Business Innovators Radio - Pete Tychsen, President and Founder of Preservation Financial Group Discussing a Balanced Retirement Strategy

Episode Date: November 8, 2024

Pete Tychsen is the President and founder of Preservation Financial Group in Tallahassee.Pete has been helping local residents plan their retirement since 1996 and focuses on the areas of IRA/401(k) distribution, tax strategies, asset protection, and income planning. Pete’s approach has helped his clients:• Avoid needless taxation on IRAs/ retirement accounts• Protect their principal and create a secure retirement income• Avoid unnecessary risks with their retirement assets• Use Retirement Plans to build a lasting legacy for children and grandchildrenPete regularly conducts seminars on a variety of financial topics to groups including Executives, Educators, Government and State employees – as well as to the general public. Pete is the author of Retire Worry-Free: Your Guide to A Simpler, Safer Retirement.Pete is an FSU Alumni and lives in the Tallahassee area with his wife LeAnne and their five children, Andrew, Anna, Arden, Christopher, and Sarah. When not working to help secure the financial future of retirees, Pete enjoys involvement at his church, fishing, hunting, and spending time with his family.Investment advisory services are offered through Gibbs Wealth Management, LLC (Preservation Financial Group), a SEC Registered Investment Advisor. Insurance products and services are offered through Preservation Financial Group. Gibbs Wealth Management, LLC (DBA Preservation Financial Group) and Preservation Financial Group, are unaffiliated companies.Learn more: https://www.PFG12.com or https://www.preservationfinancialgroup.comThis interview includes opinions and insights that do not guarantee any specific investment outcomes. Past performance is not indicative of future results. All investing involves risk, including potential loss of principal. The IAR in this interview may benefit from certain products or services discussed. Please consider this potential conflict when evaluating any statements. This interview is for informational purposes only and does not constitute an offer to sell or a solicitation to buy any securities. Gibbs Wealth Management is an SEC-registered investment adviser. Please consult a financial professional for personalized advice.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/pete-tychsen-president-and-founder-of-preservation-financial-group-discussing-a-balanced-retirement-strategy

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have with us, Pete Tyson, who's the president and founder of Preservation Financial Group and will be talking about having a balanced retirement strategy. Pete, welcome to the program. Thanks, Mike. Glad to be here today. I appreciate it. Hey, you're welcome. I want to dive right into, obviously, having a strategy is important and having a retirement strategy is even more important, but having a balanced one.

Sounds like you've got a plan to put into place. But before we dive into that, give us a little bit of your story and background and how did you get into the financial services industry? Yeah, great question. I'll just give you the real thing. I basically, I've been in the financial services business ever since I graduated. from Florida State University in 1986. I live here in Tallahassee with my wife, Leanne, and I have five mostly grown children. What was it that spurred you on to get into the industry in 86? I just always enjoyed working with people in their finances and have always looked forward to working in that realm with people managing and preparing for their retirement. Yeah, awesome.

So I know that you talk about having a three bucket. strategy as part of your balanced retirement plan. What are the three buckets? Well, hey, if you don't mind, Mike, before I go into the three buckets, because I think they are important, I just wanted to tell a quick story that. Oh, yeah, we love stories. My point. Yeah, sure, great. So I don't know, but for you and the listeners, obviously, you've probably heard of Harry Houdini if you're R.H. And, you know, he was obviously a very, very famous magician. And after each show back in the 20s, Houdini would allow the biggest man in the room to come on stage afterward and punch him in the stomach as hard as he could. Houdini was very strong and he was always prepared for the big strong guy to punch him when he had advanced notice.

Now, during one show in October of 1926, while performing a stunt in Albany, New York, he actually fractured his left ankle. And that's important because against doctor's orders, Houdini, continued his tour and he traveled to Montreal, Canada, and he performed at McGill University on October 22, 1926. Now, after the show, he invited some students to visit him in his dressing room. Now, the magician's sore ankle was still bothering him, so he plopped down on a couch while the group chatted. Soon after, a small skinny student named Gordon Whitehead popped into the room, into the dressing room and abruptly delivered four or five terribly hard, well-directed blows to Houdini's stomach. He wasn't trying to do him any harm. He just thought he was doing a continuation of the

trick that he had just seen on stage. Now, Houdini had no time to, Houdini had no time to prepare for the punches, and this left him doubled over in extreme pain. Gordon Whitehead, the student, apologized profusely because Houdini said the trick only works if he's prepared for the punches. Houdini, that same evening, had cold sweats, fatigue. It was in great pain, as you could imagine. Soon after, he collapsed and he was rushed to the hospital. Doctors successfully removed his appendix, but after all, doctors successfully removed his appendix,

but it had already ruptured and poisoned his insides. He passed away on October 31st with his wife and his two brothers by his side. And Mike, he might be saying, Houdini was the foremost authority on surviving big risks. But the one thing he could not survive was this skinny little kids punch that he was not prepared for, that he did not see coming. That took him by surprise. And what that shows us in so many ways of life is how risky something is depends on how well you're prepared for it. not just how big a risk it is or how much damage it can cause, but whether it's a surprise or not. So, Mike, the takeaway from this story is to be properly prepared, prepared to take on things that can pack a punch.

Several things for pre-retirees and retirees that can pack a stiff punch are taking too much risk in the stock market, not having a written income plan of what assets to spend first and how long they will last, and to have an understandable financial plan versus a collection of financial products similar to a junk drawer. You know, I like the word proper that you put in there because preparation is fine. But if it's not proper preparation, it doesn't do what it is supposed to do.

Kind of like the old saying when your kids take piano lessons, you know, practice makes perfect. Well, not really because if you don't practice properly, then you're not going to become perfect. you're just going to have that same rut of wrong practice. So proper preparation for that retirement strategy. I think that is really strong. Yeah, exactly. So basically, I tell that story, just so people will be reminded, it's so important to be ready and be able to brace for something that could pack a punch. So one of the things that we do to make plans safer, more secure,

and so that they are more guaranteed to work out, is to make sure that people don't put all their eggs in one basket like Mama always talks. So we want to really talk about the three bucket strategy because I think it will give people a little bit of a retirement roadmap process on how to divide up their assets to plan for maximizing their retirement and maximizing the enjoyment. So let me just tell you a little bit about that. Yeah, go ahead. Okay. So obviously, you know, recently and recent years, the stock market has climbed higher and we can all agree, though, it has a potential to be a rollercoaster ride. Now, especially for soon-to-be retirees who expect to regularly draw a chunk of their income from a stock market-heavy portfolio. Now, if that's you,

you may want to consider these extreme highs and lows, a reminder that retirement planning isn't just about making money. It's also about protecting what you've worked so hard to build because most of us have only one shot at getting retirement right. And you can't over overlook the damage negative stock market returns can do to the longevity of your nest egg, especially as you begin taking distributions from your investment accounts. Remember, Mike, if you work for 40 years, you've been adding to those accounts and not withdrawing. That's an occasion stage.

And then if you go, once you retire, you begin to withdraw from those accounts. You're in a distribution stage, so it's all different. Now, don't get me wrong. I mean, if the market dips or dives while you're still working, it's not fun. But while you're working, you may be more likely to recover from a big loss, even though it might take a while. Because you're not pulling out the money, because you're not pulling money out of your accounts,

and you're still putting money in. So, Mike, this is the big takeaway. The closer you are to retirement, or if you are already retired, the more money you should have safe, guaranteed, and protected. because the older you and I are, we have less time. A volatile market is far more dangerous when you start to take the withdrawals. Again, because they don't have the ability to come back once the market starts to come back.

You've already taken that money out and spent it. This amongst financial professionals is called the sequence of returns risk. I can give you a real simple example just over the podcast. Just imagine that somebody saved up a million dollars in a retirement account. You may have a whole lot more. Somebody might have a whole lot less. But let's just say it was a million dollars. And they've been reading on the internet and they said,

hey, Pete, I've read I can take 4% out per year. Okay, great. They can take $40,000 out per year to supplement their Social Security and or pension and maybe have a nice income. But what if that market account, what if that stock market account collapsed by 50% percent like it has twice in the last 25 years. Let's say your nest egg went from a million down to 500,000. Well, you were taking 4% out of a million, which is 40,000 a year. What percentage would you have to withdraw now to get the same 40,000? The answer is you'd have

to take 8%. So if you start taking out that type, yeah, what were you saying? I said, wow, you wouldn't think that. You wouldn't think it would be double. Yep, because it falls in half, so you have to double the percentage. Make it put it in real layman's terms, if you start taking out big withdrawals when the market's down, you run the risk of running out of money prematurely. Basically, if negative returns occur in the early years of retirement and you need to sell some of your holdings to get the income you require, there's a good chance you'll have to sell more shares because you'll be selling at a lower price. That means you may not have enough shares left in your prematurely.

drained account to take advantage of positive returns when they cure to take advantage of positive returns when they occur in the future or when your money comes back in the future. Basically, Mike, it's the timing that matters. Unfortunately, we can't predict what the market will do in the years just before and after you retire. Here's how we determine the different buckets to use. Let's just take a hypothetical example. Bob and Mary Smith, a hypothetical couple in their 60s. They've saved about $1.1 million and are dividing the money into three different buckets. Based on what they're living on now and the things they want to do when they're no longer working, the Smiths expect they'll need about $10,000 a month

in retirement. Together, they have about $7,000 and guaranteed monthly income from pensions and Social Security, but they'll need approximately another $3,000 per month indexed for inflation by about 3% to cover their income gap. They don't want to adjust that amount and take less if the market isn't doing well, but they also don't want to deplete their savings by selling it a loss if there's a correction. So fortunately, there are strategies that can help save, savers shield their portfolio from bad retirement timing. One that can work well for savers who are in or near retirement is to separate and rebalance their assets into three different buckets. So the first bucket would be in the bank. We call that our blue bucket, money in the bank.

The money in this bucket is for immediate income needs, so it's best to keep it in low risk, liquid investments, such as checking and savings accounts. The money in the short-term bucket can be used to cover unexpected expenses or an ill-time market dip. So you don't have to sell stocks at a loss to get the funds you require. The second bucket is the protected income. It's the green bucket, protected income or medium term bucket. This is the bucket you'll mostly rely on to get through the first 10 or 15 years of retirement. This is an area where we use guaranteed accounts. Now, you'll want to use accounts that can provide safety and dependable income, but also grow your money at a higher rate than the money in the bank bucket. Several options are available.

The first is a money market account. This may work for a few, but often disappoints due to low rates to return. Also, we want this bucket to provide you with approximately 10 to 15 years of income while you spend this entire bucket down to a design zero balance. The second option is using a fixed or fixed index annuity with no management fees. This may be a better choice for those folks who want to participate in some of the upside of the stock market index, such as the S&P 500, while still having their principal guaranteed. The money in the protected income bucket is designed to protect your principal while providing you with an income for the next 15 years or so in this example,

and this in turn does two main things. Number one, it helps you avoid the risk and anxiety of running out of money prematurely in retirement because the first 15 years of income are planned, because the 15 years of income are planned for. Secondly, it buys us time to let the money in our stock market sit for 15 years or more untouched so that we don't have to worry about short-term market fluctuations. After this period, we would take a chunk from the growth bucket and dump it again into the protected income bucket later. I think protection and guarantees and having people feel like, man, I don't want to open up my portfolio statement. I'm worried about what I will see because I've watched the.

the news. You know, that's, that's got to be a huge piece of mind aspect when you're focusing on that protected bucket. Yeah, it absolutely is, Mike. And then so we've talked about the blue bucket money in the bank. We've talked about the protected income where we can do an income plan for 10, 15 or even 20 years. And then let's go over the red bucket, the money in the stock market. We think it's good to have some money in the stock market, just not maybe all of your money because of the market risk. As we said earlier, the older we get, we have less time. But think of the red bucket. The money is for long term. You know, the blue money in the bank is short term. The green money for income is medium term. And the red money in the stock market is your long term bucket. So this is, think of this bucket as your retirement plans fountain of youth. You'll use it to keep growing funds for the future and to replenish the other two safer buckets when necessary in the future. Your age and risk tolerance will help you decide what investments will work best here. But growth stocks, small cap stocks, emerging. market stocks, high-eal bonds, and index funds are common choices. Ultimately, it's up to each retiree,

hopefully with the help of an advisor, to determine how much to put in each bucket and what to invest in. With this strategy, the medium-term bring bucket typically gets the portion necessary, again, to provide you with 15 plus years of income, index for inflation, but your percentages may depend on several factors, including your legacy goals. If you're closing in on retirement, five or ten years out and your portfolio is still focused on accumulation, it may be time to talk to an advisor about changing your priorities to wealth preservation while looking at distribution. Your money can and should keep growing, but it should be invested in a way that doesn't put your retirement or your stress level at risk. I think that's huge. And

And I think that you can, you know, a lot of people would say, here's the formula or here's this template or look at this bucket. But it gets down to your stress level. And one person's risk tolerance or stress level is going to be different than the other. And I love how you say there should be some in all. You're not going to put everything into the green or the blue or the protected. That's super important. What do you do when you're working with a client to help them understand the strategy to allocate these through these buckets? because what is the percentage? Should 10% be in this one or 30%? How do you determine what those

allocations should be? Yeah, that's a great question. It's not very difficult, but we really have to have the background on how much do they have a pension? How much is it? Is it going to continue to the spouse if they pre-decease their spouse and they're married? How much are they getting from Social Security? How much do they need each month? So once we have that exact information and really want to know the goals and the dreams of what people want to do, tying into the pleasure, the fun stuff in retirement, traveling, spending time with friends and family and doing all the hobbies and things they want to do. It's not hard to build that. We just have to do a good job of asking the questions, getting the right answers, and then we designed that bucket strategy to fulfill the hopes

and dreams and the security needed for that couple or for those folks. It sounds like you almost become a life coach of sorts at the beginning, sitting down and going, hey, what does retirement look like to you? You know, are you going to travel all the time? Are you going to, you know, start a nonprofit? Are you going to all of these things which then would predicate how we're going to allocate those buckets, right? I mean, and I would even suspect that you sit down with some people that kind of go, it's kind of fuzzy. I don't know what our retirement should look like. Yeah, but it is a bit of a life coach because those are the things that people are really after, right? It's really not just about the money or the numbers or the figures. It's really about what do people really want

to do. I had a client in the other day. That was a married couple and they were taking, they were going to take over 30 family members on a cruise to Canada. They were going to take kids, grandkids, whatever. They wanted to live life now with a part of what they have saved up so hard for. And this was so important to them. So this is exciting for me to hear all these neat stories and these goals and these big trips and the things that people want to accomplish. And then we go ahead and build a plan to make sure they can accomplish that. You know, one thing you said too before is time. And you need to have plenty of time before you need this plan to deliver results. You should not go into someone six months before you retire to go, okay, I guess I better put

my retirement plan into place. You need that time ahead. to let the plan develop, flourish, and to give you chances for the hiccups in life and money and inflation and taxes and the unknowns in life to kind of hit you and then have to be able to recover. So talk a little bit about, you know, that time aspect. I think that's an important thing to keep in mind. Well, I think the time aspect is important, Mike, but if somebody, let's say they haven't prepared 10 years in advance and let's say they're already retired, we can still sit down with people who are either pre-retirees or already retired, get an assessment of what they have, what they're trying to accomplish. But again, I want to know the personal stuff, the dreams, the goals, what do they want to do with kids and grandkids and trips.

People have these unbelievable hobbies. I had one couple that used to travel out west and volunteer at Custer National Park and herd wild buffalo. That's the fun part of the business. But whether you're a pre-retiree or retiree, in actuality, in actuality, Not for everybody, not for everybody, but for a lot of people, whether you're pre-retiree, a pre-retiree or already retired, we can sit down and implement the plan from here on out. Better to do it in advance, but at any stage you're at, it's worth looking at to see if we can improve upon it. And also, I would think this too, Pete, is once you put that plan into place and let's say that you're well ahead of retirement, whatever, however many years that is, you don't just set it and forget it, let it collect dust and go, okay, there's.

there it is. You need to tweak it and polish it and review it and see if what changes need to be made to it. So how often are you sitting down with your clients to make sure that plan is dialed right in for them? I would say as often as necessary, but for on average, probably six to 12 months, but probably one year for the average person. It depends what they have. It depends how it's invested. Is it all unsafe? Is it a blend between safe and in the market? So it just depends on the person, but it's like you go to the doctor. You don't go to the doctor. You don't go to the doctor. just once you really go in for an annual checkup and more time, more often, if needed. Yeah, 100% because there are so many of those unknowns out there.

Like we've mentioned the word inflation. We've mentioned taxes. We don't know how those are going to change. Nobody does. But when they do a change and adjust, it's going to impact how far your money goes. It's going to impact the rate of return, you know, those kind of proverbial hole in the bucket for your retirement plan. When some of those holes get bigger, we need to.

to adjust and mitigate those, you can never eliminate the risk of inflation in retirement or the risk of taxes, but you can lessen them or at least at a bare bones minimum, be prepared. That's exactly right. The sooner we look at something and sooner we put in place a plan, a plan in writing, which we'll talk about having a written retirement income plan, usually the better we can do, the better we can solve problems and help people be more prepared so they can truly enjoy their retirement without any anxiety. Perfect. Well, we've been talking about having that balanced retirement strategies before we wrap up.

Are there any final thoughts that we should keep in mind on having these buckets in place? Yeah, I think one point you said I'll add on to is constantly monitoring that because the older we get, we have less time. So you may be having more money in a safe bucket. The younger you are, you can have more money in the growth bucket because you have time. You have time to let the market go up. And if it's down, you have time not to touch it. But the summary is have enough in the safe buckets, the green and the blue, to make sure that you're going to have a steady retirement income for 10, 15 or 20 years. And then we can tap into the stock market red bucket later on to replenish the safe buckets, the green and the blue.

Yes, I love it. Well, Pete, it's been a real pleasure talking with you. If someone is listening to this interview and wanting to get a little bit of guidance on structuring, their buckets, what's the best way that they can learn more and then also reach out and connect with you? Okay. Well, what they can do is they can go to our website, preservationfinancial group.com, or they can check us out on YouTube, which is balanced retirement planning. Excellent. And we will also have the link to your website in the show notes. So thank you so much for coming on. It's been a real pleasure talking with you. Thanks, Mike.

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