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Podcast #2: Your 5 Step Retirement Income Plan

Retiring is not easy, but Jeremy Keil and his team strive to make it easier by guiding clients through certain steps to help them get to where they want to go. They like to call this their 5-Step Retirement Revelation process.

Today, Jeremy breaks down each step of the process and what it entails, including examples of why each one is essential for achieving your ideal retirement.

In this episode, you’ll learn:

  • Common misconceptions around retirement planning
  • Three guiding principles Jeremy uses to help clients discover their needs
  • When people should start planning for retirement
  • The importance of planning for life’s unexpected events
  • How sequence of return risk impacts your retirement
  • And more

Tune in now to learn about Keil Financial Partners’ 5-Step Retirement Revelation process and how it can help you put together the pieces of your retirement puzzle!

Resources:  Keil Financial Partners | 6 Questions Retirees Aren’t Asking But Should Be Whitepaper | 3 Keys You Should Know Before Choosing A Financial Advisor Whitepaper | Sequence of Return Risk Chart (Source: Wade Pfau www.RetirementResearcher.com| Subscribe

The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. 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 financial service provider with any questions you may have regarding your investment planning.

Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.


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Full Transcript

Retirement Revealed Episode 2: 5 Step Retirement Income Planning

Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!

Aric Johnson: Good morning Jeremy. How are you? 

Jeremy Keil: Good morning, Aric. Doing well, thanks. 

Aric Johnson: All right. So the topic of this podcast is the five step retirement income planning that you go over with your clients. 

Jeremy Keil: You got it. Retiring is not easy, but we try to make it easier by putting it through certain steps and priorities to help people get to where they want to go.

Aric Johnson: Fantastic. Let's start walking through it. 

Jeremy Keil: Absolutely. We have met tons of people getting ready to retire, and a lot of them come into our office and have retirement planning wrong. Either they haven't done anything, and we certainly can help them there, but a lot of times people are just looking for the wrong thing. They see these commercials talking about hitting a certain number, and they say to themselves, if I just hit this number everything is going to be great, treating it like it's some magic formula. It's just amazing. Other times they’re just focused on their investments. They say to themselves, if I can just get a certain percentage, then everything's going to be fine. We just think that approach is wrong. They're focusing on things that they can't control when there's a lot of things they can control that they can make a big impact on when it comes to retiring. 

Aric Johnson: And a lot of time they don’t even know what they can or can’t control because there are so many variables. And I know exactly what you're talking about with commercials. That concept of knowing what your number is does not tell you anything. It's just a misconception. So how do you help clients figure that out, and how do you show them what they need to be focusing on?

Jeremy Keil: Yeah. You got it. Of course we already pointed out that there are five steps, but first let's talk about the three principles. The principles help us figure out what's needed and then the five steps get people through it. Principal one is prioritize. A lot of people are focused on the wrong things. They're focused on their investments. We believe that you have to go through a certain flow of steps to make decisions because each next decision is impacted by the previous one. You know right now we are thinking about baseball as the season is wrapping up. When a player is up to bat, is he thinking about whether or not he should steal third? No, he is thinking about how he can get to first. Once he gets to second he can figure out how he is going to get to third. That's kind of the problem is people are trying to think of how they can get to third base when they are still at the plate. You want to just look at the next thing in front of you. So we think that prioritization and taking care of the next thing in front of you is one of the first ways to go. 

Aric Johnson: Yeah, that's such a great analogy because you're thinking about how to get to third base, and all the sudden the ball has gone by and into the catcher's glove. Then you have a strike and you have already missed something. First things first.

Jeremy Keil: Yes, first things first! I've heard that before in a business setting. 

Aric Johnson: Yeah, just a couple of times I’m sure. 

Jeremy Keil: Now the next principle is plan. A lot of people don't have a plan. We think you have to go through and plan out retirement. For example, a lot of people want to retire early and that's great, but you need to plan it out. How is retiring early going to affect your income, your health insurance costs, and when you take social security? How do you take your pension? There's a lot of steps to that. Certainly retiring early might be a fun way to go, but unless you have a plan, it's just not going to turn into a reality, at least the reality that you want.

Aric Johnson: Yes. I mean there could be other things. You could retire early, but then all of sudden you've got to get a job later just because you didn't plan well. Nobody wants that possibility. When you say plan to me that opens up a whole new can of worms there. When do you think somebody should be talking to you about what that plan looks like? My father did retire early, and that was one of his plans. It's so funny that one of my best friends for the longest time who I was just with in South Carolina a couple months ago, his plan is to retire early. He said he remembered my dad saying that he wanted to retire at 55 and how that got stuck in his head. Now that is his plan, to retire at 55, and he has gotten a great start to that plan. But how do you help somebody begin that process? And when should they be looking at that plan? What age range do you think? 

Jeremy Keil: Yeah, we find five to ten years before you retire is right about it. Another kind of key marker has to do with your kids. I've got two young kids, so at some point in time they're going to go to college and graduate college. At that point you're kind of done financially with them, at least you hope you are. So a lot of times you spent 20-25 years focused on raising the family, putting money towards them, and then you get this break where you don't have these huge tuition bills. You're not paying for the car and cell phone hopefully anymore, and a lot of people then take that opportunity to go spend extra and do the things that they've been wanting to do for 25 years. You should celebrate a little bit, but if you just take that opportunity right then and say okay, I had a plan for my family. Now we're down to the two of us. Let's start right now and plan out the next five to ten years so that when we hit retirement we’ll be good to go.

Aric Johnson: Yeah, that's a great example that you just gave because just yesterday I spoke to another advisor who just went on a trip with his wife to Ireland because they had written their last tuition check. They had been writing tuition checks for 16 years. 16 straight years. But exactly as you said, they did a little celebration, and now they're concentrating on setting themselves up for their plan, which is a huge opportunity. 

Jeremy Keil: Yes, take that 17th year tuition and go celebrate, but a lot of folks go out, buy a different car, and go on certain vacations. It’s like they are still spending that tuition check, and they wonder why they can't get ahead. Yes, go ahead and celebrate one time perhaps, but then make a commitment. You have this freed up money. Start putting it back towards yourself and towards your plan for retiring. 

Aric Johnson: Yes, and that leads right into the next bullet point. You gave me your notes before the show, so I've been looking through these. Your next bullet point is protect. That sounds exactly like what you're doing there. You are kind of hedging your bets if you will, or protecting yourself for the future by making sure that you're investing in yourself instead of blowing the money on a vacation home or new car like you said.

Jeremy Keil: Yeah, I love it when people come into my office with spreadsheets. It's great when people come in with a spreadsheet because it means that they put some thought into it, but they always figure out how to make it work, right? They say, well if we only spend this and the market does this and inflation is this, we're great. Well, what if none of that happens? I can probably guarantee you that it won't happen. It's just amazing. You know interest rates go up and down, the market goes up and down, and inflation goes up and down. Health insurance cost change. Your own health may change. You have no idea how long you're going to live or what tax rates are going to be. There are all kinds of things. We think you have to protect against a lot of that, and there's different ways you can protect against that. One of them is don't put all your faith and trust in the spreadsheet. People say, well if I could only get this return and if inflation would only be this. Well, that's most likely not going to happen. So let's be ready for the things that might happen and find different ways that protect against those things. 

Aric Johnson: Yeah, and one thing that's never on the spreadsheets is a family tragedy, or maybe you have a child who went through college, but they're just not able to find work or substantial work that's going to be able to support them. Maybe there is a surprise grandchild. There's all sorts of things that just don't fit on that spreadsheet a lot of times, and it's all about the numbers. So the events are more important I think than the numbers, and that is something that you have said in this podcast. 

Jeremy Keil: That's exactly it. A lot of times people come in and say that they want to retire at 64, and we look through and say, you know what your goal ought to be is paying off the house, and if you're 64, 65, or 66, that's going to be your trigger that will impact your plan more than just having a birthday.

Aric Johnson: Yeah. That's a great point. All right. So what is the next thing that you take clients through? 

Jeremy Keil: So now that we've talked through our guidelines, let's just go through in order and make some decisions because that's going to affect the next decision. We go through the five-step retirement revelation. We call it the retirement revelation because when you put all five of these steps together, it’s like the whole retirement is revealed to you. At that point you have a plan and you are ready to go. You’ve taken these different pieces of the puzzle, and you have put them together so that you can see where you are heading. The first step of the five-step retirement revelation is need. What do you need every month? A lot of people don't know that. They have no idea what they might need every month. They may want to take some time to figure out how much they are spending on themselves. What are your taxes? What are your health costs going to look like? What's the extra amount? What are those things that might be added in or taken away from your budget that you have right now before you hit retirement? 

Aric Johnson: Yeah, I'm sure that's pretty eye-opening, just that first step for your clients. Have you received any pushback when you take them through this?

Jeremy Keil: I'm sure we'll go through this in detail in a different episode here, but a lot of people just don't know what they need. It's amazing. They take the time and come in and say, well we figured out all we need is $4,000 a month. How do you figure that out? We just added up our mortgage, utility bills, and this and that, and all we need is $4,000 a month. Oh great. What's your take home pay? That’s like $7,000 a month. All right. Do you have anything extra at the end of the month? Oh, no, we can barely make it work. So you don't need $4,000 a month, you need $7,000 a month! That's what you're getting and that's what you're spending. 

Aric Johnson: Yeah. It's not going to be a light switch where you're going to automatically say, oh, I'm going to stop spending that extra $3,000 a month.

Jeremy Keil: No. We say when you retire you have 365 days of vacation. Every day is a Saturday. I have a feeling there's a lot more opportunities to spend the day after you retire than the day before you retire. 

Aric Johnson: Mmm-hmm. Alright, so step one is need. What's step two? 

Jeremy Keil: Step two is make. What are you going to make in retirement? Just because you stopped working doesn't mean you don't make anything. A lot of people that are retiring still have a pension, and they've got some big decisions to make on their pension. Mostly everyone is going to have social security. If you're married, there's going to be two social securities. There might be two pensions. Perhaps you've bought an annuity or have some real estate. You've got some sort of investment that you can rely on a bit for income. You'll be making something on a regular basis, and this is your one chance to make some decisions on it. When you sign up for your pension, you can't take it back. When you sign up for your social security, it's virtually impossible to change that. So you've got this one shot to figure out what you're going to make for the rest of your life. You’ve got to put some thought into that. It's just amazing how many people make a decision because their buddy down the street said that it was a good idea or because that's what their parents did. We don't have an opinion on whether you should take social security early or late or whether you should take your pension now, in a lump sum, or monthly payout, but our opinion is you need to do the math. You need to run the numbers, and that is something that we can help you figure out. Wherever the math points you towards is a great choice. That's probably where you should look. 

Aric Johnson: Yeah, and one of the things that you said on here is that you might have some work, so I'm kind of thinking about those folks that are in a career, they're retiring from that career, but yet they don't want to stop working. Maybe they want to pick up a job for 20 hours a week or do volunteer work. If we're talking about income and what they're going to make, let's just talk about a little bit of extra work on the side.

Jeremy Keil: Yeah that happens a ton. We have people quit their full-time jobs. Maybe they start watching the grandkids, and sometimes they start watching some of the neighbors kids too. They pick up some extra dollars that way. Or you've always had this thought that you wanted to work at a non-profit, and you realize okay, well, the pay is going to be different, but maybe you stop with your high paying 50 hour week job and you start working 30-40 hours a week for a non-profit. You get paid for it, and that's something you can count on when you're making something from that. 

Aric Johnson: Yeah, absolutely. And then there's all sorts of things that we will discuss on another podcast as well with how to navigate that right? I mean there are good things and bad things about working after retirement, especially if you're taking social security, and there's all sorts of things to consider there. I'm sure we'll dive into that on a future podcast, but for now, are you ready to go to step three? 

Jeremy Keil: Let's do it. Step three is what do you have in your safe money? Not your cash in the little safe at your house, but what are you keeping that's out of the market? How much money should you take out of the market? If you spent 35 years investing in your 401k, investing in mutual funds, and investing into the stock market because everyone told you that you have to have a long-term investment horizon, you’ve got a long way before you need it. Guess what now? You have a long-term and a short-term! Your short-term just showed up and any money that's needed next month, next year, or even the next couple of years, we think you ought to keep that out of the market and keep it safe. If it’s not guaranteed, get it pretty darn close to that. So it's a question of how much money you should keep out of the market because you have this big thing to balance. First, what if the market drops? But also, the market does fairly well in the long-term, so how do you make sure you have enough in there? That's your third step after you know what you need and what you are making. There's probably a gap there. Maybe it's $10,000 a year. Maybe it's $50,000 a year, who knows what it is. We'll help you figure that out, but whatever it is that you can project that you'll need the next year or couple of years, you have to keep that in safe types of investments, ones that you can rely on better than what the stock market is doing day-to-day.

Aric Johnson: I'm assuming those are more liquid as well. 

Jeremy Keil: Oh, yeah. You got it. You know it's stuff like money markets, CDs, and short-term bonds. There's all kinds of ways that you can go about finding investments that you might be more able to rely upon than what individual stocks are doing day to day. Again, it’s stuff that you want to be able to get at because you need the next month, year, or couple of years. 

Aric Johnson: So Jeremy is there a magic number that people should be thinking about, or is how much people need just on an individual basis? 

Jeremy Keil: Little bit on an individual basis, but there's a couple of numbers that come to mind. One thing this is related to is research that's been done on what’s called sequence of return risk. There's an individual named Wade Pfau. I am pretty sure the website is retirementresearcher.com. He's an advisor out on the East Coast. Great guy. I love reading all his stuff, and he's done a lot of research saying the market’s impact on your retirement is huge in the early part of your retirement, and then the impact becomes less important. If during the year you retire the market drops, that could affect the rest of your retirement, and depending on the year you're born, the year you retire your market risk might be absolutely huge. You have no idea until afterwards, right? So he's figured out how risky the market is to you as you approach retirement, and then when you hit retirement, that risk triples. It's just amazing. I've seen this chart. We can see if we can put his charts in the show notes. But the day you retire, market risk triples according to his research. It takes about seven years before that risk gets back down to where it was the day before you retired. On the long end it's kind of suggesting that those first seven years of retirement are incredibly important, so maybe you ought to be a lot more conservative with the money that you're going to need in the next seven years. Another number that comes to my mind is the number five years, and the reason being is that way back in 2008, the market started to tank. Actually starting in October 2007, it took about 18 months to fall in half. It's amazing that it happened that quickly, but the market came back up, but it took five years before it got back to even. So that's just another number I think sticks in our heads as well. If the worst-case scenario that we've seen in the last hundred years is that the market took about five years to get back to even, that's maybe another suggestion of projecting out what you need for those first five or seven years and perhaps deciding on your own and with your spouse and adviser how much money you should have set aside out of the market knowing that these are some numbers that are out there, that these are things that have happened before. Perhaps you ought to bring some safety into it the first five to seven years.

Aric Johnson: All right, sounds good. What's the next step? 

Jeremy Keil: The next step is growing your money. We just said you have a short-term, but you still have a long-term. Folks don't quite realize that. They think that they’ve spent 35 years investing in the market and investing for the long-term. They hit retirement and all of a sudden they don't think that they have a long-term anymore. That's not quite correct. I’ve seen studies that show that the average person retires around 62. I’ve seen studies that show that the second person in a couple might pass on around age 92. That's a 30 year time horizon. We just said five to seven years is maybe your maximum for your short-term. It's like 25 years of long-term that you still have going on, so you should still have some money set aside for long-term that should be set aside for growth for the future. But again, a lot of people get focused on what about this stock? What if I make a certain percentage in the market? You can't control that. What you can control is how much risk you're taking in the market. You can control if you're diversified. You can control if you're rebalancing. Rebalancing is kind of when you have two different investments while one goes up and the other goes down. Now your percentages are out of whack compared to what you wanted a year ago. The percentages that you signed up for are out of alignment. Well rebalancing means that you have to take some of the profit off the one and go buy the other one that's on sale. You rebalance back to what you signed up for. Doing that rebalancing makes sure that you still have the same diversification. You want to still have the same level of risk that you wanted originally. That's tough to do. It's tough to have that emotional ability to sell one of your winners and go buy an investment that you feel might be on the losing end right now. So we encourage people to do that on an automatic basis. Sign up for a certain level of risk that is diversified. Maybe make that rebalancing automatic so you can take your own emotions out of it.

Aric Johnson: That's a great idea. Fantastic. Alright, what is step five?

Jeremy Keil: Yeah, step five is what do you leave behind? We say you either leave behind some money or you leave behind some bills. It's fun to talk about leaving behind the money part, but if you leave behind some money, you've got an estate. You can't have an estate if you don't have any money there that's left, and when you have an estate, you have to figure out ahead of time what your strategy is. You see stuff in the news all the time that less than half of people have a will, so it's good to know what your plans are. It’s good to tell your kids and family what your plans are ahead of time and to choose who ought to get what and who ought to be in charge of making some decisions. There's all kinds of issues with healthcare and finances while you're still living, and that's part of your estate strategy. So it's well worth your time for your family to figure out your estate strategy if you're going to have an estate on there. Sometimes you leave behind some bills because you didn't prepare for some of the risks that are out there. That goes back to that protect principle, and in our opinion, when you hit retirement, there are two big risks. The first risk is that you live too short of a lifetime. Let's say there's two of you. Oftentimes we are working with a couple, and one of them has social security. The other one has social security. One of them has a pension. The other doesn’t. There's going to be more money coming in when there's two of you compared to when there's one person left, that survivor. We call that the survivor gap. It's well worthwhile to figure out how much you are making today and how much that survivor will be making. And that gap, whether it is $1,000 or $3,000, happens to be the amount per month that the survivor is going to be missing. You got to go through and create a plan for that and know what that plan for the survivor might be. The other risk is a little bit on the other end of the spectrum. What if you live a long life? The longer life we live the worse our health usually gets and the more likely we're going to have some sort of healthcare event. It's going to cost a good amount of money, and it's well worth it to have a plan there as well, a plan on what you'd like to have happen in that situation and a plan for how you're going to pay for what you’d like to have happen when you've got that assisted living needs or nursing home needs or whatever it might be. 

Aric Johnson: Yeah, that's huge because while costs in every state are different, it is anywhere from seven to ten to fifteen thousand dollars a month for a lot of these facilities, depending on what they are supplying. 

Jeremy Keil: That's amazing. It changes your whole life in case you need that money, but a lot of times people don't go beyond the “in case I need it”. They don't happen to make a plan on where they want to go or how they want to have their health situations dealt with or who's going to be there to help them out and how they're going to fund it. That's our encouragement is to create a plan for what that's going to look like. 

Aric Johnson: Yeah, absolutely. Now, I know that we scratched the surface on a lot of this, and a lot of this was definitely a 30,000 ft view of what you do. I'm hoping that we're going to be able to dive into some of these steps a little bit more thoroughly in future podcasts like we alluded to and really kind of go through some of the stories that you've experienced with some of your clients. Is that something we can do in the future podcasts?

Jeremy Keil: That's the plan. How do you go about each individual step? We got the five steps. What do you need? What do you make? How much is set aside for safety? How much do you set aside for growth? And what are you going to leave behind? But knowing those five steps is a great first step, but we're going to be diving into each area and learning how you can really make those decisions. 

Aric Johnson: Nice. As people are listening to this podcast right now thinking that they would like to discuss these five steps with you Jeremy specifically, how do they get a hold of you? 

Jeremy Keil: Just come out to our website at keilfp.com, or give us a call at 262-333-8353. Would love to chat with you. 

Aric Johnson: Fantastic. Thank you so much Jeremy. I appreciate your time. We'll talk soon. All right, well thank you all for listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.


Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. 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 financial service provider with any questions you may have regarding your investment planning.