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The 5 D's of Retirement Planning · TaylorMade Retirement with Taylor Demars, CFP®

• 0:02
  SPEAKER_01: We found a recent article from Kiplinger that unpacked five keys to a retirement plan that really resonated with us.
• 0:08
  SPEAKER_01: They all started with five D's, and maybe I'm biased for DeMars, but they have unpacked some key, timeless insights that we find really helpful for you today.
• 0:18
  SPEAKER_00: Welcome to Taylor Made Retire, where we explore what it takes to build a retirement that works for your money and your life with third generation certified financial planner Taylor DeMars.
• 0:34
  SPEAKER_02: Welcome to the podcast, everybody.
• 0:36
  SPEAKER_02: This is Taylor Made Retirement with Taylor DeMars.
• 0:38
  SPEAKER_02: And yes, he is biased to the D's.
• 0:40
  SPEAKER_02: We are talking about the five D's of retirement planning this week.
• 0:44
  SPEAKER_02: I like that.
• 0:44
  SPEAKER_02: That was funny.
• 0:45
  SPEAKER_02: Um basically five keys that this article identified, Taylor, that that really hold up pretty well.
• 0:50
  SPEAKER_02: And I thought we could discuss those.
• 0:52
  SPEAKER_02: We'll put a link in the show descriptions if people want to check it out uh for themselves.
• 0:56
  SPEAKER_02: Um but either way, I think maybe these five D's are worth knowing.
• 0:59
  SPEAKER_02: So we'll dive into that a little bit.
• 1:01
  SPEAKER_02: How are you doing, buddy?
• 1:01
  SPEAKER_02: Oh, I'm doing well.
• 1:02
  SPEAKER_02: Thank you very much.
• 1:03
  SPEAKER_02: How about yourself?
• 1:03
  SPEAKER_02: I'm doing pretty good.
• 1:04
  SPEAKER_02: Looking forward to chatting with you on that, getting your take on these.
• 1:07
  SPEAKER_02: Let's dive right in and just break these off.
• 1:09
  SPEAKER_02: Diversification.
• 1:10
  SPEAKER_02: Okay.
• 1:10
  SPEAKER_02: I mean duh, right?
• 1:12
  SPEAKER_02: Uh, you know, everything we hear this, it's a catchphrase, buzzword, whatever, all the time.
• 1:17
  SPEAKER_02: Uh, so how important is this in the five D's?
• 1:20
  SPEAKER_01: Yeah, 100%.
• 1:21
  SPEAKER_01: I mean, when we're talking retirement, we're talking about how do I make make up a paycheck, right?
• 1:25
  SPEAKER_01: Because the day you retire, people feel like they're they're suddenly uh without income, which is more or less true.
• 1:31
  SPEAKER_01: But there's a number of different ways you could take diversification.
• 1:34
  SPEAKER_01: I think many people gravitate towards, oh, I've got to have uh multiple streams of income.
• 1:38
  SPEAKER_01: I've got to make sure I optimize my social security, my investment portfolio, maybe I have a pension, or should I get an annuity?
• 1:44
  SPEAKER_01: What about rental income?
• 1:45
  SPEAKER_01: Should I consider uh dividend investing to get income that way?
• 1:49
  SPEAKER_01: And you know, they that could be a lot at once.
• 1:52
  SPEAKER_01: And I would say that I break that down more on a personal level, right, depending on which of those are applicable or not.
• 1:58
  SPEAKER_01: But what is applicable, I find, in nearly all retirement plans is the diversification of how you actually create income from your portfolio, right?
• 2:07
  SPEAKER_02: Yeah.
• 2:07
  SPEAKER_01: And nearly every retirement portfolio has up to three tax buckets.
• 2:11
  SPEAKER_01: There's the tax deferred, which is your 401k and IRA, those dollars that have not been taxed yet.
• 2:16
  SPEAKER_01: There's the taxable bucket, as it's called, which is basically like a brokerage account.
• 2:20
  SPEAKER_01: Dollars going in have already been taxed, only the growth is tax net capital gains, more favorable than income tax rates.
• 2:26
  SPEAKER_01: And then the third bucket is your tax-free, often Roth IRA money.
• 2:30
  SPEAKER_01: And so that's what I get excited about in kind of in comprising a tax efficient retirement paycheck for clients is that diversification of okay, what when do we lean on one bucket more than another based on their certain goals or certain thresholds we're gonna try to stay within?
• 2:43
  SPEAKER_02: Yeah, and don't forget, and I know we want to keep this one a little bit more rapid-fired this week, but don't forget, too, folks, that if you go buy four or five products from four or five different places and they're all large cap, for example, you're not diversified, right?
• 2:55
  SPEAKER_02: So when you guys do your forensic analysis a lot of times on people's uh portfolios, Taylor, when they come in, often you do find that people do have overlap.
• 3:03
  SPEAKER_02: They have a lot of things where you know it's you're not really that diversified.
• 3:06
  SPEAKER_01: It's true.
• 3:07
  SPEAKER_01: Yeah.
• 3:07
  SPEAKER_01: In our in our uh investment pillar inside of the retirement ready dish roadmap, we're breaking down okay, what's your diversification by way of asset class, individual stock holdings, and trying to make sure that they uh don't have too many eggs in one basket on anyway.
• 3:19
  SPEAKER_02: And not trying to throw anybody under the bus, but it happens all the time, right?
• 3:22
  SPEAKER_02: People come in and they go, Oh yeah, I bought four mutual funds at four different companies, and you're like, great.
• 3:26
  SPEAKER_02: And then you go take a look at it, and they're like, Yeah, they're all large cap.
• 3:29
  SPEAKER_02: You're all tech heavy.
• 3:30
  SPEAKER_02: If tech takes a tank, you took a tank too.
• 3:32
  SPEAKER_02: So that's one D.
• 3:34
  SPEAKER_02: Second D, duration.
• 3:35
  SPEAKER_02: Maybe this should have been first.
• 3:36
  SPEAKER_02: I'm not sure why it wasn't, but this is obviously the age old, hey, is this kind of stuff gonna last as long as I do, right?
• 3:42
  SPEAKER_01: That's true.
• 3:42
  SPEAKER_01: That's true.
• 3:43
  SPEAKER_01: Yeah, duration.
• 3:44
  SPEAKER_01: That's that's the one of the single biggest fears that clients have is am I gonna go broke before I croak?
• 3:49
  SPEAKER_01: Uh, make sure the money lasts as long as I do.
• 3:51
  SPEAKER_01: And right.
• 3:52
  SPEAKER_01: And not just as long as I do, but as long as my surviving spouse, right?
• 3:55
  SPEAKER_01: Ideally, yes.
• 3:56
  SPEAKER_01: Right.
• 3:56
  SPEAKER_01: Um, you know, we don't want to leave him or her up the up creek without a paddle.
• 4:01
  SPEAKER_01: And so the the for the sake of rapid fire, how we address that in a nutshell is our our buckets income approach, which is not unique to just us, but the way we approach it, I feel, is is a little nuanced, right?
• 4:12
  SPEAKER_01: We're basically trying to to break up our our clients' income needs between short-term, mid-term, and long-term.
• 4:18
  SPEAKER_02: Okay.
• 4:18
  SPEAKER_01: And and our and our again, on our investment pillar inside of the retirement readiness roadmap, we take an intentional approach to reverse engineer what their needs are over the next five years, um, based on all their other uh income needs, based on their needs, wants, and wishes, to be able to say, okay, here's how much we need inside of you know short-term, mid-term, long-term buckets, uh, so that, you know, not if but when there's an architect the next market downturn, uh, including maybe another great recession, here's the plan, right?
• 4:46
  SPEAKER_01: We're not here to predict, but to plan for what we're gonna do in that scenario.
• 4:50
  SPEAKER_01: So that that that's a key element to make sure that we can help the the duration of clients' plan is not letting a uh market crash give us a gut punch.
• 4:58
  SPEAKER_01: We can't survive.
• 4:59
  SPEAKER_02: Okay.
• 4:59
  SPEAKER_02: Speaking of third D, downside protection, right?
• 5:02
  SPEAKER_02: So to that point, when you're younger, hey, you know, look, almost 18 years ago was the last long, prolonged long-term, you know, downturn, right?
• 5:12
  SPEAKER_02: The Great Recession.
• 5:13
  SPEAKER_02: 18 years ago, it probably stunk if you lost 50%, but it's gonna stink a lot worse now, 18 years later, right?
• 5:19
  SPEAKER_01: 100%.
• 5:20
  SPEAKER_01: Yeah, downside protection, and maybe I'm kind of expounding on our buckets methodology, but as we we give education inside of our planning process is is the term of sequence of returns risk.
• 5:29
  SPEAKER_01: And we have a really helpful chart that we show, which shows the actual calendar returns of the SP 500, the overall stock market, from 2002 through 2018.
• 5:40
  SPEAKER_01: So basically, no, excuse me, 2002 to 2022, two-decade gap, and saying, here's a uh a million-dollar portfolio, and here's how it fluctuated over that two-decade period, assuming a couple was 100% invested in the market and took out 60 grand a year.
• 5:55
  SPEAKER_01: And what happened is, you know, based on actual return data, if they follow that whole timeline, yes, they their their portfolio took a gut punch in 2008, took five years to recover, but they actually ended up having around$2.1 million at the end of that timeline.
• 6:10
  SPEAKER_01: So not a bad story.
• 6:11
  SPEAKER_01: However, the gut punch really gets serious if we took a hypothetical and said, hey, what if that last year of 2022, where the market was down 18%, and we put that at the very beginning of the year, and took that initial year that was really good and put at the end, right?
• 6:26
  SPEAKER_01: It's a very different story where after 17 years, that million dollars goes to pot.
• 6:31
  SPEAKER_01: It's gone, right?
• 6:32
  SPEAKER_01: Simply because they get a huge gut punch at the beginning, and then not long thereafter, 2008 happens, and it's nothing that they can recover from.
• 6:41
  SPEAKER_01: And so that downside protection is really serious for a sequence of returns risks.
• 6:45
  SPEAKER_01: The few years before and the few years after retirement are the most fragile you ever encounter.
• 6:50
  SPEAKER_01: And so, again, coming back to that buckets income methodology is making sure that we're we're not crossing our fingers and hoping that we retire, you know, just coincidentally at the perfect time, but making sure we're ready to retire in good and bad markets.
• 7:02
  SPEAKER_02: And and look, you know, when the markets have been on the tear that they've been on, Taylor, I mean, go go to the S P 500, uh, you know, pull it up on Google, click the five-year tab, right?
• 7:11
  SPEAKER_02: Not the one day or the five day or the three-month or whatever.
• 7:14
  SPEAKER_02: Click the five-year tab and look at how high it's up, uh, you know, cumulatively over those years.
• 7:20
  SPEAKER_02: And and people see those numbers and they go, I want I want all this I can get, right?
• 7:25
  SPEAKER_02: But as you age, you start to you kind of lose sight.
• 7:27
  SPEAKER_02: It's easy to lose sight when I guess when these numbers are crazy like they have been.
• 7:30
  SPEAKER_02: And and don't forget, you know, older you is waiting and you don't want to make those mistakes.
• 7:34
  SPEAKER_02: So downside protection is important.
• 7:36
  SPEAKER_01: Right.
• 7:36
  SPEAKER_02: Yeah.
• 7:37
  SPEAKER_02: 100%.
• 7:38
  SPEAKER_02: Okay, number four of the D's, Taylor, discretionary income.
• 7:41
  SPEAKER_02: Now, this I think gets a lot of people in trouble because you ask them, hey, bring us in your stuff, we're gonna start putting this thing together.
• 7:48
  SPEAKER_02: Uh what are we spending?
• 7:49
  SPEAKER_02: And often it's the big ticket items, it's the house and the cars and the blah, blah, blah.
• 7:53
  SPEAKER_02: But this is a nickel and dime, super duper easy to spend a lot of extra money world.
• 7:58
  SPEAKER_02: Uh so how do you help people realize what they're truly actually spending?
• 8:02
  SPEAKER_02: Do you guys like look at the tax returns?
• 8:04
  SPEAKER_02: Because, you know, or how do you guys do that?
• 8:06
  SPEAKER_02: Because basically, let's just say you made a hundred grand and you're like, Yeah, but we we we live off of fifty, and you go, well, where's the other fifty?
• 8:12
  SPEAKER_01: I don't know.
• 8:13
  SPEAKER_01: Well, then you spend it.
• 8:14
  SPEAKER_01: Great, great detective case at that point, yeah.
• 8:16
  SPEAKER_01: Right.
• 8:16
  SPEAKER_01: Um, we find two ways, two ways to figure out how much clients are really spending.
• 8:20
  SPEAKER_01: I mean, the first is the traditional top-down approach where we're saying, you know, what what are your categories?
• 8:25
  SPEAKER_01: What are you spending per category?
• 8:27
  SPEAKER_01: Technology makes it really easy to do so these days.
• 8:29
  SPEAKER_01: You know, I because I'm in this industry, I like to experiment with different budget applications.
• 8:33
  SPEAKER_01: And I just uh started uh trying a new one out about two weeks ago where I connect all my credit cards and bank accounts to it, you know, through a secure connection.
• 8:42
  SPEAKER_01: And for the past 24 months, it's able to see all my transaction history and categorize here's what you're spending, you know, whether I like to see it or not.
• 8:50
  SPEAKER_01: And the proof is in the pudding to be able to say, well, here's here's what the lifestyle actually entails.
• 8:54
  SPEAKER_01: And so we try and get a grasp of what clients' actual lifestyle comprises of because there it's not like just because they retire, they're gonna, you know, suddenly you know tighten their belt a couple notches or you know, go crazy on spending.
• 9:06
  SPEAKER_01: It's largely gonna be about the same lifestyle most of the time.
• 9:10
  SPEAKER_01: Um, but for people who you know don't have that, we we also do a bottoms-up reverse budgeting approach where it takes more time, but we are we're able to say, okay, your bank accounts total, call it 50 grand.
• 9:21
  SPEAKER_01: Fast forward six months, right?
• 9:23
  SPEAKER_01: Assuming your income is largely the same while you're still working, is it still 50 grand?
• 9:27
  SPEAKER_01: Because if it's less or more, then that tells us a story of, you know, well, you know, what where your discretionary income's uh how much or not there is.
• 9:33
  SPEAKER_01: And so anyway, I think that's what people look to for from us because they they want to be sure that they can make the most of using their wealth while they have their health in early retirement, but without spending so much that they run out, right?
• 9:46
  SPEAKER_01: And they're and being unsustainable.
• 9:47
  SPEAKER_01: So this is discretionary income, it's certainly certainly a big uh topic to the planet that is important to each person.
• 9:53
  SPEAKER_02: No, I like that.
• 9:54
  SPEAKER_02: And the bottoms up kind of thing's kind of funny.
• 9:56
  SPEAKER_02: I was sitting there thinking, how can I work that in there?
• 9:58
  SPEAKER_02: I was like, well, when everything goes well and you've got it all laid out in a good plan, you can go home and bottoms up.
• 10:03
  SPEAKER_02: You can have a drink, have a have a relaxing moment.
• 10:06
  SPEAKER_02: Uh final one, the final detailer, it's a drag, right?
• 10:10
  SPEAKER_02: So this basically refers to anything, whatever you want to put, that is just dragging away at your returns over time.
• 10:16
  SPEAKER_02: I mean, you could go with inflation, you could go you could go any direction you want, but at the end of the day, this is something that you know you gotta be aware of.
• 10:24
  SPEAKER_02: This is a nice and com I love this term, it's a good encompassing term to what is pulling down your retirement, right?
• 10:30
  SPEAKER_02: Like what's dragging it.
• 10:31
  SPEAKER_02: Yep.
• 10:31
  SPEAKER_01: Yep.
• 10:32
  SPEAKER_01: I I would simplify it to to three uh three things that that cause drag in most client scenarios.
• 10:38
  SPEAKER_01: I see.
• 10:38
  SPEAKER_01: And the first is taxes, the next is fees, and the third is cash.
• 10:42
  SPEAKER_01: So in short, you know, paying too much in taxes, right, uh can obviously whittle down the plan.
• 10:47
  SPEAKER_01: It makes your you're you know every dollar doesn't go as far and people don't really know.
• 10:51
  SPEAKER_01: I mean, it's kind of a quiet one.
• 10:52
  SPEAKER_01: All of these are quiet, actually.
• 10:53
  SPEAKER_01: The taxes can be a quiet one because people don't realize how much they could be saving in taxes until they've done the the work to figure it out.
• 10:59
  SPEAKER_01: Yeah.
• 10:59
  SPEAKER_01: High fees, right?
• 11:00
  SPEAKER_01: Maybe it could be you're paying an advisor, maybe they're even if they're they're they're in a uh a standard rate for the industry, if you're getting less services than you should be for that fee, uh that that's also quietly bleeding from the plan, right?
• 11:12
  SPEAKER_01: You're paying too much.
• 11:13
  SPEAKER_01: Uh fees also are incurred in in your investment selections.
• 11:16
  SPEAKER_01: So we've got to look at what the cost is of your mutual funds, your ETFs.
• 11:20
  SPEAKER_01: That's another breakdown we do for clients to identify here's how much you're bleeding uh and you're plan, right?
• 11:25
  SPEAKER_01: And then the third is is cash.
• 11:26
  SPEAKER_01: Some clients look at six figures in the bank account and it just helps them sleep at night, uh, but they don't realize how much it's quietly dragging on their total portfolio saying, you know, maybe you have, I mean, just you know, a hundred thousand or several hundred thousand dollars in cash that is not doing much for you and could be working for you to help you do a lot more or be a lot more secure in the long run, um, but they don't realize it because they're so focused on it today, but it quietly eats away.
• 11:49
  SPEAKER_02: I was gonna say inflation, especially the last couple years, but I guess you could attach that to the cash.
• 11:55
  SPEAKER_02: Right.
• 11:55
  SPEAKER_01: Yeah, that's essentially what I'm meaning, right?
• 11:57
  SPEAKER_01: When I say cash is is both unoptimized investments as well as yeah, inflation eating away.
• 12:02
  SPEAKER_02: Because certainly we've been a lot more aware of it, right?
• 12:05
  SPEAKER_02: I mean, I would say that silent thief, it's been that way a long time, but certainly we're all a lot more hyper-aware over the last few years.
• 12:11
  SPEAKER_02: So, yeah, great, great list of D's there, I think.
• 12:13
  SPEAKER_02: So five D's, one plan.
• 12:15
  SPEAKER_02: The goal is to build a retirement that holds up over the long haul.
• 12:17
  SPEAKER_02: And if you need help with these five D's, that's exactly what Taylor and the team are here for.
• 12:22
  SPEAKER_02: So reach out to them, do the retirement readiness roadmap, get started at the website.
• 12:26
  SPEAKER_02: Go to demarsfinancial.com, click on the could we be a fit tab and get started today.
• 12:31
  SPEAKER_02: Demarsfinancial.com, D E M A R Sfinancial.com.
• 12:36
  SPEAKER_02: Don't forget to subscribe to us on Apple or Spotify or check out YouTube.
• 12:39
  SPEAKER_02: Check out YouTube, check out Taylor's YouTube.
• 12:41
  SPEAKER_02: You can check out all of YouTube, but it might take you a while.
• 12:43
  SPEAKER_02: Great platform.
• 12:44
  SPEAKER_02: There's a lot of stuff on there.
• 12:46
  SPEAKER_02: Uh, check out Taylor's YouTube as well.
• 12:48
  SPEAKER_02: There's links again at the website, uh, demarsfinancial.com.
• 12:51
  SPEAKER_02: Lots of good tools, tips, and resources at demarsfinancial.com.
• 12:56
  SPEAKER_02: So get started today.
• 12:57
  SPEAKER_02: And Taylor, my friend, thanks for breaking down the five D's.
• 13:00
  SPEAKER_02: Appreciate it.
• 13:00
  SPEAKER_01: Hey, my pleasure.
• 13:01
  SPEAKER_01: Thank you, Mark.
• 13:02
  SPEAKER_02: We will see you guys next time here on Taylor Made Retirement with Taylor Demars, certified financial planner at Demars Financial Group.