you feel like somebody took 2020, put it in a blender.
hit start, and just caused chaos.
You're not alone. You've
probably had to deal with canceled plans
work adjustments, complicated family decisions, or
tough family decisions to make.
And even maybe some really tough financial decisions.
So the question becomes, how do we
start planning our retirement when, you know, all
these other things are unknown.
You don't know what the future is going to bring in
regards to COVID, with the local economy.
What the markets are going to be.
How do we prepare for retirement when there's so much unknown.
How can you look ahead to 2021 when you don't even
know what next week is going to bring?
This week I sat down with John Connolly to discuss
those things and cover
six tips that can make all the difference for your end
of the year actions by 2020.
Hey, welcome to after the Paycheck.
The series dedicated to helping people
to and through their retirement process I'm your host Adam Blye.
This week I am here with John Conley.
It's been awhile since we've been in the same room together,
been a couple of weeks, we're doing the social distancing. So
Yeah.
People actually well, they like I
notice you do it different like editing for the videos
now. And I guess just so we're further apart.
So we hope after just the way we like it.
Yeah Yeah.
I think I smell a little funny.
So Yeah, they do things that are different.
You know they actually kind of is
the reason why we do that is because 2020 has been a year.
Why as I saw a thing online.
The other day I got to 2020 in a nutshell,
it's like a precursor of it then March is like 90% of
the year. And then it's like everything that's happening.
I feel after the election.
It's like just I saw one that said 2020
and it showed like a slide at the playground
and it was a cheese grinder.
Probably more like, Yeah.
And it's because this has kind of been like a year
for a lot of people.
We're going to talk about that kind of coming into the year.
And now we're in November.
Now You know we don't know what's
going to happen next week let alone next year
with everything going on between COVID
the market economy, the election all of this stuff
is still up in the air.
So it becomes really hard to plan for your future,
for retirement and financially when you don't really
know what's going to happen.
You know even tomorrow or even next week.
So we thought we'd go over a couple of financial actions
that you can take to still make a difference in your planning.
Now let's take them now or make those actions.
Now before the end of 2020 to set yourself up successfully
for the future.
Yeah, absolutely awesome.
So you sent me over a couple of topics
here that I'm just going to kind of ring off and let
a little bit more about them. So
again, six financial actions that
could make all the difference as the year comes to an end
here in 2020.
The first one, you brought up here is reworking your budget.
So what.
Like what.
What does that mean.
OK such an action item.
I can take right now is to rework my budget.
Yeah take a look at what your spending is in 2020 and beyond.
And so forth.
So anytime we will start looking at retirement
or entering retirement or you might even be retired,
we want to look at what is our monthly in yearly spending.
And if you're entering retirement.
Let's let's see where we're spending money.
How much are we spending on a monthly basis
in where we're spending that obviously with 2020 20
were covered the spending might have been shifted from one
pocket to another pocket.
You might not be going out to dinner as much.
You might not be traveling obviously,
but all of a sudden you're spending more money
on the house fixing things up like most people there.
They've done more house projects this year than before.
So let's kind of look at those things
and say where is the spending.
How do we foresee a spending in the future.
And let's make sure our budget is accurately set up.
So that our future spending is accounted for.
Is there anything.
So you're talked up.
You brought up like housing house projects or stuff
like that.
Again I am only a few years into my
house in the mortgage everything.
And I'm doing house projects myself if
I'm almost in retirement.
Are there things I should be looking in my house being like, you know what.
Maybe am I going crazy and just doing house projects
to do them or is it like, hey, this
is something you should be doing to take care of your house
because if you're going to live in it for the rest of your
life.
I don't know about house prices.
Some of the worst at it.
I did decide to paint a diner the other day,
and I think we're going to have to hire her in the end.
I gave it.
And gave it a try right.
But no if you're going to retire.
And you close to return.
I would always say, if you don't have a home equity
line of credit that is something that you want to get set
up prior to stop work.
And it's just easier.
You're able to show income.
And so forth have that already kind
of establish before you stop working
because if you stop working.
You have real no income, then it's a little bit tougher
it's not impossible.
They just make you do a couple more steps to prove income.
And so forth.
That's good.
I didn't even think about that the home equity
line of credit thing. Yeah before
you retire going into financial tip number
two, which is talking about goals and new ones.
We just talked about always my goal to kind of redo the house.
You talked about reviewing your goals
and maybe setting new ones for the next year. So
what would be something that I should be considering or not
considering if I'm thinking of retiring in the next year
or so or if I'm already retired.
Yeah you know what. You
want to look at what your review everything.
Just take a look at where your portfolio is today.
How did it perform versus the markets this year
make any necessary adjustments to your portfolio that's
needed.
Review your goals.
Lot of things that we're seeing people's vision
of their retirement is different.
It might be a different timeframe
someone might have been thinking they're
going to retire at 65 and all of a sudden, they're 62 today,
and they're saying my company is not
doing as strong as it once was.
And I'm a little concerned about my job prospects moving
forward can I retire today.
If all of a sudden, I lost my job.
Do I need to go back to work.
So let's review your goals.
Also how do you envision retirement.
That's a big thing with most people is how they envision it.
A lot of people used to say, hey, I'm
going to go down to Florida for six months out of the year.
I'm going to live in the villages
or we're going to travel.
Well COVID kind of changed a lot of that.
People are looking at things differently maybe
we should maybe buy that lake house and be a little bit more
secluded on our own.
So the goals might have shifted and change.
But we want to make sure that your portfolio in your plan
is reflective of what your current goals are.
Right So let's say my plan in
retirement does change and you're talking about all you've got to make sure
your portfolio and all that matches
what is a step I can take to start to figure that out.
Like Oh, I've decided I'm not going to have two properties
or whatever. I
just want one.
So all of a sudden, that's an expense
that might have gone down.
So your portfolio or plan that you currently have.
Did you give an example, might have a budget of $10,000
a month.
And in that budget of $10,000 a month
we've already budgeted for that second vacation home
or something down in Florida.
And if you're not going to spend that time in Florida
and the cost has gone down because you built something
in Massachusetts or New Hampshire.
So then we have to make your portfolio reflect that less
need for income because your expenses are down.
So let's make sure that we change your budget
to reflect what's actually going to happen
versus what we were thinking it was going
to happen if I am someone that's thinking,
OK, I'm 62 I was thinking of going to 65
and then retiring and doing the Florida thing.
But now that I'm not going to do that.
And I see that my budget is whatever this is how does that
affect my probability of success that we've talked
about in previous episodes.
How I guess you kind of answered this question
a little bit about how it just comes back to
looking at your oil right.
You haven't reviewed.
Right So oftentimes in this business.
We hear individuals say my financial advisor will
meet with me once a year.
Well I think you'd want to at least have a conversation
or meet with the advisor at least every quarter.
OK So we can make changes and adjust
to what's happened just because you have a financial plan.
It's not like you take it and just put it on the shelf,
and it correct itself.
And it solves its own problems.
Things change.
So we have to change the plan as your circumstances change
in the economy in the world.
So we have to make the necessary adjustments along the line.
So that we don't get too far down the path
and we're out of whack.
Right we want to make sure that we constantly
are in the right path.
You made a great point there.
Like that constant communication because retirement.
The way that retirement planning, especially
now that we're in 2020 and everything going on really
seems to be you have to be able to make real time decisions
like to bring up a Patriots example, like Bill Belichick.
You know, he's making in-game adjustments
to make sure that he's increasing his probability
of winning the game.
It's not that, hey, we're going in with this game plan.
And if we throw six interceptions.
That's the only route that we plan.
This week.
So we're going to throw it every play.
Yeah you're making those adjustment
you want to make adjustments.
It's like kind of like turning the Queen Mary boat right.
That would take quite some time to turn the ball around.
We want to be a speedboat.
We want to be able to change direction on the fly.
In that moment to enhance or to maximize potential gains
or limit any potential losses.
So we want to be a speedboat.
We don't want to be the Queen Mary Gotcha.
So going into number three talking about
like making real time adjustments
you talk about amping up your savings.
And I know that there's, of there's
a lot of people that are having arguments
like I'm better off just putting my money in the mattress rather than
putting in a bank right now because savings
interest is so so low in a lot of accounts
and a lot of credit union stuff like that.
Why why would we put emptying your savings up on something
that we should review for 2020.
But going into 2021.
And savings could be the bank CD.
But you know as you mentioned interest rates are
so low that you're not really getting anything out of it.
Some people are concerned of, hey, I get this extra money.
The market's down.
I think it's crazy that I'm going
to put this into my brokerage account
and just watch it dissipate over time.
Well I look at it as is an opportunity as a buying
opportunity if the markets are down
buying things at a lower price, which is dollar cost averaging.
So you you'll ride the crest up once there is a recovery
listen, there's going to be a stimulus package that's
going to happen soon there's going to be a vaccine
a vaccination for COVID.
So things are suppressed right now,
but things will turn around.
So if we're used to save and can continue to save
and don't just put it in the mattress
you're not earning anything there roaring
and the bank is there.
Is there a certain amount of liquidity
they should have or is.
I'm sorry.
Does putting it in some of these other accounts that
are a little bit more aggressive reduce my liquidity
if I did need it for some reason.
It depends.
So when you put it buy stocks mutual funds
that's a long term thing.
So if we need liquidity you want to make sure
that we have enough liquidity in the bank to meet our liquidity.
OK So every person has a different zero.
I say that they need in the bank whether it be 10,100 1,000.
Everyone has a different number that they
feel comfortable in having as liquid cash.
It could be six months to a year's worth
of expenses set aside.
So that if there is a market downturn
we don't have to sell anything to create the income they need.
Got you.
Is there.
If I'm still working should I consider squirreling away
more money, or should I consider I
guess it like always it's me in question here.
It depends on your situation.
Absolutely I was going to say, well anything you can save
more money, save more money.
Right I remember Mike my grandfather saying years ago
when I was younger, he says money is not meant to be spent.
But money is meant to be saved.
And he's kind of right.
So we can save more.
Save it.
So that means looking at their budget.
So all of a sudden, if our spending needs
have decreased it means we can spend more.
So let's make sure we put it in the right bucket
to save in the appropriate place.
Somebody gave me a tip one time.
And it wasn't my grandfather, but it was like the Save
aggressively where you can.
So that way when you have something that you love to do.
You can spend freely on it.
And it kind of seems like the.
Yes the same mindset.
So Yeah, it's important to you.
You can spend a few bucks more on that.
But I'm thinking with the whole world
kind of changing right now where I'm not
spending as much in gas money.
So I'm saving 40 bucks a week there.
So instead of just spending it Willy nilly
on whatever it's pocketed away.
So that way, if some bigger expense comes
I can't splurge a little bit on that.
And you'd be surprised on the budget.
Like you say like I didn't drive because we
all were working from home.
My kids weren't playing hockey sports were shut down.
I literally, I think I got my gas tank up once
and I have a small vehicle.
Now and I was amazed at how little I will spend on gas.
But I was spending it way more on groceries or things
from around the house on that guy
that if I don't have a hockey rink to go
to or a sporting event.
I sit-in the backyard instead of relax.
And I just see 1,000 things that need to be done right.
So I'm at ace I'm live in there buying different things.
So the spending in my experience spending didn't go down.
Spending was the same, but it just
went into different location.
Yeah your budget went from this line item that's line item.
Well we want to make sure, for the retirement spending
that we understand what is our income needs.
Once we stop working.
We always talk about the Three Legged stool
that people have for income, pension, social security
in your savings and your investment
made up that third leg.
So whatever we're short, we have to come up
with a plan for that income gap to make sure
that we plan for it.
So having the idea of what we spend on a monthly basis
where that income is coming from is crucial.
It's almost like step one in retirement planning.
Right it's actually brings us to tip number five,
which you have to be proactive,
which is, again, understanding what those line items are going
to be what their budget is.
And then being able to be proactive about making
those adjustments either before you're in retirement. Exactly
well we sit down with someone we always asked him,
you know how do you envision retirement.
What is your retirement picture look like.
Some say it's going to be down in Florida
for six months and a day.
Some say, I'm going to be up here
in the North go to floor for a couple of weeks at a time.
I'm going to rent a place.
I don't want to buy.
Some might just be like, hey, I'm going to be around here.
I'm going to go to all the grandkids sporting events. I want
to be around the kids.
So you want to know what you envision retirement looks like.
And then plan around that.
What is that going to cost us.
What do we need.
We going to travel a lot to see the grandkids
are they spread out over the country.
So what is the added expenses that we
might have in retire and proactive
also means we look at things and say, I want to travel.
Sometimes when we build the plan.
We build up.
Hey let's spend a little bit more in the early years
when we're healthier.
We can do more things aren't as much of a hassle
as it once were.
So we kind of, let's say you need $50,000 a year
to live your life.
Well let's make it 60 65 for the first 10, 15 years.
And then we reduce our spending in the later half
or we keep that spending throughout.
If we can look and see that you're still going to
have nothing but success,
then we keep that spending.
But let's listen BJ Taylor BJ Taylor it
to you in your situation actual situation.
If I was a charitable person how would
that come into play with all these things like it.
Typically I would.
Again, I'm working.
So it's a little bit different. I would say,
hey, here is Pine Street in 500 bucks a year
because I love doing stuff to help the homeless.
If I'm retired that.
And I don't have an extra $500 to spend right or do
I. Well it depends on everyone's situation.
So if you're a charitable person let's
say you need to take the required minimum distribution
from your IRS.
OK because you're 72 and the IRS requires it.
Hey you got to take money out of your IRA.
You got to pay the taxes.
And then you can do what you want with the rest of it.
You can either reinvest it you can spend it.
Everyone's situation is different.
But some people do not rely on their required minimum
distribution to live their life.
OK So they are forced to take it and pay the taxes,
and they just hate that.
I get to call all time John, what
am I supposed to do with this. I got to take
it.
You know we put it back into the plan.
We re reinvest it.
But if you're fortunate enough.
If you actually take a requirement of distribution.
And it's properly structured that it
goes to a charity right.
You don't have to pay the taxes on that.
The charity gets that money.
They don't pay taxes on it.
And you feel good.
You did the good deed.
If you're capable of doing that doesn't have to be large sums
it could be any amount.
So at this point in time of the year,
you should be sitting down with your advisor
and looking saying, are we going to liquidate anything.
What's my tax situation look like this year
versus maybe next year.
Can we take advantage of maybe liquidate something this year.
Pay lower taxes versus what they maybe
might be next year based on which candidate wins the
White House.
That's a good point area that you're going into actually.
Tip number six, which is find an advocate, but also
like dealing with the advisor is making
sure that you find somebody that's going
to do what you want to be done for you for your retirement.
Right it's not that again.
We just have what charity like if I have a charity that's
important to me.
I would want to make sure I'm talking to somebody that's
going to understand that in work my plan to be in a way
that it's going to be conducive to what I really want
envision for my retirement.
And it could be something simple at the very beginning
that, hey, I've been given this money to this charity for so many
years, and I still want that to be part of my budget.
So I want to make sure that we budget that as part
of my expense.
Moving forward.
So your advisors are already well
aware of what your situation is and what
you're trying to accomplish let's say
at the beginning of retirement and you weren't as charitable
but you've been fortunate enough.
Now you want to be the player can change to reflect that.
Right we can make those necessary adjustments.
You want to work with an advisor that you
feel like you can count on that you understand
what they're going to do to earn their fees for management.
Have an idea of what is going to cost you.
Make sure you know what it's going to cost to have
my financial right.
What can I expect from you on a yearly basis.
And what were the parameters of this relationship.
Listen it's a relationship.
It's a two way street.
I want to know what's happening in my client's life.
What was changed so that we can make the changes
it has to be a two way street.
I think because of everything going on at 2020.
There's got to be, I think, an emotional counterpart to a lot
of what's going on too right.
I feel like dealing with a financial advisor
helps with that.
When you have a financial advisor
and you have a plan and we're in a year like 2020
where there are so many lows.
And then so many high very volatile and what happens
is individuals who don't have a financial advisor or person
to ask questions will be a sounding board too.
They tend to overreact.
They become emotional with their money
and they make the wrong decisions.
There's a study called the Dow Barr
study that says the average investor gets only half
of what the market actually gives
because they're emotional.
They buy high and sell low.
They make the wrong decisions.
So by having an advisor and also having a financial plan that's
tailored to you the highs and lows already built into it.
Right and then the individual who's
your advisor he or she can say, hey, listen, we plan for this.
This is what's happening.
This is why your portfolio is behaving the way
it is in this environment.
But we've accounted for.
And let me show you why.
So basically talk show off the legitime little bit.
You were telling me about the person
that a few weeks leading up to the election,
they got so scared about what the market was going to do.
They just wanted to pull everything out and basically
like I was saying, I put it in a mattress for a few weeks. Sure
but there's pros and cons to that.
And you're saying like you might not capture what
some of the market's doing.
And then you have to re-enter the market at a time
that you don't know.
So it's a perfect time right.
So we have coming into the final part of the year.
There's a lot of volatility, there's
an election a lot of uncertainty.
And this is a great time for you to take a look
and see what is my risk tolerance.
Right lot of people think they're an aggressive investor
until they see what an aggressive portfolio projects
to lose in any given year.
Right right.
Oh I'm not.
I don't want to lose 30% or I can't afford to lose 30% Right
but that's like the range of an aggressive investor.
Take stock of what you have.
Understand what your true risk tolerance
is if you are really nervous about the volatility
of the market.
And we hear all time.
I can't afford to lose money.
Well you don't need all your money today right.
Your retirement years are going to be
almost as long as your living years and working years.
So your working years you're working you're
saving let's say you work for the same company for 30 years.
You could potentially be retired for 30 years.
Right with how long people live in tonight.
So if you're overly nervous, maybe you're
not in the right risk tolerance OK,
maybe you need to readjust that maybe you
need to be a little bit more conservative jumping into cash
doesn't really overly protect you protect you
for the short period time.
But that individual.
We talked about they went into cash
and the market has done nothing but great since then.
And I almost knew that was going to happen.
But that individual's like a little bit
of a different situation.
But you want to take stock of what you have.
But the risk tolerance is in readjusted
to make sure that it's the right temperament for you.
How do I figure out what my risk tolerance is.
There's a process that you sit down
with your financial advisor what your risk tolerance.
You might say, I'm conservative.
OK And that means we're not going to be
overly aggressive in any way.
But your situation might require you to be a little bit more
than conservative because maybe you didn't save enough.
Maybe you need a little bit more of a bigger
return than what a conservative portfolio can give.
OK a long extended period of time
or if you're on the fortunate side, it might be you
don't have to be a moderate investor.
You saved enough.
You've won the game.
Why don't we become more conservative
and not have such volatility.
OK OK.
So you sitting down with your advisor
and going through the process of financial planning
for you is going to pinpoint what's
the right true right risk tolerance for you.
That's a good point.
There is.
There's my personal like.
What scares me about ups and Downs really risky markets
and in conservative markets.
And then there's what does my portfolio actually
have to do in order to have a higher
proportion of that probability of success in retirement.
Yeah, I would say there's this risk tolerance
and there's risk capacity right.
Like what is my capacity to take on that risk.
Well not everything goes up every single year.
We can lower class ourselves into this.
Believe in that.
Well the markets always go up.
And then all of a sudden, we see how quick
the markets like in 2008.
I think the markets dropped we'll say 45% in a one year
period time or 13 months, whereas this situation,
the market dropped rapidly in a short period.
Right So in that quick drop makes your stomach drops
like the roller coaster right now
you've got to have the hospital to kind of write it out.
But if you don't understand your financial plan
or you don't understand it, you might overreact right.
And say I'm getting out.
And then you took all the loss you went to cash
and then there's been a rally with the stimulus package.
And so forth from we'll say April through August.
Well if you didn't get in at the right time
and you just kind of slowly got in.
And also in August starts to drop again in September.
Well you missed a rally and now you're
taking part in the second look at the second wave.
So be disciplined.
Have there the appropriate approach
and rely on your advisor or an advocate
that you can turn to seek help.
There is.
I was saying I'm doing an episode on this later.
Is the Charlie mongers book Warren Buffett's partner.
I think its portrayal is almost like he
talks of all these different biases people have
in one of them.
I think we were kind of skimming over it.
But we didn't actually say it's called confirmation bias. So
whatever you kind of believe in,
you're going to look for other outlets or
other news things that are going to confirm that thought process.
So if you think the sky is falling
you're going to trust those news sites or those websites
or whoever those other people are they're
going to say the sky is falling.
You're going to be like CCC.
But like you said, if you work with somebody
that is emotionally independent of that.
And can say, listen, I actually have this data that's
telling me y, or z, or based on what your portfolio needs
to do it has to do X, Y, or Z. I think
you're not paying the financial advisor to tell you
what you want to hear.
Yes, thank you.
Perfect the financial advisor is here to tell you
what you need to hear right.
OK And listen, we're a team.
The client and the advisor we want
to make sure that we achieve the goals together.
But that doesn't always mean our views
are going to be the same as well.
So you have to make sure that you understand your advisor is
not going to be a yes person.
If you want to go to cash because you're too panicked.
I have to as a producer explain to you that why this is maybe
not the right decision.
And we have to come to some type of an agreement together.
But it's you have to be educated right to understand so that you
don't become so emotional.
Right So that's what a good advisor is having
a good team like any good sports team
has a great coach has a great team around there.
Right right.
No one does it on their own right.
You need a great team around you.
Good that's a good way to kind of someone's
like you need a great team around you. So don't
be afraid to ask the hard questions.
The uncomfortable questions.
Because in the long run, it's actually
going to help you because you're going to learn more
and you're going to be able to take that information
and make better informed decisions with your retirement
planning process.
Absolutely I agree.
Awesome John, thank you very much for taking the time.
It's always my pleasure.
Always remember last everything you
said was your favorite thing I'm holding you to that.
Did I say that I got I got it.
I If you have any questions, feel
free to head over to after the Paycheck
if you're not already there and fill out the form
or if you want to schedule a quick chat with one
of the guys, there's also a calendar
at the bottom of the website that you can book time
to chat with you to see him. John
Ryan.
Until next time.
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