Before an airplane takes off or lands, the flight crew reviews a safety checklist.
As SMI's Mark Biller explained yesterday on Faith & Finance, you'd be wise to have a similar type of checklist before heading into your retirement years. Mark also answered questions from listeners.
To listen, click the play button below. Scroll down for the transcript.
Faith & Finance with host Rob West airs each weekday morning on American Family Radio. A different version airs weekday afternoons on Moody Radio.
(For more radio appearances by members of the SMI team, visit our Resources page.)
Transcript
Rob West:
Is your retirement savings headed in the right direction? Have you checked lately?
Hi, I'm Rob West. Mark Biller joins us today to go over your pre-retirement checklist — and then it's onto your calls and questions at 800-525-7000.
This is Faith & Finance on American Family Radio — biblical wisdom for your financial journey. (theme music ends)
Well, it's no secret that Mark Biller is one of our favorite guests here at FaithFi. He's executive editor at Sound Mind Investing, a long time underwriter of this program. And, Mark, it really is great to have you back.
Mark Biller:
Well, thanks, Rob. It's good to be back.
Rob West:
Mark, you folks at SMI have a great article on your site. It's called Your Retirement Planning Checklist, and I know you compare it to doing a pre-flight check — which, by the way, is a great analogy for what folks are facing when they enter this season.
Mark Biller:
Well, thanks, Rob. It is. It's helpful. We all know before takeoff, airline pilots will go through a meticulous checklist to make sure the flaps are in the right position, there's enough fuel in the plane — basically that everything is as it should be for a safe flight.
And while our retirement planning doesn't have that same life-or-death implication, before a person wraps up their career, they really owe it to themselves and their family to go through a similar checklist — make sure that everything is as it should be and that they're as prepared as they can be for a safe transition to retirement and post-paycheck living.
That's especially important if you're within, say, 10 years of retirement age.
So, hopefully, this will be a helpful checklist to see if there are any items that need attention so that everybody can "land safely" in retirement.
Rob West:
All right, Mark. What's first on the list?
Mark Biller:
Yeah, the first item, Rob, is setting your intended retirement age. So the natural starting point for retirement planning is to "choose a target date."
And while that sounds really simple, it's not always as simple as it sounds. A lot of people like their work, or they may need or want to keep their income flowing. Other people might prefer to keep their workplace insurance instead of transitioning to Medicare.
For everybody, I think it's worth remembering that retirement is really a fairly modern invention. The typical retirement age of 65 is pretty arbitrary. But that said, whether it's for health or family reasons, most people do eventually step away from their full-time career.
So it's definitely something to pray about. Ask the Lord how he would have you spend your later years. And, of course, if you're married, you want to be sure to talk and pray about this one together.
Rob West:
Yeah, no doubt about that. We talk often that we need to retire to something and not from something. It reminds me of what Ron Blue's wife Judy said to him when he announced his retirement. She said, "Well, just keep in mind I married you for better or worse but not for lunch, so find something to do."
(laughter) It was a bit tongue in cheek, but I think he got the point. So anyway, we've got to be talking, right Mark?
Mark Biller:
Oh, absolutely. That's a great line by the way. I love that one.
Rob West:
Me too.
Mark Biller:
Once we've landed on our intended retirement age, then we need to test that and see how realistic it is. For a lot of years, the Employee Benefit Research Institute has tracked this disconnect between the age at which current workers plan to retire versus the age at which today's retirees actually retired. And there's a pretty big gap there.
So the bottom line of that — understanding that — we need to recognize that oftentimes it's deteriorating health of ourselves or a loved one that makes people stop earlier than they think they're going to. And the takeaway really is — even if you hope to work past age 65, you might want to build in a more conservative retirement age into your planning. Because you can always accommodate working longer and keeping that money flowing longer, but it's really hard to go the other way.
Rob West:
Yeah, no doubt. That will make sure that you're well-planned.
And again, we want to look at this through the lens of scripture. We were created to be workers, but we also need to plan for that day where we're not working for pay.
Back with Mark Biller and more just after this.
Rob West:
Before we head to the phones here, Mark — which by the way, Mark will be taking your questions here in just a moment on retirement. Also investing-related questions: 800-525-7000. We have a few lines open.
Mark, before the break, you were talking about that age, really having that target, but after that, what's next on the list?
Mark Biller:
Yeah, so once you've got that intended retirement date set, then our next step is to "estimate our retirement budget." How much are we going to need to live on retirement?
Fundamental question — it's not always super straightforward because some of your expenses are likely to change from your working career to your retirement years. Some of those expenses will probably disappear. You certainly don't need to save for retirement anymore once you're in retirement or save for your kids' college, things like that. Other things like commuting costs — those are likely going to go down or go away. But you also have some other spending categories that are likely to go up in retirement like entertainment, maybe travel.
So you want to consider whether your budget is going to change from your work time into your retirement life.
But also keep in mind that your budget is likely to change as you progress through retirement. So some of these expenses — like the travel, entertainment, that kind of stuff — that's likely to go up initially in retirement.
But a lot of retirement authors will refer to things like the "three phases" of retirement. This idea that you have kind of like the "go-go" years early on and then the "slow-go" years as your health starts to slow you down a little bit. And then, towards the end of retirement, you get to the more ominous-sounding "no-go" years when [there's] probably not a lot of golf and sightseeing at that point. But then again, as your health declines, healthcare spending tends to grow.
So the point of all this, Rob, is you just want to be thinking about those budgetary changes.
And for our purposes today, you probably want to focus primarily on that initial retirement budget and then plan to reevaluate that each year in retirement.
Rob West:
Yeah, it's really helpful. Obviously, nothing replaces actually doing the mechanics of creating that new retirement budget, which is important. But just as a rule of thumb, Mark, I mean I've seen studies that show the average retiree lives on about 70-to-80% of their pre-retirement income — primarily because they're no longer saving for retirement. Maybe they're debt-free or the kids are off the payroll.
But would you concur with that just in your studies on this?
Mark Biller:
Yeah, that's definitely the figure that I see the most often as well, Rob. But I would — like you just said — I would be cautious about just accepting that kind of shorthand because I have seen that vary really widely depending on the individual.
And there's so many factors. Do you live close to your kids and your grandkids so you can see them a lot without having to travel? Or is that going to be something that all of a sudden you're having to budget in three or four sets of plane tickets every year to zoom around to see the various grandkids?
That kind of thing can really vary from person to person.
Rob West:
I know the next item on that checklist, Mark, is what you all call your "debt-free plan." Talk to us about that.
Mark Biller:
Yeah, Rob. Paying off all your debt, including your mortgage, by the time you retire is a huge help to cashflow during retirement. So one of the items on this list is to ask yourself — if you've got a 15- or 30-year mortgage — if you keep making your scheduled payments, will your mortgage be paid off by your intended retirement age?
And if the answer to that is "no," then you may want to begin making accelerated payments on the mortgage. You can use an online calculator to figure out how much to add to the mortgage each month to make that payoff coincide with your retirement date.
Now the same is going to be true with all your other types of debt — vehicle debt, student loan, credit card, all of that.
Now, I realize if you've got a lot of debt, it can be overwhelming to think about trying to pay all of that down ahead of time and pay it off by retirement. So, as always, start where you can, engage the "debt snowball" or a different method to try to accelerate those debt repayments.
But the "big picture" here, Rob, is the less debt that you bring into retirement, the better.
Rob West:
Yeah, no doubt about that. Next on that list — after determining your debt-free plan — is around living arrangements. What do we need to know there?
Mark Biller:
Yeah, we touched on it earlier, Rob, but the big question here is, "Are you already in your forever retirement home or do you think you're going to live somewhere else in retirement?"
If you're staying put, you probably already have a good handle on the expenses of your current living arrangements, but if you're planning to move, then you've got to do a little bit of digging to figure out what are the expenses going to look like where you're going to move to.
And along with this one, I would say you want to be thinking ahead towards the time when maybe you can't live on your own anymore. What's your thinking then? Do you have a plan that involves maybe adult children that could help out, and have you talked about that with 'em? Is distance a factor there? Should you consider moving closer to them?
So these are all the types of questions that can seem kind of far off when you're in relatively good health early in retirement, but it's better to consider them early on than wait until you've got a sudden need later on.
Rob West:
Yeah, very good. That makes a lot of sense.
Mark, next is something you all call "estimating your guaranteed income." Tell us about that.
Mark Biller:
Yeah, so when we're talking about that "guaranteed" income, we're talking about Social Security, if you're fortunate enough to have a defined-benefit pension, any type of annuity, that sort of thing.
The idea here, Rob, is earlier we set a number for our retirement budget, so that's what we need to get in income to cover our expenses. Now this step is going to say, "Okay, how much of that is going to be covered by Social Security and other guaranteed income?"
And then the next step after that is to say, "Okay, assuming that that guaranteed income isn't going to cover all of our expenses, what is that gap? And that remainder amount — after Social Security after other guaranteed income — that's the number that we're going to have to fill from our investment portfolio.
So getting a really clear idea of what that additional monthly income number is going to be really will help us start to then plan. "All right, how much am I going to need to have saved to be able to generate that monthly income figure?"
I kinda combined a few items from the list in explaining that. But that's the general idea of what we're moving toward with this retirement checklist — to get to that number that's kind of our investment target now. So we know how long we need to keep working, how much we need to be saving in order to get to that retirement nest egg number that's going to meet our income needs.
Rob West:
And what are you using, Mark, these days as a withdrawal rate as we think about investment income on that nest egg?
Mark Biller:
Yeah, so the kind of safe industry rule of thumb is about 4%. That's kind of a conservative planning estimate.
We really encourage people to use some sort of a planning tool or calculator. There's some good free ones online that you can search for and use.
We have one that's a little bit more advanced — actually a lot more advanced — that we make available to our SMI members that's really more like investment-advisor caliber. [It] can really help you dial in exactly if this is what I have now and this is what I'm invested in, this is what that number's likely to look like. And then as I move into a withdrawal phase, what is that going to look like?
But some of the free calculators online can really do a pretty good job of helping you estimate that. That's going to be a little bit better than just relying on a blunt rule of thumb like 4%. But in the absence of something a little bit more specific to you — like those calculators we will give you — 4% is probably a good conservative estimate of how much you can take out of that nest egg each year without having it run out during retirement.
Rob West:
Yeah, let me just affirm what Mark said about that planning software that's available to SMI members. It's powerful. If you're a do-it-yourselfer, you want to be able to really compute where you're at with your whole comprehensive financial plan. It really is the type of software that an advisor would use right at your fingertips. And a lot of folks find that incredibly valuable. Again, you can learn more at soundmindinvesting.org.
Mark, let's hit quickly on healthcare needs. Obviously this is a major area of consideration in this season of life. What are your thoughts there?
Mark Biller:
Yeah, it is a big one, Rob. And the big question for people, usually right at retirement, is, "Are you planning to take Medicare right away when you qualify at age 65, or do you plan to work past that age and stay on your employer's plan?" So either way, you want to build in that estimate of how much you're going to be paying in premiums.
And if you're going to go with Medicare, then you want to look at that and consider filling any coverage gaps you've got by either adding a Medigap plan to a traditional Medicare plan or you could go with a Medicare Advantage plan.
And, of course, we're getting into a little more technical material there. But the bottom line there, Rob, is you want to look into the Medicare piece of this and what is going to be the best option for you at whatever age you plan to start with Medicare in retirement.
And we have some articles on that too on our website, if people are interested.
Rob West:
Yeah, very good. That's something really important to consider as you look at the cost of healthcare. Let me just ask quickly, Mark, what are your thoughts — you and the team at SMI — on long-term care insurance, just given how expensive that can be?
Mark Biller:
Yeah, that is really a tricky one. We've written fairly extensive articles on that to kind of walk people through that process. A lot of that does come down to family history. You want to really be honest about the likelihood of needing that type of care. And that factors in everything from do you have — your parents, your grandparents, did they tend to live a long time? Do you have a history of any type of Alzheimer's or dementia in the family? That sort of thing.
And, of course, those aren't going to give you absolute answers, but they are probably going to give you a direction to lean as to whether you need to be seriously considering building that expense in or not. It's not a bad idea for people who don't have those risk factors, but if you do have those risk factors, it takes the urgency up a bit.
And as you mentioned Rob, there really isn't an easy answer on this one because it is so expensive. So I hesitate to give too much of a guidance-type answer here because it really does get pretty specific to the individual. But I would definitely encourage people to look into that, read up on that a little bit, so you can make a good decision.
Rob West:
Yeah, the key is, does it fit in your budget and can you absorb increases — because those policy premiums have increased, they will continue to increase as the cost of medical care increases over time.
All right, let's head to the phones. We've got a few lines open. Your questions for Mark Biller today on investing and retirement, 800-525-7000. You can call right now.
Let's go out to Texas. Steve, what's your question for Mark?
Caller:
Hello. Thank you for taking my call. My question had to do with — I suppose that I don't really have many travel needs and I won't have children to support me probably, or grandchildren, so that is an influence as well. But I'm also willing and happy to stay employed through my later years.
And given that I intend to be making money as long as I'm capable of doing something someone will pay me for doing, then how would that affect my retirement planning — if I'm still hoping to make an income as long as I possibly can.
Rob West:
Yeah, and just for clarification, I'm seeing here in my notes you're 39. Is that right, Steve?
Caller:
Correct.
Rob West:
So he doesn't have a lot of family that could support him, Mark. Still arguably 25-plus years away. But he's saying "I might work into my 70s." So how would you factor all of that into his plans?
Mark Biller:
It kind of strikes at the general planning philosophy that I would encourage everybody to take as much as they can, which is basically to "Plan for the best, prepare for the worst."
The idea of working and continuing to earn that income into retirement — fantastic! You just want to be a little bit cautious because — certainly between 39 and 69, a lot of life can happen.
And that's really the point that we were trying to make with the earlier study. That group that studies the employee benefits — the Employee Benefit Research Institute — they basically, say, "Yeah, about 45% of current workers are right where you're at, Steve. They're planning to work late into the retirement years, but only about 19% of today's current retirees were actually able to pull that off." So about twice as many workers think they're going to do it as actual retirees were able to do it.
The takeaway from that is just build your plan around a conservative estimate of how long you'll be able to work. And then if you're healthy, if you're able and still enjoying your work, fantastic. That's going to make everything so much easier once you get to retirement because that income will keep flowing in.
But if something unforeseen comes along, then you've made your preparations and your plan around the idea that if I need to stop working sooner, I can do that without having a big financial crisis that you weren't foreseeing coming down the pike.
Rob West:
All right, we're going to continue to take your calls and questions. Mark Biller here today, executive editor at Sound Mind Investing.
And Becky, you've been waiting patiently there in Virginia. Go ahead with your question for Mark.
Caller:
Thank you. We're retired. I have $300,000 in savings that I would like to invest, hopefully get dividends — but fairly safely.
Rob West:
Yeah, and you're just wondering what approach to take, where to invest it?
Caller:
Yes.
Rob West:
Very good. Mark, your thoughts?
Mark Biller:
I think that the first question that we typically will try to address, Becky, is what's the overall investing framework that a person has. So is that $300,000 the total portfolio, or are there other pieces that we should be considering in this as well?
Caller:
Oh, no. There's other pieces. This is just money that I have to do something with.
Mark Biller:
Okay, well perfect. I just want other listeners to understand that as we focus on this one particular slice, that this isn't necessarily what we would say somebody should do with their total portfolio — because you want to balance that depending on your season of life, your age, your risk tolerance, and make that kind of stock/bond allocation first.
So Becky, I'm kind of assuming that you've already done that, and now you've got this one slice that you want to focus on — more dividend payers, kind of conservative stock type investing. That pretty accurate? Do I have that right?
Caller:
Yes, exactly.
Mark Biller:
Okay. Yeah, so there are a number of mutual funds and ETFs that focus specifically on dividend-payers. There are a couple of different types. Some dividend funds focus really on just finding the highest possible yields. Those tend to be a little bit riskier because they're not really evaluating the quality of those companies as much.
So I tend to favor more — they come in different names like "dividend growers," "dividend aristocrats." The idea is these are really high quality companies with a long history of increasing their dividends year after year. And what that tends to show you is financial stability in those companies — to be able to keep growing their earnings, to be able to consistently expand those dividends over time. And that's a good sign of stability in those companies. So that would be the type I would tend to prefer.
Another trick there that's kind of a shorthand is you can look for the word "Quality" in the name of the fund or in the description of the fund — because some funds will talk about "quality stocks" as a factor that they're selecting for.
Becky, I know that's a lot of information. On our SMI website — Sound Mind investing website — you can search for the word "dividend" in our search box, and we have written articles that have lists of some of these different dividend-focused funds. And that might be a good place for you to start your research if you want to look through some of those and find one that looks appropriate for your portfolio.
Rob West:
Becky, is that helpful?
Caller:
Yes, it's very helpful. Thank you very much.
Rob West:
Okay, you're welcome. Yes, if you want to do it yourself, soundmindinvesting.org. If you want to find an advisor, go to FaithFi.com and you can click "Find a Professional." Thanks for your call today.
Mark, as we begin to — (chuckle) going back to your analogy here — "land the plane" on this topic, Your Retirement Planning Checklist, what would you wrap up with today? And perhaps just kind of remind us of a biblical worldview of this retirement approach — perhaps a little different than maybe the world comes at it.
Mark Biller:
First and foremost, Rob, the point of an exercise like we've been going through today actually isn't to come up with a "perfect plan" because there really isn't any such thing. Things change, situations change. This is a process, not really a one-time thing.
And it's not so much the plan itself that's so valuable. It's the process of planning that's so beneficial because it prompts you to think through all these different aspects of your retirement that you may not have considered otherwise.
Kind of bringing this around full circle. We also want to just remember that, as always with any financial topic, we have a part to play, but ultimately this is in God's hands. So this should not be a topic that causes stress or worry or anxiety. It's something to prayerfully consider.
And again, we do our part, we rely on God to do his part. He's always faithful, and we can rest easy in that.
Rob West:
That's well said, Mark. Well, listen, once again, a wealth of great information!
Always appreciate you joining us on the program, my friend. God bless you.
Mark Biller:
Thanks, Rob. Always my pleasure.
Rob West:
That's Mark Biller, he's executive editor at Sound Mind Investing. Check out this article when you visit their website, soundmindinvesting.org. You can't miss it. It's called Your Retirement Planning Checklist. You can take advantage of it today.
And folks, just again, a reminder, we want to look at this through a biblical lens. God created us to be workers and productive, but we want to plan for that season of life where God may redirect us out of paid work. And the way we do that is we set aside a portion for that day — and Mark helped us do that today.
Hey, let me say thanks to my team today: Taylor Standridge, Devin Patrick, Robert Youngblood, and everybody here at FaithFi that makes this happen. If you want to support our work, you can do that at faithfi.com. Click give.
And we'll see you tomorrow. Bye-bye!
Audio Disclaimer:
The views and opinions expressed in this broadcast may not necessarily reflect those of the American Family Association or American Family Radio.
