Retirement Planning Red Flags
Nov 18, 2020
Most people hire a financial advisor in order to help them navigate the world of retirement planning. It can be difficult to know whether you are getting the help you need, or if someone is truly looking out for your best interest. On today’s show, we ask Isaac a few questions and he’ll discuss what answers indicate a red flag when trying to put together a plan.
Here are just a handful of the things that we'll discuss:
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Transcript
John Stillman: Hello, and welcome to Wright Money Tips. I'm John Stillman alongside Isaac Wright, chartered financial consultant and president of Financial Dynamics and Associates. Find them online at financialandestateplanning.com or call (804) 777-9999 if you'd like to have a conversation with Isaac or somebody on the team at Financial Dynamics.
John Stillman: Today we're talking about retirement planning red flags. So you might have answers to these questions that don't indicate a red flag at all, but depending on how you answer some of these questions, it could actually be a red flag if you have the wrong answer. So I'll throw the questions out there, you tell us, Isaac, what will be a good answer and what might be a red flag answer to these questions.
Isaac Wright: Yeah, I think again, this is going to be very direct today and you know, as we go through the end of the year, again, people are going to start thinking about whether or not they have the right relationship with somebody that's helping them with their money or their lifestyle. So this should be pretty good.
John Stillman: So, if I were to ask you, not you Isaac, but you, person listening to us right now, "How often do you meet with your financial advisor?" What might be a good answer to that question, Isaac? What might be a red flag?
Isaac Wright: Yeah, here's the answer to the question that you really need to ask or think about when you ask this question, "Is there a proactive approach to how the advisor is going to communicate with me?" So the reason this question gets asked is because, again, let's call it for example, when you work for your company, you may have a 401(k) rep that comes in and visit with you once a year, whether you even take the meeting or not. Some others, again, have never really had an advisor, they do it yourself a little bit, but you know, what I look at is this is once a scope of work has been established in terms of creating a plan, not just finances, but investing, and then also of course, tying that into your lifestyle, there should be significant check-in points along the way.
Isaac Wright: It doesn't mean you have this meeting "every quarter" or every six months. I think you do want to have a situation where you're meeting absolutely no less than annually, but let me just say, for example, if you turn 65, you want to have a meeting or at least have a conversation about Medicare. If you're turning 66, maybe you're thinking about social security, or maybe you're thinking about taking social security sooner. There's going to be subtopics that need to be laid out in terms of a relationship and the clearer you make that to somebody, and I think we do a pretty good job of this here, the easier and actually the more functional the relationship is where they don't feel frustrated in the fact that, "Hey, I hired an advisor, but I don't know how often I'm going to see them or talk to them."
Isaac Wright: So with that being said, I think how often you meet with your advisor is something that can vary year to year, but it should be proactively set up in a schedule. So, I would say under most circumstances here at our firm, no less than once a year. However, if it's a transitional year or if there's a lifestyle change or if you have a disability or death, then obviously that can be a multiple visit year, depending upon clearing up, let's call it some estate or financial planning items.
Isaac Wright: So, hope that's helpful for everybody. That's the way we maintain relationships here at Financial Dynamics.
John Stillman: All right, what about this question? "What might be a good answer? What might be a red flag answer? How much income will you need to maintain your lifestyle in retirement?" And I guess maybe some people don't know the answer. Is that the red flag, if you don't know the answer?
Isaac Wright: Yeah, I was going to say that's basically what I was going to come back with is, if you do not have a clue about what type of money, income, where it's all going to come from, the best places to collect the income from, again, like if it's a social security check, a pension, if you're going to still work part-time but you consider yourself to be retired, investment income and so forth. You know, people have income coming in from a lot of different places. Some people have rental income, some people use or have a trust inside of the family that they get income from. So there's a lot of different places where income can come from. But if you don't have a plan on utilizing that and looking at how that's going to influence your "lifestyle" because your lifestyle could be something that you could increase or potentially have to decrease if you don't have that planned out.
Isaac Wright: So that's where, I mean, really, that's why you hire somebody specifically invested with you inside of your retirement plan. So somebody that's going to be there for you to help make critical decisions alongside you. And that's what we do. It's not we're here to take control, it's like, "Hey, listen, here are several things you need to take into consideration and probability wise, this is what ..." and then you fill in the blank about what the suggestion or recommendation would be. That's the way that we have always operated. Thankfully, we've been able to grow pretty substantially by treating people that way, but you have to have a plan before, in my opinion, you retire. You got to start working on what that lifestyle's going to look like and whether or not you can afford it for 30 plus years. And you know, again, what used to kill people now as an outpatient surgery and you're alive another 10 plus years. So, you know, I think lifestyle, longevity, all that has to be addressed.
John Stillman: All right, how about this retirement planning red flag. If I asked you this question, "If someone asked you to describe your retirement plan, could you do it?" Isaac, what would be a way somebody could answer that question where you say, "All right, pretty good." And what might be a red flag?
Isaac Wright: Well, let's say for somebody where to say, "Listen, here's my vision of retirement." I think a lot of people can give a general vision, but I think some of the granular work that goes into expenses and also distributions, or the strategy behind where to take distributions from, it kind of dovetails into the last situation we just covered, is having a pretty clear understanding of the rules that you want to try to live on and live by when it comes to the money that you've saved for retirement. I think a lot of times people can describe maybe their vision of how they want to operate their lifestyle and sometimes even that needs to have some tweaks and some work and some things that people don't know what they don't know as far as considerations.
Isaac Wright: Again, sometimes again, people aren't looking to stay home and watch soap operas every day, most people still want to stay productive, which typically means is either they're going to still work maybe part-time or they're going to get involved in a lot of different activities that could also cost them money. So you have know what that change in that change over is going to look like. And so when people say, "Here's my plan" and when they come in, for those that don't know this, I mean, our first meeting here at our office is called our envision meeting. And this is really where we want to learn more from you. So even though I'm doing all the talking right now, this is really me stepping back, learning more about what your situation looks like and then from there creating a mutually ascribed version of your retirement, and then we shoot for those goals. So, again, just trying to help people along the way, John.
John Stillman: All right. So we're talking about retirement planning red flags. Your answers to these questions may throw up a red flag, they may not. Last one for you, Isaac. Can you name all of the investments in your portfolio off the top of your head? Now, I think a lot of people would be overwhelmed at trying to do that, but probably just because you can't name them all, that doesn't necessarily mean that's a red flag, right?
Isaac Wright: No. I mean, first of all, it can mean a couple of things. Number one, you're a tremendously internal locus of control person and you are do-it-yourself to the nth degree, or it may mean that you really don't know much about investments or possibly you only own three or four investments that you've held since the cows have come home and you haven't diversified from it. I know we talked about this, I think last week's podcast, so a lot of people, for example, owned company stock inside of a 401(k). And sometimes they just continuously own the same stock for 20, 30 plus years and they never diversified away from their company stock.
Isaac Wright: But let me just say, generally speaking, if you're aware of every investment, literally position that you hold inside of your investments, that's probably something that I would say is ascribed to somebody that's a do-it-yourself person. And I've said this for many years now, we are not here to tell somebody that likes to enjoy investing on their own, how to go about doing it if they're truly happy about doing it that way. However, what we do come to the table with, I think is a couple of different approaches that allows them to build out a financial plan. So if they are going to go, and let's say for example, be a do-it-yourself investor, they want to be highly speculative, we really want to make sure that they have enough income coming in from all the other sources necessary to live their month to month lifestyle, their discretionary money. So that way, if they try to hit a home run and strike out with the do-it-yourself money, they're not in a position where they have to go back to work. And then I'll end it with this too, sometimes if it's a spouse, husband and wife, you have one of them that is the investor of the family, if you will. And then the spouse has really no idea to the degree of how things are being managed.
Isaac Wright: So if you are a do-it-yourself investor, just keep this in mind, you may have it all under control but what happens if something happens to you? If something happens to you, is your spouse going to have somebody that knows who they are, knows who you are as a couple to help them make decisions along the way? So I think these are all good little year-end tidbits and topics. Hope this has been helpful for everybody today and listen everybody, enjoy their holidays. We've got something exciting coming down the line here, first part of 2021 that we'll be putting out there, and a short order, but John it's been a pleasure today, man.
John Stillman: Always good to talk with you, Isaac. And if you'd like to talk with Isaac yourself, the number to call to make that happen is (804) 777-9999. Again, (804) 777-9999. That gets you in touch with the team at Financial Dynamics. Thanks so much for tuning into Wright Money Tips and we'll talk with you again soon.
Announcer: Information is for illustrative purposes only and does not constitute tax, investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action.
Announcer: Advisory services offered through JW Cole Advisors Inc, JWCA. Financial Dynamics and Associates Inc. and JWCA are unaffiliated entities.
John Stillman: Today we're talking about retirement planning red flags. So you might have answers to these questions that don't indicate a red flag at all, but depending on how you answer some of these questions, it could actually be a red flag if you have the wrong answer. So I'll throw the questions out there, you tell us, Isaac, what will be a good answer and what might be a red flag answer to these questions.
Isaac Wright: Yeah, I think again, this is going to be very direct today and you know, as we go through the end of the year, again, people are going to start thinking about whether or not they have the right relationship with somebody that's helping them with their money or their lifestyle. So this should be pretty good.
John Stillman: So, if I were to ask you, not you Isaac, but you, person listening to us right now, "How often do you meet with your financial advisor?" What might be a good answer to that question, Isaac? What might be a red flag?
Isaac Wright: Yeah, here's the answer to the question that you really need to ask or think about when you ask this question, "Is there a proactive approach to how the advisor is going to communicate with me?" So the reason this question gets asked is because, again, let's call it for example, when you work for your company, you may have a 401(k) rep that comes in and visit with you once a year, whether you even take the meeting or not. Some others, again, have never really had an advisor, they do it yourself a little bit, but you know, what I look at is this is once a scope of work has been established in terms of creating a plan, not just finances, but investing, and then also of course, tying that into your lifestyle, there should be significant check-in points along the way.
Isaac Wright: It doesn't mean you have this meeting "every quarter" or every six months. I think you do want to have a situation where you're meeting absolutely no less than annually, but let me just say, for example, if you turn 65, you want to have a meeting or at least have a conversation about Medicare. If you're turning 66, maybe you're thinking about social security, or maybe you're thinking about taking social security sooner. There's going to be subtopics that need to be laid out in terms of a relationship and the clearer you make that to somebody, and I think we do a pretty good job of this here, the easier and actually the more functional the relationship is where they don't feel frustrated in the fact that, "Hey, I hired an advisor, but I don't know how often I'm going to see them or talk to them."
Isaac Wright: So with that being said, I think how often you meet with your advisor is something that can vary year to year, but it should be proactively set up in a schedule. So, I would say under most circumstances here at our firm, no less than once a year. However, if it's a transitional year or if there's a lifestyle change or if you have a disability or death, then obviously that can be a multiple visit year, depending upon clearing up, let's call it some estate or financial planning items.
Isaac Wright: So, hope that's helpful for everybody. That's the way we maintain relationships here at Financial Dynamics.
John Stillman: All right, what about this question? "What might be a good answer? What might be a red flag answer? How much income will you need to maintain your lifestyle in retirement?" And I guess maybe some people don't know the answer. Is that the red flag, if you don't know the answer?
Isaac Wright: Yeah, I was going to say that's basically what I was going to come back with is, if you do not have a clue about what type of money, income, where it's all going to come from, the best places to collect the income from, again, like if it's a social security check, a pension, if you're going to still work part-time but you consider yourself to be retired, investment income and so forth. You know, people have income coming in from a lot of different places. Some people have rental income, some people use or have a trust inside of the family that they get income from. So there's a lot of different places where income can come from. But if you don't have a plan on utilizing that and looking at how that's going to influence your "lifestyle" because your lifestyle could be something that you could increase or potentially have to decrease if you don't have that planned out.
Isaac Wright: So that's where, I mean, really, that's why you hire somebody specifically invested with you inside of your retirement plan. So somebody that's going to be there for you to help make critical decisions alongside you. And that's what we do. It's not we're here to take control, it's like, "Hey, listen, here are several things you need to take into consideration and probability wise, this is what ..." and then you fill in the blank about what the suggestion or recommendation would be. That's the way that we have always operated. Thankfully, we've been able to grow pretty substantially by treating people that way, but you have to have a plan before, in my opinion, you retire. You got to start working on what that lifestyle's going to look like and whether or not you can afford it for 30 plus years. And you know, again, what used to kill people now as an outpatient surgery and you're alive another 10 plus years. So, you know, I think lifestyle, longevity, all that has to be addressed.
John Stillman: All right, how about this retirement planning red flag. If I asked you this question, "If someone asked you to describe your retirement plan, could you do it?" Isaac, what would be a way somebody could answer that question where you say, "All right, pretty good." And what might be a red flag?
Isaac Wright: Well, let's say for somebody where to say, "Listen, here's my vision of retirement." I think a lot of people can give a general vision, but I think some of the granular work that goes into expenses and also distributions, or the strategy behind where to take distributions from, it kind of dovetails into the last situation we just covered, is having a pretty clear understanding of the rules that you want to try to live on and live by when it comes to the money that you've saved for retirement. I think a lot of times people can describe maybe their vision of how they want to operate their lifestyle and sometimes even that needs to have some tweaks and some work and some things that people don't know what they don't know as far as considerations.
Isaac Wright: Again, sometimes again, people aren't looking to stay home and watch soap operas every day, most people still want to stay productive, which typically means is either they're going to still work maybe part-time or they're going to get involved in a lot of different activities that could also cost them money. So you have know what that change in that change over is going to look like. And so when people say, "Here's my plan" and when they come in, for those that don't know this, I mean, our first meeting here at our office is called our envision meeting. And this is really where we want to learn more from you. So even though I'm doing all the talking right now, this is really me stepping back, learning more about what your situation looks like and then from there creating a mutually ascribed version of your retirement, and then we shoot for those goals. So, again, just trying to help people along the way, John.
John Stillman: All right. So we're talking about retirement planning red flags. Your answers to these questions may throw up a red flag, they may not. Last one for you, Isaac. Can you name all of the investments in your portfolio off the top of your head? Now, I think a lot of people would be overwhelmed at trying to do that, but probably just because you can't name them all, that doesn't necessarily mean that's a red flag, right?
Isaac Wright: No. I mean, first of all, it can mean a couple of things. Number one, you're a tremendously internal locus of control person and you are do-it-yourself to the nth degree, or it may mean that you really don't know much about investments or possibly you only own three or four investments that you've held since the cows have come home and you haven't diversified from it. I know we talked about this, I think last week's podcast, so a lot of people, for example, owned company stock inside of a 401(k). And sometimes they just continuously own the same stock for 20, 30 plus years and they never diversified away from their company stock.
Isaac Wright: But let me just say, generally speaking, if you're aware of every investment, literally position that you hold inside of your investments, that's probably something that I would say is ascribed to somebody that's a do-it-yourself person. And I've said this for many years now, we are not here to tell somebody that likes to enjoy investing on their own, how to go about doing it if they're truly happy about doing it that way. However, what we do come to the table with, I think is a couple of different approaches that allows them to build out a financial plan. So if they are going to go, and let's say for example, be a do-it-yourself investor, they want to be highly speculative, we really want to make sure that they have enough income coming in from all the other sources necessary to live their month to month lifestyle, their discretionary money. So that way, if they try to hit a home run and strike out with the do-it-yourself money, they're not in a position where they have to go back to work. And then I'll end it with this too, sometimes if it's a spouse, husband and wife, you have one of them that is the investor of the family, if you will. And then the spouse has really no idea to the degree of how things are being managed.
Isaac Wright: So if you are a do-it-yourself investor, just keep this in mind, you may have it all under control but what happens if something happens to you? If something happens to you, is your spouse going to have somebody that knows who they are, knows who you are as a couple to help them make decisions along the way? So I think these are all good little year-end tidbits and topics. Hope this has been helpful for everybody today and listen everybody, enjoy their holidays. We've got something exciting coming down the line here, first part of 2021 that we'll be putting out there, and a short order, but John it's been a pleasure today, man.
John Stillman: Always good to talk with you, Isaac. And if you'd like to talk with Isaac yourself, the number to call to make that happen is (804) 777-9999. Again, (804) 777-9999. That gets you in touch with the team at Financial Dynamics. Thanks so much for tuning into Wright Money Tips and we'll talk with you again soon.
Announcer: Information is for illustrative purposes only and does not constitute tax, investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action.
Announcer: Advisory services offered through JW Cole Advisors Inc, JWCA. Financial Dynamics and Associates Inc. and JWCA are unaffiliated entities.
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