The X’s & O’s

It’s the inaugural episode of the Retirement Plan Playbook podcast. So to kick things off, we’ll meet our hosts: Matthew Theal, Joshua Winterswyk, and Brent Pasqua. We’ll talk a bit about how retirement planning has changed and how today’s retirement challenges impact your generation. And then we’ll dive into some important items to factor in when building your retirement plan.

Listen to the podcast episode…

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The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk




Matthew Theal: I want to start today’s show by Josh, why don’t you tell me what your favorite podcast is.

Josh Winterswyk: My favorite podcast right now is probably The Daily Podcast that the Wall Street Journal is, just because I can get a good idea of not only market news, the big headline stories all within like 10 minutes. Just an awesome podcast for anyone that’s looking to get a quick 10 minute recap of today’s market news and financial news and top stories.

Matthew Theal: I’ve never heard of it, but I ought to check it out. Brent, what’s your favorite podcast?

Brent Pasqua: Depends on what season it is and what fantasy sport we’re going into. I rotate around between my fantasy baseball, fantasy basketball and fantasy football podcast.

Josh Winterswyk: What’s your favorite fantasy baseball podcast?

Brent Pasqua: I switch around between Roto Ballers and that’s about it.

Josh Winterswyk: Okay, Roto Ballers.

Brent Pasqua: I think that’s what it’s called.

Josh Winterswyk: Got to note that.

Brent Pasqua: I think that’s what it is called. Maybe it’s called [crosstalk 00:00:56] I don’t remember.

Josh Winterswyk: Matt what about you?

Matthew Theal: You know Josh, I listen to a lot of podcasts. Right now my favorite is The Daily by the New York Times. The only reason I like it is because I get interesting new stories that I otherwise wouldn’t really care about. I think it’s time to start the show.

Brent Pasqua: Fire up that music Matthew.

Matthew Theal: Let’s get after it.

Matthew Theal: Welcome to the Retirement Plan Playbook Podcast. I’m your host Matthew Theal, I’m a certified financial planner and financial advisor with RPA Wealth Management. I’m joined by my team here. I have Joshua Winterswyk, a certified financial planner. Josh how are you doing today?

Josh Winterswyk: I’m doing well Matthew. Thank you. I’m really excited to join the podcast and I’m really excited to discuss all of the topics that we have in the future, thank you.

Matthew Theal: Then I’m also joined by the head honcho of RPA Wealth Management. He’s the president of the company, financial advisor. He has over 15 years experience in the investment advice industry, Brent Pasqua.

Brent Pasqua: Thank you Matthew, and we’re excited to reach out to more people through the podcast.

Matthew Theal: Yeah, I think that’s one of the main reasons why we’re sitting down to do this podcast is, we work with a ton of clients who are in that kind of retiree, pre-retiree space. We see a need to get better educational content out to them. This is one of the ways that we can help give back, is doing a quick 20 to 40 minute podcast, talking about retirement.

Matthew Theal: Now, Brent, can you tell me how retirement’s a little bit different for this generation of people who are retiring and let’s call it the next five years?

Brent Pasqua: We are a registered investment advisor firm, and right now in this country there’s trillions of dollars that are managed by investment advisors. The reason why is because, people now want and need full financial retirement planning. See, the generation that retired before us, when they retired they had their Social Security, and they had a pension. Regardless of the amount of time that they lived in retirement, all their income was pretty much guaranteed.

Brent Pasqua: As people began to live longer, corporations said, “Well, we’re not going to do this anymore. We’re not going to guarantee these people’s incomes for the rest of their life. We’re going to actually put the responsibility on people. We’re going to make it their responsibility to save their money, put money in their 401K, 403B, deferred comp, IRAs, Roth IRAs and make them save enough money so that by the time they get to retirement they have enough money to get them through retirement.”

Brent Pasqua: However, the concerning part is that a person could live almost to a third of their life, having to stretch the money out that they’ve saved for their whole working life, for a third of their life. That potentially could be a really scary thing. When that generation before us retired, and they had all that income guaranteed, they didn’t really need to worry about their investment savings to cover their income gap. This new generation or the people now retiring has to stretch out a very minimum amount of fixed income. They have to make that saving stretch out for the rest of their life.

Matthew Theal: That’s a great point. You know, I know looking at my own family situation, my grandfather had three or four different pensions. My grandmother got them all when he passed away. Josh, did you see that in your family at all?

Josh Winterswyk: Yeah, absolutely. My grandfather had the same situation. He worked for GE for 30 plus years and with Social Security, his pension, and my grandmother’s pension she worked for a school district, their income really didn’t drop much when they transitioned to that next stage, which was retirement.

Brent Pasqua: I’ve seen it on both sides of my family. On one side, the grandparents, they had a pension. My grandfather was a fire man, he got the fireman pension. All their income was guaranteed and that was great, and they lived comfortable based on the pension. There wasn’t that big of a transition from work to retirement. On the other side, my other grandparents, when he retired he only received Social Security. Then, all the money that he had put away into his retirement plans, that had to cover them for their entire life. It is a lot different planning for somebody who has a very small fixed income and has to make their saving stretched out, versus somebody who has fixed income that’s guaranteed for their whole life.

Matthew Theal: Yeah, totally and I think even that generation we’re talking about, they didn’t even truly have a lot of money in savings. Maybe they had 50 to $100,000 in a CD, but that’s it. There’s no retirement [inaudible 00:05:38] created yet. Josh, can you tell me a little bit about how long you’re seeing the average retirement last through people?

Josh Winterswyk: Yeah, absolutely. Retirement now has really been planning, with financial advisors, the planning focus with their clients. Which is, we have to develop a retirement plan because we don’t know how long you can last, your retirement can last, how long you’re going to live. Recently a lot of studies have shown that individuals are living longer. There’s also some researches that show that, that might not necessarily be true for the last couple of years. Now with people living longer and retirement being a goal for the majority of Americans, you can see clients and individuals living through retirement for anywhere from 20 to 30, 35 years and that is a lot of time to plan for, for clients with no income besides fixed income, or the assets that they accumulated while they’re working. A third of their life is now being spent in retirement, which just is a huge goal to plan for.

Matthew Theal: Yeah, totally. I mean a third of your life that equates to about 20 to 30 years, which is truly insane. Brent, you had an interesting stat though on life expectancy that we were talking about before we hit the record button. You were saying that, I think you saw that people are actually living less than life expectancy, what was that?

Brent Pasqua: Yeah, so over the last like as Josh had talked about, over the last couple of years we’ve sort of seen a little bit of a decline in life expectancy. There are a lot of projections in medical that believe that people are going to live a lot longer. The people that are alive today will live to later ages. However, we don’t know that that’s 100% true. The concerning part though is, if people do live longer, that just means that the money, that pool of money that they saved has to stretch out for a longer period of time.

Brent Pasqua: That either means A, they need to save more money while they’re working, so they have more to stretch out. Or B, they’re just going to have to be very careful on how they take out money over their retirement to make sure they don’t get into this position where they’re depleting that money and then at the end of their life, they have nothing left over to last in the last five or seven or 10 years of their life.

Matthew Theal: Yeah, that’s a great point. I think one of the things that, the giant themes here is that, when you’re in retirement more income is needed. You need more income than the generation before. There’s a lot of reasons why. One is inflation, right, we all know that it cost more to live today than it did yesterday. Prices are going up, but one huge thing, I see from my end is, retirees are retiring with debt.

Matthew Theal: I know Josh this is one of your specialties, kind of the consumer debt side. What’s going on with this generation of retirees? I mean I’m seeing people who are coming in at the office and they still got 15, 20 years left on their mortgage, they took out student loans either on themselves or on their kids. They might have credit card debt or high auto loan. What are you seeing, what’s going on with this next generation of retirees?

Josh Winterswyk: Yeah, they’re a lot more retirees that are entering that next phase with a lot of debt. That debt does include not only mortgage debt, but unsecured, personal loan debt. It could also include student loan debt from children or maybe even student loan debt from later education for those individuals as well. With that, all of that piggy back and compounding along with inflation like we talked about, we’re seeing just so many more pre-retirees retiring with this large amount of liabilities. It’s becoming a really big issue for their retirement plan that we’re having to solve for in their late 50s or their early 60s.

Josh Winterswyk: Compared to the previous generation, there wasn’t as much of that debt that was going on. We kind of see this new generation and the baby boomer generation carrying just so much more debt from earlier on in life, never really coming up with the plan to pay it off or taking out a second on their home or racking up credit cards. All that’s just compounding into this large liability dollar amount right before retirement.

Matthew Theal: Yeah, I call it the keeping up with the Joneses syndrome, right? They see the neighbor get the new boat, they’ve got to get the new boat. They see the Mercedes in the driveway, they’ve got to go get the Mercedes. Without ever asking themselves, “Hey, can I afford this?”

Matthew Theal: Brent, you’re also a security expert. You’re doing a ton of work with your clients on Social Security planning. When you’re seeing a client, let’s just say they make $100,000 a year. How much is Social Security actually replacing of their income?

Brent Pasqua: It all depends on the age at which somebody’s going to retire. If a person retires at 62, they’ll only really receive 75% of their full retirement age amount. That’s only going to provide them a small or a smaller amount of their Social Security benefit that will give it to them for the rest of their life. They’re basically going to be stuck with that amount for the rest of their life, they will get some cost of living adjustments. That’s going to be the amount that they’re going to receive for the rest of their life.

Brent Pasqua: Now, the longer that they wait, the longer they wait till they’re retired, then the more they will receive from Social Security. Your full retirement age is based on the year you were born, somebody born in 1960 or after their full retirement age is 67 and …

Matthew Theal: Wait, slow down. I think that’s a big misconception that most Americans have, right? Most people think they’re retiring at 65, what’s with the difference there?

Brent Pasqua: 65 was the time that most people used to be able to retire and collect their full retirement age amount. Now there’s people are living longer, the Social Security age requirements for collecting your full retirement age is different. There’s age brackets in which you could collect your full retirement age amount based on the year you were born.

Brent Pasqua: If you were to collect at age 70, you’d collect 132% of your benefits. If your full retirement age is 66, from 62 to 66, every year you’re delaying your benefits are going up by 6.25%. Then every year you’re delaying your benefits from 66 to 70, your benefits are going up by 8% a year.

Matthew Theal: Are those rates guaranteed?

Brent Pasqua: Yes, and you do not have to wait the full year to get the increase. Each person can collect Social Security 96 different times from 62 to 70.

Matthew Theal: Social Security to me sounds like the best annuity money can buy. That’s incredible. Now, from income replacement standpoint, I think Social Security, correct me if I’m wrong, is going to replace about 40%, 30-40% of most people’s working income if they’re making $100,000.

Brent Pasqua: Possibly at the most depending on when they go to collect Social Security, I would say that those numbers are probably more accurate if they’re waiting till well after their full retirement age to collect their benefit. I think that’s really where the problem is starting to come is, somebody who does have $100,000 in income then goes to retire. Then let’s just say they have $30,000 or $32,000 a year from Social Security, how do you make up that difference? That’s a pretty large gap to close. If you’re talking about having to withdraw, to close that gap from your 401K or your IRA, it’s going to take a pretty significant withdraw each year to close that gap. For a long period of time, it’s going to have to be done very carefully to make sure that you have that money hopefully for the rest of your life.

Matthew Theal: Yeah, the income gap is a real issue. Josh, there’s all these new ways for retirees to save money, all these different accounts, 401Ks, IRAs, Roth IRAs. To you, I know this answer it depends, but what do you see in different clients what’s the best one? Where are people putting away this money to make up the income gap?

Josh Winterswyk: I see the most popular way from my experience with working with my clients is, a 401K work plan. The reason why it can be the easiest is, because it comes directly from their paycheck and its deferred into an account for you. A lot of times now employers actually will even set them up for you when you get hired or go through some sort of probation period. Now what we’re seeing is so many people putting away into their 401K and even increasing the deferral amounts and really building a good solid lump sum nest egg in that 401K account.

Josh Winterswyk: What I’m also seeing is, then because that deferral is coming from their paycheck, a lot of clients are not saving into traditional savings accounts or having other after tax accounts as well. Yes, it depends. I would just say that the 401K is probably the most popular and maybe it has to do with it being the easiest for people to receive for retirement, and then put away for that income that they’re going to need in retirement.

Matthew Theal: Yeah, totally. From the investment side, I know we’re seeing a lot of different options in these 401K plans. I mean essentially the corporation is going to their workers and saying, “Hey, you need to be a professional investor.” There’s all these mutual funds and these people don’t know what to pick. Brent, how do you walk your clients through what funds to pick for their 401K?

Brent Pasqua: Well, it’s even hard for an advisor to just be able to build a random portfolio for a client without really doing thorough financial planning. I mean a lot of people want to do something in retirement. They have goals. They want to either travel, they want to spend more time with grandkids. They have aspirations of things that they want to do when they retire. That’s one of the reasons why they’re retiring, and it’s because they have things that they want to enjoy doing.

Brent Pasqua: Without knowing how somebody the cashflow they’re going to have, the expenses that they’re going to have, the taxes that they could be paying, there are so many aspects that go into planning that can help a client determine how their 401K should be allocated. Especially as they get into those last three to seven years of closer to retirement, it’s going to be very specific as you start to do planning, that you probably want to allocate those portfolios to make sure what happens if the market does start to decline a year or two before you retire? It happened in ’08, there were so many people in 2008 that were planning on retiring at the end of the year. The market started to collapse in October of 2008, and the next thing you know those people who were working an extra one, two, three years to try and wait for that money to come back up in the market before they could actually afford to retire.

Matthew Theal: Yeah, that’s I think most people’s biggest fears to 2008 scenario. It’s ingrained in their brain, and when they come in, they come in our office and they say, “Matthew, Brent, Joshua, I am fearful of the market. If it crushes I’m going to lose everything and I’m going to have to keep working.” It’s a shame that it’s set up this way, but you also don’t need to be fearful of the market right? You can make great wealth, and there are strategies we can use to make sure the portfolio doesn’t go down as much when the stock market goes down. Josh, how do you work with your clients during a volatile market?

Josh Winterswyk: I think during a volatile market, education is very key. Understanding the investments more in details and really talking about like Brent mentioned in starting with cashflow and retirement planning and their goals, because then the investment recommendations can really be tailored around not only how much income they need. What are their goals and it makes the investment decisions really, the options then become a little bit more limited because we want to match them to not only their needs, but their goals.

Josh Winterswyk: Educating around the investment and looking at scenarios like 2008 and how long it took to recover from 2008. The difference in portfolio allocations and the downside risks and all of those education pieces that we use with our clients, not only feels more comfortable with the investments. I think it also leads to a better outcome in really achieving our goals with not only clients, but anyone who’s using that type of strategy.

Brent Pasqua: I think what’s important also too is that, because of what happened in ’08, it has left a lot of people with fear. It has also made them vulnerable. It has also made them vulnerable towards bad investment choices, by making emotional investment decisions. I think what is clear though is, if you understand how markets work and your portfolio is set up that’s comfortable based on a person’s volatility and what they’re comfortable with, you start to have a lot of conversation with people about how they’re going to withdraw from their portfolio.

Brent Pasqua: There’s a couple of different withdraw philosophies that we can have discussions with our clients on about, “If the market does go down, here’s what we’re going to do within the portfolio. Here’s how your income may or may not be affected by that decline. Here’s what to expect.” Once you have that type of relationship and conversation with a client, the fear and anxiety starts to go away, and allows them to have a little bit more of a peaceful and enjoyable retirement.

Josh Winterswyk: I have a question, great point Brent, I also have a question for you Matt about, the difference between risk tolerance like you were talking about Brent. Then also the difference between that and risk capacity. Can you explain that a little to the listeners?

Matthew Theal: Yeah, that’s a complex question Josh. Risk tolerance is truly how much the person can actually accept. They might be extremely wealthy. Let’s call it $10 million plus, but at the same time, they don’t like watching their account drop below $10 million. They have a very low risk tolerance. That’s a client who you’re going to want to set up in what we would call low volatility investments or something like maybe a CD, a bond. Maybe even something like rental property, where the value doesn’t change every day.

Matthew Theal: That said, that same $10 million client has what we call high capacity to take risk. There’s truly not a lot of risk for them that they can take, right, they have $10 million. If they want to invest a million dollars in a startup and they lose that million dollars, it’s not going to blow their $10 million. Tolerance is how much you can accept, capacity in a way is how much you’re planning things you can really actually take.

Josh Winterswyk: Or afford right?

Matthew Theal: Right, afford, exactly.

Brent Pasqua: I think both of those conversations are extremely important to have with your client. They are such an important aspect of having clarity on what you’re comfortable with in the market, and then also what you need to sustain your lifestyle.

Matthew Theal: Totally. It’s highly possible too that you could be working with a 35 year old client who is extremely conservative. Textbook would say, “Make them an aggressive investor,” right?

Brent Pasqua: Correct.

Matthew Theal: They might have a low risk tolerance to where you’re going to make them more conservative. If that happens, the strategy then is, “Okay, we know your portfolio is going to be more conservative, but you need to save more.”

Brent Pasqua: Absolutely.

Matthew Theal: “You need to increase your savings rate, because your rate of return is going to be lower than everybody else’s.”

Brent Pasqua: Absolutely.

Josh Winterswyk: Yeah, absolutely and just adjusting that strategy to meet the client’s goal, well put.

Matthew Theal: Now, a few other things we’re seeing that’s changing for retirees is interest rates. Everybody knows they’re getting next to nothing on their savings accounts right now. Bond rates are at 3%, and this is affecting retirees. Joshua, what do you see in here? How’s this affecting your clients, the low interest rate environment?

Josh Winterswyk: It’s affecting our clients really in two ways. One of the main ways it’s affecting them is, lower interest rates from more conservative investors it correlates to lower rates in return. When we’re looking at a lower interest rate climates saving rates are lower, CD rates are lower, bond rates are lower, those are all correlated. Not to throw another speed bump at retirees, but we’re entering this phase to where we do need to be more conservative with the portfolio. We’re finally actually pulling income that we need for retirement out of it. Then what are those options, because interest rates are so low from bonds, CDs and savings rates that we’re getting more conservative, but we’re not seeing the traditional rates of return from those types of investments. Which makes it very difficult for them to sustain their income for retirement.

Josh Winterswyk: That’s a really negative effect for more conservative or what we call like savers as well, because those interest rates are so low.

Matthew Theal: Totally, and if you look at the, my favorite example’s the 30 year bond example. For those who are not familiar, a bond, what you’re essentially doing is you’re handing over your money, you’re loaning it out, and you’re receiving interest payments back. Back in the late 80s early 90s, you could buy a 30 year United States government bond. You would essentially be loaning your money out to the government, and let’s pretend that yields 8%. That means that you’re making $80,000 a year on your million. That covers your income gap.

Matthew Theal: Today the 30 year bond yields 3%, so that means on your million, you’re making $30,000. That’s not enough to cover the income gap, and that’s the problem we’re in today.

Brent Pasqua: Correct, and it’s just making it a lot harder to be able to have your money stretched out at a guaranteed rate or be able to predict exactly what’s going to happen with your income over the rest of your life, because rates are so low. Those guarantees aren’t there. ’08 they were a lot higher than they are now, but still those rates haven’t come back to where they were in history.

Josh Winterswyk: Can you talk a little bit about who low interest rates actually benefit Matt?

Matthew Theal: That’s a great question Josh. I think they help certainly people who are buying things on debt, specifically homes. I believe rates for a home interest are about, I don’t know, probably 4% depending on your credit score, maybe a little higher, maybe a little lower. That helps a lot. I mean [inaudible 00:24:28] I think in the ’80s and ’90s used that example, rates were around 6-8%. Some older people will say, “Oh my first home owner it was 10%.” Well that’s a lot of interest.

Josh Winterswyk: Yeah, or maybe even higher.

Matthew Theal: Yeah, totally, but it also helps the things in a way because they’re just using the spread, so they can make a little bit more money. Other than that, I can’t think of anyone. Do you have anything to add?

Josh Winterswyk: No, yeah, I just think that the low interest rates do help people who are spending and does that also lead into this low interest rate climate? I guess this is a question for you Brent. Does the low interest rate climate and the ease of borrowing at that lower rate correlate with what we talked about earlier, which is people’s liabilities being higher than the generation before as well, just because it is easier to borrow and at a lower cost? What do you think about that?

Brent Pasqua: Well, I think that how it relates to retirement planning, I mean before, if somebody had a half million dollars in their 401K plan or in their savings and they can get a 5% guaranteed rate, they will be able to generate $25,000 a fixed income. That fixed income they knew what they were going to receive for the rest of their life whereas long as that rate was locked in for. They could easily fill their income gap between their Social Security and what their money is giving them in terms of interest. That was a lot easier to plan.

Brent Pasqua: Now, when we don’t have those types of rates, it’s a lot harder to say, “Well you’re going to be able to take out X amount dollars from your retirement plan, and this is what you’re going to be able to sustain over your life, because really those rates aren’t there. They’re very low, and we can’t guarantee anything now at this point with where rates are.”

Matthew Theal: Yeah, that’s a great point. Retirement has really changed, and it’s going to keep evolving. It’s important for everyday people to take a look at and say, “Hey, I’m I putting enough away for retirement? Or are my investments suited for my retirement? Do I have a plan?” It’s big, I mean 20 to 30 years of your life is a truly long time. Looking back on my own life, I’ve never planned for anything that long.

Brent Pasqua: Well I think in some of the things that people can do as they get prepared to get another step closer to retirement, is something that we talked about in the beginning, which is, reduce as much debt as possible. Continue to pay down debt, have the least amount of liabilities as you start to progress through your last stages of work. Then also work to really minimize taxes. If you can strategize and we work with a lot of clients on strategizing, to minimize the amount of taxes that you’re going to pay, not only when you’re working through either making contributions to your retirement plans, or in other ways. Then when you do get retired, then you’re able to minimize your taxes by your distributions. Can you carefully plan out where your withdraws are going to come from, to minimize the amount of taxes that you’re going to pay?

Brent Pasqua: If you can save two, three, $4,000 a year in taxes, during retirement that’s an extra two or three, $4,000 towards your goals. Whether it’s a trip, travel, more disposable income, that’s extra money that you have to spend in retirement but can carefully be done through planning.

Matthew Theal: Well put. All right, so I thought we’d close today’s show by talking about something exciting we have coming up this weekend. Josh I know it’s the first Saturday of May, so what’s that mean for you?

Josh Winterswyk: Kentucky Derby time, yeah. I’m really excited, tradition of my family, it’s always get together and watch it, so looking forward to this Saturday.

Matthew Theal: Excellent, and Brent I think you’re taking the kiddos somewhere new and fun?

Brent Pasqua: Yeah, we plan to take, I have a three year old and a five year old right now, and we plan to take them to the San Diego Zoo. They’ve seen animals before, but this is the first time we’ll take them to the big zoo.

Matthew Theal: Yeah, that sounds like that’s going to be a crowded experience, but you’re a brave man.

Josh Winterswyk: What about you Matt, what have you got going?

Matthew Theal: Well Josh, it’s been a while since I’ve been there, but I’m going to be heading down to Banc of California Stadium to watch our black and gold, LAFC, MLS professional soccer team with my wife. Should be a great time. I’d like to thank everyone for joining us today on the Retirement Plan Playbook Podcast. I’m Matthew Theal, and I’m joined by the team here Josh Winterswyk and Brent Pasqua. Any parting noise boys?

Josh Winterswyk: No, again, just excited to get this started. We could talk for a long time, but excited to share all of our experiences and knowledge with our listeners.

Brent Pasqua: Yeah, we’re looking forward to addressing so many topics as we progress through, and to hopefully really be able to help a lot of people out in their situation.

Matthew Theal: Perfect, and any feedback you have on the show, you could look us up at and leave us a comment. Thank you and have a great day.

Josh Winterswyk: Thank you.

Brent Pasqua: Thank you.

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