Episode 11 – How to Flourish Financially During Your Rewirement: Part 1
In part one of her mini-series, Danielle Howard explains how you can prepare for the distribution season of your life so that you can flourish financially.
Here’s what you will learn about in this episode:
● Longevity ambiguity: how to avoid running out of money before running out of life
● Preparing for spending shocks, such as the loss of a spouse or unforeseen healthcare expenses
● Finding your ‘why’: why do you want to flourish financially during your rewirement?
● What to consider once you’ve found your ‘why’
● Recommendations for talking to aging parents about their financial lives.
● And more!
Join Danielle now as she walks you through areas of your life to address while preparing for your distribution season!
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[00:00:02] Welcome to the Wealth Done Differently – Retirement Podcast. Danielle Howard – A Certified Financial Planner ™ shares insight into the financial tools, techniques and temperaments needed make the most of your retirement dollars and relationships. Danielle bridges the gap between Wall Street and Main Street, bringing complex financial topics down to earth. Danielle will educate and inspire you as you define and refine your version of prosperity.
[00:00:34] Hello and welcome to the Wealth Done Differently Retirement Podcast with Danielle Howard. Today we’re going to be talking about actually the first part of a two-part series about flourishing in retirement. She’s going to be bringing us information about financial flourishing in retirement today. How are you Danielle.
[00:00:50] I’m well thank you Aric.
[00:00:52] Fantastic. So flourishing financially flourishing retirement. Where did this come from where does this idea come from.
[00:00:58] Well I know I’ve been driving around and I have seen the bumper sticker I’m spending my kids inheritance. I’ve also heard from people I want to slide into the grave writing my last check and have it bounce.
[00:01:14] All right. It might not be the best idea but it sure.
[00:01:19] So there’s a lot of different mindsets about using our money and retirement. And it’s good for a giggle and a chuckle. Yes. I really think that we need to look at it a little bit differently. My 23 years of working with clients and on my own personal journey I know that there’s a lot more to it and that we need to look at this distribution season of life and maybe look at what does it mean to financially flourish in this in this season.
[00:01:53] Yeah absolutely. And just taking that second example of the bumper sticker, you know, sliding into the grave with my last check and have it bounce – nobody can time that. Nobody has any idea when that last day is so the accumulation phase to the distribution phase is a pretty big deal because we just don’t know how long that’s going to be.
[00:02:11] That’s the that’s the first point we want to dig into is that longevity ambiguity. My crystal ball is broken for how long I’m going to live and I’m sure yours is too. And if anybody out there you can maybe look at some parameters as far as your family health or your lifestyle choices. But bottom line is it could be today or it could be many many years from now we know that longevity is increasing just because we know people are trying to take better care of themselves. We want to understand that longevity is out there and the whole idea you know when Social Security was first implemented there was you know seven-year life expectancy for when you started Social Security to where you are expected to be gone. And now we’re looking at 25 30 years. So it’s really it’s almost another lifetime in this season of life and we need to address that.
[00:03:19] Absolutely. Each year healthcare gets better and better as far as the things that they’re are coming up with, new discoveries. So that obviously adds to those years.
[00:03:28] Right. And so that’s one component of your distribution phase you don’t know how long you’re going to need to have those financial pieces fit together to get to where you don’t run out of money before you run out of life. We also want to look at that you’re going to have reduced earnings at least in the context of going out and maybe having a career or a job and this may either be your by choice or down the road as we move into the slow go or no go years that may be by ability. We are over time going to slow down. And so the opportunity to bring an income in from an exchange of value of my time for a paycheck or my talent for a paycheck is going to change. And we’re going to need to look at how are we earning money; is it through our other investment opportunities, is it through recreating yourself with a digital gig economy, or how do we want to bring money in. But ultimately we need to understand and grasp that it’s going to be reduced either by choice or by ability.
[00:04:47] Absolutely. Makes sense.
[00:04:48] We also have those spending constraints based on our sources of income. You know we hear there’s some people out there that may be living only on Social Security. Well if you have time to prepare you definitely don’t want to live only on Social Security.
[00:05:06] That is kind of a worst case scenario but even if you are living on social, just social security what is the best way to take it. And so you’re going to have to define what your spending parameters are what is that safe swimming water. What is your safe spending boundaries. And there may be some constraints in that. I would say most of us will have some defined income streams we want to utilize them really really wisely and optimize them. But you know the idea of living on a fixed income may come into play where you really need to make some tough decisions around what you’re going to use your money to bring into your life.
[00:05:51] Absolutely. It sounds for me I think about like right now if I need a little extra money I can put in a few more hours to do a little bit more work because that’ll help you know pad my budget. But when you’re on a fixed income there are no extra hours necessarily to work you know because you don’t have a job to do that if you’re retired. So it really limits that as well.
[00:06:10] So you want to look at how do I need to grow my resources in other ways given that you know that that income stream for those working years may be winding down a little bit. We also look at unforeseen spending shocks as we move into this re-wirement, re-firement, re-aspirement phase of our life. You know we’ve encountered spending shocks earlier in life whether it be a health issue or you know those expensive, stupid things that costs a lot of money like driving into your garage with your bicycles on top – I’m not saying that I did that but – I won’t to ask. I’m going to ask. Yes. But there’s always going to be spending shocks. And as we move into the fall season of our lives spending shocks can really have an impact on your financial life. The three areas that we see those more predominantly as people age are going to be in the areas of losing a spouse. We know that death is out there we just don’t know when that back to that longevity ambiguity. And there are many times when you lose a spouse that there are financial implications of that. And that is something we would consider a spending shock. Then there are health care shocks. Most people think that a lot of their long-term care is going to be covered by Medicare. And that is not true. And people need to understand that and prepare for it. And health care expenses down the road the inflation rate on the long-term care and health care down the road is actually more so than your traditional lifestyle cost of living expenses. So you know to look at maybe some of those health care shocks that are are down the road. And then the final one that I have seen a lot of is a lot of at least of my 23 years. We’ve had two major financial recessions and we know we’re going to have economic shocks whether they are short term, just market correction, or whether we move into a recession or depression type environment. We have to incorporate that into our intentions and our plan because we know they’re going to happen. So how do you deal with these unforeseen spending shocks with healthcare, with loss of a spouse, or with taking money out of investment accounts when the market has had a correction. Those are really different challenges to overcome when you’re in that distribution phase versus the accumulation phase.
[00:08:58] Danielle, you mentioned the difference in the inflation of healthcare and lifestyle not keeping up with cost of living things like that. Can you expand a little bit more.
[00:09:08] You know the price of bread, the cost of going to a movie, you know taking a vacation. That’s more of the lifestyle. And usually we’ll look at a two and a half to 3 percent inflation rate and that there are resources out there that I utilize to kind of look at trends in inflation and as we look at those. We also understand that healthcare goes up quite a bit more and we look at using an additional healthcare inflation factor of two point three to 3 percent. So when you look at healthcare we could anticipate that it could go up you know 5 to 6 percent more. You know when the cost of going into a facility for treatment getting physical therapy or you know that your out-of-pocket costs with either Medicare supplements or you know going to the dentist or you know any of those moving parts around healthcare are going to inflate up. And you want to plan for that. And there’s tools that you can use to wrap that into that distribution phase and utilized properly to take advantage of growing your assets so that you can keep up with the inflation that you’re going to experience whether it’s for your traditional lifestyle of just doing life or addressing health care costs.
[00:10:44] And that’s something that I don’t think most people think of as far as the healthcare side of things.
[00:10:48] You know it’s a challenge and it’s better to have a plan and then work your plan than it is to get hit sideways as a spending shock and not to have planned for it.
[00:11:01] What else is there.
[00:11:02] I think the big one that you know is hard to talk about is the declining cognitive abilities. I’ve experienced this with family and, with aging clients we ask that, you know, once clients hit that 75 age, that I have them bring in additional family members or friends. And it’s a big push in our industry and in legislation; I know in Colorado they’re starting to look at really how can we protect our seniors from elder abuse. Absolutely. And whether it is you know financial abuse where you know you’re getting called by your long lost prince relative in some foreign country that needs a loan and if you just send them your checking account number they will wire back millions of dollars or from you know well-intentioned nonprofits out there that are constantly asking for money you know understanding that the aging process is going to have an impact on your cognitive abilities whether that’s in making financial decisions or rationalizing and thinking through opportunities and you know connecting all of the dots.
[00:12:22] So you want to make sure you’ve built your team of professional advisers of people who have taken on that fiduciary role to protect you; whether it’s in your financial life, your health life. And that people are communicating. So this again is just a component of the distribution phase that we need to understand and embrace as a part of life and not good or bad it just is. But we want to move into that with intention and integrity.
[00:12:58] Do you have tools available or some resources available for folks that, maybe their parents are aging and they’re thinking about this, or they want to have that conversation with them but it’s really hard to broach because we all come from different backgrounds. My dad, specifically, very whip-smart all, you know, he’s always been very very intelligent. He was air force intelligence for 20 years. But you know as he’s getting older we see some of that decline cognitively. And he’s been closed off financially as far as discussing that for a long time but now he’s a little little bit a little easier to talk to him about it but there are still some people will struggle with that. Do you have some resources that they can use.
[00:13:36] I think that’s an excellent opportunity for another podcast.
[00:13:43] Now I, yes we do have resources, and I would just suggest you start with a conversation about what’s important to you about your financial life right now what are some of your concerns and bring it – you know, enter into the conversation. Yeah like in your situation you know dad what’s important to you about your financial life at this point and start asking those open-ended questions and take the little baby steps so you know just to give the parameter baby steps when you’re tiptoeing around a subject that one, culturally was not really discussed with this age. It’s hard to talk about anyway let alone with the generation that it was incredibly private. And that’s not something you discuss in public let alone with family members. We need to dip our toes in that water. But I think when you are building that relationship and if you’ve got a good relationship in other areas then entering into that financial conversation will be a little bit easier.
[00:14:58] And honoring them for you know the hard work that they’ve done over time and what I’ve learned from you about money is and you know sharing some common ground is a really good place to start. And there’s also a lot of companies and organizations out there that are providing coaching and family meetings to where you bring in a mediator or consultant. I do that to a limited extent with my clients and families, but I also know those situations where I might want to bring in an additional consultant or mediator or facilitator you know family meetings are really really powerful and in cultivating the conversations around how do we want to protect you.
[00:15:49] What do you want to accomplish. And you know we want to keep you safe. And you know it’s really hard when you’re trying to honor their need for independence, when we’re wanting to create that idea that you know you’ve done so much and you’ve done so well, we want to maintain that but we also want to walk alongside you as we embrace the fact that this aging process is something we need to accept and move into.
[00:16:24] Yeah absolutely. That makes sense. I look forward to that podcast for sure.
[00:16:28] I’m making a note of that right now because I think it is it’s an important one. So stay tuned. All right. Where do we go from here. Well I think you know defining the ‘why’. Why do you want to flourish – flourish financially in retirement. So instead of spending my kids inheritance are I’m going to slide into the gray writing my last check and have it bounce. Why would you want to address some of these distribution ideas and make sure that you’re prepared and positioned to live it fully and you know to the best of your ability. And I encourage people that it needs to be your why it needs to be more than just about accumulation about you and you don’t want to flourish you don’t want to grow into your financial life in retirement just to build bigger barns just to have more thinking that more is going to bring you more happiness. And we’re actually going to dig into that joy and that happiness and how to flourish emotionally in retirement in the next podcast. That’s right. So stay tuned for that one. And there’s a lot to it. So we want our financial resources to support us in flourishing in all areas of our lives. So defining that ‘why’. And for each person it’s going to be different. There may be people that actually they look they take a really hard look at it and there really are good about sliding into the grave writing their last check and having it bounce. I’m not saying that’s wrong. I just say ask yourself the questions. So asking yourself why. Define why you would want to grow your wealth in retirement and answer that question first before we look at the how. So some of the reasons why you might want to is to create march and create that cushion to deal with some of the items that we talked about above; that we don’t know how long we’re going to live, we don’t know you know how long we’re going to be able to bring in the income in exchange for work, that we’re going to have to address some spending constraint. So those spending shocks and we don’t know what type of inflation is really going to possibly hold us hostage down the road. And how do we prepare for that declining cognitive component in life. And so once you decide on your why then you can create that that margin to give you that cushion of safety. You may want to grow your wealth because you want to assist family members in healthy ways. This is yet another conversation we can have about helping family or friends in a way that truly does help them and doesn’t enable them to stay in unhealthy financial situations. You may want to intentionally create a legacy, whether that is for you know family or for causes that you’re concerned about and engaged with. You may want to invest in companies that allow you to be part of the – I call it the ‘co-creation process’ to impact the world for good. So you know there’s a lot of reasons as to why you want to flourish financially in your fall season of life and I encourage people to you know drill down on that and ask themselves these questions about you know defining your why. OK Danielle, now that we’ve defined our ‘why’ we need to unpack that and see what that looks like and that obviously brings up a lot more questions.
[00:20:29] So how do we address those.
[00:20:33] Thanks for asking. I think our culture really pushes us towards that; what wealth looks like. It’s about driving the nicer car, having the nicer phone, having the bigger house, and taking the bigger vacations and then posting everything on Facebook to elicit that fear of missing out that fomo that exists out there and we look at everybody else and we go wow if I was only wealthy, if I was only if I only had more. And I think that there is a paradox of wealth that we really need to look at; if it’s not the external trappings, if it’s not that vacation to Europe, if it’s not driving the nicest car, if it’s not, you know, having the biggest house; what is it. And you know to build the true wealth we have to wrestle with this. We have to say if it isn’t this what is it. Does that does that make sense.
[00:21:43] It does. And so my why as I have it defined just for me personally is I don’t know how many grandchildren I’ll have. Right so if I’m going to save up and make sure that I’ve got my barn that is stocked full I want to spend it all down. Because for me personally I want to be able to gift each one of my grandchildren a college education. So seeing those outside other things while I’m saving that and trying to do that for my grandkids I see that some of my close friends have gone to Europe and that be great. So that could pull me in a different direction. But as long as your ‘why’ is stable I think you have a clear understanding of that. Does that make it easier or not.
[00:22:20] I think it’s definitely the place you want to start because you can keep going back to that why you know you’ve got your goals and that may change over time. You know, you may you may find some subtle iterations of what your original goal is but the idea that you want to assist family members in a healthy way it’s of value to you it’s something that’s important to you. So as you look at OK I want to build my wealth in order to help family members in a in a healthy way. And so you then need to wrestle with the idea of what they out the world is telling you is true wealth and what true wealth means to you. So there’s some secrets and they’re not really secrets but they go against the flow of what our mainstream society says wealth is. And if it’s not that external outward appearance it is going to be more about how do you look at your life in a way that is going to help you build that true wealth. And a key to that is embracing contentment. When we can look at what we have and go wow I am so fortunate, I am so blessed to have this. Yeah I agree. You know then it breaks that cycle of I need to have more. And I think that idea that that society presses upon us and our culture presses upon us that we’re not good enough, we’re not smart enough, we’re not fancy enough, we’re not pretty enough, especially as we age. What is the biggest industry out there is making the most money right now. I have no idea. I would say right up there at the top is women’s anti-aging opportunities. I’m going to trust you.
[00:24:31] Yeah I know. I agree. Yeah. Very true I haven’t thought about that before because I’m a guy.
[00:24:37] But you’re right. Or it’s the supplements. You know there’s a huge push, when we look at the baby boomers, and they’ve got money, what are they spending it on. They’re spending it on how to stay looking young. And I agree, you know, there’s a certain point that we want to stay healthy, we want to stay vital, we want to, you know, do the best we can with what we have. But there’s a fine line as to how many easy enough. And to be able – I personally have created a spending plan where it’s – I will invest, I will put this much towards my – investigating, looking into what either supplements or self-care type of opportunities are out there because it’s an endless pit. I mean you can’t just keep dumping money into stuff. So anyway back to embracing contentment and knowing that we can create wisdom and that as we age we do have more wisdom to bring to the table and that we can be content with what we have and not constantly climb that materialism ladder.
[00:25:54] And so that what we need to do to at least consider the opportunity of embracing contentment. Another moving part to it is, that goes hand in hand, is eliminating that consumer debt. Our society says it is normal and accepted to have credit card debt. And I think that is such a scary place to be because it has a huge impact on a sustainability on whatever assets you have because if you are paying for credit card debt, if you have loans out there, you know, you’re paying, you’re working against yourself. If you can eliminate that consumer debt you may want to consider eliminating your mortgage debt. That’s a little bit different question to be asking yourself and depending on your situation. But to make sure that the consumer debt is not even in your bandwidth as you head towards your retirement season because that would just work against you so so so deeply and then how do you stay out of consumer debt. Well you’re going to do that by making sure you’ve got liquid savings and that liquid savings can be you know just in the form of a savings account money markets. It can be either inside or outside of your retirement plans. But there’s a reason why you want to have liquid and available savings. And I was just reading a Michael Kitces’ column this week on you know what works against us is not trying to have people save more but if people would just spend less they’d be able to save more. So as financial advisers we’re constantly going out there and you hear you know what you should save more save more. But we’re not helping people understand helping people understand how they need to spend less.
[00:27:52] Absolutely. And like you said on the last point, the consumer debt that’s you’re spending more that you don’t even need to know when you when you have those debts and there’s interest rates and all that. So that’s those are huge steps to take.
[00:28:04] You know we’re spending money we don’t have, on things we don’t need, to impress people we don’t even like it.
[00:28:12] That’s it. Exactly right.
[00:28:15] It’s crazy. It’s nuts. And that will not serve you. It doesn’t serve you in your accumulation phase and it will really work against you once you move into the distribution phase. So if you can embrace that contentment not to fall into that fear of missing out and compare yourself to others, if you can minimize that consumer debt; eliminate it, get knocked out, set up that plan to completely move away from that, build your liquid savings and create a distribution plan. And this is a continuously moving part but that idea of you now you might have had a plan when you were in the accumulation phase. I want to retire by this age, I have these goals and you worked on doing that the same needs to happen as you look at unwinding everything. In order to have your investments and your other financial assets work for you all through your retirement season to address all those pieces we noted above, you need to come up with a distribution plan and it needs to be constantly revisited and managed. And based on our economic season, your personal financial life season, you know the curveballs that life throws at us, you will need to make strategic changes in that distribution plan throughout your retirement.
[00:29:49] Absolutely. One thing that I think about is like you said the longevity of life is getting so much larger that if you are living 30 years past your retirement date that’s most likely you’re going to have to replace a roof on your house or you’re going to have to do a lot of maintenance to different things on your house if you’re still in a house. And those are things that we don’t always think about in advance that I mean a new roof is 15 to 20 thousand dollars. So that’s a pretty big hit especially if you’re on a fixed budget. It’s nice to have liquid savings but I don’t know if normal people have 15 to 20000 in their liquid savings. I certainly don’t, at this point, but that’s something to think about because great you retired, but your house is still going to need maintenance, your cars are still going to be maintenance or you’re going to need a new car, for sure. Those are a lot of different things that people don’t usually plan for.
[00:30:36] Right. And that as a financial adviser, a financial life planner, we incorporate into the planning process we look at the replacement vehicles, we look at you know maintenance cost, so many people just want to how can I you know retire, draw the line in the sand ,sail into the sunset with a cocktail in my hand, because that’s what the financial services industry says retirement is supposed to be about. That’s right. Well let’s get real. It’s about knowing that yeah our house is going to need some maintenance and a roof replacement and I may need a hip replacement down the road. So, how do we make sure that we’ve got the financial assets available and, to the best of our ability, plan ahead for some of those pieces.
[00:31:23] All right. So as you’re looking at creating this distribution plan, you need to understand that there are four different areas that you want to address the opportunities in and the concerns about. Longevity. We touched on that. How long are you going to live. There are financial tools that include like Social Security, pensions and annuities that would fit into that longevity and you want to utilize those and make sure you use them wisely. Lifestyle. What type of a lifestyle – what is your safe spending given the financial assets you have. So there’s financial tools that can address your lifestyle needs. Liquidity. That includes your money markets, it may be cash value life insurance,it may be money under the mattress. How to look at how much liquidity do you need and why and where is it going to come from. And then the last ‘L’ is Legacy. What financial tools – if legacy is important to you – there are financial tools that are going to be able to be positioned better for legacy purposes whether taxation components of it or creating some leverage with utilizing for example life insurance. We were going to want to dig into all of these tools and much more depth and we will do. We’ll do another podcast on how to look at the opportunities and concerns in the areas of longevity, lifestyle, liquidity and legacy.
[00:33:12] I’m going to hold you to it. Great. Sounds good. We’re just about out of time today, so do you have any final thoughts.
[00:33:20] I encourage you to define your ‘why’. Why do you want to nurture and grow your financial resources with diligence, wisdom and care as you move towards your retirement, re-wirement, re-firement season of life. If you want to get a copy of my monetary manifesto or join in our eight-week retirement course which is ongoing; you can engage in it in the privacy of your own home and the safety of your own space. Nice. You can go to Danielle Howard Number four letter U dot com. Learn more about what we’ve got going on and to start engaging in the conversations that just keep coming back about that. Let’s talk about our money and let’s start doing our money differently.
[00:34:11] Danielle, thank you so much for your time today and thank you everyone out there for listening to today’s podcast – Financial Flourishing in Retirement. And remember the next podcast is going to be Emotionally Flourishing in Retirement, and that’s going to be just in a couple of weeks, so please tune into that. If you have not subscribed to the podcast yet please click subscribe now button below. This way when Danielle comes out with a new podcast it’ll show up directly on your listening device. It makes it much much easier to share with family and friends and if this topic really sparks some questions in you, share it with family friends because they’ll have questions too, and then Danielle will be happy to help all of you. Thanks again for listening today. For everyone at Wealth Done Differently Retirement Podcasts, this is Aric Johnson reminding you to live your best day every day. We’ll see you next time.
[00:34:55] Thank you for listening to the Wealth Done Differently – Retirement Podcast. Click the subscribe button below to be notified when new episodes become available. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Wealth By Design, LLC.
The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified service provider with any questions you may have regarding your investment planning. Danielle Howard, Certified Financial Planner ™ is an Investment Advisor Representative of Cambridge Investment Research Advisors, a Registered Investment Advisor. Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Cambridge and Wealth By Design, LLC. are not affiliated.