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19. How to Find Your Financial Freedom Number · Dime After Dime

• 0:00
  SPEAKER_00: This podcast is produced by Moran Wealth Management, an SEC registered investment advisor.
• 0:04
  SPEAKER_00: Nothing in this episode constitutes his personalized investment advice.
• 0:07
  SPEAKER_01: If we're inflating healthcare costs at 6% a year, which is the industry norm, that number by the time you need it is a very large number.
• 0:17
  SPEAKER_01: So it is very eye-opening.
• 0:21
  SPEAKER_00: You're listening to Dime After Dime, a Moran wealth management podcast.
• 0:25
  SPEAKER_00: Every episode, your host, Tony Steak, brings in financial professionals to discuss strategies and insights for investors who want to grow and protect their wealth.
• 0:33
  SPEAKER_00: With that, here's Tony.
• 0:40
  SPEAKER_02: Got my agua, got my co-host, my guest, Julie.
• 0:44
  SPEAKER_02: Thank you.
• 0:45
  SPEAKER_02: We are talking about the financial freedom number.
• 0:48
  SPEAKER_02: This is a big topic, and it's a topic that a lot of people ask, especially as they kind of see retirement on the horizon.
• 0:56
  SPEAKER_02: And people start asking this younger and younger, right?
• 0:58
  SPEAKER_02: They're looking at, you know, they're in their 30s and their 40s, and they're starting to say, what is that magic number?
• 1:04
  SPEAKER_02: And this is a loaded, this is a loaded question, uh loaded interview, quite frankly, because there are a lot of nuances to how we get to that number.
• 1:12
  SPEAKER_02: And Julie, there's no better person uh than to address this topic.
• 1:17
  SPEAKER_02: Uh so thank you for coming back on the show.
• 1:18
  SPEAKER_02: You've been here a handful of times now.
• 1:20
  SPEAKER_02: It seems like you're enjoying yourself.
• 1:23
  SPEAKER_01: Well, I I definitely enjoy this topic, that's for sure.
• 1:26
  SPEAKER_01: Okay, good.
• 1:27
  SPEAKER_02: I think that was a little bit of a passive regressive response, but I'll take it.
• 1:32
  SPEAKER_02: So let's define that first.
• 1:34
  SPEAKER_02: What is the financial freedom number?
• 1:36
  SPEAKER_02: And obviously it's different for everyone.
• 1:39
  SPEAKER_02: Um, but why don't you just tell us what that is and maybe just kind of allude to why it's different for everyone?
• 1:45
  SPEAKER_01: Sure, sure.
• 1:46
  SPEAKER_01: Um, like you, I think the word you used before, it's that magic number that everybody needs in order to live the lifestyle they want in retirement without having to worry about running out of money.
• 1:56
  SPEAKER_01: And you're also right in that it is different for everybody.
• 1:59
  SPEAKER_01: Some pers, some people might need 60,000 to live, some people might need 260,000 to live.
• 2:06
  SPEAKER_01: It really depends on so more factors than I can list right now.
• 2:10
  SPEAKER_01: Um, where do you live?
• 2:12
  SPEAKER_01: What are your financial goals?
• 2:14
  SPEAKER_01: Do you want to leave a legacy behind?
• 2:16
  SPEAKER_01: What are your healthcare needs?
• 2:18
  SPEAKER_01: On and on.
• 2:19
  SPEAKER_02: Yeah, I mean, the list goes on, obviously.
• 2:21
  SPEAKER_02: We want to get to the root of some of that today.
• 2:23
  SPEAKER_02: Um, but how do you just to start those conversations, right?
• 2:27
  SPEAKER_02: Maybe a client comes in or a prospect and they say, I'd like, I'd like to know my financial freedom number.
• 2:32
  SPEAKER_02: What are the what are those questions you ask specifically around like lifestyle to get practical, measurable kind of numbers maybe to put in front of them?
• 2:42
  SPEAKER_01: Sure, sure.
• 2:43
  SPEAKER_01: Um, well, for people that don't want to go through the more sophisticated process of using financial planning software, and they just kind of want a quick number when they come in and sit down with me.
• 2:56
  SPEAKER_01: Um, a very, very basic way of calculating it is ask them to pick a retirement spending number, subtract out their sources of income like Social Security and pension.
• 3:07
  SPEAKER_01: And that shortfall that they come up with, multiply that times 25.
• 3:12
  SPEAKER_01: And that's a very, very basic way of getting close to that number.
• 3:16
  SPEAKER_01: Um, and generally people are very surprised at how big that number actually is.
• 3:22
  SPEAKER_01: So then that leads me into the conversation of, you know, we have the most sophisticated planning software in the industry.
• 3:30
  SPEAKER_01: You know, it's it's research has shown that the more you plan, the more confident and happy you are in retirement.
• 3:38
  SPEAKER_01: So let's take a deeper dive into it by answering all the questions that we need in order to find that number.
• 3:44
  SPEAKER_02: I love that.
• 3:45
  SPEAKER_02: So let's let's drill in even further, right?
• 3:47
  SPEAKER_02: Because obviously that shortfall number tends to look very large.
• 3:51
  SPEAKER_02: Um, and I don't think people, and you and I have talked about this before, people don't really kind of consider all the impacts to that dollar, to that value.
• 4:00
  SPEAKER_02: It is, of course, income levels, but let's talk a little about inflation, medical costs, and really that the big one for me, I think, is life expectancy and how that's beginning to elongate even further.
• 4:13
  SPEAKER_01: Yeah, sure.
• 4:14
  SPEAKER_01: So um, a couple age 65 statistics show that at least one of them will live until 93 years old.
• 4:22
  SPEAKER_01: So a cut and a couple on average will spend about$300,000 on healthcare costs during retirement, and that doesn't even include long-term care.
• 4:33
  SPEAKER_01: So healthcare is kind of one of those biggest bogies.
• 4:37
  SPEAKER_01: You have a beautiful financial plan put together, but then long-term care comes in.
• 4:41
  SPEAKER_01: And if you haven't planned for it, um, it could really turn the dial of the success rate.
• 4:47
  SPEAKER_01: And, you know, so and and again, you know, taxes are obviously a big thing too that you need to consider.
• 4:53
  SPEAKER_01: A dollar now is better than a dollar later.
• 4:56
  SPEAKER_01: So every dollar that you spend in taxes now is a dollar that will never be able to work for you again.
• 5:01
  SPEAKER_02: Sure.
• 5:02
  SPEAKER_02: So the other big elephant or two in the room, I don't think people consider often enough, is general investment assumptions and market volatility, right?
• 5:12
  SPEAKER_02: If you look at this number and you're like, and you're doing it by yourself, and you might say to yourself, well, at this run rate, I'll be okay.
• 5:19
  SPEAKER_02: But oftentimes they make too generous of assumptions on investments and their performance, but also market volatility.
• 5:27
  SPEAKER_02: Tell us more about how we counteract that.
• 5:29
  SPEAKER_01: Sure, sure.
• 5:30
  SPEAKER_01: Well, you know, some people, some financial planners do use historical performance numbers, which I think is a little irresponsible.
• 5:37
  SPEAKER_01: If you take a look at how well the market's done over the last 15 years, based off of where valuations are right now, we probably won't see another 15 years like that.
• 5:48
  SPEAKER_01: So you have to be very conservative with rate of return numbers, in my um opinion.
• 5:55
  SPEAKER_01: Um, you can put, I've seen financial plans in these beautiful leather binders.
• 6:01
  SPEAKER_01: Sure.
• 6:02
  SPEAKER_01: But if the performance isn't there, you could just basically throw it away.
• 6:06
  SPEAKER_01: So you know, performance is good, but you don't want to be, you don't want to overestimate it.
• 6:11
  SPEAKER_02: Sure.
• 6:11
  SPEAKER_02: So brass tacks, people are behind, right?
• 6:16
  SPEAKER_02: They they kind of get their magic number, that financial freedom number, if you will.
• 6:21
  SPEAKER_02: They're behind.
• 6:22
  SPEAKER_02: What are those levers they can start pulling right away?
• 6:26
  SPEAKER_02: And I know it's I get it, it's a loaded question, but it's something that people are asking.
• 6:29
  SPEAKER_01: Okay.
• 6:30
  SPEAKER_01: No, I mean it's very simple.
• 6:31
  SPEAKER_01: You can't pull blood from a stone.
• 6:33
  SPEAKER_01: You basically need to spend less, you need to save more now, or you need to retire later.
• 6:39
  SPEAKER_01: I mean, there's really not much more to it.
• 6:43
  SPEAKER_01: And working a couple extra years um does make a big difference because you're saving um into your retirement accounts longer.
• 6:52
  SPEAKER_01: You are letting your investments grow a couple of years longer, and you're gonna need your portfolio a couple of years less.
• 6:59
  SPEAKER_01: So those are the main ones.
• 7:02
  SPEAKER_02: What are the, I mean, I'm gonna list off the three that I think you and I talked about before the show.
• 7:06
  SPEAKER_02: And how do we get people to realize the actual values?
• 7:10
  SPEAKER_02: That being kind of that taxes, long-term care, and medical.
• 7:15
  SPEAKER_02: I think people always underestimate the costs that they're gonna experience with those three categories in retirement.
• 7:22
  SPEAKER_01: Um, well, uh the software that we use considers taxes um even as um specific as knowing what state you live in.
• 7:32
  SPEAKER_01: Um, we have software from Genworth Financial that can estimate different types of long-term care costs.
• 7:38
  SPEAKER_01: Uh, someone coming into your house, um, is someone there 24 hours a day, um, assisted living facilities.
• 7:47
  SPEAKER_01: Um, so there we do have the tools to get pretty specific on those um issues that, like you say, some people overlook.
• 7:56
  SPEAKER_02: And it's gotta be fairly enlightening, right?
• 7:57
  SPEAKER_02: Because this is this is based on all the data that we have access to that you can't really consider from just Googling, for instance.
• 8:04
  SPEAKER_01: Oh, absolutely.
• 8:05
  SPEAKER_01: Yeah.
• 8:06
  SPEAKER_01: It's uh I definitely my brain isn't big enough to wrap my head around it.
• 8:09
  SPEAKER_01: I definitely need my software.
• 8:11
  SPEAKER_01: But um, but I and and the crazy thing is, is I'm working with people that are 50, 60 years old.
• 8:17
  SPEAKER_01: So if we're inflating healthcare costs at 6% a year, which is the industry norm, that number by the time you need it is is a very large number.
• 8:27
  SPEAKER_01: So it is very eye-opening.
• 8:29
  SPEAKER_02: And that's scary, actually.
• 8:30
  SPEAKER_02: I think it was Aaron and I talked about this is that you need to actually run inflationary targets different for traditional inflationary metrics versus healthcare, because it seems like it's inflating faster at a larger clip.
• 8:44
  SPEAKER_01: It definitely is.
• 8:45
  SPEAKER_01: Yeah, the historical inflation, general inflation is about 3%.
• 8:50
  SPEAKER_01: And it's crazy because I saw a prospect come in with a financial plan from a competitor, and they use 2.5% inflation.
• 8:57
  SPEAKER_01: We I personally use three and a quarter percent inflation, just again, to be conservative.
• 9:02
  SPEAKER_01: And I've actually um, by being conservative with rate of return numbers, you always want to preface it, we expect to do better than this, but I would rather lose a prospect than just give them over optimistic outlooks.
• 9:16
  SPEAKER_02: Yeah, but you can also run the numbers a few different ways, couldn't you?
• 9:18
  SPEAKER_02: You could show them at two and a quarter or three and a quarter.
• 9:21
  SPEAKER_01: That's absolutely right.
• 9:22
  SPEAKER_01: Um, I do run what-if scenarios, um, which does turn the dial on different rates of return, different levels of inflation, different spending numbers, retirement numbers, and we just line them up basically side by side.
• 9:36
  SPEAKER_01: Um, and it allows us to maybe prioritize what's most important to us.
• 9:42
  SPEAKER_01: Is it retiring exactly on that same year that they expected to?
• 9:47
  SPEAKER_01: Well, then maybe we drop the spending by$20,000.
• 9:50
  SPEAKER_01: So definitely want to run what-if scenarios and not just what-if scenarios, but we want to stress test the plan after we are done with it.
• 9:58
  SPEAKER_01: We, you know, under conditions where the market's down 20%, all kinds of his historical.
• 10:05
  SPEAKER_02: Okay, just run those numbers, right?
• 10:06
  SPEAKER_02: You push it and you run it through repeatedly.
• 10:09
  SPEAKER_02: And I think that's a beautiful part about using kind of more sophisticated financial planning software is it allows you to kind of, like you said, what if, model out, well, what if I retired two years early or four years later?
• 10:20
  SPEAKER_02: How will that help me?
• 10:22
  SPEAKER_02: Exactly.
• 10:22
  SPEAKER_02: And then what about uh taxes though, right?
• 10:25
  SPEAKER_02: People, I don't think people really expect to spend as much with taxes.
• 10:29
  SPEAKER_02: They always think that once their income goes away, right?
• 10:32
  SPEAKER_02: Their W-2 income, right, that taxes just kind of disappear.
• 10:35
  SPEAKER_02: That's not the case.
• 10:36
  SPEAKER_01: No, not at all.
• 10:38
  SPEAKER_01: Um so we definitely always want to consider where we're drawing money from.
• 10:44
  SPEAKER_01: The whole adage of using your after-tax accounts first and letting your IRAs grow until you absolutely need to take money out of them is really outdated.
• 10:55
  SPEAKER_01: Uh you want to level out the withdrawals based off of the value of your retirement accounts versus your after-tax accounts.
• 11:03
  SPEAKER_01: You don't want to just allow your IRAs to grow just, you know, untouched until they're 73.
• 11:10
  SPEAKER_01: And soon the required required minimum distribution age is going to go up to 75.
• 11:15
  SPEAKER_01: So it's just a balancing act.
• 11:17
  SPEAKER_01: Every year you basically put a cash flow plan together of saying, this is how much we're going to take from your after tax account.
• 11:24
  SPEAKER_01: This is how much we take from your traditional IRA.
• 11:27
  SPEAKER_01: Now, as far as the Roth IRA goes, I generally recommend leaving those untouched, especially if they have a need or a goal for leaving a legacy behind.
• 11:38
  SPEAKER_01: Um, and also we talk about Roth conversions, you know, um, we we determine that magic, that sweet spot number of how much we can convert from traditional IRA to Roth.
• 11:49
  SPEAKER_01: So when they are ready to take required minimum distributions, they're not thrown into another tax bracket.
• 11:54
  SPEAKER_01: I read some research that being smart about what kind of account you're taking money from can save you up to 15% on taxes over the course of your life.
• 12:04
  SPEAKER_02: And that's why shameless plug, using an advisor really helps, right, guide you through that process to make sure you don't make those mistakes.
• 12:11
  SPEAKER_02: Those simple mistakes, though, for an advisor to kind of prevent, right?
• 12:15
  SPEAKER_02: Especially as it relates to long-term ramifications.
• 12:19
  SPEAKER_02: Right?
• 12:20
  SPEAKER_02: 15%, that's a significant amount of money.
• 12:22
  SPEAKER_02: Okay, we've hit the magic number.
• 12:24
  SPEAKER_02: Okay.
• 12:25
  SPEAKER_02: We are quote unquote financially free.
• 12:28
  SPEAKER_02: Okay.
• 12:28
  SPEAKER_02: Right.
• 12:28
  SPEAKER_02: Okay.
• 12:29
  SPEAKER_02: So you've done a great job with your clients, we've got to that number.
• 12:34
  SPEAKER_02: Now what?
• 12:35
  SPEAKER_02: It you you don't take the eye off the prize, right?
• 12:37
  SPEAKER_02: We have market volatility, we have significant life changes.
• 12:40
  SPEAKER_02: How do we make sure that we remain financially free even after we hit that number?
• 12:46
  SPEAKER_01: No, absolutely.
• 12:47
  SPEAKER_01: Um, it's not just a one-and-done type process.
• 12:50
  SPEAKER_01: So um depending upon the preferences of the client, we get together once a year as a part of our annual review.
• 12:59
  SPEAKER_01: Um, we talk about our outlook, we review the financial plan.
• 13:03
  SPEAKER_01: Have you had any life changes across the course of the year?
• 13:06
  SPEAKER_01: New grandkids, um, taking care of a family member, the list goes on.
• 13:11
  SPEAKER_01: But you you have to keep it up to date, all the inputs.
• 13:15
  SPEAKER_01: Um, and then, and then in terms of the Monte Carlo analysis that most software um programs use, it's it's very strange actually, how different it looks from year to year.
• 13:29
  SPEAKER_01: So Monte Carlo runs a thousand different scenarios with all good markets, all bad markets, and everything in between.
• 13:37
  SPEAKER_01: And it creates a bell curve and gives you a success rate.
• 13:40
  SPEAKER_01: And so the further you are away from retirement, the wider the margins are for the Monte Carlo analysis.
• 13:48
  SPEAKER_01: So you have to look at that as often as you want.
• 13:52
  SPEAKER_02: I hope, by the way, it would change every year, right?
• 13:55
  SPEAKER_02: Because otherwise it wouldn't really be probabilistic or variable.
• 13:59
  SPEAKER_01: So, you know, yeah, it becomes more um more confident.
• 14:03
  SPEAKER_02: Sure.
• 14:03
  SPEAKER_02: Yeah, as you get closer to that horizon, right?
• 14:05
  SPEAKER_02: Of course.
• 14:06
  SPEAKER_02: Um, there's less, there's less opportunities for significant change.
• 14:09
  SPEAKER_02: Right.
• 14:10
  SPEAKER_02: Um, but having that simulations done year over year uh is very beneficial, which kind of like is a segue to my next question, but it really boiled down to I I was asking before about stress testing, but making real-time adjustments as an advisor, how do you help make real-time adjustments?
• 14:26
  SPEAKER_01: Just because we run the financial plan once a year doesn't mean I'm not talking to our clients on a regular basis.
• 14:32
  SPEAKER_01: So as I identify um changes that needed to need to be made to a plan, I'll just go in and update it without having to go through every nut and bolt of the entire plan.
• 14:42
  SPEAKER_01: And some of our clients um like to use the software themselves.
• 14:46
  SPEAKER_01: Uh, we our software allows people to go in on their own and make changes and run different what-if scenarios.
• 14:53
  SPEAKER_01: I I get notifications when clients go on.
• 14:56
  SPEAKER_01: I'm telling you, some people go on almost daily.
• 14:59
  SPEAKER_01: Those people do exist.
• 15:01
  SPEAKER_02: Yeah, well, they want to see you, right?
• 15:03
  SPEAKER_02: Yeah.
• 15:04
  SPEAKER_02: I love it.
• 15:04
  SPEAKER_01: I love it.
• 15:05
  SPEAKER_01: I love it when they want to take control of their future.
• 15:09
  SPEAKER_02: But life does happen though.
• 15:10
  SPEAKER_02: Life changes, right?
• 15:10
  SPEAKER_02: So they might have another grandchild or they might think about more gifting or legacy efforts.
• 15:16
  SPEAKER_02: Like I think they're gonna go in and kind of do that what-ifing, uh, which I love interactive planning, because that allows them to kind of come to you then and say, hey, you know, I've been playing with my plan or kind of considering different alternatives.
• 15:28
  SPEAKER_02: What do you think about this?
• 15:29
  SPEAKER_02: Right.
• 15:29
  SPEAKER_02: Right.
• 15:30
  SPEAKER_02: And it becomes not a unidirectional experience, but bi-directional because life happens, right?
• 15:36
  SPEAKER_02: And as long as you're there with the guardrails, doing the stress testing, doing the rebalancing, which we talked about, uh, and all, of course, just running the numbers again to make sure they remain.
• 15:47
  SPEAKER_02: So I guess my last question to wrap this is people are listening to this show, they're watching online because they're beginning to think about their magic, their financial freedom number.
• 15:59
  SPEAKER_02: What are those kind of couple things that they ought to be doing, even if they can't define it themselves, which they can with rough math, but what should they be doing to start thinking about what that number might look like?
• 16:11
  SPEAKER_01: Well, they first have to ask themselves whether they have done an exercise like that before.
• 16:16
  SPEAKER_01: And if they haven't, that's that's a very clear first step, as far as I'm concerned.
• 16:22
  SPEAKER_01: Uh, and then, you know, just understanding the fact that you can't just cross your fingers and hope everything works out.
• 16:30
  SPEAKER_01: You have to understand the perform the effects of inflation and taxes, like you mentioned.
• 16:36
  SPEAKER_01: And no one that I know of uh can kind of figure that out with just a pen and a piece of paper.
• 16:42
  SPEAKER_02: Yeah, I mean, oftentimes people might go to Google or or an AI tool, but there is so much more complexity than to kind of figure out what that true number is, right?
• 16:50
  SPEAKER_02: Because inflation is volatile, just like medical costs, just like taxes, there's so much that goes into that.
• 16:56
  SPEAKER_02: But I think one of the big things that people fail to understand, fail to realize, is how much money they actually spend.
• 17:04
  SPEAKER_01: Right.
• 17:04
  SPEAKER_02: Right.
• 17:05
  SPEAKER_02: Oftentimes people think, oh, I spend this amount a month, right?
• 17:09
  SPEAKER_02: And then you, when you go in and you sit down with them, that number is often different.
• 17:13
  SPEAKER_01: And sometimes I don't even rely on the budget worksheet I give them.
• 17:17
  SPEAKER_01: I basically tell them to tell me what they're spending, and then I remove what their pre-tax savings is, and then I remove taxes from it and any other savings they do.
• 17:28
  SPEAKER_01: And that leftover number is what they're spending.
• 17:31
  SPEAKER_01: So putting framing it in that way, they're like, no way do I spend that much.
• 17:35
  SPEAKER_01: I'm like, well, then where is it going?
• 17:37
  SPEAKER_01: And that's really eye-opening for them.
• 17:39
  SPEAKER_02: Yeah.
• 17:40
  SPEAKER_02: Well, this episode for me was very eye-opening because everyone has that on their mind, the financial freedom number, right?
• 17:47
  SPEAKER_02: But you begin to realize there's a lot of complex things that go into that, right?
• 17:52
  SPEAKER_02: And that's again the value of the financial advisor is to help navigate that process to identify that true financial freedom number and to ensure that once you get there, you remain there financially free.
• 18:04
  SPEAKER_02: Julie, thank you so much for coming on this episode of Dime After Dime.
• 18:07
  SPEAKER_02: Really appreciate you uh joining us here today.
• 18:09
  SPEAKER_02: Well, thank you for having me.
• 18:10
  SPEAKER_02: And thank you all for listening and watching.
• 18:13
  SPEAKER_02: If you enjoyed this episode, make sure you like and subscribe and share it with a friend or family member who are also on the search for their financial freedom number.
• 18:23
  SPEAKER_02: I'm your host, Tony of Dime After Dime.
• 18:25
  SPEAKER_02: Until next time.
• 18:29
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• 18:31
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• 18:38
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