Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and 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. Thank you for being with us for another episode of Something More with Chris Boyd. I'm here with Jeff Perry and Russ Ball. We are of the AMR team at Wealth Enhancement and glad to have you. And our topic today is if you're thinking about early retirement, there's a few questions you want to ask yourself before you get started.
And before we get started, I just want to give one more reminder. We have a great webinar coming up on September 9th and we've talked about it on some of our past episodes, so I won't go too much detail, but how to avoid leaving a digital mess. You know, we have all these digital assets, not necessarily cryptocurrency, though it could be that, but our online banking, our social media, our purchases that we have that maybe have a digital footprint.
There's things to be planning for, and you might want to, or did I say social media? All of these things. You may want to make sure you have a good game plan for how to deal with these for those you leave behind. And, you know, in the event that you pass your, when you pass. Who's going to get my airline miles? That's what I want to know. Well, that's a great example. Those points on your credit card. Yeah. So in any case, tune in. We've got a great topic, a great speaker, and register now.
We're going to leave the link in the show notes if you'd like to register. You can pause this and do that right now if you want to. Complimentary. No strings attached. No strings attached. All right. So let's jump right in. This came from an article you found, I think it was Kiplinger. And where should we begin? Brian? Jeff. Someone said Brian.
When people come in, Chris, to, you know, if they haven't been a client for a long time, and maybe they're coming in because they want to know, can I retire early? Right? Yeah. Don't you find it's one end or the other of the spectrum? Like they are so solid. They have, they've done a lot of, they've done a great job preparing. Very well prepared. Based on their lifestyle and their needs and their debt and their goals and all that, they have that number, what's my number?
And they have that, they've reached that number. So that's category A, category F, if you will. It's like, I don't think you're ready. I just don't think you're ready. You have not prepared. You haven't thought about some of the basics and you don't have enough money. There are some pretty big issues that can be relevant if you retire early that we need to be planning for. Health insurance is an example. Longevity though, is I think the one that people are least prepared to consider.
They just think, wow, I'm not going to live that long. And with that comes additional costs as well. So yeah, let's talk about some of these kind of challenges that people run into. So if you're thinking about it, I mean, it's appealing. I don't know. I'm sure everybody some days wakes up and be like, ah, that's it. I'm ready. I don't feel like it today. So are you ready? What's required? Let's go through some of the things that you need to be thinking about to be well-prepared.
And candidly, most people probably should not consider retiring early because there's a lot of need. If you think, oh, well, I'm going to retire 20 years into my work life. I'm 45. No, wait, I'm going to wait 30 years. I'm 55. Okay. Well, how long are you going to live? Well, you could live 30 or 40 years. Or more, right? Potentially. Not be unusual. Yeah. 30 to 40 years for you to be... So have you been saving that much to be ready to retire as long as you worked, as an example?
That's hard to do. And so it requires a lot of planned, dedicated effort to be prepared for that. And you can do that if you've prepared for it. But go into this wide-eyed and with a realistic view of this. And these are a few things you can think about as it may be relevant to you. But as always, we're going to say, get a good financial plan going. We run into people who say, I did some stuff on my own. They have some planning. I don't know what software. We talked to someone recently.
Well, geez. I mean, it hasn't been that long ago since I came into your office and said... I mean, I knew you from politics and from friendship and just knowing you from the community. That's right. And I had my own plan. I came in with Quicken Reports. That's how we track everything. And I thought I had a good handle on things and for our plan. But I came to you to say, am I correct? Meaning, what am I missing, right? Because that's the thing.
Yeah, you're looking for a little backup on this, right? Just to validate it. If you think you're ready, why not get a second opinion? Because in most cases, this is... Of course, you can go back to work part time. But if you've had a career and you're at the peak of your earnings, which most people are when they're getting close to retirement, they're at the peak of their earnings life, their accumulation phase. Once you make that decision, you really can't go back usually to where you were.
Maybe you can, but not when you find out about back end. That's right. Oh, darn. I retired too soon. I guess I'm saying if you retire at 55 and you're 10 years into it and you haven't kept up on the technology and the connections and all those things that resulted in you being at the peak of your career, and you're making $150,000 a year and all this, to go back to find a position to get that income again, it's very unlikely. Right, right. All right. Let's go into this.
Definitely get a financial plan, talk to a qualified financial professional, someone who is a fiduciary, preferably a CFP or something similar, and someone who is going to give you what's called dispassionate advice, not because they have an agenda, and can help you figure out does this plan work in the process, get a little help in the process. That's where I was going to. Sometimes people have spreadsheets, some people have software.
These can be helpful, but sometimes there might be more nuance and some other things to consider that might be helpful. Who was going to just say that? Someone was about to chime in. Russ? I was going to say, for example, with a spreadsheet, you can say, all right, well, I'm getting 4%, let's say, on my money market account, or 4% of my cash. All right, if I extrapolate that over the rest of my life, 30 years, 4%, then I can do that. That makes sense.
But that's not accounting for interest rates going down. You're not going to have that 4% forever, necessarily. The range of possible movement of that rate, as an example. Yeah, that's the other thing. If you say, well, based on my portfolio, I'm going to get 6% a year, and every year I'm going to get 6%, then my retirement works. It's perfect. But that's not really how the market works. It's not as predictable as that 6%. It's not as pretty as that. You might average 6%.
But what if you had a bunch of bad years at the start, and then it works out to average to 6%, but you had some erosion right at the outset? That's a good example of something that can go wrong. This is not uncommon to us, the idea of Monte Carlo simulation, but the idea of looking at standard deviations and the variation of possible outcomes, which takes into account those kinds of things like sequencing of returns and the range of possible performance consequences for good and bad.
That's an important thing that's maybe a little different than a spreadsheet. Yep, definitely. So Russ, here we go. Here's the first question for you. What is the hardest question to answer for a client when they're thinking about their financial plan and forecasting for the future? What do you spend? What are your expenses? Exactly right. Bing, bing, bing. Bing, bing, bing. That is... Oh, wait. Yeah. Thank you. Nicely done. Nicely done. So it can be difficult to know that most...
This is not unique. It is commonplace. Most people come in, don't have a really clear handle on what they spend. Now, we do run into people who are very good about it and do their tracking and so forth, but it is much more common. So don't feel bad if you fall into this category. You're not alone, but this is an essential insight to thinking about how does your forecast for the future project? How accurate will we be is knowing, getting a clear handle on what are we spending?
Yeah. That's especially true when people have a little or a lot excess cash. So meaning that what they're bringing in with their income, it's meeting their needs. They're on automatic savings with work. They're all on bill pay, whatever. And it's always fine. Their cash flow is always fine. And they buy what they want and they do what they want. And therefore, they have no... They're not even looking at their bills. Right. Yeah. So it's working. They don't need to worry about it. That's right.
That's right. So it's like they have a vague sense generally, but it's basically, well, we're spending about or we're spending less than what's coming in. Whatever. They have this kind of vague awareness, like I said. And that's fine. That's not a judgment. That's just... Oh, there's no judgment. When we try to figure out what can we expect for the future, well, we kind of need to put a number to it. And what's your number? What's your number? When the client... The income apples, right? Right.
When the person comes up with a number, it is almost always understated. Yes. And there are things we will add to it relating to goals. Well, we'll talk about one of those in just a second that we add into the mix. But we do think in terms of goals, like, oh, we probably need to buy a car from time to time. We might want to travel. We might need some home improvement. Whatever the topic area is. Things that might be a little outside the realm of the ordinary cash flow number.
Let's go on to one other thing. And that's kind of related to this. And one of the numbers that we add to our planning relates to the cost of health care. And that's another one of these things that what will health care cost and what will you pay for that? And if you retire early, there's a particularly important element of this, right?
Prior to your Medicare calculation, maybe you're paying for COBRA for a little while or maybe, you know, let's say if you retire at 60, you have five years before you're on the Medicare premium structure. And whether you use an HMO approach or whether you use an indemnity supplemental plan, there's some additional cost you might incur there. But putting those things aside, you need health insurance. Right.
And for one or two or however, you know, depends on the dynamics of your family and so forth. But what's that going to be? That's another thing people underestimate, you know, they see the deduction coming out of their paycheck and don't realize that it's only 20 percent of the premium. Yeah. I think employers paying a big chunk of it. Right. That's right. That's right.
Health care is not only we can get into this later, but not only for those years that you retire before you're on Medicare, but for the cost of health care in retirement itself. Meaning, you know, you think about the growth of health care costs if you're healthy and you're 60 or 65 and you think, well, health insurance will cover. It's always covered most of it, you know, I have a five hundred dollar deductible or whatever.
But as you age, things come up that are not covered by traditional health insurance programs. Yeah. Give me an example. We've run into a lot is people get hearing aids and they may get some help from that, but there's a lot of out of pocket cost. Right. Oh, I need a tooth implant. Yeah. The dental thing is so many people run into that. Right. You know, there's a lot of cost that is out of pocket. Those are a couple of, you know, big ticket kind of examples that we've run into often.
I don't know if there's others that come to your mind, but those are the big ones that I see. So health care, we've got the premium for maybe that pre Medicare eligibility. That's a big cost, big ticket. We got a plan for that.
When we get into retirement age, this 65 and older with Medicare, we do often make some assumptions about we've kind of used some national average in our calculations that we add to your, you know, costs because, you know, we think it's better to inflate that at a higher rate of inflation. We want to assume, you know, we don't want to under assume we want to over assume essentially. So we make some use of those numbers, but those can be Medicare premium considerations. Those can be what else?
Things like copays and deductibles and some of the things that aren't covered, maybe. That's right. Yeah. So and then, of course, late in life, there can be a lot of extra costs that we need to think about in a distinct way and that when we stress test the plan is what if we have a long term care expenditure? Right. How does that affect the plan? You know, and when we do our financial planning, we like to do there's a feature on the the point the program we use that has some stress test.
And there's a variety of things that we look to look at your financial plan and say, well, how does that what happens if what happens if inflation is higher? What happens if health care costs are higher? What happens if taxes are higher? What happens if our returns are lower? We live longer, et cetera, et cetera. There's a whole variety of things we can look at. But these kind of things you don't always do when you do it on your own.
And if you're particularly if you're thinking about an early retirement, make sure you've done a lot of these stress tests to think about what ifs. Yeah. One other that I was just thinking of is like, if you retire early, you're probably going to want to take Social Security earlier than you might ideally take Social Security. There's sort of an opportunity cost there. That's not something you can count. That's that's one of the points, isn't it? Do you want to set that up? We'll come back.
Let's talk about that part for a minute or two. This notion like, you know, if you retired 60. You don't even have Social Security as an option, do you? That's right. So the question is, how do you fund retirement before your Social Security kicks in? And we're not suggesting by that question that Social Security is going to pay for all of your retirement. Right. But until you get that supplement full retirement age for people born early, you know, like 1960 is the cutoff is 67 right now.
If it's before that, it's 66. So and then, of course, we encourage people when it's appropriate to consider waiting until 70 to get the extra kicker for those 8 % a year right after that age. But if you're going to take it to Russ's point, if you're going to take it at 62, you're going to be taking a reduced benefit not only between 62, 67, and 70, but between 62 and the rest of your life. Your check is going to be less than it would have been if you were able to wait.
That was kind of where you're going. Anything to add to that? No. I think just the idea that you're going to be, even if it's not ideal, if you retire early and you're starting to feel the pinch of that income that you're used to having not coming in, you're going to feel inclined to dip into Social Security early. We have those conversations with clients where the plan is showing the optimal time mathematically is later on 67, 70, whatever it may be.
But that anxiety about no income can make you make a decision that might not be ideal. And it has lasting consequences that, again, how long are you going to live? We math becomes a lot easier. But generally, we really want to encourage people to think in terms of at the very least for the primary breadwinner in a couple to wait till full retirement age. And really give serious consideration to age 70 if you think there's a chance you could live well into your 80s.
There's some mathematical benefit to having delayed. Now, because one of the two of you can live that long, you'd like to have that amount to be the one that carries on. The larger one, right. Now, everyone's situation is different. And how much of a benefit or a difference can really vary. And we had an interesting conversation where we went through some of this and it really can be different in different circumstances.
So we really want to put the numbers together to see, well, what happens if this? What happens if that? And that can influence someone's inclination if they say, I really want to start it sooner. And we can look at, well, how much impact does it make? And if it's on the margins and the probabilities of success are really quite similar or, hey, they're both a good outcome. This one's a little better, but maybe you're willing to forego that because it's more of a priority to get started sooner.
We had someone who was talking about the idea of maybe starting it sooner, but investing it for a decade or more, or whatever, 62 to 70 kind of thing. They don't need it. They're not going to stop working for a while, but let's turn it on sooner. Well, okay. That's an equation that's a little more worthy of closer scrutiny. And that's not what most people do. Most people turn it on, spend it, and don't invest it more. That's right.
So if we're really going to say, oh, no, I'm going to turn on, but I'm really going to invest that money and I don't need to spend it, well, because I'm continuing to work or something. Well, how much you're making becomes relevant if you start at 62. Right. You don't want to be in a position where we undermine the benefit of added taxation. Because of taxes, right. Right. But you can do some equation to say, okay, I'm not going to touch that.
That might be a slightly different calculation than the norm. Most people, if they start early, it's because they want to spend it. Right. This topic and the previous one have a theme of a common mistake that people make that might be 60, 62, whatever the age is. And they're doing their math about, can I afford to retire? So hopefully they come up with a legitimate expense number. And then they say, where's my income coming from?
And let's say for the sake of this example, that they figure it out, whether it's Cisco Social Security at 62 or Pension or whatever. And they are cashflow positive at that moment of 62. Yeah. And they know about inflation. They think about inflation, especially after these last... Yeah. 2022 was a tough experience. But they don't do the long-term projection of how much... They think about two or 3% inflation. Okay. I can handle that.
But the long-term compounding impact of inflation over, for example, a 30-year time period. And what... And not just inflation on your expenses, but how is your income going to increase to keep up with inflation? The other side of that. Yeah. Because the lower Social Security amount... Right. Social Security might go up, but your pension might not. You might have certain fixed resources. You might have an annuity that's a certain number or wherever your income is coming from.
So I think that's a super common mistake for DIYers, the do-it-yourselfers, is they come up with a number. They come up with good numbers. They put a lot of effort into it. And it looks good for the beginning and the foreseeable future, but they don't... The meaningful impact of inflation over three decades is tremendous. Yeah. It's not, well, you're in your 60s and 70s that we're worried about with that. Right. It's the compounded on the back end that is in this vein.
And it can be deteriorating wealth. That's right. Because it's just to maintain your spending. Yeah. That raises an interesting point, Jeff, too. We often show people their projections in today's dollars. We translate it into what's that mean and what you'd have in spending values in today's dollars, as opposed to the future dollars. Because in future dollars, it looks like big. But if you say, well, what's that buy you today? Well, it's an inflation adjustment. Oh, that's not quite as big.
No, it isn't. That kind of thing. Right. And in that theme, they also forget... They have a good... In this example, they have a good handle on their cash flows and actually what they're spending on a regular basis. But they don't realize that in 15 years, they need a new roof, or in 10 years, they need a new car, or would they like to help their granddaughter go to college or all these things, or the long -term cares you mentioned.
And that's the benefit of having a dynamic professional financial plan that puts your goals in there, the things you want to do. And then stress tests is it for those things that maybe you don't want to do, but... Or you might not think of. Could happen to you too. Yeah. We'll use another sound effect for that one. Yeah. I guess I get the less favorable sound effect. No, it's the scenario you depicted. That's right. That's not you.
But no, I think the point is there's oftentimes things we do think about, but there's also these variables that we don't always think about. And if we're not... It's easy to miss something in your planning that can make you feel more confident than maybe... Yes. Is appropriate at times. Yeah. You're doing this once if you're doing it yourself. How about some help from somebody who does it every day? Right. So it'd be worth spending a few minutes with some help on that.
I've got a big question for you. Okay. What's that? That a lot of people don't think about. They might spend days or weeks putting together a financial projection, but they don't consider this. What are you going to do with your time? That is so good. Such a great question. I'm going to travel more. Okay. So you're going to travel what? Eight weeks a year? That's a lot, right? That's a lot. That's a lot. What about the other 44 weeks? I'm going to do this one.
Yeah. Hmm. What will I do with that? I'm going to spend more time with family. Okay. That's a couple of hours a week. Well, I mean, you can't help but think of cats in the cradle too, right? I've been hearing that song recently, but it's like, well, they have time because now they're adults and so forth. Oh, well, maybe I'll take care of the grandchildren. I love that's an option. That's possible. That could be a reality. For some people, that's a real motivation and that's legitimate.
Yeah. Absolutely. So you have to be thinking about what is that time variable going to be? And does it give you energy? Does it give you purpose? We want to have an ideal retirement gives us something that we're passionate about. We're excited about. We have energy around, right? So that could be things like family, like you're talking about. Yes. Could be some travel. But your point is a good one. If if we've got now, no, no work per se, right?
That's a lot of time each week that we're going to fill, right? How many how many hours a day we're going to sleep a few, right? Maybe we got eight of those going to sleep. But there's more than that. It's like think about your work history and how much of your friendships or entertainment or events you went to or trainings or conferences, whatever your work life meant.
But how much of that was related to the people that, you know, the things that you had to do for work and despite people's best efforts, best, best, not best efforts, best intentions on that last day of work and say, we're going to keep in touch, let's do lunch, let's, you know, and you're walking out the door. Statistically, that does not happen.
You know, you might keep in touch with a couple of people, but you lose that common, common center of interest, common topics, common issues that you were connected on. And yeah, good point. So it's more than the eight hours you have, you know, additional social connections. Absolutely. Or some of that interaction, have something that stimulates your mind.
Uh, you know, that there's a limit to how much, uh, television news and, uh, game on my iPad, you know, uh, there's, those can be helpful, but you know, you want other, you want other types of stimulus to keep you mentally engaged, physically aged, um, active. Um, so what's that, what's that plan for you? Right. You just, it's not, it's not to say, uh, there's a right answer.
It's what's that very unique, but it's something you need to have a plan for, or your days will just be watching reruns of Hollywood squares. We've had some, uh, recent, um, uh, interviews with, on our show with, uh, people who are helpful in this topic. We had the purpose code author on not long ago. Um, and I was speaking with Roger Landry recently, um, like to have him back on the program and I think we'll, we'll look at sometime in the fall.
So, you know, I mean, these are things that we'll come back to. Then we've probably attempted to provide, um, our audience with some good, uh, resources to think about this issue in your retirement. But your point at Jeff is a really valuable one that, um, you have to give thought to it's, you know, there's a, there's a certain mode of vacation when you start retirement. Hey, I'm on vacation.
We had a client come in and be like, I feel like I'm late for something, you know, like, I feel like I should be somewhere by now. You know, like there's a sense of like, um, uh, easiness initially with it because you're, it's like you're on vacation. Then it's like, that's normal though. It's been 40 years, 30 years that you've been doing this. It's, it's a big adjustment. So, you know, there's that initial phase and that can be different lengths of time for different people.
Um, you would agree, I forgot what the name of the book was. It was a great book you shared with me. Um, somewhat related to this for business owners. Uh, Arthur Brooks was it? Oh, from, uh, good to great. Yeah, I think that was it. And it was, um, you know, just that notion of like there's anyway, this was one with some of the things that you have different seasons of things and you have different strengths at different times of life.
And there's some opportunity to like really embrace this in terms of saying, okay, uh, I have opportunity now that I never had before with some freedom of time. How am I going to use that? And all of us, our time is limited on in life. So how do we maximize what we want to get out of this phase of, of life in retirement? So it's an opportunity, how you spend your free time and you get to create it. So don't view it as a negative view it as a positive.
What are those things that you've always wanted to do? Um, whether they be charitable, spiritual, um, whatever they are and you get the opportunity to create it.
So there's all, as we've talked about, just, uh, there's plenty of great resources to help people navigate this, but in any case, um, you know, big picture, uh, there's a lot to think about and, um, maybe you'd benefit from some professional help along the way when thinking about your financial considerations and some of these other elements of your considerations. Um, we're certainly here to help if you need a hand in that process. So, uh, don't try to do it alone.
I think, you know, uh, there's, there's a tendency where we think, oh, I can do this, you know, and, and maybe you can, but there's probably value found in getting a second opinion, just to make sure you're on the right path. Yeah. Don't forget to register for the webinar we have coming up. Just check the show notes for that. And until next time keeps driving 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 something more with chrisboyd.com or call us toll free at 866-771 -8901, or send us your questions to amr -info at wealthenhancement.com.
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