Making $1 Million Last for 30 Years in Retirement

TRANSCRIPT

[00:00:00] Jordan Rich: Welcome. This is the Retire South Shore Radio podcast produced by South Shore Retirement Services, inviting you to get started on the path toward your dream retirement today. Hello, I'm Jordan Rich, joined by the founder and president of South Shore Retirement Services, Mark Rowlette.

[00:00:18] Mark Rowlette, the founder and president of South Shore Retirement Services and financial advisor, Erica Wright.

[00:00:24] So nice to see you both. Welcome. And today's topic is it's kind of interesting. I love the title of the topic, how to make a million dollars last for 30 years in retirement. That's a catch all, but we're going to be talking about how to make that nest egg work for you, Mark and Erica. Welcome.

[00:00:38] Mark Rowlette: Thanks Jordan.

[00:00:39] Yeah. I mean, it's not so much about, you know, you need to have a million bucks. It's whatever you've accumulated during your working life needs to be able to sustain the retired life that you now want to have. And it's reasonable to assume that people should be projecting out 30 years, right? Cause people live that long in retirement and people don't want to have to worry about running out of money.

[00:00:59] But quite honestly, [00:01:00] that is, right, Erica? Like, the most concerning thing to people, over and above, would you believe, dying. 61 percent of Americans are more concerned about running out of money than they are about dying. But, but it makes sense, right? Live too long, have no money, can't do the stuff you want to do, can't go back to work, that would make people panic.

[00:01:18] Erica Wright: Yeah. So it's definitely not about having exactly $1,000,000. It's not realistic for everybody to think that they're going to have $1,000,000 in retirement. It's definitely more about making sure that what you have is going to last the lifetime you plan on living. We can't always, you know, predict when we're going to check out. But, you know, we know that, like Mark said, reasonably, you can plan on about 30 years.

[00:01:36] Mark Rowlette: I mean, the whole focus around what we do is helping people continue to do the things that they want to do so they don't have to worry about running out of money. And one of the biggest things is to try and eliminate this distribution volatility from a portfolio.

[00:01:50] To me, that's the key part of how we help people design their retirement plans. And what is that, right? What is distribution volatility? People understand stock market volatility, right, [00:02:00] Erica? I mean, the stock market goes up. The stock market goes down and people can ride through that and, you know, hold hard and not, you know, run away from losses, nor chase returns by riding it through. You've all had that conversation with folks, you know, that you work with where it's like, you know, don't sell it now, the market will come back. But that gets really scary when you're taking money out. And that is distribution volatility, taking the dollars that you need out, regardless of what the market's doing, because you need that money to live on.

[00:02:27] Erica Wright: Right? I think that in the finance world, we have a way of overcomplicating things and giving things names that sound really complicated. But the whole concept of distribution volatility, it kind of relates to the concept of buying low and selling high. You never in common sense terms, you never want to buy high and sell low.

[00:02:45] That's distribution volatility would be more or less.

[00:02:48] Mark Rowlette: Yeah, so like let's say you have a million dollars. It doesn't really matter what the nest egg is. You have what you have, but let's say it's a million dollars and you need $50,000 a year from that account, right? You need to take 50 out. You [00:03:00] don't wanna take 50 out that has lost money, because guess what you did as well, right? You took the loss out. So if that $50,000 in 2024 would've been $60,000 in 2023, meaning that the account lost money. And you took the money out, then you have distribution risk there, and you've actually taken that loss, and you'll never get that money back.

[00:03:22] So, eliminating distribution volatility, and we're going to talk about this throughout the show today, the way to do that is bucketing your money out, right? Positioning some of your money, To make lower, more predictable, maybe more on the low risk side of things or no risk side of things, whether it be money market accounts, CDs, treasuries, fixed annuities, whatever it might be.

[00:03:43] But you get this boring, predictable return to allow the second bucket to maybe try and get a better return than that. Maybe it doesn't take risk on the downside, but it's trying to get a better return and then have the last bucket maybe swinging for the fences. But if the market goes in the wrong direction? Which can happen. And it does happen. You don't [00:04:00] take any money from the account that has lost value because that is how you will end up potentially running out of money.

[00:04:06] Erica Wright: You basically want to set yourself up so you always have a plan, and you know where your money is going to come from. And you're never in a place where you're desperate to need money or desperate to have money.

[00:04:14] And you have to take it from the wrong place when the market's not cooperating with what you want.

[00:04:17] Jordan Rich: It's really about making sure that your nest egg, that your plans fulfill your needs going forward. And what do we want to pick up on from the first segment?

[00:04:24] Mark Rowlette: Yeah. I mean, to echo what you just said, Jordan, that is the key, right?

[00:04:27] It's not about having a million bucks. It's not about, I need to have this amount of money. It's it's, I want to have the lifestyle that I want in retirement. And I want to be able to do the things without the worry of, am I going to be okay? Am I going to have enough money that I don't have to worry about running out?

[00:04:42] So whatever your nest egg is a million, $2 million, $500,000, you want to make sure that it's there to do what you wanted it to do in the first place. That's why it's called retirement money, right? You want it in retirement. And a lot of people are unaware what sequence of returns risk is. And really the easiest way to describe it is [00:05:00] how your returns are made when you're accumulating money is different than how your returns are going to impact your portfolio when you're taking money out of the account.

[00:05:09] You know, you can average 5 percent over the last 10 years and how you got there is going to be irrelevant to what dollar figure you have in your portfolio at the end of that 10 year period. But you can also average 5 percent rate of return in 10 years in retirement. When you're taking distributions and you could run out of money.

[00:05:29] And what do I mean by that? Well, you know, we talk about it on our live events all the time, Erica, where we have these two sisters that we work with who are a perfect example of this. They both had about a million bucks and one didn't like risk. One didn't mind risk at all. They both averaged 5 percent over a three year period.

[00:05:45] One of them had this million dollars made 5%, made 5%, made 5 percent and every year took 50, 000 at, well, it's really easy to do the math there where number one, She averaged 5%, five each year over three years, divided by three is 5% [00:06:00] average. And at the end of that three year period, she had a million bucks, right?

[00:06:04] 'cause she just took out the return. The other sister lost 10%, made 10%, made 15%. And if you do the math on that, that's also an average of 5% rate of return. But at the end of that three year period, having taken. 50, 000 out, because let's not lose sight of the fact that you can't live on percentages. You can live on dollars.

[00:06:23] At the end of that three year period, she had 967 and change, which is less than the million bucks, right? So it puts more pressure on the portfolio. So understanding the difference between average rates of return and actual rates of return is a real eye opening experience for a lot of folks that we sit with.

[00:06:40] Erica Wright: It's eye opening and it's also a tough, a tough situation to be in when you realize that that kind of impact that has when it's too late, oftentimes for you to go back to work and make up that difference that you missed out on.

[00:06:49] Mark Rowlette: Yeah. And, you know, to, to, to Erica's point, you know, people don't want to feel the panic, the worry, the stress of, Oh my gosh, not only am I not going to potentially have enough [00:07:00] money to last me 30 years, I'm panicked that I have to kind of.

[00:07:03] Changed the entire portfolio because the market went down because I had losses. And then guess what? You potentially missed the boat, right? Time in the market is so much more important than trying to time the market. And how do you do that? How do you build a portfolio around that? Well, it's all about buckets, right, Erica?

[00:07:17] I mean, having a position that. You can see that the income that you need is sustainable. So let's use that million dollar example, right? You've got a million bucks. If you've 300, 000 in one bucket, that's making a boring, predictable four or 5 percent return, but it's making it every year. It means that if you need 50, 000, you can sustain that for at least.

[00:07:37] Six years, right? At least six years of taking 50, 000 out, which means the second bucket you don't have to touch for at least six years. And the theory behind it is that second bucket makes a better return than the first one does. And it replenishes the first bucket, but it also allows the third bucket.

[00:07:53] To swing for the fences. And if you don't need to touch that third bucket, let's say for 10, 15 years, because the other [00:08:00] two can sustain your lifestyle, you can invest that money like you're 10 or 15 years younger than you are when you go into retirement. That is a better way to look at how you should map out your portfolio in retirement.

[00:08:11] Erica Wright: Yeah. Like I said earlier, Mark, I think that our industry does a really great job of confusing people using complicated terms and sequence of returns really boils down to just making sure you have a safe place to take your money from when you need it. And the only way to do that really is to make sure you have a plan in place.

[00:08:25] So the best thing to do here.

[00:08:28] Jordan Rich: And we can make that easy by giving you the phone number. It is 781 836 4214. 781 836 4214. Guarantee that somebody will get back to you first of the week if you leave a message on the weekend. Another way to connect, of course, is retiresouthshore. com. Upcoming information on seminars and webinars and lots of very useful information.

[00:08:49] Retire South shore. com. Of course, tax strategy always enters into the mix, doesn't it?

[00:08:54] Erica Wright: Absolutely. I think everybody always sees taxes as being a problem. I can't tell you how many times, probably the first [00:09:00] few words that come out of someone's mouth when we sit down with them is I don't want to pay any more taxes.

[00:09:03] And there's, you know, there's strategies around that. How do we get around that? One of the ways that we look at that is having different buckets of money, having a bucket of money that's a tax me now bucket, such as your wages, pensions, bank accounts, the things that you get a 1099 on and you kind of pay taxes on as you go.

[00:09:18] The other bucket of money being taxed me later, IRA money, 401k money, 403bs, 457s. Those are retirement plans you've put money away in that you haven't paid taxes on yet. Right. And then finally, your tax me never bucket, Roth IRAs and you know, certain types of life insurance payouts.

[00:09:32] Mark Rowlette: Yeah, I mean, essentially, Those are the only three types of money that exist, right?

[00:09:36] There isn't any other type of money, either tax now, tax later, tax never. And the whole theory around tax diversification is maxing your tax bracket out every year. So that is a predictable way to know that. You're not only able to navigate what the stock market is doing by booketing your money out from the normal perspective of diversifying your portfolio and having some of your money in the lower or [00:10:00] no risk side of things, some of your money in moderate risk, and some of your money in more aggressive investments.

[00:10:05] So you can decide from a stock market perspective, where should I take my money from? Based on what the market's doing, but also tax wise, it's where should I take my money from based on how much I'm going to pay in taxes? And it's not a process that you can just do overnight. That's why we work with our clients proactively and say, all right, each and every year, you've got your pension.

[00:10:25] If you have one, you've got your social, if you filed for social and we need to take it a little bit more money out of one of your pots, right? One of your buckets of money in order to sustain your lifestyle. But is there an opportunity for us to take. A little bit more money out of the IRA or the 401k and pay the same level of taxes that you're going to pay on the rest of your money, but never have to pay taxes on that money again, because.

[00:10:49] Nobody wants to pay taxes to your point, Erica,

[00:10:52] Erica Wright: but

[00:10:52] Mark Rowlette: nobody wants to pay more taxes than they have to, if they had it planned ahead.

[00:10:57] Erica Wright: Right. And just because you take money out of those accounts doesn't mean you [00:11:00] have to spend it. Like you can take money out and put it into a different type of account to let it sit there for, you know, a year or two until you actually need it if you have to.

[00:11:07] But just planning ahead and getting a strategy going behind all of that just can get you some momentum in retirement that, that you really, you really need.

[00:11:14] Mark Rowlette: I mean, the industry, and I pick on the industry all the time, has done a terrible job of helping people navigate that part of their retirement journey, right?

[00:11:22] And, and to me, being cynical, the reality is, you know, as financial advisors, financial advisors that charge asset management fees, which we do as well, much like a lot of the industry, we get paid on the gross, you get paid on the net, meaning that it's not about how much you have in your pot. Your retirement nest egg.

[00:11:39] It's about how much you get to keep and put in your pocket. So paying as little taxes as possible for as long as possible is something that we proactively do with our clients. But the industry is like how I was trained, Erica was trained, Damon here in the office was trained, was tell your clients not to pay taxes till they absolutely have to.

[00:11:54] But then if you push it off till that required distribution age, which is currently seven, [00:12:00] somewhere between 70 and 75, depending on what year you were born in, but 73 is like the, the age now, then you get to that. Age of 73, having maybe had a tax holiday for a period of time, but now you lose control. And guess what?

[00:12:12] Nobody wants to lose control of anything in their lives, especially their money and their taxes, because having the ability to proactively plan ahead of time, and it doesn't matter if you're already retired because you're not looking at You know, seven years in retirement. My dad has been retired for 33 years from Guinness longer than he actually worked there.

[00:12:31] Right. And that means that people live a long time in retirement and they don't want to be going into the unknown of, I have no idea what I'm going to pay in taxes on these accounts, but that's the reality, right? I mean, we saved all this money. You know, what you got as a tax deduction, putting the money in, but people don't really, if you look at it and map it out.

[00:12:49] I don't know what the future of the taxes are going to be, but my feeling is it's going to go up. We know it's going up in a couple of years when the Trump tax cuts are expire, but it's probably going to go up beyond that. So [00:13:00] try to get ahead of it and try to chip away each and every year and tax diversify your portfolio.

[00:13:04] Don't just regular diversify your portfolio.

[00:13:07] Jordan Rich: The trademarked service you provide, all hands analysis really encompasses a whole lot for your clients. And as always, we'd like to remind people what that really means.

[00:13:17] Mark Rowlette: Yeah. I mean, yeah. You know, we talk about these different things that people could be doing in order to put more money in their pocket every single week when we do our various radio shows every week when we do our live events every day when we sit down with people.

[00:13:29] But the reality is that it's overwhelming for a lot of folks when we talk about these things, but that's why you work with a professional who will walk you through it and they trademark this process, all hands analysis. A lot of the You know, a lot of it was because we're on the South shore, all hands on deck, you know, Jordan and Erica that I, I love going out on the boat and I love fishing, but I would never go 40 or 50 miles offshore by myself.

[00:13:51] I always go out with. A bunch of bodies, right? But it's not just to have a bunch of bodies on the boat. It's that it's safer to go out with a bunch of people. Everyone has a [00:14:00] job to do on the boat. Right. And as little as some of those jobs might seem having water on the boat is critically important.

[00:14:06] Having the boat is obviously really important. You couldn't go offshore, but having everyone do their various tasks and jobs. Helps the success of the trip, right? And retirement is a long journey. It's a long boat ride and trying to go it alone can be scary for folks. Trying to figure out who I should work with, what I should do.

[00:14:24] And is there something that I didn't even know that I should be addressing is something that you don't want to find out the hard way, the wrong way. So the trademark process starts with income, right? We go through a journey of, you know, sitting down with someone and trying to figure out what their lifestyle is going to look like in retirement by asking questions around, what do you want to do in retirement?

[00:14:44] Do you want to be in Florida? Do you want to travel through Europe? Are you happy being in Quincy and going out twice a week? All of those, those things are really important to folks, but they all require money to do it. So how do you best map out the most efficient, effective way to [00:15:00] get that income on a consistent basis?

[00:15:02] So you don't have to worry about running out of money in retirement.

[00:15:05] Erica Wright: And just because you go into retirement doesn't mean you want to stop making money. I've never met anybody who says, yeah, we've made everything we're safe. We're good. We don't want to, we don't want to make any more money. Everybody wants to continue growing what they have and just making sure they have enough.

[00:15:16] So, so we charge an asset management fee, just like much of the industry does. We hold our clients assets on the Fidelity platform. So it's not like it's sitting in a desk drawer in our office in Hingham. So we are independent. So it kind of gives us the best of both worlds. We have Fidelity's brand name, but we have.

[00:15:31] Really the ability to use any asset that's out there. That would be the best for our client situation because everybody's situation is different.

[00:15:36] Mark Rowlette: Yeah. I mean, to have the ability to use any and all financial instruments makes our clients feel much more comfortable that we're looking at their situation very specifically about them, not about the, Portfolio that the company is telling us that we have to use, but making money isn't just about being in the right positions when the market does, you know, what it's meant to do, which is go up.

[00:15:57] Right. I mean, that's what the goal is. It's [00:16:00] also looking at how you can navigate through your taxes each and every year to not minimize, you know, this year's tax bill or last year's tax bill. It's to minimize your lifetime tax bill. building. When you have lots and lots of money saved in an account that hasn't had taxes paid on it yet, guess what you have?

[00:16:14] You have an IOU to the IRS, right? At some point you're going to have to pay them. So surely we would want to try and navigate through to pay as little money as possible. So tax strategy is key to the success of the ultimate amount of money that you put in your pocket. And it's something that the industry is kind of shied away from in that.

[00:16:31] Oh, we don't give tax advice, nor do we give tax advice. That's a CPA's job. Building proactive tax strategies helps people look and say, all right, well, like if I can have a little bit more headroom in my tax bracket this year, do I want to take a little bit more money out and pay as low taxes as I possibly can on this money, and then I never have to pay taxes again on it.

[00:16:51] I

[00:16:51] Erica Wright: think it's really key to, in this case, we talk about working with a professional. There are so many different things that play into that, whether or not you should take money, extra money out that year, where, where [00:17:00] are your taxes this year, but making sure you're working with a professional so you aren't missing one of those key pieces of information that really play a big part into that puzzle.

[00:17:06] Mark Rowlette: Yeah, right. So, you know, the first three points being income, wealth management, tax strategies. A lot of the time that's kind of where it stops. But to our clients is other important parts of it as well. You know, making sure that your health insurance is squared away in retirement, Medicare planning, right?

[00:17:20] Making sure that you have supplements, making sure that if somebody were to get sick, that there's resources in place or there's a game plan as to All right, we have enough money to cover that cost and it's not going to throw off the other person's lifestyle who's staying at home or is, you know, the person who isn't in maybe in a facility and then to kind of tie everything up in a bow, making sure that your legal house is in order, making sure your wills, your powers of attorney, your healthcare proxies are up to date and the people that you want to help you or you want to leave money to are the people who are on your documents.

[00:17:49] And our clients love, and you hear this all the time, Erica, they love that. Yeah. Everything is accomplished here under one roof in our office in Hingham. And they don't have to run around to all those different places. And having [00:18:00] that team approach to your retirement journey gives our clients the confidence of knowing that their money is going to last them 30 years, which is, you know, really kind of, you know, the norm now of how long you would plan things out for people don't expect to go into retirement.

[00:18:15] And seven years later that. Then that's the end of their retirement. It's a much longer journey these days.

[00:18:20] Erica Wright: Right. I think the bottom line here is that we just simplify things, pulling everything all under one roof and looking all of the areas, you know, whether or not as an, as asset managers or financial advisors, whether or not we make money off of those areas, it, we really pay attention to all the areas that people need help with, yes, we want to, we look at everything, everything that was going to affect your life in retirement, not just the areas that, that are traditionally looked at.

[00:18:40] It's a really holistic approach and it makes things a lot more simple in your retirement when you, when you work with us.

[00:18:46] Jordan Rich: Thank you for subscribing and downloading the Retire South Shore Radio podcast. Feel free to leave a review and a rating and tell your friends about us. For much more, visit RetireSouthShore. com. That's RetireSouthShore. com. [00:19:00] Discover how South Shore Retirement Services helps individuals and their families. Achieve their ideal retirements.

[00:19:13] DISCLOSURE: Investment advisory products and services made available through AE Wealth Management LLCA. Registered investment Advisor. Insurance products are offered through the insurance business, roulette and Associates, L-L-C-D-B-A South Shore Retirement Services. Rowlette Associates, LLC DBA South Shore Retirement Services is also an investment advisory practice that offers products and services through AE Wealth Management, LLC, a registered investment advisor.

[00:19:41] AEWM does not offer insurance products. The insurance products offered by Rowlette Associates, LLC DBA South Shore Retirement Services are not subject to investment advisor requirements. Investing involves risk, including the potential loss of principal. Any references to protection, [00:20:00] safety or lifetime income, generally refer to fixed insurance products, never securities or investments.

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[00:20:26] Mark Rowlette and Associates, LLC DBA South Shore Retirement Services is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U. S. government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Mark Rowlette Associates, LLC DBA South Shore Retirement [00:21:00] Services.