Tag: episode-1135

POND: ACHIEVABLE RETIREMENT PLANNING TRANSCRIPT

February 20, 2015

Despite widespread warnings to the contrary, veteran financial planner and investment advisor Jonathan Pond believes no matter what your age or circumstances you can take steps to get your financial house in order and achieve a comfortable retirement.

Jonathan Pond Author and Financial Advisor

CONSUELO MACK: This week on WEALTHTRACK, some call him “America’s financial planner”. Jonathan Pond has been a fixture on Public Television over the years with his seminars on getting your financial house in order. This week he joins us with his “Smart Planner” approach to building a secure retirement. Personal finance fixer Jonathan Pond is next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. How prepared are you, or your loved ones and friends for retirement? We have all heard about the impending retirement crisis. We recently devoted a program to it with Financial Thought Leader, Charles Ellis who co- authored a short and excellent book on the topic titled Falling Short: The Coming Retirement Crisis and What to Do About It.

It provides both a history of how retirement benefits have evolved and now devolved in this country, as well as providing some straightforward remedies for both the nation and individuals. But how critical is the health of Americans approaching or now in retirement? Headlines to the contrary some recent research suggests that the dire warnings are overstated for the general population.

There are some segments in serious trouble.

Not surprisingly the biggest differentiator between the haves and have nots is work history. 73% of people without access to employer-sponsored retirement plans have less than $1,000 in savings and investments. A sporadic work record also means lower Social Security benefits, or none at all for those with less than 10 years employment. However lower income Americans who have been working steadily typically can maintain their standard of living because of Social Security and Medicare.

For middle to upper income Americans who have a higher standard of living that is not always a realistic goal. A rule of thumb has been that retirees should aim to replace 75% of their average annual pre-retirement income.

However, many of them are living on less.

Rowe price surveyed recent retirees with 401ks and median household assets of close to $500,000. The average couple was living on 66% of their pre-retirement income. 85% said they didn’t need to spend as much as they did before they retired and 89% said they were somewhat or very satisfied with retirement so far.

This week’s guest has spent his entire professional career helping Americans prepare for retirement. He is very well known to Public Television audiences.

He is Jonathan Pond, a financial planner, Registered Investment Advisor, prolific author, and host of 23 prime-time Public Television specials. His customized financial review reports have been among the most popular self-help thank-you gifts in Public Television history.

His most recent product is Smart Planner, a comprehensive financial online planning tool for the general public, which he says is the culmination of 25 years of work refining all of those financial review reports. I started the interview by asking Pond how concerned he is about the financial health of Americans.

JONATHAN POND: Less concerned than many. I think people are tending to know what they need to do more than they have in the past.

CONSUELO MACK: Really?

JONATHAN POND: They’re taking action, and I have found through some of the work I’ve done that you don’t need a huge amount of money to be able to retire comfortably. If you can have about $200,000 saved … Now that’s a lot of money for many people, but it’s not like some publications say that if you have $5 million, you’re only beer-and-pretzels rich. Imagine how that makes people feel. But if you have $200,000 saved, you pay off your mortgage, arguably other than putting money away for retirement, the most important thing you can do. You’re mortgage free. You have $200,000 saved. You do not collect Social Security early as roughly three quarters of the people are and should not be. You’re not going to have a lavish retirement, but you’re going to have a pretty good retirement, and more and more people are starting to get religion about this. Some of the statistics we’ve compiled indicate that now 50 percent of the people … Now this may be a relatively educated and somewhat affluent cohort, but 50 percent of them are saving more than 10 percent of their income which is one of the key issues. So I’m not sure it’s as bad as many people portray, and part of our role as educators is to show people a path to be able to achieve what they want. There’s nothing to be served by saying, “It’s hopeless for you. You’re 50. You have no savings. What can you do? There’s nothing you can do.” There are a number of things you can do. Delaying retirement. Let me give you a statistic. This has been questioned many times. I’ve shown the math to the people who question it. If you delay retirement by one year and you earn enough just to support yourself…

CONSUELO MACK: Without going into any savings assuming you have some.

JONATHAN POND: Without going into any savings but without contributing to any more retirement plans, one year will increase your lifetime retirement income by 10 percent.

CONSUELO MACK: Wow.

JONATHAN POND: Do that for three years, it’s 25 percent. Do that for five years, it’s 40 percent. People say, “Well, what happens if the market’s down?” It doesn’t matter. I mean, the main issue … I hate to be maudlin about it, but if you work five more years beyond when you had planned to retire, it’s five less years you’re going to have to support yourself in retirement. These make dramatic differences. Delaying retirement can have a tremendous impact on those who aren’t happy with where they are at their normal retirement age, and another aspect of this that I see is quite an interesting trend based upon our data is that now most people expect to retire at 65 and many, 15 or 20 percent, expect to retire later. Ten years ago everybody wanted to retire early. So I think they’re starting to get a little more serious about their financial life, and so I am mildly optimistic about people’s preparedness. Now certainly…

CONSUELO MACK: Compared to most people that I talk to, you are wildly optimistic.

JONATHAN POND: I might be. I might be. I want people to think they can do it and to know they can do it. Certainly many will fall short, but there are things that you can do which are within your control.

CONSUELO MACK: Let me ask you about different age cohorts. So 20 and 30-year-olds, they come to you and say, “What can I do, number one, to pay for my first house? If I’m married, to put my kids through college and to prepare for retirement?” What are the things that a 20 or 30-year-old can do?

JONATHAN POND: The main thing is to prepare for retirement.

CONSUELO MACK: Really.

JONATHAN POND: Contribute as much as you can. Yes, because every year you forego contributing to a retirement plan is a year you can’t make up. It’s use it or lose it with retirements. If you can contribute to a Roth or, for those who are viewing who are parents or grandparents, if you can help your kids out a little bit with Roth IRA contributions or maybe even helping them with their 401(k) and 403(b), that sends an important message to the child about the importance of saving for retirement early. If you can save five, six, seven, eight percent in retirement money starting in your 20s, you will retire in fine fettle at 65. So I think that’s the key issue. Buying a house I think is a major positive in people’s financial lives.

CONSUELO MACK: And this is so interesting because, of course, a lot of people have seen, especially after the real estate bubble burst, that a house is really not necessarily a good investment. It is a place you need to live. Treat it as that, but it’s not a good investment. What’s your view?

JONATHAN POND: I couldn’t disagree more with that, and I was fascinated. I was looking at some statistics again we’ve compiled. Ninety-three percent of the respondents over the past few years either own a home or aspire to own a home, so only seven percent roughly are content being a renter. I mentioned about the issue of paying off your mortgage by the time you retire. If you do that, you’re not going to be at the mercy of a landlord or a lender and it just …

CONSUELO MACK: Or a rent increase or of course taxes go up and everything else.

JONATHAN POND: Precisely, and so those are very desirable. My kids are saying who are in their 20s now, “I’d like to buy a house but I don’t know whether I can afford it.” I say, “Since you’re the preacher’s daughters, you’ve been required to put money into Roth IRAs. The reason for putting the money into a Roth IRA is for a down payment on a house because you can take the money out tax free after five years, and what a great thing to do with your Roth.” I’d rather that they keep it, but if it’s for a down payment on a house, that’s great.

CONSUELO MACK: That’s okay. I’m in my 40s or 50s. What’s the most important things I should be doing?

JONATHAN POND: Well, if you’re a late starter, start to build up your retirement savings. You need to go beyond 10 percent. One thing I talk about a lot which I don’t whether it gets a great response, but I feel strongly about it, and I refer to that as investing in your career. That’s the single best asset you have, and continuing your education, working hard, being a dedicated employee as unusual as that might be these days, can make a difference, a big difference in your financial future. If you want to change careers, make sure that you’re going to be able to thrive in that new career. Don’t throw out years if not decades of experience. An example I like to cite is just because I like sushi doesn’t really qualify me to open a Japanese restaurant as much as I’d like to sometimes to think about it. So it’s the investment in the career and, if you own a home and can afford it, although you want to continue contributing as much as you can to your retirement plans, start making extra payments against the mortgage. It will dramatically shorten the time it takes to pay it off. Don’t add to debt. You’ve really got to get serious about eliminating debt.

CONSUELO MACK: Sixties and seventies.

JONATHAN POND: Well, at that point decisions made with respect to when you’re going to retire, preparing a retirement budget. Not all the statistics we have are positive. Nine out of ten people have not prepared a retirement budget. Maybe their heads are in the sand, although this is interesting. Those that have, have a retirement budget which is only 60 percent of their income, and that’s one thing I hear people say. It’s got to be …

CONSUELO MACK: Sixty percent of their annual income.

JONATHAN POND: Of their annual income is what they feel they can retire comfortably on which I concur.

CONSUELO MACK: You do concur.

JONATHAN POND: I concur with that, and I …

CONSUELO MACK: Without hugely reducing by 40 percent your standard of living.

JONATHAN POND: No, no. Maintaining your standard of living because if you look at Social Security taxes go away. A lot of taxes go away. You may need one less car, the clothing, but you add all that up, and it’s very, very easy to retire on 60 percent of your pre-retirement income, and that’s what people seem to be thinking about based upon our data. But 60s and 70s, one of the key issues at retirement when you finally decide to retire…and we have to remember that many people can’t dictate the time they retire. You have to run your numbers assuming that you may retire involuntarily which 40 percent of the population is compelled to do.

CONSUELO MACK: When you say that 40 percent of the population, there’s a statistic that says that they’re compelled to do because they have to retire at 65 or whatever or they’re losing their job.

JONATHAN POND: No, they’re compelled to retire before they want to.

CONSUELO MACK: I see.

JONATHAN POND: Losing your job but a close second is health issues, your own health issues, and a close third are health issues of a spouse or a parent, compelling you to leave the workforce. That can have in some instances draconian impacts on your retirement prospects, but you’ve got to look at those. You’ve got to run the numbers as they say. The main issue with those who are retired, and I see this as a ticking time bomb for so many retirees, and that is how much you start spending in your first year of retirement. Sometimes in the first year you spend a little extra. You want to take a cruise. You want to get some repairs made on the house, what have you, but if you start a pattern of taking out too much money, that is something that is very, very hard to undo. When you’re retired, cutting back on your expenses is extremely difficult. I’m not sure why, but I see it too much to not want to mention that as a big red flag for retirees.

CONSUELO MACK: It leads me to my next question. What are the biggest mistakes that people make, and obviously that’s one of them, is they’re taking too much money out initially when they retire.

JONATHAN POND: When they retire. Yeah.

CONSUELO MACK: What are some of the other biggest mistakes that we make?

JONATHAN POND: It all boils down to initially saving enough money. That’s certainly a big mistake.

CONSUELO MACK: So not saving enough money is the biggest mistake.

JONATHAN POND: Not saving enough money is the biggest mistake and it’s one that the earlier you start the better, and if you can’t afford to save very much, start small. I don’t care if it’s one percent. Most people sort of like the feeling. There’s an old eastern European saying that the difference between a rich person and a poor person is just two cents. The poor person earns a dollar and spends a dollar one, and the rich person earns a dollar and spends 99 cents. Now it takes a little more than that, but I think the sentiment is right on. It’s so important, and it’s so important to impress this on your children and grandchildren, setting an example even if you haven’t done very well yourself. Set an example for the children.

CONSUELO MACK: Another issue, and I was actually going to bring it up because you mentioned that helping your children and setting the example for your children is one of the things that is most … one of the controversial that you said in the past is that one of the biggest problems that retirees face is rapacious children. Why do you think that is such a big problem? Where are you seeing that?

JONATHAN POND: I would liken this to a national problem because it affects people of all financial circumstances. I use the word rapacious myself because one of the definitions is an animal who simply kills for pleasure, and I see children literally demanding money of their parents and the parents feel so guilty about it, and it’s good to help a kid through a rough spot, but there’s a thin line between that and enabling the children, and I can cite chapter and verse about children who are being supported by their families and can’t afford it. I’ll give you an example, a very sad example. I was doing a Q&A column for AARP. They sent me a letter from a woman. She says, “I don’t have much money. I only have $17,000 left, and I have severe tooth,dental problems, and I’d like to spend that money on that, but my nephews are demanding that I give them that money.”

CONSUELO MACK: Oh my goodness.

JONATHAN POND: And she really felt that there was an obligation to give them that money, and of course I disabused her of that notion and wish I had in words that I would like to have used. It didn’t make it into print, but that’s something to watch out for because I just see it a lot.

CONSUELO MACK: In the old days my grandparents for instance, they did all of their own financial planning, and the only time they brought a professional in really was a lawyer to draw up their wills for instance. So you had 60 percent as you know of stocks, and you had 40 percent bonds, and then you had more bonds as you got older. What’s wrong with that plan today? Does everyone need financial planning advice?

JONATHAN POND: First of all, 60/40 is not the right thing. Your age doesn’t determine the amount of money you invest in stocks. It’s how long you’re going to need the money. A 65-year- old is going to need the money for 30 years so they’re a long-term investor, but that aside I think some people, many people can benefit from a financial planner. Sometimes they’re approaching retirement or maybe they’re younger and they’re just wanting to get their ducks in a row to buy a house at some point. I’m not sure an ongoing relationship is necessary. Sometimes that’s very helpful, but you need to think about the whole area of financial planning. There’s investing. That’s the focal point. That’s the moving target but then you have getting the right kind of insurance at the right price, making sure your estate plan is up to date which is another crisis we have. Forty percent of the people in this country do not have a will, the adults.

CONSUELO MACK: Which is frightening.

JONATHAN POND: Making sure you minimize your taxes, managing your credit before it manages you, preparing for retirements. All of these, Consuelo, are kind of one-time a year things. You make those decisions. You decide you’re going to bump up your savings rate another percent. That’s done. You have an insurance review once a year. That’s done. You get your will done and probably needs to be reviewed every few years, but that’s done. So a lot of these are kind of fixed, and one of the things I’ve been trying to get across is get that lined up and then you can concentrate perhaps on investing, but just get your ducks in a row on those matters once a year and then you should be in pretty good shape. It’s not necessarily an ongoing relationship that you need.

CONSUELO MACK: One of the things that you’ve recommended over the years is to save for retirement even though you have high interest debt because a lot of other people say, of course, pay off your high interest debt first. It’s the most important thing you can do, but you’re saying no. Save simultaneously. Save first.

JONATHAN POND: No, it costs more to save for retirement because you’re letting high interest debt run. You’re paying more interest on it, but the reason is very simple. It relates much to the whole attitude of smart planner, and that is paying off debt is a bummer financially. You feel guilty about it. You wish you could have avoided it in many instances. Saving for the future is really uplifting, and it depends on someone’s situation, but I would say even though it takes longer to pay off the debt, I grant you that, take a third of the money and put it away. Put it into your retirement plan at work or into a Roth IRA or regular IRA. Just do it because you’ll just start to feel some hope for the future. Maybe that’s why I’ve been put on this earth is to give people hope, but it’s a kick. It’s a kick and sometimes I get into trouble. I have something I call the “Reverse keeping up with the Joneses”, and that’s very simple and doesn’t ingratiate me with the people in the government. I know that. “Reverse keeping up with the Joneses” is very simple. We need people to spend in our society, so what our objective is or at least what I consider my disciples is to encourage everybody else to spend. Envy their car and ask when they’re going to get a new car, but you don’t spend. Let them prop up the economy with their spending, but reverse keeping up with the Joneses says you’re not going to keep up with the Joneses.

CONSUELO MACK: That’s great. One investment for a long-term diversified portfolio, a question we ask everyone on WEALTHTRACK at the end of an interview. What’s the one thing we should all do or own in a long-term portfolio?

JONATHAN POND: One thing we should all own is something very innocuous and that would be a growth ETF, hopefully world growth ETF, both domestic and foreign stocks.

CONSUELO MACK: Growth. Why growth versus value or why not just in general ETF?

JONATHAN POND: Growth, you indicate you’re going to hold on to it for a long time. Do something like that. Growth tends to outperform over the long run, and a blend which is a combination of growth and value would certainly be acceptable, but I think that’s the one. If it’s a youngster, then it would be something like a micro cap stock fund or something I put my kids into which is horribly volatile, and that is an emerging markets micro cap stock fund.

CONSUELO MACK: Oh my goodness.

JONATHAN POND: And you talk about … They’re getting a good lesson on how fast you can lose money with that particular investment.

CONSUELO MACK: But long term you think it’ll pay off.

JONATHAN POND: Long term should pay off. Yes. You hold onto something long enough, and it’s going to go up. You do say the one investment, but the key issue is diversification. Picking investments is pretty easy, particularly if you stick with funds, mutual funds and ETFs, but the acid test is diversifying the money appropriately.

CONSUELO MACK: Jonathan Pond, such a treat to have you on WEALTHTRACK.

JONATHAN POND: Well, thank you very much. It’s been a pleasure for me.

CONSUELO MACK:At the close of every WEALTHTRACK we try to give you one suggestion to help you build and protect your wealth over the long term. This week’s action point: review your retirement plan, and if you don’t have one get one. For starters, workers with a plan such as a 401k, IRA or a Defined Benefit or a Defined Contribution Plan are more than twice as likely to be very confident about retirement than those who don’t have a plan. Second, with so many opportunities to get a retirement plan check up on line, it is a no brainer. This week’s guest Jonathan Pond has been refining his Smart Planner online service with Public Television audiences for more than 20 years. Anyone can access it anonymously for a very low fee and either create a plan or check up on the one you have.

Another WEALTHTRACK guest, Sheryl Garrett founded the Garrett Planning Network which provides hourly advice over the phone or in person with a local financial planner vetted by her. You can get a plan or a check up with either one of these services founded and managed by respected professionals on a mission to make planning advice accessible and affordable for the rest of us.

Next week, as Public Television begins its winter fund raising drive we will revisit part one of our exclusive interview with two Financial Thought Leaders Evercore ISI’s star economist Ed Hyman and New York Life’s influential Chief Investment Officer, John Kim.

Have a great President Day’s weekend and make the week ahead a profitable and a productive one.

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