, even though the market’s down 30%. But we’ll get to that in a minute.

Question 2: Will I Run Out of Money in Retirement?

The other question we get all the time is “Will I run out of money in retirement?”, or “Am I going to run out of money”, or even “What rate of return do I need on my retirement funds in order to be OK in retirement?”

These are the two most common retirement questions from retirees: “Am I going to be OK in retirement?” and “Will I run out of money in retirement?” You’ve got to answer these two questions in order to establish a more solid retirement income plan.
For instance, let’s say I’m working with a couple and we find out that they would like to receive $10,000 a month in income. Maybe we find out that they are going to be OK and that they will not run out of money, However, behind that, there is an assumption being made. The next important step is finding out what rate of return they need in order to feel comfortable.
Let’s say I have two couples. We find out that one couple is going to be OK if they can get a 4% rate of return. That’s a pretty low rate of return. You can do that fairly consistently without a lot of risk. Historically speaking you can get a long-term 4% rate of return off of a portfolio without a lot of risk, and it’s unlikely you’ll ever run out of money.

The second couple says they will be OK if they get an 8% rate of return. For this couple, they might not be OK in retirement. In fact, at that point, we’re going to start having a conversation with that client and say “Your income needs are a little too aggressive because if you take the risk and you need an 8% rate of return you may not be able to get it.”

When you’re taking money off of a portfolio folks, remember what happens. The dollar cost averaging that some of you have heard of works against you. For example, let’s say you’re taking $10,000 a month and the market’s up. You still have to sell a certain amount of shares to get that $10,000, correct? If the market drops 30%, you have to sell more shares.

It’s important to remember that when you’re taking money out of a portfolio the ups and downs work against you. We can show that to you. In retirement, it’s all about getting a smoother rate of return – not necessarily getting the highest rate of return. I know it sounds weird but that’s one of the things I told you about our philosophy that is going to make us a little bit different from other financial advisory firms.
We’ve talked about answering the two most common retirement questions we receive: “Are you going to be OK in retirement?” and “What rate of return do you need?” The next step is to build a financial plan.

What Many Financial Advisors Do

Now, let’s step back for a minute and talk about what many financial advisors do. Many financial advisors want to immediately start talking about your investments. If you’re their existing client, they’ll look at your statements and say, “We’re doing OK here but we’re not doing OK there.”

If you’re not their client yet, they’re going to poke holes in your investment program. And, to me, that’s wrong. That’s backward. That’s like you
walking into a doctor’s office and, without them doing any real investigation, they start writing out a prescription for you because, “Hey, Crestor works for a lot of people!” but it might not be the right medication for you.
It’s important to keep the focus in the right place. The investment discussion really should never take place before a financial plan is built.

The First 2 Parts of a Solid Financial Plan

  1. Are you going to be OK?
  2. What rate of return do you need (so you don’t run out of money)?

Once we build the plan, the investments should serve the plan. The plan isn’t built on investments. The plan is built and the investments are the tools that serve the plan.

I’ll give you another example. We had our bathrooms remodeled last year. We had a design. Wendy, my wife, was mostly part of that. She showed me the drawings. She showed me the materials that were going to go in. And then once all those decisions were made, the contractor came out.

We didn’t care what kind of hammer the contractor used. We didn’t care what brand of the ladder he or she was using. We just wanted, based on the plan, the program to be put in place.

Your advisor talking about investments before you used the foundation of that plan is like you worrying about your contractor and what brand of hammer they’re using. It’s one of the common problems in the investment business. So, at Johnson Brunetti, we build the plan first. That’s the foundation.

What Tools Do You Need to Make Your Financial Plan Work?

We’ve got here a little pyramid within our larger pyramid to answer:

  • What are we doing for risk protection?
  • What are we doing for income?
  • What are we doing for investments?

Sometimes these blend together. But let’s talk just for a moment about risk protection.

Why We Encourage Risk Protection for Retirees

As a retiree, the two major risks you face:

  1. Lawsuits
  2. Long-Term Care

1. Lawsuits

Let’s say you loan a grandchild a car, they get in an accident, and all of a sudden you get sued. That’s exposure on your part. Asset protection. Maybe you are an attorney or a doctor or a small business owner, or you own a building. There are all kinds of liabilities tied up there.

Retirees need to have insurance and almost everybody, I believe, should have a big umbrella insurance policy. I personally have a $5 million umbrella insurance policy so that if my homeowner’s or my automobile insurance or our liability insurance here at our firm doesn’t cover it, I’m protected.

2. Long-Term Care

The second big risk is Long-Term Care. What if there’s an extended stay in a Long-Term Care facility or somebody needs highly skilled care in their home? We’ve got to protect that. Sometimes that means structuring legal entities to protect assets. Other times, it just means simply buying some insurance. And so we’ve got to talk about the protection because without protection and a strong foundation, none of this matters. If you want $10,000 a month of income and you’re spending $20,000 a month to be in a nursing home up here in the Northeast, that kind of blows apart anything that’s happening up there. So, we’ve got to make sure we address those things first.

Will My Retirement Income Last As Long as I Do?

Second, we’ve already talked about it, income. Am I going to have enough income to last for the rest of my life? And, again, we’ve got to get a good handle on what that income looks like. And we’ve got to give you raises. You might need raises of 3%. You might need a 3% raise every single year to keep up with inflation. How are you going to do that? That’s got to be part of the income plan. And then the investments are the top of that pyramid.
When it comes to investments, we like to explain investments and tell people they need three different types of investments. Three different goals, three different types of investments. The mix is different for everybody. My dad’s mix might be totally different than yours, but there are three different types, again, to serve the plan.

Why Safe Investments Are Important for Retirees to Consider

There’s what we call safe investments – investments that cannot go down. In fact, technically some of them aren’t even investments. Banks, government bonds, insurance companies – things that, if we hold them to maturity, cannot go down. Certain insurance products like guaranteed investment contracts. They’ve got to have a guarantee behind them.
Everybody should have some of their money safe. My dad likes safety – I mentioned him earlier. 80% of his savings are in things that cannot go down. He gets a reasonable rate of return but they cannot go down. And then some of his money is in Apple stock. He loves Apple. He’s owned it forever and he’s got a great rate of return on that. So that’s my dad – but that might not be you.

The Benefits of Including Growth Investments in Your Retirement Plan

We should have some investments that, regardless of the stock market performance, will throw off income that we can choose to use or we can reinvest. I remember hearing a quote. Don’t know if this was accurate or not, but somebody was talking about Warren Buffett. They were saying Warren Buffett’s portfolio has gone down over 50% seven times in his lifetime. Seven times. Maybe now with what’s going on, it’ll be 8, who knows? But Warren Buffett has not sold. He sells stocks from time to time, but he typically does not sell them – I’m not aware of any time he’s sold them based on up and down volatility. In fact, in times like this, he’s looking to buy – different philosophy.
But think about it, the businesses that he runs are now wrapped up again in stock market performance or the growth side. Some of your entire portfolios and your entire financial future are built on you getting a certain rate of return on investments. Another thing I like to tell people is if the market’s got to perform a certain way for you to be OK in retirement, we’ve got a problem. We’ve got to look at that plan and find out if we can decouple you from that dependence.

Is It Time for a Second Opinion on Your Retirement Plan?

If you’re feeling nervous during market volatility it’s probably because your focus is way too much on the growth area of your investments portfolio. The growth of stocks and mutual funds that are involved, sometimes too much, in stocks for your particular reason. We’ve got to back up and get back to the basics of financial planning.

If you don’t have a financial plan give us a call or set up a 15-Minute phone call. It’s really easy. It’s painless. There’s no obligation. We’ll explore things with you. We’ll ask you some questions. If you want to get deep and actually have us build a financial plan for you, we can do that and get back to you. If you just want a second opinion, we can do that too.

I appreciate you spending this time. Let’s make sure we’ve got that foundation built first before we focus on the investments. If you’ve done that, if you’ve got that foundation in place, you won’t be as worried and as sucked into all the hysteria when it comes to the stock market.

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    “I have been pleased with the help and service I have received from the company. I have met several team members on Eric’s team and have found all of them very well prepared to meet with me when reviewing my portfolio. I always feel that I am an important customer and appreciate that very much. I hope the firm continues to focus on the customer and maintains its great service. I think you do a great job for someone like me!!!! I’m happy I chose your firm!”

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