Broker Check

Solving Your Retirement Puzzle - Part One

In this episode, Royal Standley educates us on the many variables involved with solving the retirement puzzle. Using client examples he walks us through how your career choices may impact your long term plans and why working with a professional can help you see the forest for the trees.

Episode 24 Transcript

Intro: Royal Standley of Oregon Pacific financial advisors offering securities through United Planners Financial Services, member 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. Good afternoon, Royal. How are you?

Royal Standley:I'm doing well. I'm doing well. I know I was, uh, a little under the weather during our last podcast, but I'm on the mend, so I'm, I'm very happy about that. How are you doing, Aric?

Aric: I'm doing fantastic. And yes, you're a trooper. You fought through it. I know that you were not feeling well, and a lot of people are kind of going through some of that stuff. Not the greatest way to start the new year. But again, you brought great information. It was a great podcast. I know we're going to be hitting a lot of things today. What do we want to start with today?

Royal: Well, I wanted to just kind of bring up again, our 25th anniversary this year. Oregon Pacific Financial Advisors was founded in 1995 so in the year 2020 I figure it's time to maybe throw a party and we'll be looking to do that around June or maybe early July. You know, the thing we have to kind of keep in mind there is number one, the holiday, and then also hopefully we don't have any forest fires like we've had the past couple of years.

Aric: Yeah. Well, I'm RSVPing now for the party.

Royal: Perfect.

Aric: I'm very excited.

Royal: It’ll be good to see you there.

Aric: Anytime I get to get out to the, the Northwest is just fantastic. So, so what, what other things do you have planned? I know that you've got a party going on, but I know that this is kind of a year of growth for you as well. I mean, 2020 is going to be a great 25th anniversary.

Royal: Uh, yes. It, uh, we're very excited for it. We're rolling out some new educational initiatives here in the office. Really just trying to provide more information, more resources for people to really start getting a handle on their finances, to, to gain more understanding about, kind of how all of this fits together. And that's the exciting thing about, I think today's topic is talking about how these different things that we're going to talk about here all fit together to form someone's retirement income.

Aric: Okay. And, and again, I know that this is one of the main reasons that you started the podcast was for education purposes and really being able to get into the audience home and car wherever we're listening to this podcast right now, but I know you've got a lot of clients that subscribe to it, so they're, they're constantly getting good information from you, and we're hoping that folks that are tuning in for the first time are realizing that you are a valuable resource and, and you're going to bring it.

So where do we start today?

Royal: So today what I wanted to start with is really just describing when I sit down with a client and we start putting together at what their income is going to look like after they retire.

Aric: Mm-hmm.

Royal: And how I look at that, how I think about that. And I think this will give some insight to people of especially, you know, early on in a career, what's going to be important for you to kind of focus on. When you're looking at the different forms of retirement income that you might have available in retirement to start thinking about that. It's amazing how many people I sit down with who really haven't given their pensions a second thought. They know it's out there. They know it's something they might have one day, but maybe not something they've really looked at in depth and don't have a good understanding of how it's going to work in retirement.

Aric: Mmm. Yeah, that's, that can be a little scary once you get close. Right? I mean, so when do you really suggest that somebody pays more attention? Because again, you and I've talked about the very first time I ever signed up for a 401k, I think I was 23 years old and it was just one and done. Somebody came into the big conference room and told us, Hey, here's some options. You should be aggressive. Okey-dokey. And I just did it. Right. But when do we need to be paying attention to that?

Royal: Well, I, I think if we're really kind of going back to the beginning, it's really looking at what job are you currently in and what are the retirement benefits that are offered there. In the state of Oregon, we have, if you're a state employee or a a teacher, you're going to have the Oregon PERS system, which is really a, a, for retirees, a very good state run pension system. You know, you might work for a manufacturer or another company that that offers pensions. I know a lot of, you know, utility workers out here that have great pensions, Teamsters, great pensions. It's really kind of evaluating what does my employer offer? And depending on where you're at in your career, you might say, you know, I, I think I should look at some other opportunities to lock in that higher pension.

Aric: Got it. And so are you reviewing that every year with folks?

Royal: Really what we're doing is meeting people where they're at, and so we'll, we'll talk about that. You know, especially I think one, one instance that comes to mind quite often is I've got a couple of teachers who've made the decision to work at private schools.

Aric: Okay.

Royal: Which is great. You know, you may, maybe it's a religious school that, that meets your values in a better place than what it would be like working in a public school. Maybe it's just kind of a different, um, type of students and more opportunities to kind of have more one-on-one interaction with kids.

Aric: Mm-hmm

Royal: But once you kind of have to understand there is by making that decision to work for a private education facility or school versus a public institution, you're giving up a big retirement benefit there.

Aric: Mmm.

Royal: So we want to make sure people are aware of that and then also help them kind of understand some ways that we can remedy that. Maybe it means, hey, you really need to make, make it a priority to save more in your retirement accounts. Uh, look for other opportunities to save and, and, you know, maybe get the house paid off a little bit sooner. All those different things that we can do to kind of mitigate whatever those circumstances are.

Aric: Gotcha. Royal, I'm kind of a visual guy and I kind of need an example, if you will. So I'm hoping maybe you have an example of somebody who comes in, sits down, they're getting close to retirement, and they're engaging you in this conversation. What does that look like?

Royal: Yeah, absolutely. You know, I, I sit down with people all the time, so we have a lot of experience with kind of all the different permutations of the way we can generate retirement income. I sat down with a couple of lot just last week and do you do as a health situation, the wife has having to retire right away. The husband is needing to take his full-time position down to part time to spend more time with his wife because of that health situation. And it was really interesting hearing them kind of, they've walked through what they thought they needed to do. And then as we talked to them, we realized that they had completely forgotten about, you know, her pension. They didn't have really any good idea of how to approach social security and what that might look like. And so you might have a good list of kind of what your, what you think your options are, but sitting down with a professional who does this on a regular basis and is always looking for ways of maximizing retirement income or has different ways of looking at retirement income is just incredibly beneficial because we were able to kind of roll things back and say, okay, well, well, this could be a very significant benefit. You know, what's happening over here. This is a situation where we're also looking at a social security disability as well. So what are the trade offs there was social security, you know, how much do you, are you going to have to work to cover the additional costs as well and is working part time feasible for you?

Aric: Yeah.

Royal: So our, our ability in kind of our knowledge of most people retire one time in their life. Well, we've gone through that retirement process literally hundreds of times.

Aric: Yeah.

Royal: So we can bring a true expertise there. And also, you know, you're going to retire once in your life. Uh, that's a scary thing. You know, a lot can go wrong there. So just having a partner that, that there, that is walking alongside you there and can walk you through those decisions. Hey, this is important. Maybe this isn't as important. Here's the pros and cons of these various, the decisions you're making right now. It's just extremely beneficial to have that. And I just, I encourage anybody for getting close to retirement, don't try to do it on your own. Sit down with somebody and have them walk you through what the options are. You know, it was interesting, I think the, I don't know what it was, but the, uh, the first part of the year I sat with a couple of couples, who, who basically, let's just say, had unrealistic expectations of being able to retire.

Aric: Okay.

Royal: Maybe they, they came in and say, Hey, we, we've got X number of dollars and we're looking to retire in the next year. And you look at that and you say that, that's just not feasible.

Aric: Mm-hmm.

Royal: And we have to have those hard conversations of, okay, well, you know, we can't say. I mean, we could, we could say, well, you just have to keep working the rest of your life.

Aric: [surprised laughter] Yeah.

Royal: I find that to be, yeah, completely discouraging and really doesn't help anyone.

Aric: Yeah.

Royal: I think what we need to look at there is looking at the ways we can improve things and give some people at least some modicum of hope.

Aric: Yeah.

Royal: That ithey can move towards something because otherwise if it's just we'll keep working and then one day you'll die and you won't have to worry about retirement.

Aric: [Laughter} Yeah. That’s not fun.

Royal: That's not realistic.

Aric: Yeah. Yeah. And Royal as you're, as you're speaking, and we've done lots of podcasts, but when I talked to you, I always get this sense that if I'm coming to you and I just have my what I know what I've heard from media, what I've heard from my friends about retirement, what I've, what I've witnessed from my father from retirement is that I've got like 10 pieces of a 100 piece puzzle and what you specialize in and what you've, like you said, what you've done hundreds of times with people is, is help them to, to get to that point of retirement in a successful way is you bring all the rest of the pieces. And I'll tell you what, using 10, 10 pieces of a 100 piece puzzle doesn't give you a really good picture. Having those other 90 pieces in front of you to be able to make the picture, it's a lot clearer. Right? And so that's kind of what I, what I picture here is it's, you have all the pieces and whether, depending on what picture you're looking for, uh, you're going to be able to bring it into better focus than I can do it by myself. Cause I just don't know what's out there and available to me.

Royal: Absolutely, absolutely. I mean, w with just those 10 pieces, there's a lot of holes in that picture.

Aric: Exactly.

Royal: And there there could be, you know, some definite, definite areas where you're just completely missing the forest for the trees. You're focused on one little piece and missing kind of the larger picture.

Aric: Royal, speaking of those pieces of the puzzle, what are those different pieces of the puzzle?  

Royal: Great question. So, the number one piece of the puzzle that we're always looking at is Social Security. Social Security is a, is an excellent program. I would say the majority of Americans are eligible for that. There's a couple of government jobs where you might not be eligible for Social Security. There's also the railroad pension program which is basically a Social Security look-alike for those who have worked on the railroads. But we're just going to focus on Social Security here. Uh, Social Security is, in my opinion, one of the best benefits we have as Americans when we're looking at our, our retirement income planning. Um, you pay into Social Security each paycheck, basically, and that's what's under that FICA line. Part of that goes to Social Security, and part goes to Medicare, which is health insurance for retired people. With Social Security, it's one of the most flexible retirement income programs out there.  

Uh, to really just kind of go over the basics, you can start claiming Social Security as early as age 62, but for Americans born before the year of 1954, they can claim Social Security at age 66. If you're kind of born between 54 and 1960 it, it's a little bit more of a variable, but after about 1960 everyone's full retirement age is 67. You also have the ability with Social Security to actually continue deferring Social Security all the way to age 70 and by doing that, you get the benefit of about an 8% per year adjustment to the positive in your Social Security benefit to basically pay you for deferring that.  

Aric: Yes. 

Royal: And that's something that we'll look at quite often and kind of build into our planning. Especially when we start talking about spouses. A lot of people just don't realize that, you know, if you have a high-earning spouse and maybe a spouse who, who's worked some or, or was a stay-at-home mother or father who did really didn't earn a whole lot and social security didn't pay in as much. The spousal benefit in Social Security is really something that's just so important for a lot of people who might be on the edge there. With that Social Security spousal benefit, a spouse who maybe doesn't have as many credits or hasn't qualified for Social Security, they're able to claim on their spouse’s benefit half of that spouse's benefit, assuming that they're the same age. Now there, there's some adjustments there if there's an age discrepancy, but it's really a powerful strategy there, uh in a way of covering for those spouses who, you know, made that decision to stay at home and not join the workforce at that same level. 

Aric: Yeah. And, and I know that we've done a podcast where you really dove deep into Social Security and different options a while back. So anybody listening to this, please go back and, and take a listen to that. Cause I know Royal's not going to spend a tremendous amount of time on Social Security on this podcast, but he dedicated one entire podcast to it. So go back and find that on the website and it'll really open your eyes because again, those are a lot of the pieces people just don't know, um, about delaying Social Security and all the different options that you can do.  

Royal: Yeah. And I, I would say probably the biggest mistake I see is somebody realizes, oh, I'm 62 I'm eligible to start taking Social Security, or, you know, some other arbitrary, you know, birthday or, or age – with Social Security, you really want to have a plan before you, you go in and claim it. You really want to sit down with a financial advisor and, and look at that. That's not a decision you want to make ill-informed.  

Aric: Yeah, absolutely.  

Royal: The other important thing with Social Security is it's inflation adjusted. So each year, if the Federal Government deems that the cost of living has increased, you're going to get an adjustment up on your Social Security to basically help that income keep pace with inflation. And that's a really important part of all this, especially when we're looking at, you know, 25, 30, 35 years of retirement and how to plan for that.  

Aric: And is that always a percentage?  

Royal: Yeah, it's always a percentage. And they'll, they'll issue that usually a, the first part or at the, towards the end of the year to kind of give people an ability to start planning for that, that small monthly increase. 

Aric: Yeah. I mean that, that makes it even more important to know about the benefits, like, like a death benefit or taking over a spouse's Social Security that was earning higher because that if it's a percentage and it's based on that higher amount than the lower amount, I mean, there's, there's a lot to know. 

Royal: Absolutely. Absolutely. So once again, you know, find an expert that you can trust as you're making those decisions. Because, you know, once you, once you've made those decisions, um, you really lose the ability to kind of make any further adjustments to it.  

Aric: Yeah. What's another piece of the puzzle we're missing here? 

Royal: So, another piece of the puzzle that we come across most often here where we're at in Oregon is the PERS system, which is the Public Employees Retirement System. And it's somewhat controversial, as I think all state-run pension plans at this point are. You know, if you look at the numbers, Oregon has one of the, I think the better-funded pension plans in the country. I think we ranked number eight recently, but that's really being the cleanest dirty shirt, in my opinion.  

Aric: [laughter] That’s a great way to put it. 

Royal: It’s a great program though. For those who were early on in PERS that started work in the ‘70s or ‘80s and stayed with a school district or a municipality, it's really a very powerful benefit. For the early adopters of PERS. It was really just an income benefit. You're really getting a pension-like income, and that was really a tier-one and tier-two PERS, where you were able to receive a monthly benefit guaranteed for the rest of your life or the rest of your life in a spouse's life. Uh, you also had some options to also maybe take a cash distribution with a reduced monthly benefit as well. It's a powerful benefit for those who, who have kind of joined the state of Oregon more recently. There's still that pension benefit built in there, but they've really shifted a lot of guaranteed lifetime income risk into, in the individual's hands to a certain degree, although they control a lot of this, uh, by what they called their IAP account. And that account is funded somewhat like a 401k. So a lot of retirees will get to retirement, they'll have a pension benefit through one of the three tiers of PERS. And they'll also have, if they're a recent employee, that IAP account, which basically functioned somewhat like a 401k plan, that they can either decide to kind of roll into a monthly benefit or roll over into an IRA or leave it there at, uh, inside of that IAP account as a way of having some more kind of liquidity in retirement.  

Aric: Okay.  

Royal: The big thing there with PERS, once again, is once you make the decision or how you're going to claim that monthly income, you're really locked into that. And so, especially for married couples, I think it's extremely important to kind of sit down, evaluate your options, because they do have some great options for protecting a spouse who wasn't necessarily covered under PERS. 

Aric: Royal, it sounds to me like, so you've got some options, but you have to make those decisions early, like you know, for, for a couple, you may have to take a different amount if you choose to, I guess it would be called second-to-die, is that correct? 

Royal: Correct. Correct. Where basically you have a survivorship benefit.  

Aric: That’s right. 

Royal: That's where that income is guaranteed for both of those lives.  

Aric: All right. Yeah, that's, that's great because again, that I think one of the biggest things that you do for your clients, and we've talked about this in past podcast as well, is, is peace of mind, right? That's, that's what people really need to seek out a professional for. Doing it yourself is one thing, if you're able to, if you have all the knowledge, but if you don't? Do you really want to worry about it? And I, we've, we've talked about behavioral finance on previous podcasts. There's so many things that that can trip us up just our own selves. So I think that that's a, a great reason to, to seek somebody out that can give you the pros and cons and a little bit of dose reality like you're talking about earlier. 

Royal: That's right. That's right. The other great thing about PERS is it's also inflation-adjusted, just like Social Security. So you are going to get those annual raises if we do have inflation in the economy. So it's going to help kind of keep pace with those rising cost that we're just going to see over retirement as well. So, you know, I, I really encourage people to, you know, if they're already working for the state, thinking about making a change, really look at that PERS benefit cause it really is a very powerful and can, can form a, a good chunk of your retirement income. 

Aric: Gotcha. Royal, these puzzle pieces are very, very important, obviously. I mean, you're talking about Social Security, which is a major one. I don't know about Oregon PERS cause I'm not part of that system. But I mean that's, that's another huge thing for anybody who's worked in that, in those areas. What other pieces do we have to cover? Cause we're kind of getting short on time.  

Royal: Yeah. I don't know if we'll get through them all, but we will kind of tease that out. We, you know, we're, we're also going to talk about traditional pensions. Not everyone is eligible or works for a company that offers them. We’re gonna spend some time on it, ‘cause there there's, there's some really interesting stories from working in that space over the years and some potential mistakes we've been able to kind of head off as people looked to claim those pensions and how they fit into the retirement picture as well. The other area where we're going to be spending a little bit of time on is just talking about annuities. Annuities have a very, very long history in this country. Some very good, some very bad. I think what the pendulum's swinging more towards the good here with the passages of the Secure Act. So you're going to be hearing more about annuities. So if listeners have any questions, let me know. Reach out to me and we can maybe include those in our podcast or may follow up an additional podcast on there. 

Aric: Great. 

Royal: Because it's a very complicated space and a very complicated type of product. So we need to kind of just kind of tread carefully there and make sure that we give people the right types of information so they can make the best decisions on whether or not an annuity is right for them when they're looking at the retirement income. And then finally, we're going to get into, well, what, how do you use things like 401ks, IRAs, and, and maybe other investment accounts, and how does that fit into your retirement income picture? And so by taking those three additional pieces during our next podcast, we're going to finish kind of sketching out the way we look at retirement income for each of our clients. And then hopefully with that education, you'll be able to kind of take a more educated glance at what you've accumulated and what you have available for your own retirement income. 

Aric: Yeah, and I know that you've said this on a previous podcast, I can't remember which one, but one of the things that I love is that you try to bring people the information so they can get a better look at what their retirement, what all these different, how all these different pieces are kind of on the table. So they have a better opportunity as far as being able to know what questions to ask of an advisor. So again, you're always pointing back to having a conversation with a professional, which I think is absolutely the best advice you could give. And, and speaking of that, I need to ask you for your email address, right? 

For all those that want to email in questions about annuities before our next podcast, what email should they be sending those to?  

Royal: Yeah, go ahead and send those to  

Aric: All right. Royal, thank you so much for your time today. I'm looking forward to that next podcast and we will, uh, we'll, we'll dive deep into it. 

Royal: Sounds good. That sounds good. I'm looking forward to it.  

Aric: All right, and I want to thank you all for listening to the Life by Design podcast with Royal Standley. If you have not subscribed to the podcast yet, please click the subscribe now button below. This way, when Royal comes out with a new podcast, it'll show up directly on your listening device, which makes it much easier to share this podcast with your friends and family. 

Again, thanks for listening today. 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 varyand require consideration of your unique objectives and financial situation. 

Always seek the advice of your financial advisor or other qualified financial services provider with any questions you may have regarding your investment. Planning Advisory services offered through Oregon Pacific Financial Advisors, Inc. 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. 

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Please note that discussions in these shows are for educational purposes only. Information presented should not be considered specific investment advice or a recommendation to take any particular course of action. Always consult with a financial professional regarding your personal situation before making financial decisions. The views and opinions expressed are based on current economic and market conditions and are subject to change. All investing involves risk, including the potential for loss of principal. Securities offered through United Planners Financial Services (UP), Member FINRA/SIPC. Advisory Services offered through Oregon Pacific Financial Advisors, Inc. (OPFA). OPFA & UP are independent companies. Neither OPFA nor UP offer tax or legal advice.