Mark Hoaglin: This is episode one of the myretirementplaybook.com podcast. Hello everyone. I'm Mark Hoaglin, certified financial planner, your host and financial coach on this journey we call retirement, whatever you perceive that to be. And yes, we're going to explore that concept of what is retirement. What does it mean to you, because at the end of the day, that's all that matters. What I do know is that a successful retirement journey includes financial education. You see, I believe that if you desire true peace of mind in your financial life, then getting consistent financial education and coaching is a bust. And that is what I've done for a good part of my career, which is helping people like you retire on their own terms. I've also coached hundreds of financial advisors on how to do just the same.

Mark Hoaglin: Thank you for sharing about 30 minutes of your week with me. I will do my best to make sure it's a great investment of your time. Now, this week's episode, we're going to tackle what I think is the greatest fear that most baby boomers have, which is running out of money in retirement. And quite frankly, it's probably not just confined to baby boomers anymore. We're going to cover five things that you can do if you think you're going to run out of money in retirement or if you're concerned about running out of money in retirement. But first, we need to tackle those six questions that baby boomers need to answer before planning for retirement. So let's jump right into that.

Mark Hoaglin: Question number one, can I continue my current standard of living into my retirement years? Well, the answer to this question really takes some careful introspection because it's not so much as do I want to, but what can I. This is where we need to do some number crunching and put, yes, a budget together. For starters, I know just the thought of putting a budget together causes some people to run out of the room screaming. It's not a lot of fun, but in this case it's absolutely necessary.

Mark Hoaglin: In fact if you go to my blog, myretirementplaybook.com, I have some great budgeting tools there for free that you can use to start putting your budget together, because let's face it. At the end of the day, you don't know if you can continue your current standard of living unless you understand what that standard of living is. And that means figuring out what are your expenses, what are your income sources. Are they going to be different in retirement? Do you plan to inherit some money? All these things have to be taken into account.

Mark Hoaglin: I'm a big believer in financial planning and using financial planning tools. I use that with my clients to analyze, what are your sources of income? What are your expenses? How will those change in retirement? A lot of people are surprised to find that there are some expenses that actually increase in retirement, at least temporarily. For example, people tend to travel earlier in retirement. And as a result, they spend more money on traveling. Now, that will die down typically as they go on into their retirement years. Other expenses such as gasoline if you're not driving to work any longer or dry cleaning bills, those kinds of things. That's why I say it really takes some number crunching to be able to answer this question.

Mark Hoaglin: And then what we do is we do some projections and we determine whether your standard of living can continue or if there are some adjustments that need to be made. And truthfully, most people will live on somewhere between 70 and 80% of their pre-retirement income when they get into their retirement years. So, that's question number one. Can I continue my current standard of living? Yes and no, it depends. It takes some analysis. I recommend that you work with a financial planner, a certified financial planner or a financial advisor who uses a financial planning tool to make that determination.

Mark Hoaglin: Question number two, when can I retire without running out of money? Well, now that we've figured out our expenses, again, this takes some number crunching, some financial projections. Again, a financial planning professional can do this for you using a software. I've used MoneyGuidePro, Retirement Analyzer. There are some really good tools that financial advisors, financial planners can use. This is not a do it yourself proposition. So this isn't something you go on the internet and try to do yourself. Probably get a pretty good idea by doing that. But at the end of the day, it's not going to be as accurate as it needs to be.

Mark Hoaglin: So we'll look at things like your pensions, social security. How long will your money last if you take social security at age 66, which might be your full retirement age, or if we extend that out to age 70 and maybe get a little bit more social security for you. Regardless of what financial tool your financial advisor, your financial coach uses, there's going to be an end date or projected end date. I call that the red line. In other words, that's the date when you're projected to run out of money. I use age 100. That's very conservative. A lot of people say, "Well, Mark, my parents lived into their 70s, maybe their 80s, I don't think I'm going to live until age 100."

Mark Hoaglin: My answer is, well, what if you do? What if you live beyond your conservative projection date? Let's just say you use age 80 because your family, your parents passed away in their 70s. Well, what if you live beyond age 80, 85, whatever that date is. That brings up a whole set of new problems that we have to consider. So, to be conservative, I use age 100. That's the target I use when I work with clients to determine when they're going to run out of money. The good news is with some help, we can answer that question; when you can retire without running out of money. I like to use the analogy of a number of levers. There's a number of levers that come into play when you take social security, for example. This is not the time to guess. We'll look at some of the solutions for this question when we get into the five things you can do if you will run out of money.

Mark Hoaglin: Let's take a look at question number three. How could my situation change during turbulent economic times? Well, again, we don't have that crystal ball so we have to use the best tools that are available. There are a number of mathematic models that we're able to use to give our best estimate. Monte Carlo simulation is one that you might've heard. It's where we put in your particular financial plan projections and it analyzes those projections against historical market conditions and it assigns probabilities of worst case scenario happening or best case scenario happening. We're able to build that into the financial plan to get a pretty good idea of the likelihood of success of your plans.

Mark Hoaglin: There are a lot of contingencies that we try to account for. We're only as good as the information that we have available to us. A good planner will help you do some contingency planning. And at the end of the day, you have to put a stake in the ground, make a decision as to where to start, what the rates of return you're going to use pre and post retirement, and what adjustments will you make based on various scenarios.

Mark Hoaglin: Question number four, how would it affect my family if I die prematurely? Yes, this is the life insurance question and one that a lot of people just don't like to think about. When we're younger, we think we're invincible, right? Life insurance seems like a waste of money. I remember one of my college friends after we graduated, he introduced me to his father who was a life insurance salesman. He talked me into buying a very inexpensive term policy, which I think back then was maybe $25 a month. A very good investment had I been a little bit more in tune with the need for life insurance.

Mark Hoaglin: Well, I kept the policy for about six months and then I canceled it thinking that, "I don't need this. I'm going to live forever," as a lot of young people do. I wish I had kept that policy because it was a goodbye back then. But nonetheless, as life goes on, we hear about tragic deaths or illnesses and stories of people who died without life insurance. The reality is about 30% of US households today have no life insurance. If you don't like the answer to this question, then you really need to talk to your financial advisor, financial planner about life insurance, because it's about replacing income. Should you pass away, will your spouse, your significant other be able to sustain a standard of living on into retirement? If you have children. There's just a lot of factors, grandchildren, that you need to consider.

Mark Hoaglin: All right. Question number five. How would it affect my family if I enter a nursing facility? All right. Very similar to question number four. Brings up a couple of issues. Do you have sufficient disability insurance? Yes, it's more common than you think for so-called younger people to have to go to a nursing facility. I'm talking about people in their 40s and 50s, not just people in their 70s and 80s. Things like strokes, Parkinson's disease or some other malady that quite frankly can strike at any age. So longterm care insurance, it's not just for the elderly, although most people don't buy it until they're in their 50s and unfortunately it costs more the older you get.

Mark Hoaglin: But why do people buy it in their 50s? That's typically an age when our parents start going into nursing homes, either because they fell and broke their hip or some other type of a longterm illness. It really brings it home when it's happening to your family, right? That's why a lot of people say, "Gosh, I better get longterm care insurance." I know it affected me. My grandfather lived in a Medicaid facility because he did not have the financial means to go into a better type of a facility. So, I learned at a very early age the importance of having and preparing for longterm care.

Mark Hoaglin: How would it affect your family? Well, it could be a financial disaster. I could tell you a lot of stories about people who had to blow up their retirement savings to pay for a nursing facility or other longterm care because they didn't set aside money or they didn't have longterm care insurance and so they had to dig into their savings, which meant they didn't have as much to live on in retirement. A very important question to answer and to have the right answer to.

Mark Hoaglin: All right. And finally, question number six. What are the possible solutions if my situation changes? The answer to that question takes us right into the five things you can do if you will run out of money in retirement. Let's just talk a little bit about the current state of affairs in our country. Right now in this country, half of our households have no financial plan. So it's probably no surprise that a lot of people feel somewhat resigned to a retirement that's just out of their control. You hear a lot of people say, "I'm going to have to work until I drop dead," or, "I'm just going to have to keep working," not necessarily by choice, but because they feel they have to.

Mark Hoaglin: There was a study done by Northwestern Mutual, the big insurance company, and they were looking at the state of financial planning in America. What they found is that 63% of Americans say their financial planning needs improvement. And the number one reason that they haven't taken steps to improve it is because they feel they don't have enough time. 70% of the households say that the pace of society makes it harder for them to stick with their longterm goals. Life is just too hectic to even think about it, in other words.

Mark Hoaglin: So again, what do those numbers tell us? You need a financial plan and you need to work with a financial advisor who uses financial planning software, financial planning tools to come up with the answers to those six questions we just discussed as well as to analyze these five things that you can do if after all is said and done, it looks like you're going to run out of money before that age 100 red line that we talked about.

Mark Hoaglin: So, what are these five solutions? Well, number one, it's work longer or retire at a later date. Again, if that red line shows that you're going to run out of money at age 78 and you're currently 62, you want to retire at age 66. Let's just say that your financial advisor pointed out that you're going to run out of money at age 78. Okay? So what can you do? You can work longer. You can extend that. Instead of retiring at age 62, you can retire at age 66 or age 68, whatever makes the most sense because don't forget that each year you continue to work, it increases not only your social security benefit, but if you have a pension, it could increase that benefit as well.

Mark Hoaglin: It also allows your retirement investments to continue to grow such as your 401k, your IRA accounts and your taxable investments. So you can put the compounding effect and the gift of time to work for you and perhaps push out that red line from age 78 to perhaps age 82, but just by working a few more years. So, working longer, retiring at a later date can make a big difference.

Mark Hoaglin: Number two, you can work a second job part-time after retirement. Now, a lot of people already plan to do this, they don't really know what they're basing it on. My suggestion is find out, first of all, what your shortfall is before you run out and get a part-time job or think that you're going to have to have a part-time job, then you can start considering what type of work you'll need to supplement your other sources of income in retirement. So, depending on your job, that could be doing some part time consulting work, starting an online business. There are a number of things to do other than having to work at Home Depot part-time in your retirement. So, work with your financial advisor to come up with a plan if this is something that makes sense to you and/or appeals to you.

Mark Hoaglin: Number three, probably one of the most common ones, which is, reducing your monthly expenses. Now, this can be a painful process, but in many cases it can be... well, it is necessary but it also can be very impactful. And again, this goes back to why budgeting is a very crucial step. You won't know what you need to reduce if you don't know what you're spending. Most retirees don't need to live on their pre-retirement income. It's going to probably be somewhere between 70 and 80% of what you're spending now. So once you have your budget, you can figure out what can be reduced or eliminated.

Mark Hoaglin: Going through this process with clients, I found that again they are always, I will say always, surprised at what they can cut back on and how much of an impact that makes. So now we push that red line out to age 82, we've made a few more cuts. We push it out perhaps another three to five years just by making a few cuts in the monthly expenses.

Mark Hoaglin: Number four, increasing the contribution to retirement accounts. Again, using the power of compounding and time to work in your favor. So even a small increase of say $50 to $100 a month can have a dramatic effect on your retirement savings depending on how long you have until retirement. So again, you could push that red line out another three, five or more years depending on how much you can contribute to your retirement accounts. And that goes hand in hand with reducing monthly expenses because typically when we find reductions in monthly expenses, we can add that to the retirement savings account.

Mark Hoaglin: And then number five, it's selling an asset of some type. Now, again, like all of these, this may not apply to you. But if it does, again, it's not an easy decision. Maybe there's a vacation home that you had when your kids were younger. Now it's no longer being used because you have grandkids and the kids are busy raising the grandkids and they don't have time to go to the vacation home. So, that could be an asset you might sell. Or you may want to downsize your current home. Buy a smaller home and put the difference in the sales between the sales price of your current home and the sales price of your smaller home, put that to work in your retirement savings account.

Mark Hoaglin: So, these are the five things that you can do if you feel you're going to run out of money. Now, perhaps none of these solutions appeal to you, and I certainly understand that. But I find that once people realize that it doesn't have to be such a daunting task to cut expenses or increase your retirement plan contributions, most people find at that point, they're willing to make somewhat of a sacrifice.

Mark Hoaglin: Now, a lot of people look forward to working longer at their current job or maybe taking on a part-time job. But whatever your situation is, it needs to start with a plan. Once you have the results of that plan, then you can determine if any of these red line solutions make sense. But the plan gives you an anchor. It gives you a foundation on which to build your retirement income plan, but also on which to make intelligent, informed decisions, because your plan is based on reality. It's based on your projections. It's based on recommendations by your financial professional. Those are the results that will dictate the decisions that you make about your retirement. So I just can't emphasize that enough to make sure that you work with a professional that can put a financial plan together for you.

Mark Hoaglin: All right. It's time for our question of the week. Every week I will cover a question submitted through my weekly podcast or my weekly blog. If you would like to submit a question for my consideration and hopefully to answer on one of our future episodes, please go to myretirementplaybook.com/podcast, or myrp.me/podcast. There's a form for you to fill out, or you can use the voicemail to submit a question electronically, and I will do my best to cover one question on a future episode of myretirementplaybook.com podcast.

Mark Hoaglin: All right. So our question today comes from Don in San Diego. Don says, like a lot of people, I am concerned about my retirement savings during this pandemic environment. I lived through the 2008 crisis and I don't want to lose my savings. What do you suggest? Well, thank you Don for your question. That is a multidimensional question, but a good one, so thank you. I want to answer that I think in the context of a recent blog post called the Stockdale Paradox in your financial decisions. You can find that on the myretirementplaybook.com website.

Mark Hoaglin: You might be familiar with Admiral James Stockdale. He was a Vietnam prisoner of war. He served eight years in the infamous Hanoi Hilton after being shot down as a fighter pilot in 1965. He had studied the Greek philosopher, Epictetus. I think I said that right, Epictetus. Basically what he learned was that there's no such thing as being a victim of another. You can only be a victim of yourself. So whenever Stockdale came home, he met Jim Collins, the author of Good to Great. He told Jim Collins, he said, "You must never confuse faith that you will prevail in the end, which you can never afford to lose, with the discipline to confront the most brutal facts of your current reality, whatever that might be."

Mark Hoaglin: So Jim Collins coined the phrase the Stockdale Paradox as a way to describe the battle that we face between optimism and pessimism when we're confronted with adverse circumstances, not unlike we are right now in this pandemic environment. In the beginning we kept hearing it's going to be another 30 days, it will be back to normal. Then three days come and go and another timeframe is thrown out. What if it's another three months or six months? So, according to the Stockdale Paradox, we have to confront the brutal reality that we face while never losing hope that we'll come out of this in the end in a good fashion.

Mark Hoaglin: So with that, I think there's some ways that we can make financial decisions in the framework of the Stockdale Paradox, balancing this optimism with realism, and as he says, the brutality of our current situation. The first thing is realize that stock market's volatile. Time in the market is a proven strategy. So if you're thinking of running to the sidelines, I'm not saying don't do it because I don't know your particular situation. But what I do know is that time in the market has proven to be a good strategy in unpredictable times versus running to the sidelines.

Mark Hoaglin: I just heard today that the S&P has regained the losses from March, the pre-pandemic timeframe. You talk about volatility, who would have known, right? Who would have thought that could have happened? Had people pulled their money out of the market, they could have missed some very good days of investing. So, that's a decision you have to make, but do realize that the market is volatile. But time in the market is a proven strategy.

Mark Hoaglin: Number two is revisit your risk tolerance. Has anything changed? Has your experience in this current market made you more or less risk averse and does that require changes to your investment strategy or investment portfolio? Which leads into number three, which is to work with a financial advisor or a financial coach to reallocate your investments if necessary. If your risk tolerance has changed, good chance your allocation has changed so you need to make that change, working with an advisor.

Mark Hoaglin: Number four, anchor your investment decisions with a financial plan. I've talked a lot about financial planning in this week's episode. If you don't have a plan, get one completed because that will be your anchor for any decisions that you make. Number five, balance your optimism or pessimism with the reality of the current economic state. There's the paradox, the Stockdale Paradox. Learn what you can from trusted sources, whether it's listening to this blog or other blogs, working with a financial advisor. I don't recommend watching TV or getting all of your education from TV, just my opinion. I think you can do better than that.

Mark Hoaglin: And number six, don't be a victim. This is not happening to you. We can participate in our overcoming the current situation. We can only control ourselves in how we respond and if we respond by educating ourselves and working with a trusted advisor. Respond with knowledge and having a financial plan, then you are giving yourself the best chance Don of not having to lose your savings as perhaps you did in 2008. Can we predict that that will never happen again? No, we can't, but we've learned from those market crises and I think we're better prepared, have better tools today that we did 12 years ago or even longer before that. So, I would recommend that you embrace the Stockdale Paradox, Don, and take note of these six things. And if I can be of assistance in any way, please don't hesitate to reach out to me via my website.

Mark Hoaglin: All right. So that wraps up this week's episode of myretirementplaybook.com podcast. I hope there were some information here that will help you put your successful retirement plan together so that you can retire on your own terms. This is Mark Hoaglin, a certified financial planner. I look forward to connecting with you again next week on the myretirementplaybook.com podcast. Have a great week everybody.