The Retirement Wisdom Podcast – Podcast Guide to Retirement Income and Saving Strategies and How to Make a Financial Plan

Sound retirement planning can provide you with a solid foundation for your next phase of life. David Rosenstrock, Certified Financial Planner, explains why you should have a formal financial plan as the cornerstone for your retirement planning – and common mistakes you can avoid.
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Transcript for Podcast Below:

Joe Casey (Host) (00:04):

David. Thank you so much for joining us today.

David Rosenstrock, CFP® (00:07):

Thanks for the invitation to be on today’s podcast. My father-in-law, who’s retired, started listening to your podcast recently and he really likes the wide range of topics that you cover.

Joe Casey (Host) (00:19):

Great. Glad to hear it. And we do try to cover a wide range because retirement is, you know, complex and planning for it can be especially complex. What do you see as the key building blocks that people need to have in place for a satisfying and successful retirement?

David Rosenstrock, CFP® (00:36):

George Foreman once said, the question isn’t what age I want to retire. It’s with what income. And so most of us are never going to become heavyweight champions, but we’ll all likely have financial concerns and stress as time goes on. And that leads to my first point, which is having an income plan. It’s very important to have a sense and list all your sources of income in retirement, which are going be your retirement accounts, your non-retirement brokerage accounts, your savings accounts, if you have pensions or annuity income and any other sources of income. So choosing the right investment strategy is involved in this part of your plan. Also, a lot of people don’t recognize and understand how working past the traditional retirement age, either on a part-time or full-time basis, can really implement and impact your retirement plan. When I run my retirement-planning software, one of the things that always has a very large impact is the age at which somebody retires.


And if they’re able to push back a year or two or work part-time. And so that’s something that people should really consider. Also, everybody thinks about expenses, but not everybody tends to formalize an expense budget. The other day I took my two kids for ice cream and by the time they self-serve themselves ice cream and put on the toppings, the bill came to over $20. So it’s easy to expect costs to remain what they used to be. But they often don’t and assumptions could become outdated. Also,  when I talk to people they often don’t think about when they go into retirement, what it’s going  be like to not have a paycheck. Your money is spent in three major categories in retirement: housing, transportation, and medical. When thinking about these expenses, it’s also important to think about needs versus wants.


Consider the cost of buying new books versus listening to a podcast or going to the library. There’s also something called the 4% rule, and it basically says you shouldn’t try to use more than 4% of  your retirement money per year. And it’s just a general rule, but something that could be helpful to keep in mind. I also think it’s important to save as much as possible at tax time on your tax bills. If you’re thinking like my kids, that’s going to mean more ice cream cones. Taxes end up surprising many retirees. The other day I was talking with someone who had moved to a new state, and he was totally unaware that that move was going to cause his Social Security to be taxed. So if you’re planning on moving closer to loved ones or for a better climate, just be very mindful of what the financial implications are going to be.


Also for most people, it makes sense to maximize contributions to IRAs and employer retirement plans. There are many options here depending on age and other circumstances. These accounts are important because they allow you to compound your money on a tax-deferred and sometimes even a tax-free basis. You also want to match different types of accounts with different types of strategies using an  HSA,  or a health savings account, or an FSA, or a flexible spending account. They can also help you save a lot of money at tax time. And those are strategies that should be considered. Another big topic is Social Security benefits and trying to maximize those. There are  hundreds of rules here. A recent study found that 96% of retirees are leaving  more than $100,000 per household behind by claiming their Social Security at the wrong time. The majority are claiming benefits too early.


You should determine what strategy is best for you. Based on age, life expectancy, income needs, and other retirement assets. There’s a big swing in the amount of Social Security benefits you may receive, depending on what you do. If you file before the age of 62, you could be looking at a reduced benefit of 75% of the amount you’re eligible for. Alternatively, if you wait till the age 70, you could be receiving 130% of your regular benefit amount. So there’s about a 60% range here in the amount of Social Security you could receive. And that should really make people very mindful of this topic and, and what they decide to do. I’ll also point out if you started to tape Social Security and you feel like you made a mistake and you want to try to claim the higher benefit amount, there are corrective actions you could take depending on circumstances. And also there are specific strategies married couples can pursue as well. I’ll start my last point here with a question for podcast listeners. The question is to guess what Aretha Franklin, Prince, James Gandolfini and Pablo Picasso, all failed to do properly.


The answer is they all had problems doing proper estate planning, costing a lot of extra taxes and adding stress for their loved ones.  Overlooking estate planning could be a huge mistake, and it’s going to cause a lot of financial disruptions. One of the primary goals of estate planning is to minimize taxes and help take care of your loved ones, reduce their stress, and also provide them with some privacy. Everyone should have an advanced healthcare directive and a power of attorney. These documents are going to  govern what happens to you in the event you’re become ill or incapacitated. They govern what’s going  happen with your health decisions and who’s going to  make the health decisions. This also affects what’s going to  happen with your financial wellbeing. And who’s going to be able to pay your bills and keep that going.

Joe Casey (Host) (06:19):

Appreciate all of that, a lot of great points there, some very good reminders and useful information about how to get your house in order and the value of doing that in advance and having those things in place. That question for our listeners was definitely a new record. That’s never been asked on our podcast about what those three people had in common. So thank you for that. And also at this time of year, we’re all sensitive to the inflationary impact on ice cream prices.  So, David, what are the most common mistakes you see people make when planning for retirement, think about your clients.

David Rosenstrock, CFP® (06:53):

Most people have learned over the course of their lives that you need to learn from your mistakes. I have a 14-year-old son and a seven-year-old daughter. And if they make mistakes in sports or arts and crafts in school, I always tell them, well, that’s an opportunity to get better. But in the instance of retirement at, at planning, you don’t get extra working years to recover. So it’s really important to proactively try to avoid mistakes. This topic is particularly timely as the market and global economy, as you mentioned, are currently dealing with a fear of recession, inflation and a large number of strains from the aftermath of the pandemic, the Russian-Ukraine war, the COVID lockdowns in China. So a big part of my job as a CFP is to really get to understand my clients and build a portfolio that not just meets their financial needs, but also their psychological needs.


I have a 94-year-old client I’ve been working with. And when I first saw her portfolio, I noticed there were several positions that  weren’t suitable for her age or her long-term goals or the long-term goals of her family. So choosing the wrong investment strategy is a common mistake that people fail to monitor correctly. There are a lot of different investment strategies out there. They range from very conservative to very aggressive. If you’re very conservative, the current inflationary environment is will eat away at your returns. If you’re very aggressive you might be taking unnecessary risks and it might become hard to sleep at night. So you really want to strike the right balance between the two ends of the spectrum. I also wanted to point out it’s very common for people to accumulate large positions from their employers’ stock benefit programs.


You can get paid in stock and you can get bonuses and options. And I typically don’t like to advise that anybody have more than 5% to 10% of a position in any particular holding. We all remember what happened to Enron. When that company went out of business in the early 2000s, it caused a lot of large losses in retirement accounts and other accounts and a lot of disruptions. And so it’s very important to be mindful of this and not take your eyes off of it.  Not managing taxes and choosing the right accounts to draw from is another common mistake. I see a lot of Roth IRA conversions are a very extract, a very effective strategy, and a lot of people overlook those when I do my financial planning and when I run my analyses Roth doing Roth conversions often enables there to be a lot more money at the end time period. Then there would’ve been, had they not done the Roth conversions. And so I definitely like to spend time focusing on that. And I think that’s an area that’s overlooked, Underestimating healthcare costs is also a very common mistake. Out-of-pocket costs for people in retirement have risen well over 50% since the early 2000 and long-term care costs could be even less predictable. So that’s a really important topic to wrap your mind around.

Joe Casey (Host) (10:03):

You mentioned you are a CFP. So for those listening, someone might be thinking, well, I have a financial advisor, I’ve had one for some time. What’s the difference between a financial advisor and a CFP? What’s distinctive about what a CFP brings to the table?

David Rosenstrock, CFP® (10:22):

Certified financial planners have completed a very rigorous program to train for financial planning. So there’s a very rigorous structure and framework, which is applied to bring all the pieces of a client’s financial life together by a certified financial planner

Joe Casey (Host) (10:44):

How about having a financial plan? What would you say are the benefits of having a written formal financial plan that people may not realize?  I’ve noticed the Transamerica Center for Retirement Studies’ annual survey consistently shows a relatively small percentage of people have a written financial plan.

David Rosenstrock, CFP® (11:05):

Yes. I was recently talking with someone who had emailed me with a question on a video I had done about retirement planning. He was an engineer and he had crunched his numbers 15 years ago, very methodically. He tried to look at every possibility, and in doing so, he swore to me, that that helped him to retire at a very early age.  But not everybody has to be an engineer to do financial planning. Financial planning could help create a source of motivation and commitment. I think a formal financial plan could also bring to light flaws that somebody might not have been thinking about while there’s still time to address them. Also, I think having a formal financial plan can provide peace of mind and prevent market fluctuations like the current one from causing a lot of panic.  In talking with clients over the years, I learned a good way to drive yourself a little crazy is checking the investments in your portfolio every day. So a financial plan could help take your mind off of those day-to-day moves. Also, it’s not enough to have a plan. You really want to change the plan and monitor it as time goes on, because your life circumstances are going to change and the plan really needs to change along with that.

Joe Casey (Host) (12:24):

That’s a great point. Because things do change. It’s one thing we can all count on and paying attention to those micro changes day to day can be maddening, especially these days, but having flexibility and a solid foundation and a framework can be really helpful. So let’s say that someone’s a new client. Some people don’t understand what a CFP does and what you in particular do. How does your planning process work with a new client that’s coming to you and planning for retirement?

David Rosenstrock, CFP® (12:50):

We’re often asked by clients: What does it mean to be fee-based or fee-only? And, why do you, why do you work like that? So at Wharton Wealth Planning we are fiduciary certified financial planners.  A fiduciary is the highest duty that one party can have to another. So we don’t accept investment commissions and we don’t work with only one particular type of family of funds or specific products. We can choose from any product that’s out there. We base it solely on what’s in the best interest of the client. For example, if we find a new product from a manager on the West Coast that offers a superior value proposition or solution than a product we’ve been working with, we’re going to change to that product. So we’re not tied to any specific region or any specific provider in that regard. This strategy allows us to provide unbiased advice.


And I think that provides peace of mind for clients. What we also want to do is really get to know our clients and establish long-term relationships. So this involves not only getting to understand the numbers part of their lives, but also the qualitative parts of their lives, their values, their long-term goals, their families’ situations. So we gather and evaluate clients’ information. Then we develop and we present our recommendations as well as potential alternative recommendations. And then finally we work with clients to get those recommendations implemented.  Once that is accomplished, we continue to monitor the investments as they might need to be changed. So we want to bring all pieces of a client’s financial life together. For example, two people could have the same exact age and the same exact income, but they could deserve very different financial plans that are based on their family circumstances or other circumstances.


So we really want to drill deep and make sure that we get it right. One positive thing that arose out of the pandemic is people’s willingness to adopt technology to work and communicate. Just the other day, I had a medical appointment  and I did my appointment virtually.  It saved me an office visit. It saved me a lot of time. I really was very happy about it. And so we can work with clients virtually in any part of the country. It doesn’t matter if they’re in Florida or Washington or anywhere in between. This is cool because it enables us to work with a wide range of  people.  Clients like working virtually because it’s convenient, it saves money and it minimizes travel time and paper waste, which is always a good thing for most people.

Joe Casey (Host) (15:21):

So earlier you discussed the benefits of working longer.  From a financial standpoint, there’s a lot in the news recently about people unretiring, coming back to work, and there’s equally a lot of news about people leaving work earlier. So there’s a lot going on in that space. What’s your opinion about what people go through when they’re considering staying longer at work or coming back to work? What are some of the trade-offs that you see people struggling with or thinking through?

David Rosenstrock, CFP® (15:54):

I think when you’re thinking about how and when you want to retire and some of the trade-offs,  people often want to retire to do things that they didn’t have a chance to do, whether it’s travel, whether it’s spending  more time with their family, whether it’s pursuing other causes that are outside of what they’ve done all their lives. So that’s a trade-off right there. I think people also have to really carefully weigh what their goals are in retirement and try to determine how much money they’re going to need to achieve those goals.  I think if you feel comfortable after that planning, the work that you’ve done and the savings that you’ve generated are going to  allow you to do the things that you want.


And if the assumptions that you made are reasonable, then you know that extending your work life isn’t necessary.  But if you have concerns or you’re uncertain, you could put yourself in a really difficult predicament. I think a lot of people don’t realize that they might end up living a lot longer than they were expecting. That’s a common mistake, and you just have to really be mindful of it and plan around it, and think about it because what you don’t want to happen is to have yourself very stressed that you’re going to  run out of  money. And so that’s always one of the biggest challenges. And one of the things that we try to really safeguard when we do our planning,

Joe Casey (Host) (17:26):

One last question, what’s one key message you’d offer people listening about planning for retirement.

David Rosenstrock, CFP® (17:34):

It’s a very good question, Joe. You know, retirement should be a time of freedom, enjoyment, and security, and there shouldn’t be a lot of significant stress and distractions. But in order to make this happen, retirement needs to be planned for.  Everyone has to expect and plan for the unexpected. Unfortunately, some are going to hit the lottery while others might end up needing significant long-term care, and it’s just not possible to predict. There are so many different variables. So that’s something that I’d really like people to keep in mind. Also those that follow a specific financial plan are likely going to do better than those who don’t, they’re going to have better average returns on their portfolios and probably a little bit more comfort in retirement. I would imagine also that everyone who’s listening to your podcast is very interested in safeguarding their financial security, but outside of finding a gold mine in their backyards, I really believe that planning now is the best chance to, to achieve freedom. Amelia Earhart said preparation is two-thirds of any venture and the same is true for retirement planning.

Joe Casey (Host) (18:42):

Well, very, very helpful. We really appreciate you making the time to talk with us today.

David Rosenstrock, CFP® (18:47):

Thank you, Joe.  I appreciate all the insightful questions and thank you very much.

Joe Casey (Host) (18:52):

Thanks, David.