Realistic Expectations

Hello and welcome to Mr. Stillman's opus my name Steve Graham and we will feature the owner sovereign and financial provocateur never have sovereign in there before.

That's good like that.

Mr. John Stillman. I make a note that we need to include that on all of our marketing material sovereign. It is so much easier to accept then dictator and beside the dictators generally according to definition of taken over an entire country. You have looks to be about 952 ft.² or so, I need another couple years on the entire country thing. Given time, we are but you are a troublemaker in the financial world listened to you. Do these podcast occasionally.

I'm invited him to participate.

But as I have heard you have debunked many myths and you've also gone against me.

The conventional financial great.

You listen on the golf course right.

I trying to multitask as good and you know it. My game was suffering when I pick up something is in realizing so like today for instance let's pick up a few pointers and tips from his sovereign missed John Stillman right now talking about the subject to realistic expectations and retirement planning. So I get illustrations about who did not have realistic expectations a couple months ago I was meeting with a couple and they come in and make an outline what they wanted to do in retirement where they wanted to travel how much income they are going to need all that and they said here's here's our investments. They were actually really conservatively invested so they weren't taking too much risk. In fact we had to push him the other way, which is rare. Most people are too aggressive. They were actually way too conservative, but they had plenty of money to have the income that they wanted to have. They said that you know would like to leave some money to the kids but it's not a high priority for us also is really simple to put the plan together in their case they had about $800,000 and you know with the income needs. They had were able to put a plan together were at the end of their life expectancy. They were still going to have a couple of lifetime income streams plus about $600,000 left.

So a net loss of only a couple hundred thousand dollars throughout their retirement because they have the money that was growing enough that they were really taking distributions from so I laid the plan all out and see the wife looked at it and said but wait a minute. If we do this we do it this way, you have even less money when we die, then we have now and I'm shocked that I'm alive talking to you today because I can't believe that my head didn't explode and leave brain matter all over the back wall there. I think my voice actually squeaked out.

I think you're going to have less money when you die.

Then you have now you're currently working and earning a paycheck and you're about to be retired for 2530 years and you're going to have to live off your savings. For some reason that it never clicked in her head and so her expectation was that her nest egg would continue to grow throughout her retirement while she's also taking income from it, which is obviously not a realistic approach. So most people I would say have some element of unrealistic expectations when it comes to their retirement plan. I'm sure you always had realistic expectations in terms of dates and things like that right when you were a womanizing young radio DJ back in your glory days as you read my book. Thank you very much for that honey don't listen but you know you understood what was realistic for you in terms of women you were chasing.

At the time, right yeah I think it was a learning experience.

My understandings change experiences, and so did my future expectation that so that's that's well said, you learn from past experiences that your future expectations accordingly well know, since it's the case that most people haven't planned a retirement before most people haven't been retired before their own retirement.

It makes sense of direct expectations would be a little bit out of whack. Like for instance when can we retire the expectation people have of the age that they can retire is often out of whack and honestly could go either way. It could be that they think they can retire a lot younger than they really can. I know a lot of people who want to retire at 62 but the math just doesn't bear that out. It's not realistic.

My original goal was 55 when you know you sort of halfway did that right like my was forced to and 59 so then you your expectations and your circumstances are just a blind eye been fortunate enough to do even though not being in control retirement situation that might planning was good enough to sustain my adjustments right, Shelley sent so good situation where you you been able to earn some income of the last eight or 10 years without you having to be full-blown full-time employee somewhere or 40 hour weeks, so that's a good middle ground.

So all a lot of people need to adjust their expectations on when they can exit retire but in a lot of cases it actually is the other way while people are convinced they have to work until they're 68 or 70 yeah we look at the numbers and their actually in better shape than they think. In fact, I have a couple clients who I'm begging to retire saying please you're in great shape. Go ahead, retire, but mentally and emotionally.

They're just not ready to walk away from that paycheck, you know, if you don't hit your job fine. There's a big difference. I was going to say in wanting to work more and then feeling like you're having two and I'm being stuck in some type of servitude that you don't consider to be fine as a matter fact you conservatively saw most slavery in order to earn a paycheck exactly. So that's an expectation while people need to adjust one way or the other. Another thing I see is growth to expect on their portfolio so for instance, had just this week I was talking to a couple different clients for their annual review and no one client was in a fairly no actually, they were both in fairly moderate portfolio is not super conservative, not super aggressive there in this sort of 10 years until retirement phase.

So were not in a full-blown all right. Let's protect everything mode were also not a night. Well, just throw caution to the wind.

We got 25 years to play with were coming in the middle and so one client what they'd both gotten about an 8 1/2% return on investments over the course of the last 12 months. One of them was tickled pink thought it was the greatest thing that ever seen very happy with the report card. The other one was rather disappointed because they wanted 15 to 20% return which okay well if it were in a portfolio where we do have that 25 year timeline we can take that kind of risk and then you know in a good year in the market yet. You can see returns like that. That's the title of this particular podcast realistic patient lesson retirement plan and so you have to have a real realistic expectation of how much growth you can expect based on the way that you're invested in the way the invested in our philosophy is dictated primarily by the timeline. How long is it until you need the money, not what we think the markets going to do next year.

Not even what's your risk tolerance. What you think what you emotionally feel when the markets up and down. It's how long until you need the money. That's the primary thing that dictates how aggressively or conservatively. You should invest all sure you can't maximize your growth.

If you're taking withdrawals so that's why you need to have some kind of number in mind and shoot for a realistic goal. So that's realistic. Item number two.

Another thing would be how much income you can expect to generate from your investments, so a lot of people think they can take you know, five, six, seven, 8% out of their portfolio each year and assume that market growth is going to offset that and they'll be okay. What's not realistic at all and will some people think well I better not take more than 1% or I might run out of money. You can take more than that. You have talent, intelligent income plan put together, but you concerning Stigler more than 1%.

So you gotta be realistic on that front, especially beer from IRAs your unit because you can have a stipulation of the government says you need to take X back. Maybe it's not part of the total percentage that you're talking about, but it is a factor, is deathly something we have to weave into the equation for sure.

And then the other thing is really how much income do you need a lot of people don't have any idea how much income they need to sustain the lifestyle they will have in retirement.

So what would be your guess how do most people go about arriving at that number may be done it yourself, you know, I'm not sure, but since you asked the question. I'm a be a consumer who is not well educated but I would say that you would look at and it went your monthly expenses and costs are and you would think that those would and some percentage go down, but you have other things in retirement that will change and so how about a number of 85% of my income. Now I would like to sustain in retirement and that's a rule of thumb that a lot of people will kind of fall into accepting that is what they're going to need for their income.

But is it a realistic expectation.

Well, not really. In most cases at least most of the time your income needs in retirement are going to be really no different than what they were. While you were working. Most people are not saving any additional money by any substantial measure of their take-home pay if they have $8000. It hits the bank every month from their job. That's what they spent all their savings takes place before that 8000 that money going into the 401(k) as their primary saving and so is usually not a lot of expenses that we can cut out as we head into retards don't the grown-up children of left the nest and are on their own dime now know they fit into that equation that does certainly help and that is an expense we can take off the ledger if indeed that's the case, although a lot of people are just going to replace that with money they need for travel and so those can hit flat or maybe a more medical care.

Things like that. So we have to really look closely at how much income you need. Most people, you, and you suggested you look at your monthly expenses. What a lot of people that means add up the bills figure out how much they spend on gas, groceries, all that kind of stuff every month and that's our expenses well when you do that you don't add up all the lifestyle things your quote unquote disposable income. So you say well yeah we spent $8000 last month, but only 6000 that was actually on living. You know, we went to this wedding for our nephew and that cost us a few hundred elaborated in any of those Starbucks coffee, swimming and one-sided and all that stuff and and most people once they retire, don't necessarily want to cut that out when I can. As I've said before, sit in a dark corner eating tuna fish just so we can make the numbers work in retirement so I get gotta have that realistic expectation and innovates a constant battle.

A lot of times help people stay on the right track there but that's what we do.

So now we have been several examples of how we might unrealistically think about our retirement and our expectations and how they will need to change fluctuate be adjusted and be a thought out which all equals having a plan that have a clear mind and this is podcast closes. We will thank you, Mr. sovereign, John Stillman, another another good and thought-provoking program and I appreciate your having certain always a pleasure talking with you. My name Steve Ramsey was yesterday will be tomorrow and until next time. Thank you for joining us on Mr. Stillman's