Joseph DiSalvo and Marie. L. Madarasz have teamed up in the new book, Income for Life: The Retiree’s Guide to Creating Income from Savings. As you’ll see in this interview, Joe and Marie are experts at conveying the things we really need to be thinking about as we plan our retirement, including not just how we will save but also how we will allocate that money during our retirement years.
As they say in this interview, so many of us are caught up in the mindset of saving for retirement like our parents did but really, the game has changed. I took a lot away from this interview and I hope you will too.
Nikki Van Noy: Thank you both so much for joining me.
Marie. L. Madarasz: Thank you, Nikki.
Joseph DiSalvo: Thanks, Nikki.
Nikki Van Noy: I’m going to give you both the opportunity to introduce yourself quickly to let listeners know who you are. Marie, we’ll start with you.
Marie. L. Madarasz: My name is Marie Madarasz, I’m a wealth advisor here at Quest Capital and Risk Management and I’m excited to talk about the book that we wrote.
Joseph DiSalvo: My name is Joe Disalvo. I’ve been in the business for 25 years at this point in time, but I think I speak for both of us when I say we really do love what we do every day. You not only get to make a living, but you get to do the right thing for people along the way with something that’s pretty important.
Marie. L. Madarasz: Absolutely.
Nikki Van Noy: That makes sense. What made you guys want to write this book?
Marie. L. Madarasz: I think we had a pretty strong why. We realized that people need this information. There is an entire generation of baby boomers. They’re retiring at a large rate and for the most part, they’re the first generation who had to self-fund their retirement, meaning that the majority of us don’t have pensions.
Not only did we have to save for our own retirement but now we’ve got to figure out how do we best use those savings to create an income for the rest of our lives, to be able to have that income grow. Not only do people not understand how to create a personal portfolio but they really are getting no guidance on how to use those savings, and how to withdraw from those savings to now support their retirement.
For most people, they have worked hard, and they sacrificed a lot for that money. They really want to do the right things and have the best secure retirement that they can.
Joseph DiSalvo: I guess I would also add in, I think that we both believe that the majority of the financial services industry underserves the consumer. When I say they underserve the consumer, the majority, there are some great practitioners out there, don’t get me wrong, but the majority of them don’t really do robust planning for their clients, they do some watered-down version of planning, really just designed to sell a product, if you will.
When you think about this phase of a person’s life, it is arguably the most important phase, from a financial perspective, that they’re ever going to go through because the paycheck stops and they’re no longer saving and investing for the future. They are actually taking money out and having to grow that asset base for the future, so you know, planning is key.
And boy, are we seeing in the current environment how important planning is.
Unique Risks in Retirement
Nikki Van Noy: Absolutely. You know, a couple of really interesting things came to mind, one of them is Marie, as you were talking, you were talking about this idea of withdrawing from retirement funds and it seems to me like most of the conversation around retirement has to do with saving.
Talk to me about why the way in which we withdraw from these funds is so important?
Marie. L. Madarasz: You know, that’s interesting, we talk a lot in the book about unique risks that come to play once you’re in retirement. When you’re in those savings years, there’s market risk, that’s the market going up and down, that’s a big risk, but at the same time, you’re continually saving and you have a lot of time to recover from whatever the markets do.
Once you’re retired, how you go about taking money out of your portfolio in a large part dictates how much income you’re going to have and how much longer that income is going to last. All of a sudden, when you’re in what we call the distribution phase, some unique risks come online.
There’s withdrawal risk. Withdrawal risk is how you take money out of a portfolio in environments like we’re seeing right now, when the markets have fallen. Because when you start needing to withdraw from a portfolio and you haven’t planned in advance for this, you are now locking in losses in sometimes an irreversible way. The math to getting back to even becomes difficult.
You also have to start thinking about inflation. A lot of us, in the working years, weren’t–we didn’t notice the creep up of the prices of different goods and services. But when you talk to someone who has been retired for a while and they’re on more of a fixed income, they really can feel the effects of inflation.
You need to have a plan in place to deal with that, as well as longevity risk. Not only are we living longer than any other generation, we have to plan between 20 to 30 years if not more in retirement, but we also have healthcare costs, which grow at a much higher rate than normal inflation.
Developing a plan on how to take the money out in the best way becomes vitally important.
Nikki Van Noy: You know, Joe, you mentioned a couple of minutes ago, the current environment, and I do want to take a couple of minutes to talk to you guys about that. We are obviously in such–as far as I can see–an unprecedented situation right now.
Do you have any words of guidance for people who are currently retired and may not know exactly what the best move is in this very unpredictable climate we find ourselves in?
Joseph DiSalvo: You know, it’s interesting Nikki, just the other day, we did a webinar to try to address some of those issues. We try to identify seven actionable ideas that people can act on that would really not hurt them in any way, but I think the biggest thing is, everybody’s situation is really so different. I’m going to make an assumption based upon some experience of being out in the marketplace for 25 years and data that’s out there.
A large majority of the population does not have a formal retirement income plan. I guess, if I have to say what’s the one thing that you should or should not do, that one ‘should not’ would be, I would not be reacting to what’s going on right now. It’s normal when we get stressed and anxious and scared, my word is disoriented, in an environment like this to feel like we’ve got to do something, but a lot of times, people have all the best intentions of doing something with their money and they don’t understand that usually by reacting in an environment like this, they’re probably hurting themselves long term.
I would say, don’t be reactionary, “Do not do.” I think a lot of people are feeling like they should be doing something.
Then the second thing, if the coronavirus has done one thing, really from a personal financial planning point of view, regardless of age, but especially for those people that are about to retire or already retired, I think if you have a plan, really go back and reevaluate that plan in the coming weeks, in the coming months.
If you don’t have a plan, the second thing I would say is get yourself a plan. Our book is our process–our process of creating a retirement income plan for people that are either recently retired, retired, or about to retire. Marie and I plan on, as part of our book launch, we are very committed to creating the book on video.
We’re going to be building out a video library in the coming weeks, and in the coming months that will address every facet of retirement income planning. Everything that’s in the book will be in this video library and other issues that are beyond the scope of the book but that are important to soon to be or current retirees will also be in that video library.
Nikki Van Noy: So cool. I understand this is early days, but do you guys know where those videos will live, so that listeners can find them when they come out?
Joseph DiSalvo: Yeah, we’re going to, I believe, and Marie, you can correct me if I’m wrong because Marie understands this a little bit better, but I believe we’re going to host them on YouTube. There will be links from our website and the website is www.incomeforlifebook.com–there will be links that will take you to YouTube. I guess our intention is that we will create almost a folder system so that if you want information about tax planning and retirement, there will be a tax folder.
If you want information about the five unique risks to retirees, there will be a folder for that and in that folder will be the corresponding videos that you can pick and choose or watch in whatever order you want to watch them in.
The Rules Have Changed
Nikki Van Noy: Very cool, I love that you guys. While I have you here, I want to dive into a couple of more general topics. The first of which is that you talk about getting in the right mindset as you come into preparing for retirement. What kinds of things should people be thinking about when it comes to getting into that mindset?
Joseph DiSalvo: I think probably the biggest thing that we see where people are not helping themselves is that they take general rules of thumb, general adages, and try to overlay those on their retirement income planning.
For example, there is the mindset of somebody that’s about to retire saying that they have to protect principles, so they are going to get very conservative in their investment approach.
We understand when somebody says that. On the flip side, the focus really needs to be, how do I protect my purchasing power? Because somebody that’s going to retire today, let’s say they have a small pension, they’ve got Social Security, and they need $80,000 to come out of their savings on an annual basis.
This is not an opinion–this is all just fact. If they do what the general rule of thumb says, they will be in a position where they will be going into principle on a year by year basis because they’ve invested their money too conservatively. Nobody wants to do that.
If they explore why conventional wisdom doesn’t make sense and they get themselves educated, they will invest that money in an entirely different way. They will deal with and manage effectively the protection of principle and the protection of their income in the short term.
But they will also be effectively dealing with the other risks, which are going to be inflation risk–How do I keep my paycheck growing, although I’m not working any longer?–and longevity risk, which is going to address really number one, the increasing cost of healthcare as we age and number two, what happens if I live to one hundred?
We all know people that are in their 90s at this point in time. I think the biggest mistake that we see is they come in with a preconceived set of ideas based upon rule books that apply to their parents, and they don’t know what they don’t know. That’s true of all of us. They don’t know how to ask the right questions of their service providers to get better answers.
Marie. L. Madarasz: Yeah, I would agree with that. I would say, the number one mindset is hopefully people will realize that they need to get educated on things they have not gotten knowledge on before because it’s not our parent’s retirement. The rules have changed.
Nikki Van Noy: Fascinating. Speaking of that, what do you guys have to say about Social Security, which obviously is something our parents have, and it seems like it’s in question if that will be on the table for us when retirement rolls around.
Joseph DiSalvo: You know, the system definitely has its challenges, it does. It’s kind of an interesting question as we look at this two trillion-dollar stimulus package that’s rolling out today. We just keep racking up the bills but the most recent facts are, and I’m kind of going from memory here a little bit Nikki, but the most recent facts that come from, I forget the governmental department and I can get the governmental department if we need to get it, but basically, what the actuarial studies tell us is that somewhere around 2029, 2030, we will go to 76% funded.
What that means is, let’s say in the year 2030, 76% of promised benefits are funded. We have a 24% deficit. We can’t take a 24% deficit lightly. But there are any number of fixes when you read the report.
I think the bigger issue with a lot of things in this country today is that our leaders kick problems down the road so that they won’t have to deal with it. If I’m going to really answer the way I want to answer, in today’s environment and at some point, we will have to make some hard decisions.
However, the whole notion of the system going bankrupt, according to the actuarial studies that are done around this, that’s a little bit more media hype than anything else. The media has a responsibility here and the media does not play their cards right in a lot of different ways when it comes to this and any number of other important issues that really affect people’s lives. Hopefully, I didn’t get politically incorrect there.
Nikki Van Noy: No, I think that that’s a really insightful point.
Joseph DiSalvo: Yeah.
Marie. L. Madarasz: Unfortunately, sometimes the media develops this fear in people, which makes them make not the best decisions regarding Social Security. Social Security is a very important decision and once you make it, for the most part, it’s irrevocable.
People need to make that one decision not from that conventional wisdom they hear and not from a fear-based strategy, but they need to make it in the context of an overall plan.
Joseph DiSalvo: That is such a good point because I went off on a tangent, maybe I wasn’t answering the question really, Nicki, that you asked me. But Marie makes a great point so let me quantify what Marie is really saying here. The difference between a good Social Security decision and a bad Social Security decision could easily mean hundreds of thousands of dollars of guaranteed inflation-adjusted retirement income.
You do want to get it right, to Marie’s point. Conventional wisdom fails miserably when it comes to Social Security.
Nikki Van Noy: Yeah, it’s fascinating on so many levels hearing you guys talk. One because Joe, you’re absolutely right that you’re talking about Social Security and such a more moderate way than it tends to be discussed in the media, which is very heartening actually, but also the thing that keeps occurring to me over and over again as both of you talk is retirement is so tricky because we are dealing with all of these unknown factors lying out there somewhere in the future that we simply don’t have answers to at this moment in time.
Joseph DiSalvo: No, you’re right. I go back to what we were talking about a little bit before. You know one of the greatest benefits of really developing a rigorous retirement income plan is the fact that it really provides for you a framework in how to manage the inevitable uncertainty that life is going to throw at you. Sometimes the uncertainty that life throws at you is very personal in nature. Other times, it is beyond your control, like we have right now going on with the coronavirus.
Because there are no do-overs and because it is everybody’s first and only retirement, not having a plan is just absolutely bewildering to the two of us, because how are you going to make proper decisions at different points in time? I am not just talking about when markets go down. It is any number of decision points, and they are ongoing, that need to be made in retirement to make sure that you are staying on track to get to where you want to go.
I will tell you where everybody wants to go, regardless of income or net worth, because we see this, they just want to know, “Am I going to be okay, am I going to maintain my independence? I don’t want to be a burden to the kids.” That is what they care about. I am telling you that stuff is on very wealthy people’s minds and it is on people of modest wealth’s minds as well.
A Change of Thinking
Nikki Van Noy: It’s universal. Yeah, I have to assume that you guy’s office is going to be such an interesting, probably buzzing place in the immediate future. As a Gen Xer myself, I feel like what is happening right now has really driven home this idea of uncertainty in a way that I couldn’t understand before because I haven’t really lived through it and the same with millennials. So, it seems like there will be a big push for people to try and start to figure this out and really understand uncertainty on more than just a conceptual level.
Marie. L. Madarasz: Yeah.
Joseph DiSalvo: I think it is going to be a big eye-opener for people. My oldest son is 24 and out in the world working and living in Hoboken, New Jersey. Other than his health insurance, he is totally off the payroll. He is doing all of the right things.
He called me two weeks ago and he said, “Dad do you think that it is possible that I could get laid off?” I said, “Well look, you are doing well in your job and you are doing the things that they expect of you but yes, unfortunately, buddy, you could get laid off.” So, this is an eye-opener for a lot of young people. I think it is ultimately good. I think adversity is good. Adversity makes you tough and as a parent of some millennials, I personally think that generation needs to kind of toughen up a little bit anyway. So, it is a good thing you know? The hell with it, I am going totally off-script.
Nikki Van Noy: This is all relevant right now. It really is.
Joseph DiSalvo: It is all relevant because you know, I mean geez, I look at how my kids grew up versus how I grew up. Marie and I talk about this all the time how her kids grew up because you know, Marie and I live in the same community. Our kids all know one another. How they grew up versus how we grew up is so different.
Marie always makes this analogy of a pendulum and that our parents had no idea what we were doing. For the most part, they didn’t really care as long as you are home by 6:00 for dinner. There were no cellphones, you got yourself anywhere you wanted to go and if you wanted something, you had to get the money for it. So, Marie always has this great thing. She says, “You know our parents were so far to one side and our generation was so far to the other side.”
Marie. L. Madarasz: Right, the helicopter parents.
Joseph DiSalvo: Yeah, the helicopter parents, which you know on some level I don’t think Marie and I are helicopter parents, but I will tell you, Marie always makes the point that hopefully, our kids are going to revert back to a middle ground between the extremes of who we were as parents versus the extremes of who our parents were. I think we’ll be better off for that.
Nikki Van Noy: Yeah, I agree entirely. So, I know that retirement can be overwhelming to some people if you could talk to listeners and give them one piece of this puzzle that they can start to bite off right now while it is on their mind, what would that be? What is the one little thing that they can do?
Marie. L. Madarasz: I would say before you even think about retiring, start developing a plan. People who have recently retired or are getting ready to retire and haven’t done some planning, all of a sudden they’re facing a portfolio that’s down 20 to 30%–they might not have a good framework in which to make all the decisions that are going to come upon them once they reach retirement. I think they are putting themselves in a very hard position.
Joseph DiSalvo: There are three numbers you want to get your arms around, right? We always talk about these three numbers in our workshops. This was one of the big values of writing a book and I think I speak for both of us here because I know we have discussed it ourselves many times. If the book does one thing, it helps you to get clear on how to communicate with people and from a professional level, it helps you to get clear on how to communicate with people on a level that they understand.
That is not to suggest that we are smarter, it is just that we live in this world every day and so when I say get clear on three numbers, I would put forth and I know Marie will agree with this, that most people don’t really understand how much their retirement is going to cost them on an annual basis. Now, in the book and on our website, we have tools to help with these things.
So, the first thing that I would do–we have all the spare time as we are being quarantined–I would really spend two hours and work on the budget sheets that we provide people. It is a free download off of the website.
Marie. L. Madarasz: Right. It is an Excel spreadsheet that people can just go through and it will help them track their expenses. Because as you get older in life and the money tends to not be as tight as it was in those earlier years when you were raising kids and saving for college, oftentimes people lose track of what they spend.
Joseph DiSalvo: If they can get clear on what they need to live that is step one and that is the first number you need to know. Surprisingly, although that is an easy number for us to all find out, very few people understand that number. The second number that they need to understand is–let’s say I need $100,000 a year. How is that income going to have to grow over the next 10, 20, 30 years in order for me to just keep pace with the normal cost of living increases?
I will tell you because we do this for people in real-time when they come in to meet with us for the first time, and people’s jaws drop when they realize how their income is going to have to grow. They are thinking about this, but they have never taken the time and no one has ever helped them to take the time to quantify that my $100,000 income that I need to support my lifestyle the way I like it is going to have to grow to almost $250,000 over the next 25 to 30 year. They can’t believe it.
And the next thing that they are going to say to you when you give them those numbers, they are going to say, “Well, as I get older, I am not going to be spending as much money as I am spending right now” and I always say to them, very fair point, but what you are not spending in lifestyle, we should probably be thinking about you might be spending it on health care expenses. That number, the way those expenses accelerate and grow are even higher as you might imagine than normal cost of living. So now they are feeling totally disoriented but that is an okay thing. They need to start to understand that. That is the second number.
Then the third number is what are they going to need before taxes in order to do that? This is always a head-scratcher for them because where most of them have accumulated the majority of their wealth is in pre-tax retirement accounts and they are feeling good. I’ve got a million and a half dollars saved in my 401(k) for my retirement.
But the government owns at least 25 to 30% of that money and boy is that an eye-opener for them. So, you go back to one of the things that Marie said early on, how you go about taking money out of that nest egg is critically important from an income investment and tax planning perspective.
Marie. L. Madarasz: Right, and I think it is understanding the coordination of those three planning disciplines–income, tax and, investment planning.
Joseph DiSalvo: Here is where I think the financial services community fails miserably. They want to hide behind this guise of, “Oh we can’t give you tax planning advice because the taxes and debt are guaranteed.” If you are fortunate in retirement, taxes will be your biggest expense and health care will be your second biggest expense. If you are unfortunate, health care will be your biggest expense and taxes will be your second biggest expense.
So, planning for income tax is critically important and basically the financial services community as a whole and we’ll call them all out here, the discounts, the full services, when it comes to taxes from a compliance and legal point of view, they don’t even want to talk to you about it. Good luck talking to the CPA about it. We do it all the time. I hope that this doesn’t sound too arrogant or rather too confident.
Nikki Van Noy: No, hearing you guys talk it strikes me how easy it could be as a layperson in this to fall into magical thinking. I know I’ve had several of the thoughts you guys have just said, first and foremost being, “Well, I’ll spend less in retirement.”
Marie. L. Madarasz: Especially this generation, people are retiring younger, they are retiring healthier and they are living longer. So, if you plan on spending less, you might not end up living the life that you’ve worked so hard for.
Nikki Van Noy: Absolutely, this is such powerful information. I know I am taking a lot away from this conversation. I really appreciate you guys spending the time to chat with us. Again, the book is Income for Life: The Retiree’s Guide to Creating Income from Savings. And let’s talk about where else listeners can find you outside of this book.
Joseph DiSalvo: I think next week we intend to start to shoot video to build out that library. Our goal is to be pretty rigorous about it because we just need to get done and I think that is something that we can go pretty quickly on. So, that will be a place to check it out.
We have been dabbling in webinars over the last several months. We don’t profess to be experts in how to deliver these things, but I will tell you for whatever reason and we have our own ideas, but people are attending the webinars. It is free and then we can make them available on-demand to people. So, if they can’t attend the live webinar, it is on-demand, but those have been going well so far. Once the cloud of this coronavirus lifts, we do a lot of live speaking events both for professional organizations and consumer organizations and we really hope to use the book as a platform to get more speaking engagements.
So, I think that our message is getting clearer and clearer. We are learning how to communicate that to the layperson. I don’t mean that in a derogatory way.
We think that the conversation out there has got to entirely change. It is going to change for the better in a way that puts people in a position to retire with more confidence and clarity. We don’t think we are the only people out there doing the job well.
There are other great practitioners out there but for every two or three really solid practitioners, there are seven or eight really kind of journeymen as I would call it. I hate to say it, it’s embarrassing when you think about the importance of what the industry does for people next to health care services. You tell me what’s more important? We think we’re just uniquely qualified to address this issue and I think honestly because of writing the book we are just getting better at it.
Nikki Van Noy: It is amazing how books teach you to communicate in a totally different way, it is such a big part of the process.
Marie. L. Madarasz: Yeah, we found it so, definitely.
Joseph DiSalvo: Without a doubt. I always say to Marie that I have no interest in writing another book. I mean none. But I would love to have the opportunity to rewrite that same book. The concepts and the planning strategies and techniques would not change, but I think a lot would change about prose. It was just really working together. I mean we learned so much. We learned so much in terms of communicating clearly.
Nikki Van Noy: Yeah, it is especially tough to write a book with someone else and merge two voices together. So, the fact that you guys have come out like this is amazing.
Joseph DiSalvo: Well I have a very good partner in the process I will say.
Marie. L. Madarasz: Likewise, we work very well together.
Joseph DiSalvo: But she is the better half of the equation, let’s not make a mistake about it.
Marie. L. Madarasz: I am not sure.
Nikki Van Noy: Marie, do you have anything else you would like to add?
Marie. L. Madarasz: No, I think if people are interested in some of the tools that we spoke about if they want to try and understand how to begin this process of planning retirement income, we have tools on the website, incomeforlifebook.com, and if for any reason, would like to contact us, they can contact us through that website as well.
Joseph DiSalvo: Another thing is that we’re actually going to create a video series where we would walk people through the various downloads that they can get for free.
They’re going to be able to log on and watch this video series in a certain order and when they’re done, they’re going to have what we call a back of a napkin retirement income plan. That is a great starting point for them to go to a qualified professional to really then have that next level conversation. Because the other thing they’ll get out of that whole process is knowing what are the questions that I really should be asking? Because they don’t know the questions to ask in the majority in cases.
Nikki Van Noy: That is very cool. I really like that because yeah, I think most people don’t know where to begin that at all.
Marie. L. Madarasz: No, absolutely. That is one of the reasons why we wrote the book. We realized there are a lot of questions out there and people need help. And we feel we’re uniquely qualified to answer some of those questions.
Nikki Van Noy: Beautiful. All right, Joe and Marie, thank you so much for joining us today and best of luck with the book.
Marie. L. Madarasz: Thank you very much, Nikki. It was a pleasure.
Joseph DiSalvo: Okay, thanks, Nikki.