What is Your Retirement Mindset?

Welcome to the Common Sense Financial Podcast. A podcast all about finances, mindset and personal growth. The goal? Helping you make smart choices with your money in your home and in your business. And now your host, Brian Scribonia.

Hello everybody and welcome to episode number one of the Common Sense Financial Podcast. My name is Brian Scribonia and I'm really excited about having this opportunity to share my thoughts, strategies and experiences with you. I have been in the financial services business since 1993 and have had actual face to face conversations with thousands of business owners, families and individuals, helping them develop solutions for real life situations. It's my goal with this podcast to bring these real life experiences to our audience and offer a way to think about these topics and how they actually apply to your situation. Today we're going to be talking about retirement. There's so much information in circulation about what to do and not to do with your money that it causes many people to get confused about their options. You hear one thing from one person than an entirely different thing from someone else and none of it seems to make sense after a while. So what I'm going to do for you today is share with you the process I go through with each and every client to determine what is most suitable for the person sitting across the table from me. It's always interesting to me when I read an article or listen to someone share their opinion about a financial product or some cookie cutter approach to handling money. Because for me, I'm actually in the financial advice business and I see firsthand when I'm working with real people how flawed some of these ideas really are. To me, it's equivalent to having a medical doctor who has a four step process that they say everyone should follow, regardless of their condition, age, symptoms or history. It's crazy. This is what's happening in the financial advice business. You have personalities and product salespeople who are offering a one size fits all solution that many people follow and then later discover that perhaps they should have done something else. So what I'm going to do with you today is share with you a process for thinking through your situation and to understand your mindset about retirement. So first let me clarify what I mean by mindset. A mindset is a way of thinking. It really is an opinion or a belief about something. So how do you arrive at that? It's not something you're just born with. You know, your experiences in life as you grow up and your interaction with your parents, your experiences in school, with friends, etc. Everything that you experience creates A belief system, it's a mindset, it's an opinion. And anytime you have a decision to make, you draw from those beliefs, and that's how those opinions are formulated. And so those drive your behavior, it drives your decisions. And of course, the behavior that you have and the decisions you make, that's what creates the results in your life. So these mindsets are really important to understand and even to control, because what this means is that when it comes to making financial decisions, it's not necessarily about what's right or what's wrong. It's more about your opinion and determining what makes sense for your situation. So this podcast on retirement mindsets to me may very well be one of the most important topics to understand when it comes to developing a financial plan, because it is what is driving your retirement decisions. So the first of these mindsets really has to do with accumulation versus utilization. In other words, when will you need your money? When you're working, drawing an income, you know, you have your lifestyle that you're paying for. You're dependent on your income from that job to satisfy the things in your life. You're not depending on any asset. You're just dependent on your ability to work. So really, during that time you're making money, you're saving money, and you're just trying to accumulate money for some purpose in the future. So that's an accumulation mindset. Well, at some point, you're going to get to where you need that money that you've saved. So perhaps from a retirement perspective, perhaps you have reached that point of retirement and you're no longer working. So now you don't have that ability to work. Or maybe you choose not to work and you're no longer relying on that resource. So now you have to rely on the assets that you've accumulated. So now you've gone from an accumulation mindset to more of a utilization mindset. So you're actually going to use the money that you've started to save or all the money you've saved. So you can't have the same mindset going into retirement that you did when you were accumulating the money. Oftentimes, somebody that's in an accumulation stage, they're really focused on rates of return. When you're in the utilization stage, you're more focused on preservation. So that's one mindset that you really have to get ironed out and determine how you want to approach the money that you have or what's the purpose of that money. The other thing, another mindset would Be the view of the economy, how do you feel about things? And do you tend to be optimistic or do you tend to be pessimistic? Is the economy good or bad? Are you confident with the future? Are you worried about the future? Do you feel secure or are you fearful? Again, just need to understand where you're coming from because it's going to drive your behavior. It's going to. It's going to drive your decision making as far as how you're going to grow your assets. This is another key area to identify because when you're looking at growing your assets, it's what approach do you want to take to grow your money? There's really two. One is through capital appreciation. So what is capital appreciation? Capital appreciation is growing your money through something increasing in value. So a couple of examples of this would be a stock. So you buy a stock for $10, and over time, hypothetically, it grows to $20. Well, that $10 growth is your capital appreciation. You went from $10 to $20. Another example would be a house. You buy a home for $100,000, it appreciates to $150,000. That $50,000 is your capital appreciation. So that's one way to approach investing or trying to grow your money. The second way would be through the use of income. So an example of this would be a rental property. So you have a rental property that's worth, let's use the same example of $100,000. And you have a renter in that home that's paying you a rent each month, which is an income back to you. So you have a choice what you can do with that income. You can spend it, of course, but if we're trying to grow our assets, we're going to take that income and we're going to reinvest that money back into perhaps another rental property or maybe some other type of an investment. So you have the capital appreciation side where you're trying to grow the assets value, or you have an approach using income where you're drawing income off of that asset and creating more value that way. So that's a couple of different ways to grow your assets. Another mindset has to do with cash flow. How well are you managing the money that's flowing into your life and out of your life? For many people, they tend to live off of what they receive, of course, but they really don't have a good grip on how much money is flowing in and how much money's flowing out. A common question that I like to ask people, when it Comes to this topic is, okay, so how much money are you actually paying to the government? How much money are you actually paying in taxes? The unfortunate thing is many people don't know. They don't know what amount of money is flowing away from them to the government. And we're going to touch on this in just a second here. But when it comes to cash flow, we have to look at things chronologically. So when we look at chronological order, we have those regular expenses that we have. These are things such as perhaps a house payment, utilities, the things that you can probably rattle off in your sleep. These are your regular expenses. And then you have irregular expenses. These are things that pop up throughout the year. Personal property tax is an example, maybe an association due real estate taxes. So you have your regular expenses and you have your irregular expenses. If anything's left over, you're likely taking that money and you're storing it now. We're storing it for a later purpose. We're storing it in case we need it later. Well, when we think about our chronological order of things, we have to think about what we're going to be spending money on in those later years. So you have car purchases, perhaps home improvements, perhaps education, all these different types of things. We have to identify and map them out. How much money are we going to need and when are we going to need it? Because when we're storing money, it's important to know the time horizon before we're going to need it. Do we need to really preserve that money and be very, very conservative with it, or do you have a long time before you're going to need it and perhaps can consider some investment opportunities with that money? So the mindset going into your cash flow is real important to know your regular irregular and your chronological order for cash. Jumping over to investments for a second. This is an area where a lot of people are very much one way or the other. So the question is, how do you feel about the stock market? People are sometimes all in or they don't want any part of it. So they may say, hey, I want to be in the stock market because I believe it's going to continue to go up. Or I have other people say, I do not want to be in the stock market because I believe it's going to go down. Now, nobody knows what the stock market is going to do. It's strictly an opinion or, or a mindset of what's gonna happen. So we have to decide what side of the fence we're really wanting to be on. Are we more Conservative in nature, we wanna be more preservation oriented or do we wanna be more aggressive and be more opportunistic with and more optimistic, I guess, with the market? Another layer to this is results. What are you really looking for? Are you looking for the results that's long term with a proper allocation, or are you more fee driven? There's some people that really get hung up on just the fees of everything as opposed to what that particular asset class or program is actually doing for them. So really need to understand too what you're focused on. Are you focused on results or are you focused on fees? When we start thinking about how to position money and you know, what product is more suitable than another, we have to think about how you intend on using the money that you have. So if you think about it, there's really two things you can do with money. You can spend it or you can use it as a source for income. And what I mean by that, if you, if you think back to what I talked about a second ago with cash flow, when you think about what you're going to need money for in the future, perhaps you're going to need to buy a car or need to have a home improvement. Well, in those situations, the purpose of that money is to take money from that account and actually spend it. Whereas if you're really focused on retirement income, perhaps that money that you've saved. And a good example, this would be like a retirement account, a 401 or 403 or something of that nature. Those dollars are normally for income purposes. So when you go to retire, that money's going to be put someplace and it's going to be hopefully used to generate an income. Because as you transition from not working, you need to have some means to replace that income. So the two purposes of money is to either have it as an income source or have it be money that you're going to use and spend in chunks. So it's real important to understand because money has to be arranged by its purpose. And oftentimes people will lump their money together. And I see this a lot with people who work with brokers. The money's just all invested the same. It's all lumped together the same. And we simply can't do that whenever we're looking at a retirement plan. A couple other mindsets here. One is taxes. So you know, what are you focused on when you're making a decision about your taxes? And this is especially true when it comes to saving money. And you know, people put money into 401ks and a popular vehicle too for a lot of self employed people, or what they call SEP IRAs. And these are just, you know, self employed individuals normally that want to put money into a retirement account. And it's oftentimes driven by their tax professional. So they're putting money into these accounts because they're getting this tax deduction in the current year that they're contributing those dollars. After dialoguing with people and asking that question, you know, what is your motivation behind putting this money into this tax deductible account? Oftentimes they'll say to get the tax deduction. The challenge with that is when we're thinking about, okay, we're putting this money away for the deduction or are you putting this money away to save to use at a later date? And after more thinking and more discussion, oftentimes it's a matter of, well, this money's being saved to retire on or this money is to be saved to be used later. So we have to think through that a little bit and understand where we're coming from when it comes to actually putting money into an account. Because we're in the lowest tax brackets today as of today anyway, since we've been since 1943. So if we're putting money away into a tax deferred account, do we think taxes are going to go up? Do we think they're going to stay the same, or do we believe that perhaps they're going to go down? I don't know. I don't have a crystal ball. But getting back to the idea of having control over my money, I'm more in favor of having the taxes be paid today and then have that money be tax free later because I know what the tax rates are today. So if I'm thinking about how I'm saving money, you know, do I want the tax deduction, am I saving it to tax to get the tax deduction, or am I saving it to actually use that money some point in the future? So the question you have to ask, am I deferring tax or am I really just saving tax? So do I want that tax advantage now or do I want to have a tax advantage later when I'm actually using the money? So important mindset to get through and understand and understand where you're coming from. When you're being bombarded with suggestions of do this, do that, you know, you really need to understand why you're doing what you're doing. This leads in, and I kind of hinted on it a second ago as control. Who do you want to have more control over your money? Do you want the banks to have more control over your money? Do you want the government or do you want to have control over your money? Well, oftentimes people will have this belief that they are in control of their money. And after looking at people's cash flow and debt structures and tax returns and kind of evaluating these things, oftentimes what we discover is that they're not in control of their money at all. They're a partner in the control of their money. They may have control of a small portion, but banks and government are in control of a large portion. Let me give you an example of what I'm talking about. Let's assume that maybe you're making about $100,000 a year. So at that income level, you're probably around a 20% federal tax rate, give or take. And if you're in the state of Missouri, which is where I'm at, there's a 6% state tax, approximately, and so that puts you at about 26%. Now if you think about banks for a minute, the average person making about 100,000 a year probably has a mortgage payment somewhere in the neighborhood of $2,500 a month. Now I know that can be argued that maybe it's less or more, but that's probably an average. Well, that's another 30% of money flowing to a bank. And if you add maybe a $400 a month car payment, that puts another 5% on top of that. So you're at 35%. So if you include your taxes and what you're paying to the banks, that's 61% of the money that you're making is flowing away from you and out of your control. And I won't go too far with this, but a lot of people will put money into 401ks through their employer or some retirement plan through work. And the average of that I would speculate to say that it's around 5%. So if somebody's putting 5% into their employer sponsored program, who do you think has control over that money? It's the government. The government's telling you when you can take it and they actually force you to take it when you're 70 and a half. So you really have no control over that money. The government's dictating when you can take it, when you have to take it, and they give you a window of when you can take it. Plus it's taxed. And if you take it too early, it's penalized and so it's not the type of an account that I would consider that's in your control. So if you add the state, the taxes, the bank, the government to everything, you're up to 66%. 66% of your money could arguably be out of your control, leaving 34% in your control. So these are specific mindsets that I've come up with over 20 years of conversations with people, helping them plan their retirement. And it really is what makes one person make one decision over another. Because as I'm talking through these, you may have had different opinions or different thoughts about what I'm saying. But look, retirement doesn't have to be complicated. That's really the bottom line. If you can grasp your mindset and, and really know where you're coming from in your thoughts, plus have the right resources and advice available to you, you can make good decisions. And this doesn't, like I said, have to be real complicated. So all of this information begins to develop your personal retirement plan. So if you'd like to discuss these mindsets or anything relating to retirement in any more detail, just give my office a call. 636-296-5225. Again, 636-296-5225. That concludes today's podcast. In our next podcast, we'll be continuing to talk about the topic of retirement. Of course, there's so much more to cover with Social Security, pensions, and Medicare. So be looking for this in the next couple of weeks. I'm Brian Scribonia, and thank you for listening to the Common Sense Financial Pod.