Retirement Safety Zone: Conversations with Sivea Key and Matthew Jackson
Transcript
Matthew Jackson: When you retire, determines how you retire. Imagine, 2007 when the market lost over 40%, what if you were retired at the beginning of that year and you had $400,000 and your retirement planner and said, "Hey, take 4% off of this and you get $16,000 a year off of your income from your assets, plus social security. You'll have a nice lifestyle." But then 2007 and 2008 hits, and your $400,000 is now worth 280 or $260,000. In order to generate that same $16,000 of income off of those investible assets, now you got to take about 8, maybe 9% off of your retirement accounts to earn the same $16,000. Well, here's the biggest problem with that. Where in 2007, or 2008, or even 2009, were you getting an 8% return? Or a 5% return? So you're eroding principal really fast that way, and that can blow up a lot of people's plans.
Sivea Key: So if you were approaching retirement, what would you do with the assets that you manage for your people?
Matthew Jackson: Yeah, so I typically recommend that people have three types of buckets of money in retirement. The first bucket would be their 9:00 AM money. That's the money that they need to touch immediately in the morning, if their water heater went out, they had a problem with their car, they had a medical emergency with a family member, they can get to that money first thing in the morning. It's different for every single family. One family might say, "I have to have $10,000 of emergency money." It could be in a checking, or savings, or money market account, or squirreled underneath the mattress. Another family might say, "That number for me is a hundred thousand dollars." So 9:00 AM bucket, determine how much money you need to feel comfortable and safe.
The second bucket of money that I usually position for people is the money that would generate the income that they need in retirement. And so we can figure out really quickly what their Social Security benefit would be, how much income they need in retirement, and then we can work backwards based upon the lump sum of money that they've been able to accumulate during their working years.
So after we determine how much money they need in that income-producing money, the last bucket of money is what we call, do not need now money. And that's the type of money that they would maybe give to kids, grandkids, their church, or a favorite charity. It would also be money that maybe they're just using to buy a second or third property. Most important, I just want people to understand it's money they do not need now. For clients that have that type of money, we usually, typically recommend have that bucket of money pay for a wrapper around the income-producing bucket, so that never goes away or it's protected quite likely from catastrophic loss.
Sivea Key: So what do you mean about a wrapper? Explain that to us normal folks.
Matt Jackson: Yeah. Just to put it into real terms, like an insurance wrapper. Being a dually licensed financial advisor, I have a securities license, which is called a Series 65 license. It's the only license that you can hold in the securities world that requires me, as an advisor, to act as a fiduciary by law. And it also forbids me as a securities licensed person from receiving any commissions. So my judgment can't be clouded because I might be compensated more over one investment over the other. Now, I made a conscious decision to do that, because before I became a securities licensed advisor, I was an insurance licensed advisor for a decade.
And I learned that the insurance world doesn't have all the answers for retirees. And guess what? Neither does Wall Street. It's my philosophy, having worked and mentored under some of the brightest minds in what I would consider our industry, that it's a big advantage for our clients to be able to offer both types of solutions, insurance solutions, as well as solutions provided by Wall Street. What I like about the insurance world is that they actually can provide safety and guarantees where this Wall Street can't.
Sivea Key: Okay. Well, thank you for being here. I think we've all learned something fresh that will all help us to reconsider how we're planning our retirement and when we start planning and how to protect it. So in honor of your appearance today, we have 10 signed books by Matt Jackson. The first 10 people to respond and request a copy of this book will receive it at their door. And, hopefully, it'll open our eyes and the eyes of our neighbors and friends and we'll all have a safer retirement.
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