Tom Mosley:

Will I run out of money in retirement? My goal in the next few minutes is to answer that question for you or at least move you toward being able to answer that question. My name’s Tom Mosley. For 28 years, I’ve been an investment advisor. I own my own company, Mosley Wealth Management in Anaheim, California. Thanks for watching the YouTube channel, listening on the podcast channel. Hey, let’s talk about Will I Run Out of Money in Retirement?

Tom Mosley:

28 years has taught me that people come in and their biggest question is, “I want to retire. Can I retire?” What that really means when you delve a little deeper is, “If I walk out of the building and I don’t get a paycheck anymore, and my name’s not on the building so they’re going to keep paying me, will I be able to have enough income to retire?” All right. And then the other question is obviously if you’ve got anything at all saved for 100,000, 200,000, whatever, you’re going to have enough income for a while. But the next question is, “Will that income last as long as I do?” And then if you come with somebody, say you’re married or you have a partner, the question is, “Can I retire? Will I have enough income? Will that income last and will it last as long as both of us are going to be here?” So those are the questions we want to look at and just talk a little bit about today, and let’s talk about the kind of income you need in retirement.

Tom Mosley:

And I’m making a really big deal out of income. And for some of you it may be a little bit uncomfortable to start talking about income as opposed to what you’ve always talked about, which is lump sum. You’ve always talked about, “What do we have in the 401(k)? What do we have saved?” About once every three months you can see in the Wall Street Journal or other publications, what does it take to retire as though there’s some magic target out there of, let’s say, $1 million, that’s probably the most popular thing, and now it’s probably going to $2 million. But you say, “What is the target that I need?” And it’s always talking about a lump sum. But the more important thing is what is your income going to be in retirement? Because you have to consider things like your social security. You have to consider things like, “Do I have a pension? Do I have rentals? Do I have other flows of income? Is my mom and daddy, they still send me money?” A lot of things you could consider, but all of that has to be considered in income.

Tom Mosley:

And then is there a gap? And from that gap, how do we take the lumber yard of the 401(k) and the 403(b) and the IRAs and the Roth IRAs and those retirement portfolios or plans that you’ve thought you’ve had and really build it into an income plan for retirement that, remember, is going to be there and it’s going to last as long as you do and last as long as your spouse is still alive if you go first. So let’s talk about it. And we talk about it’s no longer your lump sum. That’s really a mindset you’ve got to change. It’s no longer a lump sum that’s important, but it’s now it’s your income and will it last. Now, there are four things you need to have when it comes to your income and let’s go over those.

Tom Mosley:

Number one, it needs to be guaranteed. What do I mean by guaranteed? Now I don’t mean that anything in this life is absolutely positively guaranteed except the person that came to us from another world, he’s guaranteed. Okay? And if you know what I’m talking about, fine. If you don’t, fine. But guaranteed it’s not in the market. There’s no market risk. In 2022, some of the indices, the Nasdaq was down over 30%. The Standard & Poor’s was down around 20%. If you’re still banking on your lump sum in retirement, then you’re down 20 or 30% if it’s in one of those two indices. But is your income guaranteed, there’s no market risk? In other words, is it insured? Can I go and put my lump sum or a portion of my lump sum somewhere where I can have guaranteed income for the rest of my life? Yes, there is, but you have to use vehicles that are built for going there and putting that income, so it’s guaranteed.

Tom Mosley:

So you don’t have to worry about, “Hey, the market’s down 3% today.” Well, if you’re still in the market and you’re taking a percentage out of the market, it’s not guaranteed because your income for the next month, if you’re really following the plan, is down 3%. And by the way, that plan, which is called the Monte Carlo models based on this, 6% increase in the market every year, how’d that work in 2022? 3% inflation, how did that work in 2022? And taking out anywhere from, depending on who you listen to, 2.8 to 4% of that. So if you have $1 million, you’re taking out somewhere between 28,000 and 40,000 or you might collapse your plan. That’s not guaranteed. We’re talking about putting your money somewhere where it’s guaranteed, there’s no market risk, that it’s insured, that you’re going to get guaranteed. There’s another thing it needs to be though. All right?

Tom Mosley:

It needs to be increasing because of inflation. In 2022, people who did not know how to spell inflation, now know it starts with an I, okay? It doesn’t start with an E because we got hit with inflation really for the first time since about 1982, because it had floated along at two or 3% for 40 years, and then boom, we started spending so much money and there were too many dollars chasing too few of goods. And so we are hit now with inflation and we are in a season for inflation. Here’s the problem with inflation. When prices go up 8%, it’s year over year. So next year, if prices are, “Oh, they’re only 2% up year over year.” Well, they’re still 8% up from what they were two years ago. So you have to understand that your income in retirement has to consider inflation.

Tom Mosley:

There was one of the big box firms did a study about 15 years ago and they found out, and they just did the math, if you need $6,000 a month in retirement right now and you live for 20 years at 3% inflation, you’re going to need not 72,000, 6,000 a month, you’re going to need $131,000. Okay? Or $11,000 a month just to buy the same stuff that you’re going to buy right now. So in your income plan, you have to consider inflation. It’s cardinal to a solid income plan. Guarantee, it has to be increasing to take care of inflation, and it has to be guaranteed that it’s going to last. It’s not going to run out. A lot of the big box firms that use the Monte Carlo model, they don’t show you the last two or three pages of the Monte Carlo model, which says you’ve got an 86% chance of it being successful.

Tom Mosley:

That means you’ve got a 14% chance of it failing. So it needs to be something that’s guaranteed that’s going to last as long as you do. Now, we used to get a newspaper that was something made out of paper, and you could open it up and read it, and we don’t get those anymore. We watch everything on our phone. But if you look at an obituary section, if you get online and look at an obituary section, and some of you do, I know because you’re getting to that point, you’re seeing a lot of people are living into their upper 80s, 90s. About two months ago, I had a couple in my office that had to leave at an hour. They couldn’t stay more than an hour, and they had some other issues they wanted to talk about, but they said, “We’ve got to go” because they were in their upper 60s and they had to go care for his parents who were both in their lower 90s.

Tom Mosley:

So people are living longer and longer. So your income plan has to last as long as you do. If you’re single, it’s got to last as long as you do. But for those of you who are married, it’s got to last for as long as two of you are still around, and there are a lot of changes that happen when two of you become one of you. For instance, you lose the lower social security. For instance, some of you have a pension plan that doesn’t pay your spouse 100% of the benefit you’re getting right now. For instance, the year after you pass away, if you are the one that goes first, your spouse is going to have their income tax brackets cut in half and they’re going to pay a lot more in taxes on the IRAs and the 401(k)s that might survive.

Tom Mosley:

So your income has got to last, last not just as long as you do, but it’s got to last as long as both of you are still alive. Now, that’s what you need in an income plan. If you don’t have it, and you have what most of the big box firms use, your plan is hope. Let’s just put the money in a lump sum and hope, but you need to have built out a strategic definite income plan that shows how is my money going to be guaranteed that it’s not going to be at market risk and it’s going to be insured. It’s going to be increasing to take care of inflation. If you spend down your lump sum and you’re just taking 4% a year, if you need 40,000 at 1 million and you take out 4% at half a million, you’re only taking out 20,000.

Tom Mosley:

So instead of going down in your income, it needs to go up in retirement. It needs to last as long as you do and not run out when it gets to zero, and it needs to last as long as your surviving spouse would last. Hey, these are the kind of things that we answer when we work with people at Mosley Wealth Management. If you want to get in touch with us, just [email protected]. That’s Mosley, M-O-S-L-E-Y, or you can call us 714-421-4288. Hey, thanks for listening to Will I Run Out of Money in Retirement?