Let’s say you’re over 50, and you’re transitioning into retirement. You have a moderate amount of capital but not a lot of investing experience. So how do you build a solid post-career income that you won’t outlive? That’s where Jeff Massey, author of Massey On Money, comes in.

Jeff is a Certified Financial Planner™ Professional and the President of Massey and Associates Inc., a wealth advisory firm that focuses on retirement income planning among many other financial services. And as the host of the popular radio program, Massey on Money, Jeff offers his perspective and insight on wealth management strategies.

In this episode, he provides a road map that will help you on the journey towards a successful retirement.

Now, I do need to include a quick disclosure from Jeff’s firm, as he’s a fiduciary—a certified financial planner and investment advisor representative who is legally required to act in the best interest of his clients. For the sake of this podcast, we need to give disclosure to all the listeners:

“Investment advisory services offered only by duly registered individuals through Massey and Associates and AE Wealth Management, AEWM, which are not affiliated companies.”

Having said that, by the end of this episode you could feel much better prepared for your financial future, even if you aren’t a numbers person, and Jeff is going to show you how.

Jeff Massey: There were six kids, and my dad was a factory worker. He never made a lot of money. My dad built the house that we lived in, he and his friends and relatives, I mean he hand dug the foundation and they built this house, so it took them a couple of years to get it done.

We grew up in a poor family. There were four boys, two girls. The boys were in one 10×12 bedroom, and the two girls shared a smaller bedroom, and then mom and dad had their room of course.

Looking back, we really were a poor family, but in our neighborhood, there were many others like us. Big families—six, seven, eight kids—and the parents weren’t high dollar earners. So I remember growing up and always wearing hand me downs because I was the third son out of four.

I started working at a pretty young age, the first thing I spent money on was my own clothes. Those were clothes that I bought with my money and nobody else wore them before me, and that was a big deal for me.

Financial Lessons Growing Up

Jeff Massey: And when we did start working, we had to split our paycheck, no matter what we made. So my first job was at my uncle’s restaurant on a Saturday morning, and I had to drive my bicycle two and a half miles to get there by 7 AM on Saturday.

I would work for a ridiculous seven hours to get paid $14, and I had to ride back home that two and a half miles and give half of that to my mother. The deal was we would split our earnings up to $70, so the most we’d have to give mom was thirty-five bucks. Now, in today’s world that is no big deal, but as a senior in high school, I was paying my mom thirty-five bucks a week. I called that room and board.

About a year or so ago, I’d put that into an inflation calculator. That would be the equivalent of $289 per week that a senior in high school would be giving their parents.

“When you put that in perspective, that was a ton of money that I was giving my folks back then.”

And all of us had to do it and even with the help with all of us working, because I was number five out of six kids. All my older siblings did the same thing. That’s just the way it worked out.

Because we had so little growing up, I had a twisted outlook about finances and things. You know, that I would be happy once I got X. Well that is not what life is all about.

Thankfully, I got that mindset corrected probably in my early 30s, but I still have a passion about finances. My folks, when they retired, they pretty much had their house and about twenty grand and that was it.

So my passion is to help people so that when they get to retirement they are in a better place. That we could hopefully structure a plan that encompasses some assets that will provide income and some assets that would provide growth to help with inflation as you move forward in life.

Fiduciary vs. Suitability

Charlie Hoehn: Could you lay out what it means to be a fiduciary?

Jeff Massey: Well there are two different standards, if you will, in the investment industry. One is a suitability standard and one is a fiduciary standard.

So suitability. Let’s say you are an investor and you want to grow your portfolio. That is very vague, and it’s a loop hole you could pretty much drive a tractor trailer through. Any stockbroker could pretty much sell you most stocks and it would be considered “suitable.”

Now, if you go to a fiduciary and say, “Look I want to grow my portfolio,” that’s just the beginning of the statement. We have to dig into the entirety of their portfolio and see where something would best fit.

“As a fiduciary, we are required by law to work in the best interest of the client.”

So if the regulators were to show up at my office and say, “Okay why did you give that client that recommendation?” we have to be able to back it up and say, “Look here is why we felt at that moment in time that that was the best thing for them to go into.”

So two totally different standards.

Accountability for Advisors

Charlie Hoehn: You are held legally accountable to this standard. What does that mean? Like could you face getting sued, could you face jail time? I don’t know what that means.

Jeff Massey: Well, let me clarify. It’s not that a stockbroker can do anything, okay? They have much more leeway as to what they can do. Now a fiduciary is just more subject to being sued because you are supposed to be working in the best interests of the client. If something blows up on an investment or something and then the client gets injured financially, they have an easier time suing a fiduciary than they would a stockbroker.

So that’s the bigger part. Could you be sued, could you end up in jail, could you be fined, could you lose your licenses? Yeah, all of those things.

Now, anybody could end up in jail if they do the wrong thing. We’ve all seen the news. You know there are attorneys that take money from trust accounts, there are advisers that abscond with people’s investment moneys. There are stockbrokers that use a client’s account for their own fund, buying a boat, what have you.

“Thankfully, they get caught eventually.”

But think about Bernie Madoff. The reason he got away with that for so long—he was not a fiduciary, for one, but he acted as “the custodian and the financial adviser.”

So as a custodian, he’s required to provide statements, but those statements were all fictitious. For instance, the way we work, we have third party reporting. So we have my firm Massey and Associates Inc., but our client’s investment dollars are held at Fidelity.

So Fidelity provides those monthly statements to the client, not Massey and Associates Inc. Therefore, it is much more difficult for somebody with third party reporting to be able to steal from a client’s account.

I am not saying it can’t happen. I am just saying that really limits it. Thankfully, I am a certified financial planner professional, so we have a fiduciary standard in our code of ethics. But as an investment adviser representative, we have a statutory requirement to work as a fiduciary in the best interest of the client.

The way I look at it, anybody that works with your money should be working in your best interest. I don’t care what your title is or what the right requirement is, everybody that works with client’s money should work in their best interest.

To me, that’s a no brainer. I don’t know why they don’t set the rules accordingly.

Takeaways from Massey on Money

Charlie Hoehn: So I want to talk about your book, Massey on Money. You have sections on investments, certainty of income, practicing retirement this sort of thing…what is the big idea that you really want listeners to take away from this episode?

Jeff Massey: I have to give that credit to one of my clients. That’s where it came from. I had met with them, he was a client for a while, they came in for a visit, and he said, “Yeah I am practicing retirement.”

I just cocked my head to the side. I said, “What do you mean?” Because I knew he was still working.

He said, “Well, I went to my boss and I said, ‘Look I’d like to be able to work four days a week instead of five days a week.’”

Now, he’s one of those very lucky folks that works for a very large firm and had a huge pension that was the equivalent of 80% of his pay. That’s huge.

Charlie Hoehn: Wow, that world is long gone for us millennials.

Jeff Massey: Yeah, exactly right. So when you look at that, that is the equivalent of him working four days a week. So what he did, is he practiced retirement. He said, “If I can drop down to four days a week and not have to hit my assets for any additional income, then I know after doing that for a year, I can comfortably retire on just my pension without tapping into all the savings that I have built up all these years as well.”

I just thought that was a cool idea. I have talked about it on my radio show. I think it is a great thing to do. I share that with a lot of people and say, “Look you might not have an 80% of your pay pension, but conceptually you can do the same thing.”

If you are getting close to retirement, try living on what your post-retirement income will be, and make the exceptions of course for the extra gasoline you still need to buy to get back and forth to work, any clothes you need to buy for work, etc.

But then you could look at the baseline of your expenses and say, “Look if we’re only going to have this many dollars in retirement, let’s see if we can afford that.”

If we have to draw money from our assets during that period, well then how much is it? As long as it is not inordinate amount of money… if you have to take 10% from your assets, you have a spending problem. Or you have a very low asset base to draw from it, either way that is not a good outcome. So it is good to look at it.

In the book, we talk about a simple sheet, called an income and expense sheet. In about twenty minutes, you can determine what your lifestyle expense actually is from an entire year. It is really neat, and it is available on our website at masseyonmoney.com. Just slash “income expense sheet.”

“That is available for anybody to go download.”

It’s a simple form. It makes it really easy, explains how to do it in literally twenty minutes. So most people take one to twenty minutes to figure out where they are going on Saturday night, never mind their lifestyle expenses. It’s a very simple way to go about doing that.

Charlie Hoehn: I love that. and I just want to reiterate because that is a really big idea. I have never heard of this apart from taking mini retirements, which is just like a three to six months in some other area where you are not working. But the idea that you just said is practice retirement for a year without having to tap into your savings or assets, and if you have to take 10% of your assets in that year, you have a spending problem or too low of a base. Is that correct?

Jeff Massey: Yeah, that’s exactly how we would look at it. Now if we’re able to do that and draw a small percentage, 3% or 4% from your asset base, then you can probably comfortably retire.

Let me make a note there Charlie that of course everybody’s situation is different. So I am not giving investment advice here per se, we’re talking in general terms.

Charlie Hoehn: And now, you’re talking fiduciary to me Jeff. You are speaking on behalf of the client’s best interests. I love it.

Disinherit Your Uncle

Charlie Hoehn: So let’s talk about Disinherit Your Uncle. This is the third chapter of your book. What do you mean by that?

Jeff Massey: Yeah, as in Uncle Sam. As in try to reduce your tax burden in the long run. The real concern that most financial advisers have at this point is the heavy federal debt level, and it is not coming down. It is getting bigger and bigger day by day. As interest rates continue to increase at the federal level, it is going to make the repayment of the debt even more costly. So it becomes more problematic.

Now David Walker is the former comptroller of the United States under George Bush. He’s still pretty active, and he’s been beating this drum for many years. He is on record saying that income taxes must double by 2025 in order for the United States to remain solvent.

That’s a big deal, and when you look at that, we just had a tax plan adjustment. Now that could last until 2025 when it is going to expire currently, or if we got a new president in place, it could change after a presidential shift. So it really depends on what’s going to happen.

“In any case, we need to generate more revenue at the federal level to keep up with the debt service.”

Most of us feel that income taxes will be getting much higher in the future and that future is not all that far off. It’s seven, eight years out, that’s all it is. It’s anticipated that they could be much higher than they are now. So if we think that is reasonable to assume then maybe we’re better off paying taxes on IRA accounts or retirement plans that we can’t distribute out to ourselves and pay that tax today at today’s likely lower tax rates than what you are going to see throughout your retirement years.

Because now for most folks, retirement could be 20 or 30 years. So that’s what we talk about by disinheriting Uncle Sam. Yeah, he will get some taxes now, but you’re going to take away the big tax bite that is highly likely to happen, in my opinion, in the not so distant future.

Now or Later

Charlie Hoehn: So taxes are going to go up significantly within 10 years and the best way to lower that tax rate is by investing in your retirement accounts where you are paying the tax today rather than the tax of the future.

Jeff Massey: The analogy we use, would you rather pay tax on the seed or on the harvest? So if you put in $20,000 today, the time you retire that could grow to what? 30, 40? Who knows how high? So would you rather pay the tax rate today on the seed, on the $20,000, and then regardless of how big it gets be able to withdraw that as long as you play by the rules and not pay any income tax on it at all.

That’s huge. That’s a simple version for folks that are already heavily invested into a 401(k) or IRA plan, what we recommend in many cases is that we should start to draw down and transfer from the taxable IRA account, withdraw it, pay today’s tax, and then reinvest it elsewhere.

Where it can grow on a tax differed basis, so that it gets bigger and bigger in the future and you won’t have to pay taxes on it in the future. One simple thing, it could be a Roth IRA conversion.

Charlie Hoehn: I’m not familiar with this Jeff. I’m invested – I have a Roth IRA that I started in my early 20s at Vanguard. Do I have to do anything with that? I have to put it through a conversion?

Jeff Massey: No, you are in the place where people would want to be. The younger you are, the more important it is, in my opinion, to be saving on an after-tax basis. A Roth IRA, you do not subtract that contribution from your taxable income this year. Going out on a limb, but I’m guessing that you’re way under fifty years of age. You can only put in $5,500 into that Roth IRA.

If you do that, if you put in the $5,500, you will pay income taxes on that $5,500. Now, the rules are, there are two, very simple: it has to be in the Roth account for at least five years, but the bigger one for you is you have to be at least 59 and a half for the growth to come out of that account income tax free. It is setup for retirement, not to be cash in, cash out whenever you need it. That’s not what it’s established to do. It’s to save for the long run.

The younger you are, the more important it is, in my opinion, to fund those Roth IRAs.

“Maximize those contributions as early as you can in life.”

You’ll reap benefits because you have more time on your side for that to grow, and it grows on a tax-deferred basis. Playing by the rules, once you get to 59 and a half, the growth comes out income tax free.

Now, you can take out your contributions because you’ve already paid taxes on it. There are certain rules with Roth IRAs that are different from a traditional because of the tax rate aspect.

Charlie Hoehn: With 401(k)s, it’s a bit different, right? You can invest up to like $18,000?

Jeff Massey: That is absolutely correct. If you’re under age 50—actually, this year it’s $18,500 and for those 50 and over, they can add another $6,000 to that in a catch-up contribution. If you’re fifty or over, you can put in $24,500, starting this year.

Work with Jeff Massey

Charlie Hoehn: Jeff, if somebody listening to this wants to work with you or your firm, what’s the best way for them to get in touch with you?

Jeff Massey: Well, real simple. They can go to masseyonmoney.com. You can hit the contact us button and an email will come into our staff here and we can set up a visit.

We call it an opportunity conversation because we don’t know if we can help the folks that are touching base with us, but we have them in for a visit, have a conversation, and look at what they have in general.

And then at the end of that meeting, we say, “Look, we think we can provide some assistance.” Then we would take people through our proprietary process—the Massey on Money Retirement Roadmap, which we’ve trademarked.

It’s a whole process where we start with a real deep analysis of where they are currently with their investments. Our philosophy is pretty simple: you need to know where you are right now with your level of risk and, potentially, the fee structure that you’re paying, that you may or may not see on your statements before you can make solid decisions as you move forward.

“Listeners on the radio show the readers of our book can come on in for a visit.”

It is a complimentary process that we will take you through. We’ll spend a few hours actually putting all this work together and face-to-face time with the perspective client. At the end of two meetings, we would both know if there is value for the prospective client to work with us or not.

There are times where we analyze it and—this is where the fiduciary level of responsibility comes in—where we say, “Overall, you’re in really good shape, maybe if you just tweaked this over here or tweaked that which you can do on your own, you should be good to go. Maybe readdress this issue in three, four, or five years.”

You always want to revisit the plan. Just to make sure that you’re staying on track to what’s going on in the market place.

A Challenge for Listeners

Charlie Hoehn: One final question, what’s a challenge you can give our listeners? Something they can do this week that will move them in the right direction?

Jeff Massey: Maximize contributions into their retirement plans. If they are not maxing out those contributions, figure out how to do that. The sooner you can do that, the younger you are when you can max out those contributions, the far better you will be at retirement.

I want to circle back to one other topic that we hadn’t touched on, although you mentioned it, which is the certainty of income.

“Because without income, there is no retirement.”

You need the income to pay your bills. Having a certainty of income is really where we specialize, because we want to be able to structure that income for clients, and in some cases, we use insurance-based products that actually guarantee a lifetime of income.

Now, the guarantees of course are backed up by the claims paying ability of that particular insurance company, and we do work with very highly recognized names and companies that have been around for decades and decades and in some cases, over a hundred years. We feel we know how to select a good company.

When it’s appropriate, we can position some of our clients’ assets into those types of plans so that they can have that certainty of income to cover at least their baseline expenses, you know, the hard expenses. Maybe not all the discretionary spending money, but the utilities, mortgage payment if there is one, things of that nature. I think that’s an important aspect of things.

This interview as well as the book Massey on Money are provided for informational purposes only. Nothing in this interview shall be seen as providing tax, legal or investment advice. All individuals are encouraged to consult a professional regarding their own situation. Investing involves risk, including the potential loss of principal.  Any references to protection, lifetime income, generally refer to fixed insurance products, never securities or investment products.  

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Massey and Associates, Inc. are not affiliated companies.