Intro: Royal Standley of Oregon Pacific Financial Advisors offering securities through United Planner Financial Services, member of FINRA/SIPC, shares his planning approach to help people toward a place where they may be at peace regarding their financial goals. In this dynamic podcast, Royal will share his insights on how to design a retirement plan to help you plan for your future. Now, onto the show
Aric Johnson: Hello and welcome to Life By Design with Royal Standley from Oregon Pacific Financial Advisors. Today we're doing part three and a series that Royal has been doing about basically most of the questions that people have when they're looking into a new advisor or working with a firm and these are specific questions that he's compiled with that people have asked him or his staff. So good morning, Royal, how are you?
Royal Standley: I'm doing good. Doing good. How are you doing, Aric?
Aric: Doing fantastic. It's the holiday season. Everything's nice right now and it's time to do a little bit of relaxing. But come January people are going to be making New Year's resolutions and they're going to be you know most a lot of them are going to be wrapped around finances and I'm assuming that you're going to get a whole new slew of questions with people saying hey I've got to do something. I need to call somebody.
Royal: We see that quite often; December can be pretty quiet sometimes, but then January 1 rolls around and everyone set those New Year's resolutions. Want to get in shape.
Aric: Mm-hmm.
Royal: Want to get out of debt. Want to start really seriously planning for the future. We start seeing a big influx of calls. So I'm excited to be able to kind of finish up this topic of frequently asked questions that new people have when they're coming in to talk with us for the first time because I think it helps maybe clear the air a little bit and give people a little more information little bit deeper insight into what we look at as financial planners.
Aric: Yeah absolutely. And for those of you listening to this right now this is right, I mean just right before Christmas when it's being recorded and of course it will be produced is going to be a little bit. So you're listening to this in January. You're in your new year and I'm hoping that you have some good goals for this year. Good goals for the next five years. And I hope this is very informational for you and just understand that Royal is an open book. He's ready to just talk to you whenever you want to make that phone call. If any of these questions that we're about to ask trigger questions in you then make sure you reach out to Royal. So, let's get started. And the best place to start on this one is how do we get started. Royal, if I come to you and say hey I'm not doing anything except I'm going to a savings account and I think I've got a 401(k) or I know I signed up for my 401(k) with my job but I want to work with you. Where do I get started?
Royal: So the first place to get started is just give us a call. We can send you out to our first appointment questionnaire and that will provide you with a framework of maybe organizing things for that first appointment to come in and lay things out and give us a sense of where you're at financially. Now we're going to ask a lot of questions in that first meeting that aren't necessarily financially related. We're going to ask you about your family and what your family structure is like, where your kids are at. You know sometimes they're still at home, you're planning for college, sometimes they’re in the house. They're doing well on their own. And sometimes there might be some other issues that they have that we want to get a really good picture of where you're at, not just financially, because that's really the easy stuff. The more intricate part of that is understanding the family dynamics and what's ultimately important to you. So, in that questionnaire we ask some of the more factual based questions you know how much do you have in that 401(k),
Aric: Mm-hmm.
Royal: And that savings account. And then also we'll ask hey what state of mind do you want to be in in retirement. What are your goals in retirement? What are the things you enjoy doing? Because those things are so much more important, I think, to you than just hey I had this much in my 401(k), because it doesn't really matter how much you have in your 401(k) what really matters to you and most clients, I think, is can I enjoy the things that I want to enjoy in retirement without worrying about running out of money down the road?
Aric: Yeah, absolutely and we covered a lot of this in one of the earlier podcasts so I would encourage each of you to go back and listen to kind of what Royal’s onboarding process looks like because he really dives deep into it. But I want to put it out there that there are some folks, Royal mentioned retirement you know asking this question ‘what do you want that to look like?’ But at the same time the beauty of working with someone like Royal and his team is that if you're 35 years old and you've got a four-year-old daughter and a two-year-old son and your sitting here going, I've got to do something for my own future and for theirs, hopefully. Retirement is a long way off. You've got a lot of years in between there and where you're at right this moment. And you've probably got a wedding, at some point in your daughter's life, hopefully, that you're going to have to try to fund or help the fund. You've got college education to be thinking about to help them with. So there's a lot of things between now and that retirement that again, Royal is going to ask those questions, find out what you what makes you tick and what you truly want to get out of the next 20 years or 30 years before that retirement kicks in. And then how you want to live beyond that. So, there's a lot to take into consideration and that's what Royal and his team does so that's definitely covered in one of the earlier podcasts go back and take a look at it.
Royal: Absolutely. And a lot of people I'm meeting with who are in that younger age group retirement really is pretty low on their priority list.
Aric: Absolutely. Yeah.
Royal: There's a lot of other things in front of that and we don't just specialize in helping people retire. We help people reach their goals and figuring how best to fund that. Just met with a couple a couple of weeks ago, you know basically they're in their 20s and they're looking to build up some passive income. They're looking for a way of being able to travel. Somewhat be vagabonds. Explore the world together. But they're looking at ways of building up that income. So, we talked about the realities of building a passive income stream. How best to do that - is it, you know, investing a whole bunch of money in Roth IRAs or after-tax accounts, or rather is it looking at something like real estate or looking at building a business that you can do from anywhere. So that's the fun part of my job is getting to look at some of these non-traditional things that people want to do and helping people come up with a plan to accomplish that.
Aric: Yeah and I bet a lot of those stories are pretty pretty neat. You know people have different ideas of what success is. They have different ideas of what they want to do to occupy their time. Different hobbies, different just all sorts of different things and so I bet it's a kind of a challenge and a fun challenge to help them individually figure out what their own best life is going to look like and help them execute it.
Royal: Absolutely. Absolutely. The other thing I want to just let people know is there is no certain place you have to be in life,
Aric: Mm-hmm.
Royal: To get started. So, for instance, you don't have to be, have everything, all your ducks in a row to call and make that first appointment. Nobody has all their ducks in a row. I mean some do, but for the most part most people are coming in with you know maybe some debt, maybe not maxing out what they could do in their retirement accounts. Really, some with just no plan of what they want to do. If you feel like you need help there just pick up the phone, give me a call. We can always have a you know short telephone conversation or even just a quick sit down you know here in the office or over coffee just to kind of get to know one another on a personal level as well.
Aric: Mm-hmm.
Royal: We don't have to dig into the financials right away in that first meeting. So, if you feel like you need to kind of have a little bit longer of a runway there to get comfortable, I'm always open to that.
Aric: Take Royal for a test drive. I think that's what we're hearing.
[Laughter}
Royal: Right. That's right.
Aric: Simplistic terms. All right. Next question really is now I've come into the office where we've had coffee and Royal’s a good guy. I'm starting. I'm taking these first steps now. How do I determine which investments or type of investments are best for me?
Royal: So, a lot of that will just come down to really, I think two things. First, and I think most importantly, is what is your risk tolerance. What is your ability mentally to handle the ups and downs of the stock market or any other type of market? The next one is what kind of timeframe are you looking at? So, for instance, if you have a very long-time frame, you might be able to handle the ups-and-downs of the markets. It gives you more ability to overcome a drop in the market. For somebody who's looking at a three-to-five-year time frame, you know, let's say you're planning on, you have a 13-year old planning for college one day, maybe you're saving up for that first house and you have that framework of three-to-five years out which is not a long-term goal. If anything, that's probably on the short to mid-term length of time, there. It's really looking at how much of that volatility you can handle. That's where we start talking about,
Aric: Mm-hmm.
Royal: How much exposure can you take in the stock market? How much exposure should you have in something like the bond market and then how much of your allocation should be in cash?
Aric: Go ahead.
Royal: When it comes down to it there's three basic forms of investable assets; there's cash which is very safe and liquid,
Aric: Mm-hmm, mm-hmm.
Royal: But isn't going to give you a very high rate of return, comparatively. There's a bond market which is still fairly liquid, uh, can have some volatility depending on interest rates and creditworthiness but is still safer than the stock market. And then there's the stock market, which I think most people equate to investing. So, when we look at your risk tolerance and your time frame, that helps us determine how much to put into each one of those categories. Now, for most of my clients we’re simply using mutual funds to make those investment allocations. For most people we're not buying individual stocks,
Aric: Mm-hmm.
Royal: We’re not buying individual bonds. We can do that and we do it on occasion on a kind of a case-by-case basis, but for most people getting that mutual fund diversification is the best way of having a diversified portfolio. And we use our expertise to allocate within all of those mutual funds so people have a sense of maybe not, stability is probably not the right word, but a sense of purpose with that. So, they know that they can hopefully maintaine that investment for that time frame they've set aside for it without getting out of the markets or jumping out when there is a decline there. That's really the biggest risk to everyone's portfolio is that pressure point that when the markets start to go down or maybe you have a year where things just kind of flat, of not jumping out and trying to jump into the next best thing,
Aric: Mm-hmm.
Royal: But rather stay committed to that program that you're in. Because over time you know you just look at the stock market you look at the bond market everything is cyclical and given enough time you know those averages, those llong-term averages that we've talked about will come and you’ll be able to see those in your portfolio.
Aric: Absolutely. And the nice thing is, is working with someone like you. You're removing the emotion from it. It's one of those things where you're side-by-side with your client and saying I know this can be scary. I know this can be, you're seeing the news, you see the dip in the portfolio, but this is why we set it up this way. This is why you're diversified in this fashion so that this is not a worry. We continue on the same plan, and you're going to see the results from that.
Royal: Exactly. Exactly.
Aric: And then also I would want to go back and touch on something. One of the best things I got from that piece was that timeline. What is your timeline. And so just kind of for the audience let's say back in ‘07 you were 36 years old and you had a lot in the market. Well ‘07, ‘08, ‘09 that's when it really, really took a dip; right. A lot of people lost a lot. There was a lot of fear there was a lot of things going on there. But if you are 36 years old you had a lot of time to recoup that and it did come back. The market did come back and -
Royal: This is where I'll challenge you.
Aric: Okay.
Royal: It depends. Are you planning for retirement there or is that money you're setting aside for college?
Aric: Oh it's true that I was thinking retirement. But yes, you're absolutely right. If you’re thinking college, that would be a whole different ball game. So, in that case what would you do if it was a college type situation?
Royal: Well so that's a scenario where we're going to lower the allocation to the stock market.
Aric: Mm-hmm.
Royal: We're going to add in more cash and bonds to provide that stability and going through 2008, you're probably down some but not as much as you are for your portfolio that's set aside for retirement and that has that 30-year time frame attached to it.
Aric: Exactly. Yeah exactly and so looking at the flip side of that coin and literally it's the flip side. If you're 63 instead of 36. If you're 63, there's no way on God's green earth that you would want to be in that high-risk area because you don't have those years necessary to recoup if the market goes down like in ‘07, ‘08, or ‘09 scenario was. So, I know that that's what you do with your clients and that's how you work with them so that time frame is such a big deal.
Royal: It is. And so, you bring up another great point. And you’re on a roll today. I love it.
Aric: Thank you!
Royal: So that point is okay, you're going to retire at 65 or 66 but people don't retire, then cash out their portfolio. They might begin taking you know 4%, 5% percent out of that portfolio to supplement their cost of living along with what they're getting from social security and pensions and that sort of thing.
Aric: Yeah. True.
Royal: So, you don't want to have that same time frame of you have an event where you're going to use everything like college planning or planning for a wedding or for a first home. It's a little bit more gradual of a reduction in the amount of risk because if you're 65 you're a married couple there is a 50% chance that one of you will survive past the age of 92.
Aric: Wow.
Royal: I think that's pretty accurate around there. It's really kind of scary right now how much better we've gotten at keeping people alive, and that's where you need to have an allocation at some level to the stock market just to provide that long term growth because you still might have to plan for 25 or 30 or more years in retirement.
Aric: That's a really good point. All right. That actually takes us to our last question of the day today. And that is, and I'm sure you get this one quite a bit, how do I know when to take Social Security?
Royal: There are a lot of different ways of taking Social Security. Basically, and especially if you're a married couple, you have a lot of different options there of how best to maximize Social Security. If you're a single person, it's somewhat easier there. So let's just talk about the different ages first.
Aric: Okay.
Royal: That you could take Social Security. So, most people know that they're going to receive a benefit at their full retirement age. Now that's kind of a sliding scale right now somewhere between the ages of 66 to 67, depending on the year that you were born. If you're born in 1954 or sooner your full retirement age of 66. And then what's happening is for the next five years there's basically an increase there based based on your birth date of the government moving up that full retirement age until it hits 67. And so, for virtually everybody born after 1959, 1960 that full retirement age is set at 67. Now they could always come back and change it, but we'll just talk about how Social Security is structured right now.
Aric: Okay.
Royal: Now what a lot of people don't realize is they do have the option of taking Social Security early. You can take it as early as 62. However that's about a 25% reduction of what your full retirement age benefit could be.
Aric: Ouch. That's a lot.
Royal: It is a lot. It is a lot. And if you do take Social Security before you reach full retirement age you have an income limit on how much earned income you can receive in a year. This year it's about $18,000 of earned income. So, for a lot of people who are still working at 62 or 65 it doesn't really make any sense at all to take that early Social Security benefit. Now let's say you took it at 64. That benefit does go up each month that you continue deferring. So, it will be kind of somewhere between your full retirement age benefit and that reduced by 25% at age 62 benefit, but you're still going to have that income cap there. Now if you decide hey, I don't need Social Security right away, what happens if I defer it? You're actually able to defer Social Security all the way out to age 70. And by doing so, each year that you defer past your full retirement age it's about an 8% increase each year that you defer towards your Social Security benefits. So, there's a lot of different ways of looking at maximizing Social Security.
Aric: So that could be beneficial I mean the 8% is huge.
Royal: It absolutely is. And then we take a step back and we look at how Social Security Income is taxed. And Social Security is one of the few income sources in the U.S. that is taxed on a variable basis. Meaning that depending on your other income the Social Security income may count as taxable income anywhere from zero percent, meaning it's not taxable income at all, up to 85% taxable.
Aric: Oh wow.
Royal: 85% taxable that doesn't sound so good, but then you kind of take another step back and say well all other forms of income are 100% taxable. So Social Security is still beneficial in that same way.
Aric: True. When you look at it that way.
Royal: Yeah yeah. There are some major benefits there in deferring. Now if you're a single person we can't just say oh well you should defer it until to age 70. You'll get the most benefit there because there's another big factor that determines how much money you're ultimately going to get out of Social Security. And I have a little fun with this I just ask people I can tell you down to the penny how much Social Security you will receive if you can just tell me the date you're going to die.
Aric: Oh yeah that'll be easy, Royal.
[Laughter]
Royal: So there is that crossover where it makes more sense to take it early if, let's say, you don't have a lot of family history of living past 80. Maybe there's some health issues there that are going to limit your mortality. All of those things we want to look at. And then the other big factor is what other assets do you have to draw on to maybe make up that difference between the day that you stop working and when you take Social Security.
Aric: Mm-hmm, mm-hmm.
Royal: So for a lot of people, we might look at that and say well we can spend down one of these other accounts and defer taking Social Security until you do max it out at age 70, you do max it out at that or you let it increase and defer over time. So, there's a lot of different strategies there that we can look at. The biggest thing is is we want to sit down with each individual and help them come up with that.
Aric: Yeah that's I mean that's it has to be so individualized because I know it's based on how much money they've made through the years. And how many years are are counted in Social Security is 30 or 35.
Royal: It's 30 years.
Aric: 30 years' worth of work history and it's your top 30 years if I'm not mistaken.
Royal: Correct. And that is adjusted for inflation. So I think people go well I was only making you know $20,000 or $30,000 back in the 80s. That's not going to help me. Once you factor in that that's adjusted for inflation, you're probably getting quite a bit of help from those early years that you are working.
Aric: Oh I didn't realize I was adjusted for inflation so that's good. All right. What else do we have to cover today. Anything else with Social Security.
Royal: I think that's it that was just a quick overview maybe in a future podcast we'll touch on that some more. But right now that just gives you a quick overview and I think the main answer there is is there's no hard and fast rule about when to take Social Security for everyone. It really is an individualized decision that we can help you answer.
Aric: Great. Well, I appreciate your time today Royal. I know that these are important questions for all the prospects and people that walk into your office or call in and hope that the folks listening to this learned quite a bit. If you have other questions or this sparked other questions, please do not hesitate to call Royal. And if you would like to actually hear a topic on this podcast or you here's some questions answered that you would like to send in by all means e-mail Royal with whatever questions you've got about finance and what he does, and we would love to be able to bring them up on future podcasts as well and we'll do another Q and A podcast here in a few months that will cover new questions that we're getting in. Royal, can you give them an email address that they could send those two.
Royal: Yeah absolutely you can send this directly to me. My email address is just Royal R-O-Y-A-L @opfa.com.
Aric: All right thank you so much again for your time. For everyone at Oregon Pacific Financial Advisors, this is Aric Johnson reminding you to live your best day every day. And we'll see you next time.
Outro: Thank you for listening to the Life By Design Podcast. Click the subscribe button below to be notified when new episodes become available. The views expressed are those of the presenter and may not reflect the views of United Planner Financial Services. Material discussed is meant to provide general information and is not to be construed as specific investment, tax, or legal advice. Individual needs vary and require consideration of your unique objectives and financial situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Advisory services offered through Oregon Pacific Financial Advisors Inc., and securities offered through United Planner Financial Services of America, member FINRA and SIPC. Oregon Pacific Financial Advisors Inc. and United Planners Financial Services are independent companies.
