Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner practitioner and senior vice president financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter.
Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome everybody, thanks for being with us for another episode of Something More with Chris Boyd. I'm here with Jeff Perry. We are both of the AMR team with Wealth Enhancement Group and happy to have you with us again.
If you are just joining us for the first time, know that we welcome your calls, your questions, the mailbag, as you guys did recently. We'd love to hear from you if you would like to reach out. AMR-info at wealthenhancement.com, toll free 866 -771-8901. If you have your own personal questions, we're happy to do a consultation as well. Today, we are talking about some of the biggest unexpected challenges that people face in retirement.
Jeff, you had come across a really good article in Kiplinger, which Kiplinger is really a good quality magazine. It is, it is. That's probably something worth promoting if people are looking for just a good publication. Kiplinger has been consistent over the years of having good stuff. Decades and decades. I don't know how long it's been, but they're facing all the challenges that the magazine industry is facing, right? Yeah. The cost of delivering a magazine to people is not inexpensive.
And so the size of our magazines is going down and they're all transitioning, but I have always found them to be- Kind of taken over Money Magazine's role, right? Yeah. Money Magazine. To your point. No, absolutely. I think Money Magazine's gone from publication. Yeah. Yeah. It's just a web. Sorry, I interrupted. You were saying they've been quality for a long time. Quality for a long time. A little bit above the basic.
Money was kind of the basics, but still, they're writing for the masses as we talk about sometimes. But I don't see a bias in their writing. They seem to be open-minded to different topics and subjects and opinions. It is. That's a good suggestion if people are looking for a publication. Yeah. Lots of good articles that are... I mean, they've got the flashy headlines at times, but it tends to... Everyone's got to have a hook, right?
But at the same time, it's good financial content, I think, for sound personal finance strategies and so forth. Yep. Keep you informed. Well, in any case, a good article from that. You want to set things up to talk about this or you want me to? What do you want to do?
Well, it inspired me because we do formal, comprehensive financial planning for our clients, meaning we really dig down to their assets, their cash flows, their expenses, their goals, their dreams, their risks, not just their risks from being under -invested or their risks of being over-invested, but their risk of things that they don't even think about, right?
So, and I have seen in my own experience with friends, neighbors, and certainly see it with clients, is when people get ready to retire, or they're thinking about their retirement, and you ask them, like, so what do you spend every year? They have a handle on it, you know? Some people have an exact number, and I worry about those people a little bit. Like, I'm just kidding. But, you know. You're impressed by it, I know. I am impressed by it.
No, but most people, when you talk to them, they go through, they start thinking, what do I pay every month, right? And they know they have, maybe they have a mortgage, maybe they have rent. They know they have property taxes. They know they have utilities, car payments, car repairs. You know, they know they have food, which is a big help for people now. And they kind of come up with a number, and it's almost always too low, because they forget things.
But even more riskier to their long-term success of their plan is the things that don't come up frequently. The things that they, well, the things that change in retirement. And they either don't attribute an appropriate dollar amount, or they just miss it all together. And this article talks about the stealth things that can really destroy your cashflow in retirement. And so I thought it was, since we see it almost every day. There are plenty of them, right?
There are just things that you maybe underestimate, or maybe just don't think about until, you know, there's a cost. The first one on the list is one that I think we see all the time, especially people that we know very well, and they get older, is healthcare costs. So even if you retire, and you have Medicare and a good supplement, or you have a good company plan, if you retired early, and you think like, okay, I usually spend a couple thousand dollars a year on my non-covered medical things.
But the older that you get, the more this healthcare cost creeps up and up, and things that you didn't even forecast. We have some good friends, and they're not that old. They're older than us, but they're not that old. And they're just going through this period of expensive dental work. Yeah, that's a big one. Yeah. Hearing aids and dental implants. Right. These are like big things that kind of seem to crop up at a certain age that hadn't been an issue before that. Right.
Everybody has a dental trip. Some people might've gone to the dentist today, that Adil is saying. I don't know. But- I just came from a dental cleaning yesterday. Jeff is giving me a hard time. And whether or not you have dental insurance, it's usually maybe one thing happens a year, and you go in, just as you get older, that filling, that cavity, that one crown that fell off, that you need another one. Right, right. And you can kind of handle it. It's a couple thousand bucks.
Right. And then you- You start to multiply. You need a root canal, you know, then. But when you talk about these posts, and implants, and bridges, it gets really expensive. Yeah. So, the number one- Hearing aids is another thing that I've run into, where, you know, maybe it's a certain age range that clients start to face this as a need. It's legitimate, yeah. But, apparently, they can be quite costly too. And that's an example of an unexpected, a stealth expense related to healthcare.
Could be other things, like actual deductibles, and co-pays with a hospital stay, or something like that. More severe. Yeah. Do we include late in life, like longer, long-term care kind of related expenses? I think we should, because, you know, one of the- I was referencing the financial plan, and things that people forget. But one of the things that we do with our clients is, even when we get all the data right, we believe we have it right.
Yeah. We start to talk about what ifs, and we stress test the plan for what ifs, and, you know, the big one, there's a lot of them, but the big one that comes up that most people really haven't contemplated. They might know it might happen to somebody else, but they really can't process that it could happen to them as a long-term care event. Yeah, yeah. And the costs associated with that, even if you're talking at home, you know, it doesn't have to be like a nursing home stay, necessarily.
Right. Maybe it's just the need for extra care at home, and having people come in more regularly for various considerations, that can really have an additional cost that's beyond your regular cashflow plan. Even if it's not a permanent thing, you know, you could have an injury or an illness where you need some convalescing at home, but you may need a few months of extra help, and that's very expensive.
Yeah. Well, I would add just, you know, when you're talking about stress testing, we can come back if there's more you wanna talk about the healthcare component, but I think that's clearly one that comes up and can be pretty significant and pretty dramatic when unexpected. And, you know, this article talked about, what was it, 43%? What was that 43% about that people are having stress, and the unexpected costs create a lot of stress for them in retirement.
But in any case, I think the one thing that you talked about that we do often stress test for is inflation. You know what I mean? And that's, I think, more on people's minds the last year or two. Because of 2022, we had that big run -up in inflation temporarily, and the Fed's drastic, you know, effort to try to rein in inflation. That hit some of our listeners, I'm sure, with an awareness of, you know, that this is something I've got a plan for.
We usually have seen, we've been kind of spoiled over the last 20 years plus, maybe. Even in a low inflationary environment with maybe 2% inflation, or even lower as the norm. I think if we were, you know, when I started in the industry in the 90s, we used to talk about long-term inflation as three and a half percent. And maybe 3% over a shorter period of time. You know, now you get to where we've been, 2% for a long time. The Fed's goal is 2%, but whether they're gonna be able to achieve that.
And, you know, we've talked about this before, but going from, you know, an environment where we were increasing our free trade and exporting arguably jobs, but, you know, manufacturing costs to lower expense locations. Sure. Was helping to keep inflation low as we look to reverse that pretty, you know, dramatically with the trade policies that are proposed. Trying to bring more of that activity back to our shores. That will probably raise costs and that could show up in the form of inflation.
So we may need to start thinking about a higher inflation assumption. That's something we should probably think about. We've kind of been using two and a half percent as a number of late over the years. And then we stress test for, you know, three and a half percent or something. But yeah, it might be time to revisit that. Probably is.
You're right to note that the inflation spike after COVID, after the government, all the government spending and everything that, you know, really in the supply chain stuff, it got people's attention, which is good. Good that it got their attention, not good that it happened. But it points out a longer stealth risk to a financial plan is for those individuals who are doing their own planning and saying, okay, spend $5,000 a month, $60,000 a year. Right now I bring in 70.
I'm good, I have extra cash. But if you don't include that inflation factor and to your most recent point, the correct inflation factor, and you're going to be in retirement 20 or 30 years, think about how much things cost 20 or 30 years ago. And so 20, 30 years from now, you're purchasing a new car or you're just buying your weekly groceries or you're doing a home repair.
If you haven't factored that cumulative effect of two or 3% a year, into your cashflow projections, you're going to have a struggle more than likely at the end of your life when it's supposed to be the easiest time. I used to do these seminars and we'd start off with, when we talk about inflation, we'd say, all right, how many people today came in a car that cost more than their first house? Hands go up. And at that time, almost everybody's hand would go up.
And I don't know if that's still the case, but- Maybe if some of our older clients, but if you're buying a car today at 50,000, which isn't crazy, right? 20 years from now, it's going to be six digits. Yeah, right. So, yeah. So, well, all right. So inflation, you got to be planning for. Healthcare costs, we got to be planning for. You just mentioned the idea of home repairs and maintenance. I think that's something we don't always include in our budget.
We tend to say, well, what's it cost for the, you know, what do you spend? And you kind of say, well, yeah, I had to do that. One time though. That was a one-off. Yeah, exactly. And the roof, I won't need that for 20 years or whatever. But, you know, then there's renovations. Then there's, you know, new appliances or whatever. And it's not every year. It's not all the time. It's almost every year, something. There's something maybe.
But as far as like either to include it in the budget as a either annually or maybe every few years there's a outlay of some note or to just say, hey, you know, I expect we're going to want to renovate the kitchen, the bathroom, some other, you know, major house expense periodically. We should plan for that as part of our plan in the mix. I don't think most people do that. Do you? No, I don't think most people do.
And sadly, I've seen lately a few folks I know who are mortgage free and in retirement and they're doing fine and something comes up and they just don't have the assets, the liquid assets. And then they go back to a home equity. And now they have, you know, it solves their problem, you know, for that new roof, for that big repair, right? But now they have a payment which wasn't projected in their cashflow.
Hmm. So I love the idea of, you know, talking about it in a financial plan, but also planning for it with the form of a bucket or a silo of money, you know, dedicated for emergencies generally is fine.
Yeah. But having that reserved that if the AC heating unit goes out and it's $10,000 that you're not running to the bank to get a loan or you're not going without some people, you know, we see these stories that people, especially in the Northeast where people couldn't fix their furnace and nobody knows and they're just trying to get through. So having that liquidity bucket that you can handle a couple of these things without chaos. Yeah. I think it's challenging sometimes to plan for things.
Things tend to come up at the wrong time. You know, you're talking about that furnace or, oh, I know I need this, you know, $10,000 expense, but I'm gonna put it off or whatever. And then how do you plan for the timing of that in a way that is more manageable, less disruptive? You know, if it's something where you're taking it from investments and the market's down, it's bad, right? So yeah, just, well, anyway, that's one of those things. I think it's perpetually challenging just as a planning.
It's definitely challenging. And I'm hoping, you know, with this conversation that we're having is people can consider this before they need it. You know, what's, I'm gonna attribute the quote to the wrong person. So I'm not gonna attribute it to anyone. It's just not mine. It's, I haven't had an emergency since I've had an emergency fund. Yeah. Because it's not an emergency anymore. Yeah, yeah. It's just, okay, you know, I don't wanna spend 10 grand today, but I can and I have to.
So, you know, if you're approaching retirement and you're thinking about your plan or you're in early stages of retirement and you have some ability to put some money away, this is something that you should do. We're not asking you to give up the money. We're just asking you to segregate it perhaps. Well, to your point, I mean, one of the things that sometimes people recommend is to have one to 2% of your home's value planned annually for repairs and maintenance and that kind of a possibility.
Right. Oh, good. Good financial planning and business. You take part of your earnings and retain them, retained earnings for future needs. That could be, you know, cashflow pressures or it could be growth or opportunities. It's just, you know, we're talking about stealth things that can erode your retirement and certainly an unexpected repair. Well, we're calling them unexpected, but if you retire and you're- You should expect some.
Yeah. Yeah. You know, too, similarly, you know, we've talked about this before as well. One of the solutions here can be, sometimes maybe it makes sense to downsize or relocate or maybe you upgrade to a newer place that doesn't have as many of those kinds of needs, but you can limit some of the challenges you might face if you do that relocation. You know what I mean? Hey, we owned a house that was 140 years old in downtown Sandwich, Maine. I bet that always had costs.
A beautiful home, but we were clear, you know, when we bought it that we bought it in 2011, I think, that when we retired, we did not want to live in that home because the potential for repairs on an older home is just even more difficult to predict. It can be a drain. And serious repairs, you know? Hey, let's go back one more, too, just to the healthcare. You know, how do people deal with that? What are some suggestions they might, you know, think about how to manage those costs?
I mean, one possibility is, you know, evaluate whether long-term care insurance is an appropriate tool for you. It's expensive at times and sometimes can be an absolute cost. Sometimes people think in terms of a sinking fund, you know, that just they have sort of a segregated funds allocated with that expense in mind. You're an advocate of that, right, Jeff? Absolutely.
And then, you know, maybe there's other things, like if your work plan allows for a HSA, maybe you stock money away in your HSA while you're working. Excellent. That you can use it in your retirement to help some of these costs. Maybe you invest in trying to stay healthy. Well, that's a great investment in my mind. You know, some of the activities that will foster a healthier lifestyle or that kind of thing could also be relevant. I don't know, those were just a couple of things.
One final thing on healthcare, the article touches on this, and I mean, we didn't say it probably because it's so obvious, but make sure you have the right health insurance. You know, some people push that, you know, whether it's somebody young, and they say, I'm healthy, or going into retirement, I'm just gonna have Medicare and, you know, some free supplement that I can get, or really, they focus on cost more than quality after they leave their employer.
And that can be a stealth loss if you have a serious issue and you have a 20% co-pay, for example. I mean, it's not unusual. It's a great point, because you gotta start with the basics, right? Fundamentals, right? Blocking and tackling, right? When it's football. But when it comes to financial planning, some basic insurance protection, your whole plan can be disrupted if you don't have the basics covered. And that means homeowners insurance, that means health insurance.
We don't like these expenses. Nobody wants to spend it, and health insurance, ridiculously expensive. Ridiculously expensive. There's just no getting around it. It's like insane. But if you don't have it, the alternative of, you know, if you end up having to pay for a major surgery, cancer treatment, fill in the blank of like some serious health issue, you'll be devastated financially.
Yeah, we know that in bankruptcy, the number one reason that for personal bankruptcies is a medical event, uninsured medical event. So we feel like it's not gonna happen to us, but we know it does happen, so. Yeah, good point. All right, good topics. Hey, just one other thing. We talked about inflation. Let me just go back to that. How would you say people can prepare for inflation?
It's all about having a financial plan and not one on the back of a napkin about a comprehensive financial plan that calculates in, you know, your future cash flows. Not the cash flow on retirement day, but the cash flow 30 years from now with some projections and some allowances, it will give you, you know, a more accurate depiction of whether or not you're ready. That's a good point.
And the way you think about your investments, the way you design your portfolio is gonna help to mitigate that risk. Maybe we talk about social security decisions a lot. Sometimes that's maybe factors into helping to mitigate the inflationary concerns. All right, what were some of the other of the five big ones that they talked about There were two others in this article. One was taxes.
And I do see that with people who don't appropriately calculate the taxes in retirement or they just, you know, it's not they forget. They just don't appreciate that when they were working, they had taxes withheld. Yeah. And, you know, we see clients and, you know, here's stories of like people taking withdrawals from their retirement savings or taxable brokerage account. And, you know, we talked to them at that time, like, do you need to withhold taxes?
And so many people who get in trouble, don't contemplate and say, no, I'll deal with that later. Or they put it off, right? Yeah. And they say, you know, or I'm gonna put that money back. So I don't need it, right? Yeah. Things like that. And then it kind of snowballs where they use that money and then don't have liquid money. Yeah. So you need to pay. And they're like, I had such a big tax bill. Why?
You know, and then they have to take more money out of their retirement plan again for the next year. So they got a big tax bill again, you know, that kind of thing. You can see these kinds of things over and over again happening, right? I had one neighbor probably two weeks ago that was complaining about his CPA and said that, you know, he made all the estimated taxes that he told them to make. So I was drilling down with them a little bit.
And to this example, exactly, he said, well, I guess I took an extra withdrawal last year and didn't withhold any money on it. Darn CPA. Did you call your CPA and tell him this? Yeah. He was basing it upon, you know, the previous year. So, you know, it's just pay attention to it, right? You pay quarterlies probably for a reason, but do a calculation when you're paying that quarterly and say, am I on track?
Yeah. Or sit down with your advisor and say, you know, I feel like I've had a lot of capital gains this year or, you know, I took that extra withdrawal. Do you think I need to increase my quarterly? Talk to somebody about it, do a calculation as you're doing the quarterly so you don't get surprised by a big tax bill that you can't pay. Yeah, good point.
I would say we oftentimes talk in our financial planning process about strategy around tax diversification and the tax prioritization, where to draw from, and that can have virtue, but it can be challenging too. And there's times when people don't want to draw down their taxable accounts first fully, you know.
We often try to think in terms of sequence, try to use the taxable account money first, IRA type money second, and then the Roth money last, thinking that's going to grow the most and we want it to tax -free, you know, maximum growth potential. But sometimes we got to revisit that because, oh, our tax bracket went down. Maybe we want to prioritize paying some taxes sooner, whether that means to use that money for withdrawal or do a conversion or whatever it might be.
But paying attention to these tax considerations is a real planning opportunity. And sometimes it's, well, let's face it for all of us, it's frustrating. Nobody likes taxes, right? Well, that's all the more reason to do it though. You know, you mentioned that kind of general rule that you hear people say, taxable first, IRAs, Roth. But that's not, it's a general rule, fine, but it's not the right rule or the - In all circumstances, yeah.
It may be right for you one year, but the next year maybe you should have a whole different strategy because of your current tax situation. So it's where these general rules kind of - Yeah. So it goes back to making sure you have the right financial planning guidance in this process. A good tax advisor, that CPA that someone was complaining about, right?
But, you know, you got to keep them in the loop, keep them involved, get good guidance in the process between your financial advisor, your tax advisor and so forth, the state planning and all the rest of it and the whole team of people you deal with. So that was, yeah, go ahead. Speaking of team, the last stealth- Yes. Item is family. We've talked about this one before, the unexpected expense that inevitably hits a lot of families with expense and unexpectedly.
What are common circumstances that lead to this? Well, so it could be a positive that you want to be generous, or it could be, I hate to use the word negative, but it could be a challenge. So it could, on a positive side, you could have this inspiration to help someone go to college or someone buy their first home or someone get married, you know, a nice wedding or someone, whatever. A gifting strategy that you want to be gifting to them routinely. Right. But you could do too much.
You could do too much. So you don't want to give away all your resources before you're done needing them. Yeah. There's also a circumstance where family members have unexpected divorce or health issues or whatever it may be. There can be these things of that sort. And parents so frequently want, we've talked about this many times, but they want to help. They care about family first, right? We all care about our family. Of course.
However, there are times when sometimes that can be abused, or you have to give thought to, am I able to do this? So, you know, I'd like to help, but am I able to do it in a way that doesn't put my own financial security in jeopardy? Right. And sometimes you have to show restraint or you risk your own financial security in the process. Yep. And be careful, even if you, make sure that people understand what you're offering to do. Never say I'll pay for your wedding.
Yeah. Because your wedding could be- What's that mean? That could be open-ended, yeah. It could be $5,000 or $50,000. Make sure you're- Gotta be specific, be precise. If you're being generous or if you're helping out a loved one who maybe has a job loss or a divorce or whatever the situation, talk to your spouse if you have one, talk to your financial planner and come up with a figure or a way to help somebody and articulate it with specificity that we're helping you for two months.
You know, we can help you for two months. That's what we can afford or we can contribute $5,000 to the wedding or whatever it is. And that way the generosity is understood and appreciated. And the person receiving it didn't hire a 12 piece band for the wedding. Yeah. It doesn't think that mean they have a year off and they can just go the slow path of getting that next job. So it applies- No, that's a great point. And then similarly, like you, if you are saying, well, maybe I'll help them.
I was meeting with people recently in various circumstances. They bought a house that they were now having a family member reside in, a condo house. I forget what it was, but the idea. And so, but I'm going to charge you rent or that you maybe, if you take on the mortgage of their place that you have a contract or, you need to have, I mean, let's face it. It's very hard to, you're going to go, collect on that and- Foreclose. Foreclose on someone.
You know, so you really have to give detailed thought, but when possible, put it in some like formalized terms so that everybody's on the same page. This is what we're agreeing to. And that having that formality about it makes it less of a, well, you know, mom can afford that or dad can afford that. You know, they can, they won't mind. A lot of times parents don't tell what they can and can't afford. And it's just assumed that their resources are oftentimes greater than they may even be.
So, yeah. So be specific and, you know, document it. And I think that's great advice. And that way the recipient is appreciative of what you're doing and they understand it. And there's no hard feelings later. Yeah, and to, I think we've had this theme throughout. Work with your financial planner to evaluate what can you really do that you can afford? Or if it's gonna be challenging, how do you navigate? What do I need to do to be able to do what I want to help?
It may mean some changes need to occur, you know? And so you can evaluate what's gonna be the way that gets you to the end result that you most value and want, you know? Super important. Because when you have that financial plan in place, then you can go to the advisor and say, I'm thinking of doing this. Does it affect my longevity, my plan? How does this work?
And then you get, you know, kind of relief that it doesn't, or you get like a point of caution to say, all right, maybe I should do something else as you indicated. And sometimes too, you can have the benefit of saying, well, I wanted to, but my financial advisor. Yeah, blame us, it's fine. You know, if it helps, if you have that kind of need for a little buffer, you know, you can be like, oh, I really was hoping to do more, but my financial advisor tells me, you know, that kind of thing.
Nothing wrong with that. Sometimes it's helpful to have that third party in the mix in that role. Absolutely. But it's ultimately, in reality, money is yours. These decisions are yours. Sure. We're here to counsel and guide, but you know, it's ultimately up to you how you handle these issues, but we can try to give you guidance and help in the process. So I guess that's a good place for us to wind down, Jeff.
If there's anything that you need listeners as you run into your personal challenges of these stealthy issues, maybe it's a good time to update your financial plan. Make sure you're addressing all of these issues and have them well thought out. We can be a resource in the process. Don't hesitate to reach out. Until next time, everybody keeps striving for something more. Thank you for listening to Something More with Chris Boyd.
Call us for help, whether it's for financial planning or portfolio management, insurance concerns, or those quality of life issues that make the money matters matter. Whatever's on your mind, visit us at somethingmorewithchrisboyd .com or call us toll-free at 866 -771-8901 or send us your questions to amr-info at wealthenhancement.com You're listening to Something More with Chris Boyd Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd provide investment advice on an individual basis to clients only. Proper advice depends on a complete analysis of all facts and circumstances. The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth Enhancement Group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss.
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