6 Not So Secret Keys to Retiring Happy, Pt. 2


The following is the transcript from Episode 3 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: But if you think back when you first played tic-tac-toe, you probably lost, right? There is a pattern, and once you learn the pattern and how to play the game, you couldn’t possibly lose a tic-tac-toe today unless you wanted to. So once you learn how to play, you became a much more effective player. Money has its own rules, and you wanna learn how to play.

Clark: You’re listening to Retire Happy with Roger Gainer, president of Gainer Financial & Insurance Services, Inc. This is part two of “The 6 Not-So-Secret Keys to A Happy, Secure Retirement.” Thanks for joining us. I’m your host, Clark Buckner.

So in this episode, we’re going to pick things back up where we left them, and we’re going to talk about those final three keys. And just as a quick recap, Roger is going to kick things off here with what those first three are, and then we’re jumping right into the interview. For more content like this, be sure to visit gainerfinancial.com. Let’s begin.

Before we look at keys number four, five and six, would you be willing to do a really fast recap of those first three?

Roger: Sure. And the first one is eat right, keep moving, keep healthy. So many people, a simple fall in their later years can really destroy their quality of life. So maintaining core strength, strengthen your hand so that you can manipulate things and eating well, keeping your health up, really expands your satisfaction and your happiness in retirement.

The second secret was having a design for your life. A lot of people approach retirement just as “I’m going to stop working.” If you just stop working, you’re gonna get bored with that sooner than you can even imagine. I was listening just this morning to The Today Show, and they were talking about a study that people who don’t lead fulfilling, socially engaged retirement lives, every day you sit around doing nothing, it’s kind of like smoking a pack of cigarettes. And actually, research is now showing that it shortens your life. So having that plan is just critically important. Those are the happy clients. Those are the folks that have taught me how important that really is.

And then knowing what it costs. Many people settle for a retirement. They say, “Well, I can only pull this much income off of my portfolio, off of my assets, and I’ll just learn to live on that.” It’s not necessarily what is my lifestyle going to look like, what do I want it to be and then figuring out what it costs to deliver that lifestyle. So once you know that, then it becomes easier to make decisions about what sorts of investments and strategies you should be utilizing.

Clark: So in the previous episode, you’re talking about how at different stages of life, people are having these conversations with you, and I think something that’s pretty general we could start off with is, is it ever too late to start? With the keys that you’re about to share, number four, five and six, is it ever too late to start these? Is it ever too soon to start them? Any general thoughts before we jump into the next keys?

Roger: What a great question. Thanks for asking it. It was never too soon, time is one of the greatest allies. In a future episode, I want to talk about the compound interest curve that everybody is gifted at birth and how we’re trained to jump off that curve and cost us huge sums of money over a lifetime. So the answer to can it be too soon is no, it can’t be as long as you’re doing the right things and having money work for you over the long haul.

As far as starting too late, I know a lot of people that might be listening or people I’ve talked to over the years especially last five to ten years, they say, “Gee, Roger, it’s too late, I didn’t save enough, I didn’t make a plan, you know. Now, it just is what it is. I took my social security too soon, and I’m just struggling to make ends meet.” And the truth is any time you start planning, you’re going to make it better for yourself. You’re going to have more.

I’ve had people come to me a year before retiring that haven’t made any plans. But we’ve been able to discover their hidden assets, that’s always been kind of a motto of ours, and find things that maybe they didn’t think of that we can capitalize and turn into income streams and make their quality of retirement life better. So I would say that even though you might be discouraged, see what actions you can take to help yourself out because it really isn’t too late.

Clark: That’s really encouraging. And a theme word that came to mind from our previous conversation is it’s a balance, and I know that that will most likely be a theme as we continue on these next three Not-So-Secret Keys. I’m really excited to hear number four. So let’s jump straight into continuing the previous list. So you want to take it from there?

Roger: Sure. Well, you mentioned the word balance, and that really is what we’re striving for both pre-retirement and in retirement, is creating that balance, so you’re enjoying your lifestyle today and you’re enjoying it in the future. And Not-So-Secret number four is, “Where will you live?” Not everybody grows up their family and lives in a place during their main working years and family raising years. Live in a house that really lends itself to aging in place. Think about houses you’ve been and especially around here in hilly old Marin County in San Francisco where you have houses that go up and down hillsides, and maybe there’s two or three sets of stairs. That alone can become very, very problematic as somebody ages, getting up and down those stairs.

I know people today who…they’ve moved onto the main floor, and they just don’t even use the other floors, that’s one solution. The other thing is maintenance. Davi wants me to get other people to clean up after the storms that we had last week where it’s something I’ve always done. And I worked over the weekend, and I was a little sore on Sunday after cleaning up stuff in the yard. So as we get older, you know, I would expect 10, 15 years from now, that will be even more difficult for me. So we’re changing our landscaping around, so I won’t have that kind of maintenance.

And so there’s other planning that goes into, where will you live? Is it going to be comfortable? Is it going to be someplace that you can age in place? Because most people tell me that’s what they wanna do, and so another part of that is having neighbors and not being isolated. As I mentioned earlier, isolation is life-shortening. We are social beings and being able to access friends and family and have that interaction really makes a huge difference in that quality of life.

Clark: I remember one of the stats you shared last time was, if a couple made it to…if they made it to age, I think 65 you said, 60 or 65, the chances that one of the couple will…one of the individuals will live to see their 90s, and I think that is a good connection to what you’re saying now is…yeah.

Roger: Right. There’s about a 70% probability today, and of course, that’s expanding. Fastest growing segment percentage-wise in our population are people over the age of a hundred. I was listening to a gentleman speak a couple of weeks ago, and he said that the first person to live to a 150 has already been born. So life expectancy is expanding. It has ramifications. The more you think about it, the more interesting figuring that piece of the puzzle out is. But close your eyes and imagine, “Could I be living here when I’m 90? Could I be living here when I’m a hundred?” Certain houses, it’s just not going to work.

Clark: Wow. First person to live at 150 has already been born. That’s definitely something to think about. Okay. So transitioning to Not-So-Secret number five. What do you have here?

Roger: Well, Not-So-Secret number five is, “Do I worry about my investment portfolio?” We’re raised and trained when we start saving and investing to build wealth. And for our entire working lives, building wealth is the most important job. You’re accumulating wealth. You’re putting money into savings. You’re investing to get a rate of return and build that nest egg. But it’s very interesting. There’s been some research in the last five to ten years that suggests…and I’ve seen this with friends and clients…that if you’re fully invested in the market in retirement, it becomes a source of stress because you’re always worrying about whether the market’s going to correct.

I mean think back to 2000 when we had the tech bubble burst or 2007, 2008 when the markets were significantly roiled, stock market dropped 60%. And in relatively short period of time, anybody that’s retiring andd they were trying to retire in 2006 or 2007 that experienced that, their retirement’s in jeopardy now. Some people went back to work. Other people just tightened the belt or sold houses that they intended to stay in in order to stay retired. But there was nobody who had just retired or had retired, was about to retire, that was not impacted by that drop if you were invested heavily in the stock market.

Prudential did a study a few years back called the “Retirement Red Zone.” And the critical years in retirement are the five years before and the five years after you actually retire. You cannot afford to lose money during that period. You have to get your retirement income situated and secured and a strategy in place so that you can last a lifetime. Longevity is the single greatest risk in retirement. All retirement risks stem from that. If I live long enough, all those other issues, market corrections, interest rate movement, inflation, depression, health issues, all those things will come into play if I live long enough. Think about it.

If you retire at 60 and your dead at 61, you’re gonna have money left in the bank. You know, you’re not gonna have to run up the hospital bills or be in a nursing home or needing care for years and years and years. It doesn’t matter what the interest rates were because you didn’t run out of money. You’re dead. So if we can take care of that longevity risk, that is the first key to developing happiness and peace of mind in retirement.

If you know that you can drain your checking account each and every month, and know for sure that it’s gonna fill up again next month, that builds a lot of confidence. Just ask any friends that you might have that retired with a pension. A significant pension makes retirement income planning much, much easier, but most people don’t have that anymore. And so creating an income strategy becomes even more critical.

I’m working with a couple now, and they’ve saved some money, but it’s not a huge amount. And they’re right now living incredibly frugally. They even left the San Francisco Bay Area to move to a less expensive city here on the West Coast. They kind of miss it down here, but they figured they couldn’t make ends meet given what they had saved. And now they’ve charge me with, can we expand our lifestyle a little bit? We’d like to get a condominium to live in, so we have some stability in a house, and we want to make sure we never run out of money.

So even though they saved and invested for a lifetime and they built a decent nest egg, they’re panic-stricken, overdrawing money from it because they’re so worried about running out. They’ve said that their kids are okay, and the most important thing from kids’ standpoint and their standpoint is that they never run out of money that if they have long-term care issues that they know where the money’s going to come from, pay for those things. And that they can just relax and enjoy the activities that they worked a lifetime to enjoy.

Clark: When you talked a bit about the strategy behind your income and also managing the, you know, the nest egg and the money that you’ve been saving, the difference between wealth building and income generating, I think it would be really helpful to hear you dig a little bit more into that. The reason is because I’m curious to hear how the thought organizer can map out a step by step plan, so you can have the income that you need later on.

Roger: Well, the thought organizer is really designed to help somebody introspect over what they like and they don’t like about their relationship with money and investing up to that point in their lives. There’s a lot of different ways and strategies and investments that will get you there. And it’s really picking tools that you’re comfortable with that you can be confident in that will get you there in the manner that doesn’t keep you up at night. One of my favorite sayings is your money could help you sleep better, not keep you up at night. And I’ve talked to people who in 2008, they weren’t sleeping. They were stressed out, talked to doctors and therapists about what happened in their practices during that time. And it’s really sad to me when money affects your health.

And so using assets that are comfortable for you is really important part of that process. It’s funny, Wall Street has convinced everybody that you have to be in the stock market. And while the stock market is great for certain things, it’s certainly not a cure-all unless you’re a stock broker or a brokerage firm, and then it’s the source of your revenue, and yeah, getting people to invest is a cure-all because it cures all the income requirements I have. But for the investor and for the person accumulating that wealth, trying to always hit investment home runs or make up for lost time, you asked me that about time earlier. Just because it’s late doesn’t mean you have to take a bunch of risk and roll the dice, that could make it even worse.

So being aware of your own gut if you will, you know, how does that feel when the market drops 10% or 20% or more. It’s funny, even pros have trouble making decisions in a calm considered manner when the markets are going crazy. There’d been many studies that indicate that those professional pension managers and hedge fund managers are just as prone to those emotional swings as you and I are. So if that’s going to shorten your life because of stress or just make it more difficult, then you should be picking tools that are really more closely aligned with how you feel about money, that are going to serve what you’re doing.

So when we talked about the longer time frame earlier, the market went down 60%, and I got 20 years before I need the money. I’m not happy about the 60%, but it’s not the end of my life. And as people know, the market did recover, and now it’s above where it was back in early 2007. That’s not to say it’s a good idea to lose money, but that’s during that accumulation phase. There’s going to be some ups and downs, but you’ll outlive them. When I’m into the consumption phase, the accumulation phase last 30 to 40 years, and when I change over to consuming my assets, if they’re variable, my income is going to be variable, or I’m going to run out of money really, really quick.

Clark: So the main message with this is to be able to use assets and your strategies and have those designed for your sustainable income creation, so you can make it through that red zone?

Roger: Well, not just through the red zone but to deal with longevity…

Clark: Of course, not just through the red zone, that extend you the longevity, right. But you don’t want to be sweating or losing sleep during that red zone because you didn’t have it planned out ahead of time?

Roger: Yeah. It’s interesting, a lot of people…one big key to that is social security strategies, and when do I claim my social security? The vast majority of social security recipients claim way too soon. They leave so much money on the table. They claim before their full retirement age. People retiring today, the full retirement age for your full social security benefit is 66, and if you delayed till 70, for every year you delay, you get an 8% increase. It’s actually for every month you delay, you get two-thirds of 1%. There’s nothing out there paying that kind of return.

And all the times, over years and years and years, I hear people come back to me, “Well, Roger, I did the calculations, and if I took my social security at age 66 or waited till 70, my crossover point is until 77 or 79.” Well, that is mathematically correct especially if you were saving that and earning a rate of return, but it is not correct from a consume your assets and your longevity standpoint. As we’ve discussed, most people are going to live well past 77. So yes, if you’re sick, if you’ve got significant health issues, claiming earlier makes all the sense in the world. But if you’re a healthy, active person and you’re gonna live into your 90s, a lot of times, we’re much better off pulling money out of their IRAs and 401(k)s.

We even have ways of demonstrating to people how much longer your nest egg will last if you maximize the income stream from social security. And if you’re a couple, that planning becomes even greater. For my wife and I, we’re just coming into that age. Davi is now social security eligible for her full benefit, and she’s going to delay for a couple of years because that’s when I’ll become able to reach my full retirement age. And I will actually claim a spousal benefit from her. I’ll collect that for four years. And then at age 70, I will claim my benefit which will have grown by 8% plus a year because we’re doing things to even make that greater. And that way, she’ll have a much bigger survivor benefit, and we’ll collect a bunch of extra money in the meantime. Between the two of us, our social security is going to bring in over $60,000 a year. That’s guaranteed for life. I’ll never be able to outlive it, and it has a cost of living adjustment.

So there’s different ways to look at social security other than just adding up the total amount of dollars I get back from them. It’s Social Security Insurance, SSI, and it’s an insurance plan, and it’s meant to ensure that you won’t be on the street and that you’ll have an income even if you outlive your other savings. So wouldn’t you want the most of that security, not the least?

Clark: Definitely. So this leads us to our final Not-So-Secret number six, and let’s wrap up with this one. So what is this and how does it impact all of the above?

Roger: Well, Not-So-Secret number six is to have a tax plan. I’ve found over the years that once you’re in retirement, you’re kind of a victim of the tax code. Our dirty little secret is that people who are retired pay a higher effective tax rate than any other segment of our population. There’s a reason for that. Most people are saving money in tax-deferred plans like 401(k)s and IRAs and TSAs and 403(b)s and all that good stuff. So they’re putting in pretax money because they wanna save money on taxes. And they’re sending it down the road. And when they go to pull it out, they didn’t realize that they would not have deductions to use against that income.

So while you’re working, you have three main areas of tax offset is what I call it. Things you can deduct. You have business expenses, you have your kids and you have a mortgage deduction. One of the most powerful deductions we have. By definition in retirement, we don’t have a business anymore, right. Even if the kids are still living at home, unfortunately, Uncle Sam says, “You can’t deduct them anymore.” And I talk to lots and lots of people who are working very, very hard to get rid of that mortgage as quickly as possible. Where actually mortgages are a big and very important and powerful asset if you manage it as an asset. Killing that mortgage deduction and then turning around and taking money out of those tax-deferred plans gives you a tax increase.

And in many cases, people are paying even a higher percentage of taxes in retirement than they were when they were working. So they deferred their income to a time when they would pay more.

See, when these plans were created back in the 70s, we had a 90% tax rate. So for a lot of people, they were deferring to where they were going to pay less. They were going to reduce their income. And then even in the early 80s, we had a 70% marginal tax bracket, and then in 1986, we got a Tax Reform Act that essentially eliminated all the things we used to be able to deduct. A lot of people that are listening won’t remember, but we used to be able to deduct credit card interest, for example, car loan interest because that’s income to the bank. So why in the world should we pay taxes twice on that money? Used to be able to deduct R&D credits, used to be able to take depreciation on investment real estate against your withdrawals from those plans. In fact at one point early on, you could take your money back at 55 from those plans, not 59 and a half, and you were taxed as capital gains.

So our evolution has changed but not necessarily people’s way of looking at taxes. But one thing I know for sure about the future is that taxes will be different. Where we always hear a lot about taxes in election cycles, this election cycle was no different. We’re talking about cutting taxes for high-income people, for middle class, changing corporate tax rates. And it’s funny, every time they cut rates, somehow, the government collects more money. So when they cut rates in 1986, over the next six years, tax receipts actually doubled because they took away our deductions.

In the early 2000s, we saw tax rates cut again, yet government receipts went up. So you have to ask yourself, why does that happen? And it happens because they open loopholes, they close loopholes. Let’s face it, Congress wouldn’t get much in the way of campaign contributions if they didn’t have the tax code either favor or disfavor certain types of activities or businesses. And if they make changes in the future, you’re going to want to be able to make moves to counter those tax changes.

When people come to me with wealth and they change the tax code, we just move stuff around. When people are earning income and they change the tax code, they’re pretty much stuck under the ordinary income tax rate. There’s not a whole lot you can do to offset those wages other than the three areas I previously discussed. If you’re a business owner, you have some other options. But the tax code is like the monopoly rules. If you know the rules, you get to be a more effective player. And if I give you greater rates of return in your 401(k) or IRAs and they raise taxes by 30%, we’ve more than wiped out that increased performance. Does that make sense?

Clark: Right.

Roger: So we got to keep taxes in mind. When I get somebody ready for retirement, I like to have them in different places, different buckets of money, if you will, that are treated differently under the tax code. I want to have some, obviously, ordinary income money which is the taxable portion of your social security, any pensions you have, earnings from wages and withdrawals from your qualified IRAs, 401(k)s, etc.

Clark: Make sense.

Roger: And that’s all taxed as ordinary income. If you own stocks or other capital investments in non-retirement accounts, then you’re in the capital gains part of the tax code, and there’s different rules and different rates. And that gives you, again, more options, and then we’d like to have some money in tax-free areas. And there are some strategies that can be implemented that puts you in tax-free, tax-sheltered income options and opportunities. And that way you can draw from these different areas as there’s changes in the future. Clark, you ever heard a politician stand up and say, “We’ve got to tax more on the rich, on the wealthy,” and then talk about everybody earning over $250,000 a year?

See, those people aren’t wealthy, they just make a nice living. And it’s really what can we net out of that and build wealth with so that you can become one of the wealthy. But they never stand up and say, “We wanna tax the wealthy. Gee, if you were worth billions, we’re gonna have a consumption tax or we’re gonna have an asset tax.” The closest we have to that is the estate and gift tax. But there’s really very little in the way of taxation if you have great wealth. So the politicians are really going after people who make a lot of money.

In fact, if you look at some of the wealthiest businesspeople, the folks like Bill Gates and Warren Buffett, they draw a salary of a dollar. They have to draw a salary to be considered an employee, but their money is tied up in wealth, in company stock and other kinds of assets. And they don’t want that ordinary income because they’re just gonna pay a bunch of tax on it, and that’s why they take a dollar because they’re just going to get penalize if they take a salary.

Clark: Right. And if you don’t know what you don’t know, you can end up being taxed more than if you had not retired yet. But, you know, if you know like the analogy made with monopoly, but if you understand the rules, you can be a more effective player.

Roger: I wrote a blog a couple of years ago about that topic. We used tic-tac-toe as the game rules, but if you think back when you first played tic-tac-toe, you probably lost, right?

Clark: Yes, right, definitely. But there’s a pattern, right?

Roger: There is a pattern, and once you learn the pattern and how to play the game, you couldn’t possibly lose a tic-tac-toe today unless you wanted to. So once you learn how to play, you became a much more effective player. You know, money has its own rules, and you wanna learn how to play, and the tax code is a big part of that. And the other is just simple finance and economics.

Clark: It’s good. I like that. Those corner spots from tic-tac-toe, that’s where you wanna be, right? Well, this is a good spot to wrap up “The 6 Not-So-Secret Keys” to living a full retirement life. Now there is, however, a bonus one I think I should mention that I know of, and that is the Not-So-Secret number seven is, “Working with a specialist.” So you don’t have to be in this alone and I know you have close to 30 years’ experience helping couples and individuals with making the tax code and all that understandable like a tic-tac-toe game. And yeah, there’s no reason to not go along this route and on this journey alone. So anything you wanna add as we wrap up?

Roger: Well, life seems to be getting more complex, more detail-oriented, more ways to get tripped up. I think if you find the right advisor, really the right team, a good tax consultant, a good strategist for risk management and income production, a good attorney for protecting your assets and passing them on to future generations. Because if you run afoul of some of these details, the ramifications can be massive. And trying to go it alone…give you a quick story about even a client of mine who didn’t wanna bother me.

A few years ago, they wanted to take a fantastic once in a lifetime trip to the Galapagos Islands. And he told me about this trip that was coming up. It was through his Alumni Association from his university. And he was worried that the spaces were going to go away. So he withdrew money from an account, and it cost him about a 9% interest credit for a year so that 20,000 he pulled out cost him about $1800 in interest because he pulled it out a week before the interest was going to be credited on that account, and he ended up paying taxes. So he paid another several thousand dollars in taxes where we could have accessed that money tax-free from a different account.

So being able to have that strategy in place and know where your money is, and one of the ramifications of pulling it out and spending it because that’s what it’s for. Pulling it out, spending it, and enjoying it. But we wanna minimize the cost of doing all of that. So that’s why it may be beneficial to work with somebody like me. You might be able to do your own investing, but it’s these other details if you will…there’s an old saying, “The devil’s in the details.” And I find that to be more and more true over the years.

Clark: Roger, thank you so much again for taking the time to share some your stories and wisdom. I really enjoyed it. And I can’t wait to record another one of these podcast episodes for Retire Happy.

Roger: Well, thank you, Clark. There’s just so much. I want people to enjoy a long, happy and secure lifetime.

Clark: Thanks so much for listening to this episode of Retire Happy. Be sure to head on over to gainerfinancial.com to download your thought organizer to get started.

Roger L. Gainer, ChFC, California Insurance, license number 0754849 is licensed to sell insurance and annuity products in California, Illinois, Arizona, Pennsylvania and New York. Roger L. Gainer is an investment advisor representative providing advisory services through HFIS Inc., a registered investment advisor. Gainer Financial and Insurance Services Inc. is not owned or affiliated with HFIS Inc. and operates independently.

Thanks again so much, and we’ll see you next time on Retire Happy.