Tips for Strengthening Your Retirement Income Strategy (Ep. 6)

Welcome to Ideas by Mike, the podcast with Mike Milligan, where you will find one-of-a-kind financial planning advice for your one-of-a-kind life. With over 22 years of experience as a certified financial planner, Mike shares experiences and advice on crafting simple, easy-to-understand financial plans based on your values and priorities. He believes that taking a personalized approach is the best way to prepare for the future and give meaning to your finances. So follow along as Mike, and from time to time his guests, explore different strategies and tools that could help you secure your financial future in retirement. Now on to the show.

Hello and welcome to the Ideas by Mike podcast with your host, Mike Milligan. I'm Wendy McConnell. Hi, Mike. How you doing today?

Doing great, Wendy. How are you?

Oh, good, good. It's good to see you. So last time we talked about your financial planning process, and I realized the importance of tax planning. So do you want to give a quick recap of the last podcast?

Yeah. I mean, I think it's so important that we start there. And for those who haven't listened, who are just picking up this podcast, I wanted to give a quick synopsis of that, but do encourage you to go back to listen to that. We do one-of-a-kind financial planning, and our viewpoint is that one-of-a-kind financial planning includes 5 critical things. It includes tax planning, retirement income planning, investment planning, long-term care planning, and of course, legacy or estate planning. And so, last time when we talked about estate, or we talked about tax planning, that's really the foundation of where we go from a standpoint of driving every other part of the financial plan, because How can you really know what your investment plan should be unless you know what the biggest expense you'll ever pay, if you can reduce that expense? The biggest expense you'll ever pay is taxes. And so, that's why we look at tax planning as the foundation or the bedrock of all financial plans. There's a Pew Research poll that we went over last time that there were some really Amazing things that came out of that. One is that Americans feel that they pay more than their fair share of taxes. They also— over 50% of people are dissatisfied with the IRS. And as we also found out, Wendy, and I think you were shocked by this one, but the highest tax rate ever has been over 90% in the United States. And we today are at historic lows when it comes to tax rates. With revenue for the federal government being over 50%, their revenue, you know, 50% of the revenue the government gets in comes from individual tax returns. We know that we have to get a grip on every client and prospect we deal with from their taxes. And so that's why we always start with tax planning.

So the second part then of retirement planning in your one-of-a-kind financial planning process is retirement income. And I've heard you say before, Mike, that the number one fear retirees face is, of course, running out of money. It's what we're all afraid of. So I'm wondering, how does a person get a retirement income check so that they don't have to worry about retirement so much?

See, that's the thing, Wendy, that most people just don't understand. They don't understand how they can sit at home on their couch or go on vacation forever and there not being money that shows up every 2 weeks or 4 weeks. Or multiple times a month in their checking account, because that's what your paycheck is, right? We go to work, Wendy goes to work, Mike goes to work. And for me, it's twice a month, money shows up in my account, and it's the same thing every time unless I get a bonus. But people are fearful, right? They think when it stops, their paychecks also stop. We know that as part of that retirement, income piece is Social Security. And we'll talk about Social Security a little bit more in just a few minutes. But Social Security is a part of your retirement income. One of the things that most people don't know about Social Security is it either comes on the 2nd, 3rd, or 4th Wednesday of every month, just depending on the day you were born. So, like, Wendy, if you were born on the 27th of the month, you're going to get your Social Security check on the last Wednesday of every month when you retire. Whereas if you retired— if you were born on the 3rd of the month, you get it on the 2nd Wednesday. And so, understanding when these paychecks come in alleviate pressure. But other forms of paychecks that people get are, some are blessed to have pensions. You know, many of our federal, you know, people who work in our federal government, our military, those who give back get pensions. Our teachers, many teachers or educators that work around the country, you know, putting in 20 or 30 years of time in the classroom, get a pension. Firefighters, police officers, people who are in public service have a lot of pensions. It used to be over 50% of every worker got a pension, but that system went away. Back in the 1980s, and then 401s came into play. Well, that's the next source of retirement income. That's turning that asset that you've saved either into a guaranteed income or a safe withdrawal rate. We talk about this whole idea when you're working of dollar-cost averaging into the market. When you retire, you can do this thing called dollar-cost Ravaging, right? It's just a little play on letters there, but ravaging means that you're taking more than you need, and you'll ultimately run out of money, and that's something we want to prevent our folks from doing. And then the last source that people have a retirement income is many people just have to keep a part-time job. You know, many people, retirement means it's not working 40 or 45 hours a week, it's Taking your Social Security and working 20 or 25 hours, which doesn't sound like the retirement I want to live, but it's people— it's a retirement that people do have to live to make ends meet. So, that's the basis of retirement income planning, is being able to identify and find out where the sources are going to come from, how we're going to efficiently use your savings to be able to generate the income that you need. And then, and only then, can we relive, uh, you know, get rid of that anxiety or fear of running out of money in retirement.

Okay, so we know that you're also a professor at Old Dominion University. Now, when you teach retirement income planning as part of the financial planning process, what are some things you help your students understand about the topic?

So I always teach from a historical perspective. And so last week when I— or our last podcast, this is what kind of blew your mind about taxes, right? But here's— do you remember a guy in history named Caesar Augustus? Do you know that name?

It's ringing a bell.

Yeah. So he, you know, for those who believe in the biblical world, he's part of that, the most famous story, the birth story where all, you know, where People have memorized that all the world should be taxed. And like, so BC, right? 13 BC, Caesar Augustus created the first pension. That's the first recorded pension. So, I teach this to students is that follow history, right? And it will determine, it'll help you determine in the future how people's— how the future will go also. Now Caesar Augustus created the pension for soldiers, Roman soldiers. He did it as an enticement for them not to revolt against the Roman Empire. We'll go forward in history. The Parliament of England back in the 1500s did the exact same thing. They created a pension system for soldiers who served more than 20 years to not to not revolt against the Commonwealth. We'll go for— go forward even further, right? In, uh, the grimmest time in American history— I mean, that, that's debatable, but at least the grimmest economic time in economic history was the Great Depression. And what came out of the Great Depression was Social Security. See, people were frustrated that the government had allowed the crash in the stock market, unemployment to skyrocket, pensions to fail. And so the government created Social Security as basically a way to take care of citizens who were likely to revolt against the government. So most— so when I'm teaching this, right, if you look at how people have come accustomed to retirement income planning or retirement income being funded by the government as a way to keep governments in power. And nobody— I mean, that's a— nobody ever thinks about that in terms of retirement, but that's what it is. And so, if you think about that and you look in the future, it helps determine like what systems will come about in the future. Well, coming back to our more recent past, we're not going to talk about BC, right? Or the Roman Empire. We're talking about our recent past. You know, back in 1978, our Congress created, in essence, what is now known as the 401, which is a savings plan that allows employees and employers to contribute to, that one day can be used to supplement someone's retirement. That was actually created in 1978 as a tax revenue act. It's called the Tax Revenue Act of 1978. It has been modified several times, like in 1996, the provisions, the Taxpayer Relief Act of 1996, allowed for the creation of the Roth IRA. And now here we are today, 50 years, almost 50 years later from that. And like America has become Not a pension, like an income retirement system, has become a saver's environment that then turns into that source of revenue for the future in retirement. So, like, when I'm speaking to students, right? Like, instead of giving, like, a whole semester, now I just gave, like, a 5-minute history lesson on retirement. If you look at the history of where things have gone in retirement income, it will dictate how you could plan for the future. Because people that we're dealing with who are in their 30s and 40s are not going to have the same retirement system that their grandparents had, or their great-grandparents had, not even the same system that their parents had. And so, if we're looking from a standpoint of where we go in the future, let history drive us. Because history will tell us what will come in the future, because— The most uncreative people or least creative people in the world are politicians. So, boy, that was academic. A little slam on politicians and a little history lesson all in one.

It had it all, Mike.

It did, right?

It did. What does Ideas by Mike and your team do to help your prospects with retirement income planning?

Yeah. So, taking off the professor hat, right? I mean, it's not too different. And putting on the financial planning hat here, it's not too different than what I teach. I mean, because my mission in life is to radically change the industry that we're in and to help the next wave of financial planners from an academic standpoint, learn how to see things the way we see them. And then ultimately, we're trying to help our clients do the same thing. See things that are really going to allow them to break the mold of what traditional financial planning companies want from them so that we all together can make an impact. Because if we keep doing things the exact same way we've done them in the past, we're going to have a lot of bankrupt retirees. So, like, one of the things that we do on our team is we help people understand, like, the stats. of what retirement is. So, I'm just going to give a couple, and I'm going to have to look because I don't have all these memorized. I'm going to look at these stats a little bit. But like the Census Bureau, this is again something that we want our clients to understand. The Census Bureau says the median annual income for people 65 and older is $47,620. This is as of March of 2024, by the way. But the average expenses for people 65 and older is $57,800 and some dollars, right? So, there's about a $10,200 gap, or put another way, about an $850 a month gap from what retirees, the median retiree income is versus what their expenses are. So, again, Wendy, remember when I said we're trying to help people not become bankrupt? In retirement. The other things that people— we try to educate our clients on also is that the average Social Security retirement check is $1,907. So, you see that $1,907 doesn't even come close to expenses. But then, and this is where the change has happened over the last 50 years, and that's because people have assets. Right? They have 401s and IRAs. They have real estate equity that they sell and they downsize their home. Because what people are not figuring out how to do, and this is where we really make an impact, is how do I turn that asset that I have into an income that I need? Because over 10% of retirees have over $1 million of assets. Yet they still don't know, how do I turn that into an income? What most people do is they just say, okay, I'm going to take $25,000 from my account, and they put it in their savings account, and then they'll use some of it, right? And then they'll see their balances going down in their retirement account, and they get nervous and fearful. So, the natural reaction is to go conservative with their investments because they see balances go down.

Right.

What we do is we kind of take, again, like we take fear out of running out of money from a retirement income standpoint. We take the fear of losing all your money out too. And so, we use a tool called an income forecaster. It literally is taking the guaranteed sources of income, pensions, Social Security, and then your assets. And we do a status quo analysis of the retirement income. We include, ironically, we include that— well, most people don't include— we include tax rate increases in our projections because we know taxes are going up in the future, which helps again give an extra layer to our clients of understanding that they're not going to run out of money. And then we put it in the Forecaster and show over the next 30 or 40 years of your life, you see you're not going to run out of money and you're going to have enough to meet the expenses that you need. Or we will say, you see where you don't have enough to meet the expenses that you have. So we have to make a change. See, most people go directly, or most financial planners go directly to investment management, which is the 3rd step of our process. We think that unless you have taxes solved for, and then retirement income solved for, then you're just investing without a real purpose. And so, the Income Forecaster is our tool for helping people see that either they're going to have enough to live on the rest of their life, or we've got to make some changes along the way to be able to get them where they need to go.

All right.

I love it.

Sign me up. How do we get access to this, Mike?

You reach out to us on our social medias. You go to our website and hit the Contact Us form. We are not impossible to get in contact with. Our team is here to help you. We are here. And as I mentioned earlier, I'm here to change this financial planning industry. It has to be client-centric first. It has to be about you, the person, where they are. It has to be about getting less fees into advisors' pockets, and it has to be more about where can we make an impact. And so, our forecasting tool, just like our HolistaPlan tool with tax planning, is a tool that we run through with every client. Either you see it firsthand or we do it on the backside. and tell you you're gonna be okay. But it's the tool we use to statistically prove to you from an academic standpoint that, that fear of running outta money can just go away.

And I think what really is helpful in understanding is you talk about, you know, combining everything and what you need to do is really just make up the gap that's in between what is going to be your income and the assets that you have to draw from, which makes it not so scary, I think. So, the fact that we can tune into this and have access to you, Mike the Planner, and the Professor. Yeah, it's got it all going on, right?

That's right. And Wendy, it's so, it's amazing, right? That, you know, we have never gone over, except for our time here on the podcast, gone over our system in details. But the fact that you can draw out of what I'm saying, that really all we're solving for retirement income is the gap, because that's the exact word that we use. There's a gap in income that's needed for everybody that's heading into retirement. Most middle-class Americans who have saved their whole life, even those— and that gap is what we're solving for. See, that's the thing that as people go to retirement, they don't even know what they're solving for. They think they're trying to solve because I want to take more vacation or spend more time with my grandkids or Do more in the garden club or do more with my church or give back to my university more. They think that's what they're solving for. And those are the things that are impactful. But until we solve for the basics, what can we do with taxes and how can we minimize those? And then what can we do from a gap analysis to be able to make sure every month 2 times or 3 times a month, a paycheck, a retirement paycheck is hitting your bank account. And until we can do that, it's hard to go to the next step of seeing the impact we can make together, that you could make in your community, that retirees can make in their community, and what they can do to invest that time. And that's what we're here for, is to be that dedicated advisor who can break it down and make really complex, unscalable mountains almost of knowledge gaps simple to understand so that people just know that fear can go out the door. And because, as we said on one of our most recent podcasts, life is for the living.

Yeah. So peace of mind, that's what you really gain. And that's, you can't ask for, that's what you want in retirement. Peace of mind to be able to be comfortable and to do what you want and to not worry all the time.

That's exactly right, Wendy.

Okay, Mike, so how can people get in touch with you if they wanna find out more, they have more, some, some more questions?

You're gonna need to, uh, uh, uh, memorize this, Ideas by Mike, because that is where you get ahold of me for everything. Uh, website, www.ideasbymike.com. Uh, Instagram @ideasbymike. Ideas by Mike. Facebook, type in Ideas by Mike. LinkedIn, it's a little bit different. It's Mike Milligan, CFP. And if you just wanted to Google, just go ahead and Google Mike Milligan, CFP, Certified Financial Planner, and you will see 10 or 15 ways to get in contact with us there. And know when you do, my team, Kelsey and Lorraine, Nicole, they'll reach out to you to get a time scheduled where our team can help you create a one-of-a-kind financial plan for your one-of-a-kind life.

All right, sounds good. Well, thank you, Mike, for all of this information today. And thank you for listening. Please like, follow, and share this podcast with your friends. Until next time, I'm Wendy McConnell.

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