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#3 - Preparing for Retirement: Seven Essential Strategies for Successful Investing in Retirement


Investment planning is only one part of creating a successful retirement. What you want is to create a secure investment plan that will protect your retirement income and ensure you reach your retirement goals.

In this episode, we focus on investment planning for retirement. Eric share tips and insight on securing a retirement income that will survive no matter what the market throws at it and ensure a successful financial future.

 Key Highlights: 

  • How retirement planning has changed over the past few decades
  • The seven essential strategies for a successful investment during retirement
  • How the division of asset types impacts investment success
  • Why tax planning is critical to increasing the income kept after withdrawing from a retirement account
  • And more

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We specialize in helping women over 55 develop a retirement strategy that provides dignity and independence throughout retirement.

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Ways to Enjoy Today's Episode

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Episode Resources: 

➡ Join the Simply Retirement Newsletter
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➡ Can Your Retirement Portfolio Survive a Stock Market Crash? Here’s How to Tell
➡ Political Calculations
➡ The Power of Dividends: Past, Present, and Future
➡ Living To 100

Episode Transcript

Wendy McConnell: Welcome to the Simply Retirement Podcast with your host, Eric Blake. Today, we're going to be talking about preparing for retirement and the seven essential strategies for successful investing in retirement. I'm Wendy McConnell. Hi there, Eric. How are you?

Eric Blake: I’m doing very well. We celebrated my son's college graduation last night, so we're all on a high.

Wendy McConnell: That's so awesome.

Eric Blake: Yeah, it's been a crazy journey with the pandemic and everything else he's had to deal with over the last few years. I'm proud of him, and very happy that he got it done and he's on to the next phase.

Wendy McConnell: That’s good news. It's a big moment in life. I remember it well. So, let's talk a little bit about Napoleon Hill and the quote that you brought up. We frequently talk about the differences between looking at the positive and looking at the negative, and this quote explains that greatly.

Eric Blake: I always love finding quotes that apply to the topic of the day, and I've got a quick story that ties to this quote and exemplifies why this podcast was so important to me with reference to helping women plan for retirement. It's a bit of a drastic example. I had a conversation with a lady just yesterday. In our second episode, we talked about the Simply Retirement roadmap process and that first step being a 15-minute introductory phone call. So I had a 15-minute introductory phone call with a lady who is still married, but I could tell from the notes she gave me ahead of time that there was a level of urgency to the call.

Her big concern or big question was what she should do about Social Security because she was considering filing for divorce. Let’s call her Sue and her husband, Bob. She explained that Bob made all the financial decisions, and he took Social Security at 62. Her exact quote was, “He did not talk to me about that. He just did it.” Bob also has a pension that he chose to take a life-only benefit on, meaning there’s no survivor benefit. She's left with asking what would happen if we do get divorced. What happens to her and her benefit? She gave me her benefit amount, and it's much smaller because she spent most of her working years taking care of her family.

It's one of those scenarios that stresses the importance of women taking a proactive role in the family’s financial planning and retirement planning process because, unfortunately, you get to the point where it can almost be too late. If we're talking about a positive and negative mindset, it's about how we can turn this into a positive situation. You can very easily see that taking a negative mindset on these topics can be very detrimental. This is why I wanted to do the podcast. I want to get this information out there. In her case, if she’d heard this five years ago, maybe she would've had the confidence to have that conversation with him in advance or at least be part of the conversation.

It doesn't sound like she was, and now we have to figure out how to make lemonade out of lemons. It's going to be difficult, but it's one of those situations where you have to be as positive as possible. You have to look for the upside and find opportunities. It's talking about what I call the three tenets of a successful retirement plan for women: optimizing Social Security, minimizing taxes, and investing smarter. That's what today is about — being able to invest smarter. Looking at the seven essential strategies to successful investing in retirement. I think one of the things you have to be aware of is that investing in retirement is not the same as investing during your working years.

There are different strategies and different concepts that you have to be aware of. The other thing I would tell you is that investments are just one piece of the puzzle. I talk a lot about the puzzle. In the very beginning, I said that a lot of this is putting together a puzzle, and investments are just one part of that. It might not even be the most important part. 

 As we get into situations that call for making smarter decisions, the first thing you have to do is have a plan. You hear on the news 24/7 that you need to do something. The market's down, do something. The market's up, do something. It's always something. But when you think about having a plan, the first thing you want to identify is your goals. What does retirement look like to you? I use the example of a pilot who's flying to Hawaii. They know where they're going, they know where they're starting from, but the most important part is having the flight path plan. Think about how many adjustments a pilot makes when they're flying any distance. It’s harder to make those adjustments if you don't know what your destination is. That's the way I look at retirement planning. You have a goal, and plugging in investments is just one of the tools you use to achieve that goal. 

When would you like to retire? What do you anticipate doing with your time? What's going to be different? I ask what you would like to do in retirement that you can't do today. That's part of the plan. What other goals do you have? Why are they important to you? How much are they going to cost? From there, you have to establish a purpose, build a financial plan, and put a portfolio into that process. That's what I would call the essential strategy. 

Wendy McConnell: What is it that makes today's retirement landscape so unique?

Eric Blake: If we look back 40 or 50 years ago, many people had pension plans, so they had fixed income sources. There’s a lot of talk now about what the situation is with Social Security. Are they going broke? This is not the first time this topic has been raised. The last significant revamp of the Social Security system happened in the early eighties, 1983. At that point, people said, Okay, the system's great. Everybody's good. I've got pensions, I've got Social Security, I've got all these different things. But over time, most companies have done away with pensions. They put the burden on the employees. So you’re responsible for your own retirement. You have to be a good investor, a smart investor, to give yourself the highest probability of reaching your retirement goals. You don't have a monthly income that's coming in outside of Social Security. 

I always talk about how important Social Security is. I think it's one of the most underrated sources of retirement income. But for most people, it's not going to be enough. You need to have a plan and make sure you take advantage of the strategies we're talking about today.

Wendy McConnell: Let's talk about strategies. There are seven of them, right?

Eric Blake: There are seven. I hit one of them already, which is just having a plan. That's got to be the background. There has to be a foundation for the house you're going to build.

Wendy McConnell: Okay, so what's next? 

Eric Blake: Next is understanding the true objective of a retirement portfolio. I’ve talked about the difference between a portfolio and an investment strategy before you retire versus the investment strategy during retirement. You have to realize that when I ask a client what their top fear is about retirement, most people say they don't want to run out of money. That's the typical response. But when I ask them what their primary objective for their portfolio is, they say it's preservation of principle. They feel like they need to be safe. That’s mindset. 

So many people have the mindset that says, “Now I'm retired. I need to be safe. I need to be conservative.” The challenge is that if you're going to retire in your early sixties, even mid-sixties, there's a pretty solid chance you're going to need that money to last you 20, 25, 30 years.

Wendy McConnell: Hopefully.

Eric Blake: Exactly. If you think about the life expectancy for a woman who has reached the age of 60, her life expectancy has now changed. It’s another 24-plus years. When you hear people talk about average life expectancy on the news, that's for everybody. But once you've reached a certain age, your life expectancy gets longer. If you're 60 years old today, your life expectancy is another 24 years. When you get to 65, your life expectancy is 20 years. When you get to 70, you're at 16 years. As you get into these later years, your life expectancy will increase again because you're still alive. When you throw in all the medical advances and other factors, if people are retiring in their early sixties, they need to plan for another 30 years. There's a great website that we’ll put into the show notes — it's www.livingto100.com. It's a really cool life expectancy calculator where you can plug in basic information and it gives you an estimate of your life expectancy based on that information. Somebody who's pretty healthy, who eats pretty well and takes care of themselves well, their life expectancy is going to be longer than average, and you have to plan around that. So when we talk about the true objective of your retirement portfolio, it's to make sure you have a plan to cover 25 or 35 years of income needs and still grow. That's a different mindset. 

Wendy McConnell: I think a lot of people have the idea that we're going to sock away money and then just take it out. It's a bank account. But you're saying no; that’s the wrong way to go about it.

Eric Blake: There's a lot of talk now with CD rates finally being at 4%, 4.5%, even 5%. Let's think about what inflation was in 2022. When you're talking over 8% inflation, if you're getting 4.5% percent on CD, you're still losing money. It's not a decrease in value; it's a decrease in purchasing power. That's a tough concept to grasp, that you're not losing value, but you're losing purchasing power if you're not keeping up with inflation. That's why I say the primary objective of any successful retirement portfolio should be the growth of income over time.

Wendy McConnell: What kind of risks should we be taking in retirement?

Eric Blake: I think the key thing is, it's about reframing what risk is. That's the first step. We know that short-term volatility can be really scary. Think about what happened in 2022. We not only saw stocks go down a decent amount, we also saw bonds have their worst historical year ever. Back to the topic of being retired and needing to be conservative. Last year, conservative investors didn’t feel good about what happened to their portfolios. It can be a challenge and it can be scary, but if we think about it a little bit differently, a typical retirement portfolio has historically given you a pretty good probability of success. You might have 60% stocks and 40% more safe, conservative stuff. I'm not saying you shouldn't have conservative asset classes, but you can't necessarily have everything in those conservative asset classes.

Again, we've got 30 years to plan for, at least. Say you have 60/40, or maybe 70% stock, 30% portfolio. Instead of thinking about it as one big pile of money, think about what your money does. It goes up, and it goes down. That's kind of the mindset. People think it goes down too much, and that can be pretty scary. A 70/30 portfolio went down 24% in 2008, in the middle of the financial crisis period.

But if we think about it differently and say,” I have two piles of money. I've got my growth money, with 70% in stocks. In the long term, that's going to help me keep up with inflation and grow my income over time. But that 30% is less volatile stuff. It’s only going to go up and down a little bit. You can use the 4% rule, in which you take your 30% lower volatility assets and divide by 4%, which gives you about seven years of income to live off of when we get into a difficult market.

Think about the depths of the financial crisis. Historically, October 2007 was the top of the market and we saw a pretty steep decline through 2008, 2009. It was about five and a half years before we got to the break-even point where we were in October 2007. Back to just breaking even. If I could tell you, “You've got seven years in what I call a war chest.” — I talk to our clients about having a war chest that can carry them for seven years through difficult periods without having to touch more volatile assets. It should be able to get you through pretty much anything that we’ve faced historically. Financial crisis, Y2K, 9/11 — any period we've gone through where we've had an extended difficult market, you should be able to get through it if you have a sufficient war chest.

Wendy McConnell: So, when the markets went down 24%, it took five and a half years for you to gain back that 24% and then continue to accumulate from there. So, you're saying that the seven-year mark should be enough to cover anything that needs to bounce back?

Eric Blake: In general, stocks went down a bit more during that period. What we don't want to do is sell stocks to provide income. If you don’t have a war chest of more stable assets, you’re going to end up selling stocks at a very decreased price, and that creates problems. Anytime you have to sell something at a low price versus where you bought it, you have a higher probability of selling stuff at the wrong time and running out of money. 

Wendy McConnell: Explain to me a little more about the war chest because I'm kind of missing that point.

Eric Blake: The war chest is stuff that doesn't fluctuate as much. It could be bonds, it could be cash, or some combination of those things. If stocks are going down, these assets should still be able to maintain their value pretty well. I can go to the war chest and take my income out of the war chest and leave the stocks alone. I don't have to touch my stocks. If they happen to be down, like in 2022, I can leave them alone and use money from my war chest to cover my income needs. Having enough to cover around five to seven years' worth of expenses in our war chest has helped us avoid many difficult periods.

Wendy McConnell: Let's talk about the role of equities.

Eric Blake: Equities is just another word for stocks. When you watch CNBC or whatever channel, you might hear them talk about the S&P 500, which is what people typically think of when they talk about stocks. The S&P 500 is an index of the largest 500 companies out there, companies that most people are going to be familiar with. If we reframe risk a little and say we've got our war chest, most people think of stocks. It’s like they’re going to Vegas to roll the dice, and on a short-term basis, that can be true. If you put money into a stock on a Friday and look at where it is on Monday, you’ve got about a 50/50 chance that stock is going to be up or down on a particular day.

But historically, over time, that has not been the case. The longer the time frame you’re dealing with, the higher the probability of a positive return. So, if we go back to the idea of growing income over 30 years, if you hold onto your stock for 10 years, you've got a 97% chance of having a positive return. That’s true over any 10-year period going back to 1937. The longer the timeframe, the higher the probability of a positive return will be. So, thinking about stocks as a one-day thing may be like Vegas, but over longer periods, it’s not necessarily the case. 

The other thing people need to realize is that when people invest in stocks, they become owners of some of the greatest companies in the world. You've got Amazon. You've got Microsoft. You've got whatever company you appreciate and like and use. There's a good chance that you own a piece of that. So the other part of the mindset is realizing that if you own these companies, even if we go through difficult periods, at some point, their earnings are going to be positive, and that's really what drives stock prices. We're going to go through difficult periods, obviously. That happens. But overall, remember that you own some of the greatest companies in the world, and they're going to be okay in the long term.

Wendy McConnell: Tell me about dividend growth during investing for retirement.

Eric Blake: That's the other part of being a stock owner. The news is always talking about the S&P 500 decreasing or going up, and focusing on the value. But one of the keys to being a stock owner is the dividends. When we're talking about owning stock in some of these great companies, you don’t just talk about the possibility of stock appreciation and that if I bought a stock for $10 and it goes to $15, that means the stock value has increased. A lot of these companies share their earnings, and their profits with you as their investor. Throughout the year, they're paying dividends that are another source of potential income. You could buy CDs or bonds and earn interest: those are easy to see because the bank tells you that you’re getting 4.5%. When people who invest in stocks only focus on the fluctuation and the ups and downs of the market on a day-to-day basis, they forget that a big part of their return on stocks is the dividends, which is actual income. The company is sharing its earnings with you and all the other investors who own its shares.

Wendy McConnell:  Well, as someone who's had a 401k for a long time, I'm not getting any dividends.

Eric Blake: They might not be cutting you a check, but they're there. Every time you see a statement and you see a reinvested dividend, it means it's been paid out but was reinvested back into that particular fund.

Wendy McConnell: That makes sense. That makes me feel better. 

Eric Blake: They are there. As long as you're invested in stock funds, you're getting dividends, and they’re they're being reinvested. One of the great things about 401Ks is that you're not paying tax on the money as it grows. It’s tax-deferred. Those dividends are building up, helping you buy more shares of these great companies that you're a part owner of.

Wendy McConnell: What about managing your portfolio tax burden?

Eric Blake: That's a huge piece of the seven essential strategies for successful investing retirement. We have to think about taxes. You brought up 401Ks. They’re a perfect example of where we want to focus our efforts. A 401K saves me taxes today, but Uncle Sam says that at a certain point, at a certain age, you're going to have to start taking money out of those accounts. The government wants its money. There have been changes there, too. For years, you had to start taking money out of your pre-tax IRAs or your 401Ks at 70 1/2. It changed to 72 in 2019, and then SECURE Act 2.0 pushed the age out further to either 73 or 75, depending on the year you were born.

One way or another, Uncle Sam says there’s an age where you have to start taking money out. The problem is if I don't plan in advance... If I say, “I've got Social Security I can live on or some other source of income, so I'm going to leave my 401Ks and IRAs alone,” then I have a problem when I get to the age that Uncle Sam says I have to take out that money. And I have that big chunk of money that is taxable. It could push me into a higher tax bracket, and it also impacts your Social Security taxation. Let's say that a husband and wife both have maximum Social Security benefits, and that's enough for them to live on. If all you have is Social Security income, you're basically paying zero tax, or pretty close to it, because you have no other income sources. Now add $30,000 or $35,000 or $40,000 in IRA distributions, and the tax of your Social Security can be kicked up significantly higher.

Depending on the size of your IRAs or your 401Ks, it could also impact how much you have to pay for Medicare. You might go above the IRMAA, or income-related monthly adjusted amount thresholds,  which is how much you have to pay for Medicare Part B or Part D. If you have a certain amount of income when you hit certain income thresholds, it could force you to pay a higher premium.

There are all these other potential implications and ripple effects when you’re talking about tax planning. We want to start planning our investment strategy and how our investments are going to be allocated as early as possible from a tax standpoint. We were just talking about stocks and bonds and cash a little bit ago. Well, that's diversification. I honestly think that the tax diversification conversation is even more important. You need to think about what happens when you get ready to draw income out. Retirement income is different than retirement accumulation. It's where dollars are coming from. If the only place I have my retirement nest egg is in my 401k, then every single dollar coming out is going to be taxable to me. I have no tax control at all. Uncle Sam controls my tax liability because everything has to come out of that bucket. Whereas if I also have some Roth IRA money, a taxable brokerage account that I could draw from, having tax flexibility gives you much more control. You want to have some other source of income to draw from to give yourself tax control in the future.

Wendy McConnell: What is the last strategy for investing in retirement?

Eric Blake: So, the last one is utilizing a financial advisor. I'm obviously a bit biased, but when you're talking about whether you should or shouldn't use a financial advisor, there are a couple of different ways to look at it. One is, do I want to take the time to understand these tax laws and understand some of these strategies or would I rather delegate that to somebody who does this daily.

Wendy McConnell: Delegate. I want to delegate. I don't want to do taxes, I don't want to see them, and I don't want to hear about them.

Eric Blake: A lot of people are like that. Our clients are very intelligent. It’s not that they couldn't do it. The question is, do they have the time, or would they rather be doing the thing we talked about.. finding their purpose when they get to retirement? Do they want to spend time with family and grandchildren and traveling, or do they want to spend time analyzing tax strategies and looking at tax codes and looking at investments and when to rebalance and when to withdraw money? What would you rather spend your retirement years doing? Does it make sense to pass off the heavy lifting of retirement planning to somebody else? It doesn't mean you don't want to be a part of the process. That's a big conversation, whether you want to be part of the process. This is YOUR plan. We're just trying to help you get to your ultimate destination.

Wendy McConnell:  We're about out of time, Eric. Let's go over some quick action items. 

Eric Blake: The first thing is that once you're within that retirement red zone — within five years of retirement or when you think your retirement's going to be — that's when you need to start looking at putting the pieces together and deciding what your retirement income strategy going to look like. How are your assets allocated? Do you need to start shifting things around in preparation? You don't want to get to retirement day and not have a war chest ready. Within that five-year window is when you should start building up a war chest so that when you get to retirement, you've got five to seven years of income set aside, so you don't have to be as worried about market volatility.

Then, looking at the war chest, decide how much you want. Do you want five years? Do you want three years? Do you want seven years? Again, it's going to be very individualized, and that's going to drive your decisions around how much income you can take from your portfolio. How much income do you need to provide the life that you're looking for?

Wendy McConnell:  And you should also understand your investment strategy.

Eric Blake: Yeah, and that's where I think it's important to decide about working with an advisor or doing it on your own. Do you understand what your investment strategy is and do you have the confidence and a strategy for managing a difficult market? Whether you're doing it on your own or working with a financial advisor, you should have some level of understanding of what your strategy is, because if you don't, it can create panic. If you react emotionally, it’s just about the worst thing you can do from an investment perspective. The biggest impact on investment success, in my opinion, is not reacting emotionally in difficult periods. Understanding your strategy is the best way to go about doing that.

Wendy McConnell: You talk about getting a second opinion. Is that common?

Eric Blake: I think it should, definitely. If you've been working with a financial advisor for the last 10, 15, or 20 years, ask them the tough questions about retirement income: What is your experience with retirement income? What is your philosophy on retirement income? Do you specialize in retirement income or retirement accumulation? 

If you have a financial advisor who doesn't understand the tax implications of recent tax laws, or if you have a financial advisor who doesn't understand strategically determining which accounts you should be drawing from first to maximize your tax situation, those are situations where you might need to get a second opinion. A second opinion doesn't have to be limited to working with a financial advisor. It can be about what you've done for the last 20 years of your life if you've been managing everything on your own. A lot of your success leading up to retirement could be due to you being a good, disciplined saver who has put money in a 401k consistently and built up a decent amount of assets. A second opinion is a conversation on how you should start drawing money out. You might need to get a second set of eyes to see what you might be missing. It can make a significant impact if you've got the right person to help you.

Wendy McConnell: So, it all comes back to the beginning and today's quote.

Eric Blake: It does. A positive mind finds a way it can be done, and a negative mind looks for all the ways that it can't be done. When it comes to investing, a positive mindset makes a huge difference in what your potential success is going to be.

Wendy McConnell: Eric, how do people get in touch with you?

Eric Blake: The best way is to visit our website, www.blakewealthmanagement.com. You'll see the Start Here button in the top right. That's where you can review our Simply Retirement roadmap process, which provides the exact process we go through with every single prospective client who's looking to learn more about our firm to see if it's a good fit. It starts with that 15-minute introductory phone call to learn more about each other, see if there's an opportunity for us to help you, and if so, talk about what the next steps look like. We have a lot of other free resources on there as well. You can sign up for our weekly newsletter, the Simply Retirement Newsletter which comes out every Thursday morning in which we talk about a lot of these same concepts and strategies.

Content here is for illustrative purposes and general information only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy.

All investing involves risk including loss of principal. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.

Information here is provided, in part, by third-party sources. These sources are generally deemed to be reliable; however, neither Blake Wealth Management, Private Client Services, nor RFG Advisory guarantee the accuracy of third-party sources. The views expressed here are those of Blake Wealth Management. They do not necessarily represent those of Private Client Services, RFG Advisory, their employees, or their clients.

This commentary should not be regarded as a description of advisory services provided by Blake Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.

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