James Market Clarity

Neil Craft: Hello and welcome to the James Market Clarity podcast. I'm your host Neil Craft, and today on episode 11, I'm joined by a familiar guest, Clare Thielen, Clare, how are you?

Clare Thielen: I am doing well, Neil, thanks for asking. I'm happy to be back.

Neil Craft: Great. Well, it is excellent to have you back. You know, last time you were on, you made some excellent points regarding common mistakes made by folks in the pre-retirement planning process. So today, I'd like to shift that focus. The pre-retirement and into the actual retirement phase. Clare, if you'd be so kind, maybe outline some of these financial challenges that are facing current retirees.

Clare Thielen: Of course, Neil, it's no surprise, but the most important first step is that need for retirement planning, and we will be taking a deeper look into that later on in our discussion, but it's also important to really look at risk management strategies because having the right risk management strategy could really help protect retirement assets both before and after retirement. Finally we will talk about the impact inflation has on retirement. We've been hearing more and more about inflation lately, and it's critical to consider the impact inflation has after retirement and to come up with a plan to address that so that we hopefully would not run out of money during those retirement years.

Neil Craft: Well, I know we'll definitely appreciate unpacking that. Inflation is certainly affecting the economy currently, but I'd like to start by having you kind of go through that simple, but difficult need for retirement planning, why it's so important, and why it's never too early to start.

Clare Thielen: Sure. Well, one really important point to think about is that we've had some great advancements with health care, and so because of that, people are living longer than ever. So we need to think about somebody who retires today may live in retirement, an average of 20 to 25 years, and sometimes even longer. This length of retirement does present some financial challenges, but it also creates some good investment opportunities. So when we look at planning for those post retirement years in our income, many people really don't realize how much money they need to save in order to maintain their current standard of living, or a standard of living that would be their goal once they hit those retirement years.

On top of that is more and more baby boomers continue to retire. Retirees are projected to become the largest segment of the population, and taking this further, one common mistake in retirement is assuming that retirement means we will spend less money. This is often just not the case, especially in those early retirement years. This is because a lot of times we really want to travel and even more so than we did when we were working, because we of course have more free time. This increase in travel could include visiting family members out of state, or it could include taking some of those dream trips that have been on our bucket list that we've not been able to take. As we see this increase in the number of retirees in our population, we realized that this will affect the nation, says the security program, and increase the likelihood that retirees will need additional income to meet their lifestyle needs and goals, so it is really important to make that right decision as to when to start taking social security, but it's also important to not assume that social security alone would provide you with that retirement lifestyle that you may desire.

Neil Craft: Well, thank you, and I'm really glad that you kind of tied that in together here, because I understand that lots of folks that are looking at retiring or have concerns about the social security program. So by and large, what do we estimate that's going to look like in the future?

Clare Thielen: That's a great question. You know, based on what we're seeing in terms of projections, we see that social security may not be able to meet its long-term obligations without some changes, and with retirees living more years in retirement, along with that possibility of less federal support, retirees will have a greater reliance on personal assets in order to meet those financial needs in their retirement; and of course, we realized that some retirees do have pension plans through their employers, and that can help with this retirement.

But many retirees do not have a pension plan, so that's why it's very important to have other means of financial support, such as these investment portfolios. We also know that when we look at these investments, as we age the amount of investment risk that we are comfortable with also changes, and as we've also discussed any financial planning for retirement should really include a budget. So we know what we need in terms of income to cover those expenses, and once that's in place, it's important to review those expenses along with income, to come up really what they solid review of your investments, and so those things really tied together. We need to determine if our investment returns are in line with the amount of money that we need in addition to other income that we may have, and is that keeping up with the accounts. At James, we know that it is very important to review both your investment objectives and your actual investments on a regular basis to see how these two are tying in together.

Neil Craft: Absolutely. So Clare, what other factors contribute to the need for retirement?

Clare Thielen: Well, as I mentioned earlier, we can't assume that your overall cost of living will be less in retirement. Of course, a lot of that does depend on the person's active lifestyle and that's why a solid budget is always important, but it's especially important in retirement. When many are living on a largely fixed income, it's easy and it's, it's fairly common to underestimate what we are spending both in retirement, but even before retirement. So once we have a good budget, it's important to balance our wants and our needs, and then to prioritize those appropriately. And we also know Neil that again, as we live longer, healthcare costs will be a very significant concern, so the projected cost of healthcare must be included in any retirement plan with those longer healthcare projections we know that this could be a very big expense for many of us. This could include things like the need for long-term care, or even the possibility of a disease that might require a long-term nursing care. Therefore, it's very important to include these increasing healthcare costs as part of your planning process. Once we have that information, one can really begin planning to allocate investments or other assets to meet those financial needs and goals and prepare a lifetime stream of income. So when we look at all of this together, that pre-retirement planning is essential to be ready for retirement, because it focuses on accumulating the money for retirement, and retirement planning focuses then on how to distribute and preserve those assets that you've accumulated during the pre-retirement planning stage.

Neil Craft: Accumulate and then distribute, very important to get that order. Correct. Clare, do you have a checklist or some kind of process that you like to go through when discussing retirement with clients?

Clare Thielen: Yes, absolutely. The most important thing as we've talked about is really identify your retirement goals. Do you want to retire, travel more, visit family, or are you interested possibly in a part-time job buying a second home or even relive relocating to a new home? So these are all goals that we really need to define as the first step. And of course we realize that everybody's situation is unique, but that's always a very important first step to consider.

As we mentioned also, it's extremely important to establish that retirement budget and really look at those needs versus wants. Because once we get through to the reality of our situation, we may need to push some things around a little bit, to make sure that we can meet those needs and then come up with a timeline for some of those and in doing so we need to really determine the sources of income and retirement. How much of that could be something such as social security and how much will we need to then rely on some of those other sources of income, such as our investment portfolios or pensions, and then we need to really analyze those expenses in that income and bring those into consideration. From there you can really recommend and put a plan into place. Then of course, once you do that, we can't sit tight because we know things change. So then we need to really monitor that plan and make adjustments as necessary as those retirement years go on.

Neil Craft: Absolutely. And I imagine that it's perhaps the most important really to simply monitor and make adjustments on an ongoing basis just as life is ever-changing and, and things are never constant. Right. So Clare, now that we've kind of unpacked some of the reasons to plan for retirement, would you mind discussing some of the other risks that retirees need to consider?

Clare Thielen: Of course, one of those is the risk management that we mentioned earlier, and our risk tolerance really does change as we get older, and that includes investment risk. As we know, many times as we're younger, we're willing to take more investment risk, but investment risk is not the only risk to consider as we age. Increased risk of illness, which again, would dovetail into that possible need for that long-term care and the risk of outliving our financial resources. These are all concerns that really need to be considered and planning for. These is a very important part of that overall process of planning for financial obligations in the future.

Neil Craft: Excellent. Well, appreciate that. You also mentioned the impact that inflation obviously has on us now, but also the impact that inflation can have on retirement, and the challenge that presents. Would you mind elaborating on that for us?

Clare Thielen: Of course. And again, we've talked about inflation in one of our previous podcasts, but that's really important when we look at retirement income, because our retirement income has to keep pace with inflation and Neil, retirement income that might meet somebody's needs when they are 65 could become insufficient in later years due to inflation. So again, that's where we go back to that. Having an understanding of our post retirement financial obligations, that budget, what exactly are those needs for them? Retirement years having the right investment portfolio that can maybe help us meet some of those obligations, and then continuing to monitor that to make any possible or necessary changes as inflation kicks in. It might change the overall mix of some of the investments that we have, and at, James, we can help a client put together an investment account based on their individual situation and keep in mind that important step. We can help clients adjust to that portfolio as they continue on in their retirement years, because it's really important. We want everyone to enjoy these important retirement years that are ahead of them.

Neil Craft: Clare, thank you for your time and these great insights that the retirees are currently facing. So again, thank you so much.

Clare Thielen: You are welcome. Neil, it was my pleasure.

Neil Craft: If you have any questions about the podcast or challenges facing retirees, please be sure to visit us www.jamesinvestment.com. For more information.

James Investment. Your Future, Our Purpose.