**JACKIE POST:** Hello and welcome to *How to Retire*. I’m Jackie Post, here in the Fuchs Financial studio in Middletown, Connecticut. Today I’m joined by Alex Cal. He is a financial advisor here at Fuchs Financial. Alex, good to be back with you. **ALEX CAL:** Good to see you again. **JACKIE:** How’s your summer going? **ALEX:** It’s going good. No complaints. **JACKIE:** Anything fun and exciting happening? **ALEX:** The only new thing was this weekend I had to clean out all the animals. **JACKIE:** That’s right, with the farm. A little smelly. That sounds like not my cup of tea, but kudos to you. **ALEX:** Well, we got a whole bunch of compost. **JACKIE:** That’s actually great. I love that. ### Segment 1: Saving, Spending and Preparing for the Unexpected **JACKIE:** All right, so on to our financial chat today. We talk a lot on this show about people who have not saved enough for retirement, but is it actually possible for people to save too much for retirement? **ALEX:** It’s always possible. I’ve noticed people become so ingrained in that habit of saving and saving that it carries over into retirement. Sometimes the income you’re getting is more than enough, but you still feel the need to continue saving on top of it. **JACKIE:** Does it become almost like an obsession for some people? **ALEX:** For some people, it’s, “Let’s see how high the number gets.” But for others, depending on how or where they grew up, it’s just a force of habit. They might be sacrificing things like vacations, experiences or their lifestyle because they’re so used to saving. **JACKIE:** How do they know when they’ve saved enough for retirement? **ALEX:** Sometimes, if they’ve already saved a good amount and they’re asking themselves that question, they probably reached that point five or ten years ago. If you see your account growing more than what you’re taking out on an annual basis, you’re probably more than okay. **JACKIE:** How often do you have this conversation with people? It seems like something that would be more rare. **ALEX:** Actually, now I’d say 80% to 85% of the time the conversation is, “What are we spending money on?” I remember a husband and wife where the husband didn’t want to spend anything, but the wife wanted to travel. As a compromise, I told them, “Let’s meet in the middle. Every time we meet, you have to tell me what you’re going to spend money on.” **JACKIE:** I love that. What are they spending money on? **ALEX:** They took a cruise, and he bought a new truck. **JACKIE:** There we go. It worked out. They’re both benefiting. For a really long time, I think a million dollars was considered the magic number for retirement. But as costs go higher and people have more to think about, is that still the number we should be targeting? **ALEX:** It’s not. It really comes down to what your lifestyle is going to look like and what income you have coming in. For some people, I’ve seen Social Security be enough, and they still have more than enough to do the fun things and go on vacation. On the other end, there are people with a pension, Social Security and some withdrawals who don’t have a million dollars, and it’s still enough. It comes down to what you envision retirement being like and what sources of income you’re going to have. **JACKIE:** Someone can have an impressive net worth on paper but still struggle to generate the income they need each month. What’s more important in retirement: your net worth or your cash flow? **ALEX:** They flow together. As your net worth gets higher, we can do other things to generate income. But cash flow is always going to be an important piece because it tells us what we have to work with. I think of cash flow as the cornerstone of the entire plan. If we have negative cash flow and we’re putting more money out than we have coming in, it doesn’t matter whether the net worth is high or low. It’s not going to work over a long period of time. **JACKIE:** What happens if the market drops right after you retire? You don’t have a paycheck coming in anymore, so that downturn can feel extremely scary. How should someone prepare for that possibility? **ALEX:** The first thing is having a safety net. We want some of your portfolio or investments to have some protection or buffers of safety so that you’re not riding the entire market down. Whenever someone retires, we like to illustrate a worst-case scenario: low rates of return, really high inflation and the market crashing with three negative years right off the bat. We illustrate that because I want people to be aware that this could happen and understand how we’re going to prepare for it. It’s about not pulling from a bucket that’s down in value. We separate the risks so that if something does happen, we can take money from somewhere that was not down. **JACKIE:** Take me through what that looks like for the average person. **ALEX:** We first look at the income need. What do we need on a monthly basis to supplement other income sources? Ideally, we may want that to come from interest and not touch the principal, but sometimes that doesn’t work. I typically like to have five or ten years’ worth of some type of safety. That just means money that cannot go down in value. It could be CDs or cash. The important thing is that it provides a way to ride out downturns without having to drastically change your retirement lifestyle. **JACKIE:** Do you have an example of a client who experienced a market downturn but was prepared for it? **ALEX:** There was one instance during COVID in 2020. They were driving and their car completely died. They needed a brand-new engine. Instead, because they had money set aside, they were able to go to the dealership, take the money out and buy a new car they liked without having to worry about it. **JACKIE:** Emergency savings are really important while you’re working. Should retirees keep more cash available for unexpected expenses? **ALEX:** It’s always good to have an emergency fund so you have access to money on a day-to-day basis. Your investments can also act as a form of emergency fund in retirement because you can take from them when needed, although taxation can come into play. One of the bigger unexpected expenses we’ve seen recently is needing a new roof. Maybe insurance is going to take a while to pay for it or you’re waiting for an adjuster. If you suddenly need $20,000, that’s why we have money set aside. We just need to account for the taxes. If it’s something we know is coming, we can plan for it over time and potentially lessen the tax burden. **JACKIE:** It sounds like calling your financial advisor is a great idea if you’re in that scenario. You can ask, “Can I do this right now? How can I do it? What’s the best way?” **ALEX:** Exactly. It’s always good to get a feel for whether you’re on the right track. Clients call us all the time. I had one this morning asking, “Am I okay to spend $140,000 on the house?” We had planned for $110,000, so it was slightly over budget, which I knew could happen. But I was able to tell them, “You’re more than okay. We have this budgeted and segmented out on purpose.” ### Segment 2: Family and Money in Retirement **JACKIE:** The next set of questions comes up constantly with clients: How much should they be helping their kids and grandkids? **ALEX:** That can be a touchy subject depending on who we’re talking to. I usually relate it back to whether leaving money behind is a goal. For some people, that’s very important. For others, it isn’t. If it’s not a major goal, my reasoning is that you’re the one who sacrificed to get to retirement. It’s okay to enjoy it. If there’s $200,000 or $2 million left over, great. Your family can enjoy that at the end. But there’s no reason you shouldn’t have fun along the way. **JACKIE:** Absolutely. As a kid, I would want to see my parents enjoy what they worked for their whole lives. A lot of grandparents want to help cover college costs. What’s the right way to do that without jeopardizing your own financial future? **ALEX:** First, let’s find a dollar amount that isn’t going to break the bank. What amount could we give away without it negatively affecting your retirement? Then we determine whether you want the recipient to have control over the money. If you don’t want them to have control, we can use a certain type of account or pay the institution directly. If you do want them to have access to it, we can look at ways of structuring it so the money is still being used toward the intended goal. At the end of the day, it’s still your money, and you want it to go toward certain things. **JACKIE:** Is there a way to set that up ahead of time? What happens if someone always wanted to do this for their grandchildren but later reaches a point where they’re no longer able to make those decisions? **ALEX:** There are ways to fund it while you’re still living, before you reach that point. There are also ways to structure it at death. It comes back to how you want to set it up and what type of account you want to use. The sooner you do it, the more opportunity that money potentially has to grow. **JACKIE:** Shifting gears to purchasing a home. Home values are up, and it’s making it more difficult for young people to purchase their first home. Should you help your child buy their first home? **ALEX:** I think it goes back to gifting. First, we need to look at whether the child is going to be able to sustain the home. If the roof caves in, can they pay for the roof? If the boiler goes, can they fix it? Sometimes, by helping someone fund the house and supporting a lifestyle they can’t sustain on their own, we could actually hurt them more. On the other hand, there are places where housing prices are extremely high. Even if someone is working and doing all the right things, it can still be a struggle. In that situation, there can absolutely be ways to help without hurting your own financial situation. But there need to be ground rules. Maybe this is a one-time contribution rather than recurring support. It’s also important to educate them about what goes into homeownership and make sure they’re prepared for the ongoing expenses. **JACKIE:** How do you prepare people for that? Do you have them talk with their kids or bring their kids in to sit with you? **ALEX:** I’ve brought kids into the conversation. It’s part of the overall discussion: “This is what your parents want to do, and this is how it impacts you.” Do you understand that this is a one-time thing? We want to get you on the right track so you can do this on your own for the rest of your life. It’s about getting everyone on the same page. A lot of the time, that means looping the kids in. Other times, the parents just want to give them something and be done with it. **JACKIE:** If a parent decides to help their child with a down payment, how do they determine how much they can afford without putting their own financial future at risk? **ALEX:** I always like to run the worst-case scenario. What if I took a bunch of money out, paid a lot in taxes and it hurt me for the rest of my retirement? I still want to make sure the plan works for the long term. If we run the worst-case scenario and the plan still works, I’m comfortable with that dollar amount. But if it shows that you could run out of money in two years and you’re 70 years old, I’m not comfortable with it. It’s about showing clients the impact. Maybe we do it, maybe we don’t, or maybe there are other ways to achieve the same goal. Prepare for the worst and hope for the best. **JACKIE:** Instead of giving money outright, some parents lend money to their children. When can a family loan make sense? Sometimes that can get tricky, emotional and messy. **ALEX:** I’ve seen it make the most sense with things like business sales. Maybe one child wants to operate the family business while the others don’t. There might be a type of loan that helps them do that, or it could essentially accelerate part of an inheritance. That’s also where things can get sticky. Other family members might say, “Well, I want something now too.” It comes down to what we’re trying to achieve. There needs to be a conversation between the parents and the kids so everyone understands what’s happening. These are the parents’ wishes, and they should explain how they’re looking at things from a fairness standpoint and why they’re making those decisions. At the end of the day, it’s still their money. They can divide it however they wish. **JACKIE:** What are some of the problems that can arise when families and money mix? **ALEX:** I think a lot of it comes down to fairness. People can perceive something one way when there may actually be a lot of reasoning and math behind the decision. On the surface, something might not seem fair. But when you consider how assets are growing or things that parents have helped with along the way, once you put everything together, it may actually be fair. Or maybe the parents intentionally want it to be unequal for a particular reason. That happens too. ### Segment 3: When Retirement Happens Earlier Than Planned **JACKIE:** Not everyone gets to pick the day they retire. Sometimes it’s picked for you because of an unexpected event, such as a layoff, company buyout or family responsibility. What should you do if your five-year retirement plan suddenly becomes a five-month plan? **ALEX:** I always like to run the numbers. It’s important to have an idea of what your budget is because we first need to know how we’re going to pay the bills in the interim. We need to live first, and then we can figure out all the other pieces. The budget is going to be the first thing. From there, we get an understanding of where we stand. Then we ask whether retirement is actually feasible. Are we looking at retirement? Are we looking at a part-time position? Do we need another full-time position? Once we determine which direction we’re leaning, we can start transitioning into the next phase. **JACKIE:** If your employer offered a large severance or early retirement package, how do you determine whether you should take the buyout? **ALEX:** Usually I see these as lump-sum amounts, some type of health insurance component for a period of time or even credits toward a pension. Whenever these options are being presented, I like to ask, “What if we didn’t get this at all? Would the numbers still work?” Again, I like to run the worst-case scenario. If retirement works without the payout, then the payout becomes a bonus on top. Maybe you receive salary for six months to a year or medical coverage for a period of time. If retirement doesn’t work without it, sometimes that package can bridge the gap until you find something else, or it can provide enough time for the numbers to begin working. **JACKIE:** If you receive a large bonus, stock award or buyout package, what kind of tax implications can that create? **ALEX:** Usually I see lump-sum severances or normal paychecks that continue for a period of time. That won’t necessarily change things significantly from a tax standpoint. But if stock options vest at retirement, for example, that can be a different story depending on how much money is involved. You could be looking at a much larger tax year. Then we have to consider whether it could affect Medicare premiums in two years or whether enough taxes were withheld so you don’t end up with a large tax bill in April, potentially with interest and penalties. We also want to determine whether some of those surplus funds should be used to pay off certain expenses or provide more of a financial buffer. We want to look at the entire situation to determine the best route. **JACKIE:** If you have to retire earlier than you planned, how do you prepare for the possibility of a longer-than-expected retirement? **ALEX:** Sometimes you can’t fully prepare for everything. When it comes to living longer, we’re probably going to continue living longer as technology and medicine advance. Hopefully, we continue finding new treatments and solutions, but those things will probably cost money too. Sometimes it comes down to taking care of yourself as much as possible and living within your means. **JACKIE:** People tend to focus on housing, travel and everyday living expenses when they plan for retirement. What are some of the unexpected expenses people underestimate? **ALEX:** Taxes. Always taxes and insurance. Those will never go away. Another area is the purchases people make when they retire. Sometimes we underestimate the amount those things are going to cost. I remember someone budgeting $15,000 to go on vacation and bring their family. It ended up costing around $40,000. They wanted to do a big trip, and after adding everything together, it was almost triple the original amount. As people do spontaneous things in retirement because there’s a milestone or they’re having a great time, that’s when I tend to see them spend a little more. Then we can run into some sticker shock. **JACKIE:** When people have these unexpected things happen, there can be a lot of emotion, stress and anxiety. After talking with you and seeing that things are going to be okay, how do they react? **ALEX:** I think there’s always that sigh of relief. Whenever someone comes in, I like to say, “Whatever you want to cover, we’ll cover. If it’s one question or a thousand questions, let’s run the scenario.” If the numbers work, I’m okay with us doing it. Once we show them the worst-case scenario and they can see that they’re okay to spend the money and it doesn’t make a material impact on their plan, they start to become more comfortable. Surprisingly, sometimes they even start spending a little more. **JACKIE:** Can we flip that and talk about the people where the numbers don’t work? How does that conversation go? **ALEX:** Sometimes it’s about asking whether we need all of the top-of-the-line things. Can we choose something more budget-friendly and still achieve the same goal? We can still do the thing you want to do, but maybe this is the budget where all the numbers work. Instead of spending double that amount, let’s trim it a little bit if possible. There are different ways to look at it. It just depends on whether someone is willing to consider those alternatives. **JACKIE:** Absolutely. And the best way to do it is to call Fuchs Financial. **ALEX:** Absolutely. **JACKIE:** That is it for this episode of *How to Retire*. If any of today’s questions hit close to home—whether it’s how much to save, how much to give or what to do if your retirement timeline changes—reach out to Fuchs Financial. No pressure, just good information and people who genuinely care. I’m Jackie Post. Plan smart, retire happy. We’ll see you next time.
